Origins of the American Welfare State

"Back where I come from, we have universities, seats of great learning, where men go to become great thinkers. And when they come out, they think deep thoughts and with no more brains than you have."
--Wizard of Oz

Interesting article by Rothbard (1996) tracing the origins of the welfare state in the US. He dismisses poverty (general standard of living increased), growing income disparity (income spreads narrower here than in 3rd world), alienization from industrialization and urbanization (cities tended to facilitate local community in 1800s/early 1900s; no correlations found between industrialization and social insurance programs), unionization (max penetration was 5-6% of workforce) as primary factors.

As Rothbard is prone to do, he first identifies groups whose economic interests were promoted by growing the welfare state, and then works his way backwards. Two groups in particular gained from the movement. One was a growing legion of intellectuals, technocrats, and the 'helping professions' that sought power, prestige, subsidies, jobs as well barriers to entry in their fields in the form of licensing. The other group was big business who, having failed to gain monopoly power in the free market, turned to government for subsidies, contracts, and, especially, forced cartelization.

At the turn of the 1900s, Rothbard observes, the interests of these two groups coalesced and overlapped, thereby creating a powerful coalition of weath and opinion-making that accelerated growth of the welfare state in the US.

Heading back to the beginning, then, Rothbard proposes these primary factors in the run up:

Post millenial pietism (PMP). A primarily Protestant movement in the early 1800s that scorned formal church organization and, particularly in the North, encouraged believers to devote their energies toward establishing the perfect society in American thru social and political means. Early initiatives to inculcate civic virtue and obedience included prohibition laws and the first American public schools.

Unlike today, the Democrat Party was the champion of free markets, limited government, and separation of church and state at the time (it was so until being overthrown in the late 1890s by the William Jennings Bryan crowd). As the PMP movement ensured, the Democrats saw a huge influx of religious groups opposed to Yankee theocracy.

Where did the PMP folks head? Why, they ultimately gravitated to the Republican Party, promoting it as the 'party of great moral ideas.'

Big Business. In the mid-late 1800s, big business began jumping on the bandwagon of state privilege and joined the Republican coalition. Early supporters were the railroads who were dependent on government coercion for expansion and lugging a mountain of debt, and iron and steel who were chronically inefficient and dependent on tariffs to shield them from competition.

Feminist movement. What began as an offshoot of the PMP movement among mid- to upper-class women, particularly in the North, led to 'Woman's Crusades' for suffrage, prohibition, and statist programs for government intervention and social welfare. By the 1880s, feminist groups were pushing mandatory work rules, government shelters for the children and poor, federal aid for education--particularly for mothers, and government vocational training for women.

Progressive movement. Driven by a cohort born around 1860, the PMP movement was losing its religious undertow and becoming secularized by the late 19th century. Rothbard suggests that emphasis shifted 'more and more toward a Social Gospel, with government correcting, organizing, and eventually planning the perfect society.' (p. 205) Mix in the socialist ideas eminating out of Europe at the time, and you have a powerful cocktail that became the Progressive movement.

Instrumental in the Progressive movement were academics who obtained their doctorates in socialist Germany (PhD programs were rare here until after 1900) and then returned here to teach. One of Rothbard's real strengths as a historian of political economy is his ability to trace out 'supply chains' of political influence. German trained professors and their offspring populated institutes in higher learning. The Elys, the Commons, the Deweys trained future government officials as well as rising to positions of power themselves.

Women progressives. By the late 19th century, female activism became professionalized and was expressed largely by social work. This movement particularly attracted unmarried women from wealthy backgrounds who had both time and resources to bring to the cause. A primary expression of the movement were settlement house initiatives which became magnets for government programs for social reform and change.

Rothbard traces the movement of many of these women thru the welfare supply chain built by Progressives from the early 1900s thru the New Deal. I also found it interesting how many of these people came from Rockeller, Morgan, Harriman, and other industrialist lineage.

New Deal. After the runup in welfare activities over the previous 100 yrs, the New Deal seems almost an afterthought. Rothbard demonstrates the extent to which New Deal programs were populated by individuals who had essentially been in training for State posts for many years. By this time, men were following in the footsteps of the women pioneers in welfare and social work organizations.

Social Security and big business. While Social Security was a New Deal program, coming on line in 1938, Rothbard highlights it due to its interesting assembly. In the early 1930s, big business, especially those under the Rockefeller umbrella, got behind the idea of a social insurance program. At the time, most large businesses were lugging around pension and other benefit programs for their employees. Smaller, more entrepreneurial organizations had not committed to such obligations and opposed social insurance. Big business was particularly adamant that no business escape social security tax obligations.

Hopefully you see what went on here. Big business used their support of social insurance to gain ground on the superior cost structure of smaller and  nimbler competitors. Corporatism at its finest.

Reference

Rothbard, M.N. 1996. Origins of the welfare state in America. Journal of Libertarian Studies, 12(2): 193-232.