CHAPTER 35 THE WELFARE PRINCIPLE VERSUS THE MARKET PRINCIPLE
1. THE CASE AGAINST THE MARKET ECONOMY
The objections which the various schools of social politique raise against the market economy are based on very bad economics.
They repeat again and again all the errors that the economists long ago exploded.
They blame the market economy for the consequences of the very anti-capitalistic policies which they themselves advocate as necessary and beneficial reforms.
They fix on the market economy the responsibility for the inevitable failure and frustration of interventionism.
These propagandists must finally admit that the market economy is after all not so bad as their unorthodox doctrines paint it.
It delivers the goods. From day to day it increases the quantity and improves the quality of products.
It has brought about unprecedented wealth.
Health.
But, objects the champion of interventionism, it is deficient from what he calls the social
point of view.
It has not wiped out poverty and destitution.
It is a system that grants privileges to a minority, an upper class of rich people, at
the expense of the immense majority.
It is an unfair system.
The principle of welfare must be substituted for that of profits.
We may try, for the sake of argument, to interpret the concept of welfare in such a way that
its acceptance by the immense majority of non-ascetic people would be probable.
The better we succeed in these endeavors, the more we deprive the idea of welfare of
any concrete meaning and content.
It turns into a colorless paraphrase of the fundamental category of human action, namely
the urge to remove uneasiness as far as possible.
As it is universally recognized that this goal can be more readily and even exclusively
attained by social division of labor, men cooperate within the framework of societal
bonds.
Social man, as differentiated from autarkic man, must necessarily modify his original
Social-biological indifference to the well-being of people beyond his own family.
He must adjust his conduct to the requirements of social cooperation, and look upon his fellow
men's success as an indispensable condition of his own.
From this point of view, one may describe the objective of social cooperation as the
realization of the greatest happiness of the greatest number.
Hardly anybody would venture to object to this definition of the most desirable state
of affairs and to contend that it is not a good thing to see as many people as possible
as happy as possible.
All the attacks directed against the Bentham formula have centered around ambiguities or
misunderstandings concerning the notion of happiness.
They have not affected the postulate that the good, whatever it may be, should be imparted
to the greatest number.
However, if we interpret welfare in this manner, the concept becomes meaningless.
It can be invoked for the justification of every variety of social organization.
It is a fact that some of the defenders of Negro slavery contended that slavery is the
the best means of making the Negroes happy, and that today in the South, many whites sincerely
believe that rigid segregation is beneficial no less to the colored men than it allegedly
is to the white men.
The main thesis of racism of the Gabinot and Nazi variety is that the hegemony of the superior
races is salutary to the true interests even of the inferior races.
A principle that is broad enough to cover all doctrines, however conflicting with one
another, is of no use at all.
But in the mouths of the welfare propagandists, the notion of welfare has a definite meaning.
They intentionally employ a term, the generally accepted connotation of which, precludes any
opposition.
So decent man likes to be so rash as to raise objections against the realization of welfare.
In arrogating to themselves the exclusive right to call their own program the program
of welfare, the welfare propagandists want to triumph by means of a cheap logical trick.
They want to render their ideas safe against criticism by attributing to them an appellation
which is cherished by everybody.
Their terminology already implies that all opponents are ill-intentioned scoundrels eager
to foster their selfish interests to the prejudice of the majority of good people.
The plight of Western civilization consists precisely in the fact that serious people
can resort to such syllogistic artifices without encountering sharp rebuke.
There are only two explanations open.
Either these self-styled welfare economists are themselves not aware of the logical inadmissibility
of their procedure, in which case they lack the indispensable power of reasoning, or they
have chosen this mode of arguing purposely in order to find shelter for their fallacies
behind a word which is intended beforehand to disarm all opponents.
In each case, their own acts condemn them.
There is no need to add anything to the disquisitions of the preceding chapters concerning the effects
of all varieties of interventionism.
The ponderous volumes of welfare economics have not brought forth any arguments that
could invalidate our conclusions.
The only task that remains is to examine the critical part of the welfare propagandists'
Work, Their Indictment of the Market Economy.
All this passionate talk of the welfare school ultimately boils down to three points.
Capitalism is bad, they say, because there is poverty, inequality of incomes and wealth,
and insecurity.
2.
Poverty.
We may depict conditions of a society of agriculturists in which every member tills a piece of land
large enough to provide himself and his family with the indispensable necessities of life.
We may include in such a picture the existence of a few specialists, artisans like smiths
and professional men like doctors.
We may even go further and assume that some men do not own a farm, but work as laborers
on other people's farms.
The employer remunerates them for their help and takes care of them when sickness or old
age disables them.
This scheme of an ideal society was at the bottom of many utopian plans.
It was, by and large, realized for some time in some communities.
The nearest approach to its realization was probably the commonwealth which the Jesuit
Padres established in the country which is today Paraguay.
There
Society is that the increase in population must result in progressive poverty.
If the estate of a deceased farmer is divided among his children, the holdings finally become
so small that they can no longer provide sufficient sustenance for a family.
Everybody is a landowner, but everybody is extremely poor.
Conditions as they prevail in large areas of China provide a sad illustration of the
misery of the tillers of small parcels.
The alternative to this outcome is the emergence of a huge mass of landless proletarians.
Then a wide gap separates the disinherited paupers from the fortunate farmers.
They are a class of pariahs whose very existence presents society with an insoluble problem.
They search in vain for a livelihood.
Society has no use for them.
They are destitute.
When in the ages preceding the rise of modern capitalism, the statesmen, philosophers and
laws referred to the poor and to the problems of poverty, they meant these supernumerary
Laissez-faire and its offshoot, industrialism, converted the employable poor into wage earners.
In the unhampered market society, there are people with higher and people with lower incomes.
There are no longer men who, although able and ready to work, cannot find regular jobs
because there is no room left for them in the social system of production.
But liberalism and capitalism were, even in their heyday, limited to comparatively small
areas of Western and Central Europe, North America and Australia.
In the rest of the world, hundreds of millions still vegetate on the verge of starvation.
They are poor or paupers in the old sense of the term, supernumerary and superfluous,
A Burden to Themselves and a Latent Threat to the Minority of Their More Lucky Fellow
Citizens
The penury of these miserable masses of, in the main, colored people, is not caused by
capitalism, but by the absence of capitalism.
But for the triumph of laissez-faire, the lot of the peoples of Western Europe would
have been even worse than that of the Coolies.
What is wrong with Asia is that the per capita quota of capital invested is extremely low
when compared with the capital equipment of the West.
The prevailing ideology and the social system, which is its offshoot, check the evolution
of profit-seeking entrepreneurship.
There is very little domestic capital accumulation and manifest hostility to foreign investors.
In many of these countries, the increase in population figures even outruns the increase
in capital available.
It is false to blame the European powers for the poverty of the masses in their colonial
empires.
In investing capital, the foreign rulers did all they could do for an improvement in material
well-being.
It is not the fault of the whites that the Oriental peoples are reluctant to abandon
and their traditional tenets and abhor capitalism as an alien ideology.
They will very soon have succeeded in freeing themselves entirely from foreign domination.
Then they will probably turn toward various brands of regimentation and totalitarianism.
These will not solve their economic problems and will not make their masses more prosperous.
As far as there is unhampered capitalism, there is no longer any question of poverty
in the sense in which this term is applied to the conditions of a non-capitalist society.
The increase in population figures does not create supernumerary mouths, but additional
hands whose employment produces additional wealth.
There are no able-bodied paupers.
Even from the point of view of the economically backward nations, the conflicts between capital
and labor in the capitalist countries appear as conflicts within a privileged upper class.
In the eyes of an Indian or a Chinese coulee, the American automobile worker is an aristocrat.
He is a man who belongs to the 2% of the earth's population whose income is highest.
Not only the colored races, but also the Slavs, the Arabs, and some other peoples look upon
the average income of the citizens of the capitalistic countries, about 12 or 15 percent
of the total of mankind, as a curtailment of their own material well-being.
They fail to realize that the prosperity of these allegedly privileged groups is, apart
from the effects of migration barriers not paid for by their own poverty, and that the
main obstacle to the improvement of their own conditions is their abhorrence of capitalism.
Within the frame of capitalism, the notion of poverty refers only to those people who
are unable to take care of themselves.
Even if we disregard the case of children, we must realize that there will always be
be such unemployables. Capitalism in improving the masses standard of living, hygienic conditions
and methods of prophylactics and therapeutics does not remove bodily incapacity. It is true
that today many people who in the past would have been doomed to lifelong disability are
restored to full vigor. But on the other hand, many whom innate defects, sickness or accidents
would have extinguished sooner in earlier days, survive, as permanently incapacitated
people.
Moreover, the prolongation of the average length of life tends toward an increase in
the number of the aged who are no longer able to earn a living.
The problem of the incapacitated is a specific problem of human civilization and of society.
Disabled animals must perish quickly.
They either die of starvation or fall prey to the foes of their species.
Savage man had no pity on those who were substandard.
With regard to them, many tribes practiced those barbaric methods of ruthless extirpation
to which the Nazis resorted in our time.
The very existence of a comparatively great number of invalids is, however paradoxical,
A Characteristic Mark of Civilization and Material Well-Being.
Provision for those invalids who lack means of sustenance and are not taken care of by
their next of kin has long been considered a work of charity.
The funds needed have sometimes been provided by governments, more often by voluntary contributions.
The Catholic orders and congregations and some Protestant institutions have accomplished
marvels in collecting such contributions and in using them properly.
Today there are also many non-denominational establishments vying with them in noble rivalry.
The charity system is criticized for two defects.
One is the paucity of the means available.
However, the more capitalism progresses and increases wealth, the more sufficient become
the charity funds.
On the one hand, people are more ready to donate in proportion to the improvement in
their own well-being.
On the other hand, the number of the needy drops concomitantly.
Even for those with moderate incomes, the opportunity is offered by saving and insurance
policies to provide for accidents, sickness, old age, the education of their children,
and the support of widows and orphans.
It is highly probable that the funds of the charitable institutions would be sufficient
in the capitalist countries if interventionism were not to sabotage the essential institutions
of the market economy.
Credit expansion and inflationary increase of the quantity of money frustrate the common
man's attempts to save and to accumulate reserves for less propitious days.
But the other procedures of interventionism are hardly less injurious to the vital interests
of the wage earners and salaried employees, the professions and the owners of small-sized
business.
The greater part of those assisted by charitable institutions are needy only because interventionism
has made them so.
On the other hand, inflation and the endeavors to lower the rate of interest below the potential
The second defect charged to the charity system is that it is charity and compassion only.
The indigent has no claim to the kindness shown to him.
He depends on the mercy of benevolent people, on the feelings of tenderness which his distress
arouses.
What he receives is a voluntary gift for which he must be grateful.
To be an almsman is shameful and humiliating.
It is an unbearable condition for a self-respecting man.
These complaints are justified.
Such shortcomings do indeed inhere in all kinds of charity.
It is a system that corrupts both givers and receivers.
It makes the former self-righteous and the latter submissive and cringing.
However, it is only the mentality of a capitalistic environment that makes people feel the indignity
of giving and receiving alms.
of the field of the cash nexus and of deals transacted between buyers and sellers in a
purely businesslike manner, all inter-human relations are tainted by the same failing.
It is precisely the absence of this personal element in market transactions that all those
deplore who blame capitalism for hard-heartedness and callousness.
In the eyes of such critics, cooperation under the do-ut-des principle dehumanizes all societal
bonds.
It substitutes contracts for brotherly love and readiness to help one another.
These critics indict the legal order of capitalism for its neglect of the human side.
They are inconsistent when they blame the charity system for its reliance upon feelings
of Mercy.
Feudal society was founded on acts of grace and on the gratitude of those favored.
The mighty overlord bestowed a benefit upon the vassal, and the latter owed him personal
fidelity.
Conditions were human insofar as the subordinates had to kiss their superiors' hands and to
show allegiance to them.
In a feudal environment, the element of grace inherent in charitable acts did not give offense.
It agreed with the generally accepted ideology and practice.
It is only in the setting of a society based entirely upon contractual bonds that the idea
emerged of giving to the indigent a legal claim, an actionable title, to sustenance
against society.
The metaphysical arguments advanced in favor of such a right to sustenance are based on
the doctrine of natural right.
Before God or nature, all men are equal and endowed with an inalienable right to live.
However, the reference to inborn equality is certainly out of place in dealing with
the effects of inborn inequality.
It is a sad fact that physical disability prevents many people from playing an active role in
social cooperation.
It is the operation of the laws of nature that makes these people outcasts.
They are stepchildren of God or nature.
We may fully endorse the religious and ethical precepts that declare it to be man's duty
to assist his unlucky brethren whom nature has doomed.
But the recognition of this duty does not answer the question concerning what methods
should be resorted to for its performance.
It does not enjoin the choice of methods which would endanger society and curtail the productivity
of the human effort.
Neither the able-bodied nor the incapacitated would derive any benefit from a drop in the
quantity of goods available.
The problems involved are not of a praxeological character, and economics is not called upon
to provide the best possible solution for them.
They concern pathology and psychology.
They refer to the biological fact that the fear of penury and of the degrading consequences
of being supported by charity are important factors in the preservation of man's physiological
equilibrium.
They impel a man to keep fit, to avoid sickness and accidents, and to recover as soon as possible
from injuries suffered.
The experience of the social security system, especially that of the oldest scheme, the
German, has clearly shown the undesirable effects resulting from the elimination of
these incentives.
No civilized community has callously allowed the incapacitated to perish.
But the substitution of a legally enforceable claim to support or sustenance for charitable
relief does not seem to agree with human nature as it is.
Not metaphysical prepossessions, but considerations of practical expediency make it inadvisable
to promulgate an actionable right to sustenance.
It is, moreover, an illusion to believe that the enactment of such laws can free the indigent
from the degrading features inherent in receiving alms.
The more open-handed these laws are, the more punctilious must their application become.
The discretion of bureaucrats is substituted for the discretion of people whom an inner
voice drives to acts of charity.
Whether this change renders the lot of those incapacitated any easier is hard to say.