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Source link: http://archive.mises.org/5458/origins-of-the-welfare-state-in-america/

Origins of the Welfare State in America

August 11, 2006 by

Why, asked Murray Rothbard, has government increased greatly over this century? Specifically, why has the welfare state appeared, grown, and become ever-larger and more powerful? One answer is that the development of poverty over the past century gave rise to welfare and redistribution. But this makes little sense, since it is evident that the average person’s standard of living has grown considerably over the past century-and-a-half, and poverty has greatly diminished. FULL ARTICLE


adi August 12, 2006 at 12:26 am

Is this Rothbard’s explanation kind of Special Interest Group Theory of the Government’s Expansion ? Economic progress can bring new resources which can then be redistributed if special interest groups have taken commanding role.

Members of the groups have build their own “social capital” and expertise concerning “problems” which they are campaigning to remove. You are in the very powerfull position if you are given the chance to define the problems and resources to handle them. Group members become in the end unquestioned authorities on their field.

Ultimate result is of course that there is no border which govt expansion can’t cross since we can always find new social issues which are needed to “handle”. All you need is a collectivist approach to issues concerning societies.

David C August 12, 2006 at 12:29 pm

I can’t renember where I saw this, but I wish to sum up a theory I had herd a while back …

1) Arround 1900, Germany decided that they wanted to become an empire like Britian. And so they started building a fleet of military ships, and created an inflationary monitary policy to accomidate this.

2) This disgrunteled the British greatly. First, it threatedned their military supremecy, and second – they were leveraged in debt and couldn’t handle a challenge to their monopoly. They started to expand their fleet too, and also used an inflationary monitary policy.

3) The US with a stable gold system, presented a great threat to the banks and financial interests of Europe and their inflationary monitary policies. Before long there was huge amounts of financial and political pressure to do something about about the independent banking system in the US. Some powerfull and wealthy interests in the US were also more than happy to accomidate this pressure – as the thought of controlling the US financial system was very appealing to them.

4) Eventually this political and financial pressure won out. Centralized banking was established, and not long after an expansionary credit policy was adopted. Which also eventually led to the great depression.

5) In a normal economy. There is a fixed amount of money, and this fixed amount of money creates political and economic pressures to minimize the welfare state. In a fixed monitary system, everyone feels the pressure – from the sole taxed worker, to the mass industries that lose business and commerce. Paper money servs as a release valve for this pressure. In a paper monitary system, the wealthy who are first in line for credit and opportunity never get to experience this pressure, and the natural tendancy of the wealthy and powerfull cultures to oppose the welfare state is watered down.

In sum, the US populace probably always had tendencies to distribute wealth, but they never manifested because the wealthy acted as a counter-balance and a free people have no reason to feel discontent over the wealthy. But with a paper fiat system and the instability caused by the great depression (that it caused). The counter-balances to these pressures in the upper clases were killed, and the resentment in the lower classes was inflamed – pretty much pre-destining the US down a path of ever greater credit creation and an ever greater welfare state.

John C. Randolph March 27, 2011 at 11:50 am

In a free economy, there isn’t a fixed amount of money (and credit), but the money can’t be simply conjured into existence by editing an entry in a computer database. Gold has to be mined, refined and minted. Money in the free market will rise and fall in value relative to other goods, according to supply and demand.


N. Joseph Potts August 12, 2006 at 9:05 pm

The correlation between (previous) economic growth and the development of a welfare state strikes me as undeniable. Of course, correlation does not establish causation, but it seems hard to deny that (previous) economic growth is at least NECESSARY for the development of a welfare state, if not SUFFICIENT to cause one.

It’s a bad thing coming from a good thing, sort of like marriage being necessary for divorce.

pb August 13, 2006 at 8:30 am

As much as I love Rothbard, I didn’t like this piece. I wish he had stuck to the evolution of the ideas and where they came from rather than playing hop scotch with the people involved in a superficial way. I almost felt that I was reading an essay based on guilt by assosciation with a touch of guilt by sexual orientation thrown in. His short biographical sketches explained nothing.If ideas matter, he should have stuck to the ideas and mentioned people only where necessary.

adi August 13, 2006 at 11:48 am

pb is probably right that “LESBIAN-FEMINIST-SUFFRAGETIST-SOCIALIST” theory is not a very good explanation to founding of a modern welfare state. I dont personally know any homosexuals and even if I knew one who is also socialist, it doesnt prove that the all are.

My own special interest group based explanation seems to be a good one, but I dont if it is a water proof.

Nick Bradley August 14, 2006 at 1:22 pm

David C,

You’re completely overthinking the issue. The big East Cost banks that had heavy interaction with European bankers liked the state protection and cartelization on the continent. In order to stamp out the wild-cat banks in the West, the Big Banks lobbied to set up an enormously complex monetary system that benefitted already-established banks under the noses of the public.

As for the welfare state, much of it grew out of WWI. Big business liked the power they had under the war-era cartels and sought to continue to enjoy their status.

An opportunity to erect a complete welfare state presented itself when the new monetary system began to collapse in the late 1920s. Both parties demagouged the issue, each calling for different types of government regulations to “tame the free market”. Unfortunately, the Left-Corporatists beat out the Right-Corporatists in the 1930s and the welfare state was born.

I don’t have a very good explaination for the Great Society programs, however. Government spending on welfare began to increase well before Vietnam. Perhaps it was the New Right caving in and accepting parts of the New Deal in order to win the Cold War gave the Left room to grow. Who knows?

Reactionary August 14, 2006 at 1:57 pm

“As much as I love Rothbard, I didn’t like this piece. I wish he had stuck to the evolution of the ideas and where they came from rather than playing hop scotch with the people involved in a superficial way.”

Ideas originate from people; they don’t just pop out of the ground. Rothbard’s analysis is accurate and appropriate, and greatly at odds with the politically correct view of people as tabula rasa.

Contrarian August 15, 2006 at 10:11 am

Yes, ideas originate from people. People with an agenda. All Rothbard is pointing out is the background of the people who fostered the welfare state. If they share a common background, then perhaps that motivates their agenda. No one acts without a reason.

If “LESBIAN-FEMINIST-SUFFRAGETIST-SOCIALIST” was the motivation, covering up the background doesn’t change the facts, it only hides them from scrutiny. History should be the study of facts, not the supplanting, hiding, or revision of them. Events do not stand by themselves–events are created by people acting according to beliefs. You have to understand the people and their beliefs to see how history was made.

But why complain about “LESBIAN-FEMINIST-SUFFRAGETIST-SOCIALIST” when you could worry about the anti-catholicism mentioned or other issues mentioned? Why is it that some people are anxious that “LESBIAN-FEMINIST-SUFFRAGETIST-SOCIALIST” not be mentioned as a motivation for being a change agent? Is it false? If so, then we should point that out as a matter of veracity. Is it true? Then I don’t see any problem with pointing it out a long with the rest of the facts. Why is it so important to hide the background and motivation of historical figures if they happen to be “LESBIAN-FEMINIST-SUFFRAGETIST-SOCIALIST”?

Steve Bartin August 12, 2010 at 9:31 pm

Rothbard’s piece on the origins of the welfare state is masterful. When the statist ideologues hooked up with the Morgan-Rockefeller cartelists: laissez-faire was in decline. Regulations, taxes, and licenses all help established interests limit supply and raise prices. Rothbard has provided a valuable history here on why America has become a rent seeking society. Obviously, the typical establishment historian doesn’t grasp or like Rothbard’s conclusion. One wonders how many historians understand basic microeconomics?

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