The Free Market: Genesis of Welfare, The

The Mises Institute monthly, free with membership

July 1998
Volume 16, Number 7

The Genesis of Welfare
by William L. Anderson

Far from having been reformed, much less abolished, welfare continues to grow. The most recent example is the attempt by the Clinton administration to convince Americans that there is a "child care crisis," which can only be "solved" through expansion of government. The welfare state has become a deeply destructive but sadly unavoidable fact of life in modern society.

The longer it exists, the more acculturated people become to it and the more they regard its growth as "inevitable." That is precisely the way those who benefit from wealth redistribution would like us to think about it, in their own interest. Politicians, program administrators, and recipients of largess want to convince the taxpaying public that the welfare state is a social necessity which "humanizes" capitalism and provides a "safety net" for the most vulnerable individuals.

Is it true that the welfare state, with origins in the 19^th<D> century, became necessary because of wealth disparities unleashed by unbridled capitalism? There is no doubt that such disparities were great during the 1800s, and they were even greater before the Industrial Revolution. But what accounts for these disparities? So many, many people, were accumulating wealth to a higher degree than had been possible before. This is not an objectionable trend but a sign of growing prosperity.

The first significant push for welfare came during the beginning of the Progressive Era in the late 1800s, a time when average economic growth was the highest it has ever been in U.S. history. The second great push occurred during the 1930s after the recovery from the worst of the Great Depression had already begun. The third, and possibly the most harmful, phase came in the 1960s during a long economic expansion when President Lyndon Johnson convinced Congress to implement his "Great Society" programs.

Wrote New York Times columnist James Reston on the passage of Johnsons welfare legislation: "If the New Deal was experimentation and improvisation on a grand scale, the Great Society was a forehanded attempt to solve economic and social problems before they became critical." Thus, in his view, 1965 was a time of "preventive reform." It involved not only the problem of persuading a prosperous people to anticipate trouble, but also experimentation with new economic theories.

The underlying assumption is that a free-market economy generates poverty, a view borne of the belief that wealth can only be gained at the expense of the poor. But that is a characteristic feature of non-market economies. For example, the socialist kleptocracies of Africa feature political strongmen who are often listed among the worlds wealthiest men, despite the fact that their nations are desperately poor. (The late Mobutu of the former Zaire was typical of the dictators who regularly loot their citizenry.) It is not the free market which gave men like Mobutu their riches; rather, it is socialism and the centralization that accompanies it.

The welfare state is and always has been predicated on the lie that competition in the marketplace will mean dog-eat-dog competition everywhere else. The target has always been the industrial revolution and the mistaken belief that free-market-driven industrial growth enriches the few at the expense of the many. Economic history tells us a different story: real incomes in America grew for nearly everyone during the nineteenth and twentieth centuries, long before the modern welfare state came into existence.

Furthermore, an economy which is based upon free exchange will involve far more cooperation than one based upon government ownership and control. One of the characteristics of a socialist institution is massive and chronic shortages of even basic goods. The presence of such artificial shortages, economists tell us, means that individuals will compete with each other for those goods in non-monetary ways. For example, during the infamous "gas lines" of the 1970s-caused by government price control-some people resorted to fist fights to be able to purchase enough gasoline to power their automobiles.

On the other hand, in this supposedly "avaricious" present market for gasoline, we drive right up to the gasoline pump, fill up our gas tanks, and pay directly for our purchases. While a trip to the gas station today is rather uneventful, those of us who were driving during the energy crisis days prefer todays boredom to yesterdays adventures.

In another version of this myth, the conventional view is that agitation for the welfare state came from below. In fact, demands for welfare came not from the downtrodden but from intellectuals. As Murray Rothbard points out in "The Origins of the Welfare State," the demand for the welfare state in this country came from upper-class New Englanders who were looking to remake American society.

The beachhead for this movement was established with the Boston public school movement of 1818. According to Samuel Blumenfeld, Horace Mann and other "reformers" were searching for a way to eliminate the private (and flourishing) "dame schools" that proliferated in the Boston area at that time.

Once the reformers had convinced the general public that only government could provide a quality education for youngsters, they moved on to other ways to remake society. New crusades included abolishing child labor, abolitionism, and prohibition of alcohol. All would have varying degrees of success. Although these groups spoke in favor of the "common people," about the only role working folk played was to serve as cannon fodder for the invading Union Army (and die by the hundreds of thousands).

The radical Republicans who captured Congress during the war attempted to spread the tentacles of the welfare state into the conquered South. Among the many requirements the former Confederate states had to meet before Congress would "readmit" them into the allegedly unbreakable Union was the establishment of public school systems. Congress also created the Freedmans Bureau to confiscate property owned by slaveholders and transfer it to the newly-freed slaves. (Despite the 5^th<D> Amendment, Congress also refused to compensate former slave owners for their losses, unlike what had occurred in Great Britain when Parliament outlawed slavery. Historian R.R. Palmer called the U.S. emancipation the greatest confiscation of property in world history.)

The Progressive movement of the late 1800s and early 1900s was also shaped by east coast and midwestern elites, as Rothbard has pointed out. The influential progressives were usually socialists, such as Ida Tarbell and Upton Sinclair, and their ideas ultimately found their way into all three branches of the U.S. government. (Milton Friedman has argued that the defunct Socialist Party has been the most successful political party of this century, since all of its 1928 platform was ultimately incorporated into national law.)

With the Great Depression came the second major thrust of the welfare state, and, again, the agitators were hardly men and women "of the people." President Franklin Roosevelt and his wife, Eleanor, were bluebloods, while his "brain trust" came from the nations most elite educational institutions.

One of the "brains," Rexford G. Tugwell, admitted more than thirty years after the imposition of the New Deal that it was unconstitutional by any logical reading of that document. In fact, he even agreed that the development of the welfare state involved "tortured interpretations of a document intended to prevent them."

While the New Deal was hatched from the depths of the Great Depression, the largest expansion of the welfare state came in the 1960s and 1970s. The irony is that until John F. Kennedys "New Frontier" and Lyndon Johnsons "Great Society" programs, poverty rates were plummeting in the United States, and especially for blacks, from more than thirty-three percent in the early 1950s to less than fifteen percent by the late 1960s. In other words, "dog-eat-dog" capitalism and the philanthropic sector it created was helping to eradicate poverty on its own.

However, within a few years of the congressional capitulation to Johnsons welfare state browbeating, poverty rates stiffened and even rose slightly. At the same time, inner cities, which received large amounts of transfer payments, began to be transformed from enclaves of prosperity to an urban reservation for the nations "underclass." Indeed, along with vast increases in welfare came accompanying expansions in unwed motherhood, drug use, crime, and overall moral decay.

Although it was clear nearly from the start that the "Great Society" was a colossal failure, groups of well-dressed and well-educated suburbanites agitated for its expansion. While their stated reasons were "compassion for the poor," it turned out that the greatest recipients of this new largess were middle-class government employees. New York Citys financial crisis of the mid-1970s came precisely because city officials had managed to turn Gotham into one great welfare state, including tuition-free education from pre-school through graduate school, free hospitalization, and hundreds of other "benefits," which were financed mostly by overtaxed businesses.

The welfare state has been a colossal fraud from its inception. Its origins were shrouded in deceit, provision for the poor was always secondary to the real agenda of government domination by social elites, and the main recipients have been governments friends in the wealthy and middle classes. Far from protecting the most vulnerable in our society, the welfare state has made all of us even more vulnerable to the worst kinds of expropriation, social rot, and economic chaos.

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