 What I want to be talking about this afternoon is history and how it impinges on our classical liberal philosophy, and in particular the historiography of the Industrial Revolution. And I want to say something towards the end about the genesis of this wonderful welfare state that the Swedish Social Democrats celebrate so highly. It's a curious fact that of all the disciplines it seems that history more than philosophy or economics determines people's political views. We might consider this unfair, we might think that economics has more to say about what people should think about competition and antitrust, philosophy has more to say about what people should think about natural rights. But in fact most often it seems that it's history or interpretations of history that will influence the positions that people take. Hayek has mentioned this. And I think that we can see this in a couple of examples that we ourselves have been exposed to in the process of growing up and being educated. See if this doesn't seem familiar to you. This is how the story goes. There was at one time a period of unbridled laissez-faire capitalism, or Manchesterism as it's sometimes called, and what happened? Well then came the Robert Barron and the trusts came and the monopolies and it was only because finally government came on the scene and bridled capitalism and regulated the market that the people were saved. And it's this interpretation more than any studies of industrial organization I feel that determine what people think on questions such as antitrust. Here's another example. It happens that even after that period there was another period of unbridled laissez-faire somehow and unbridled speculation on the stock exchange and doggy-dog capitalism. And what was the result of that? The result of that was the Great Depression and it's only government regulation and government regulation of stock exchanges for instance, government fiscal and monetary management that has prevented the recurrence of something like the Great Depression. This is a view I think that people have of a certain historical episode that determines their views to a large extent. There are other examples that could be selected where people have a certain view of what happened in history and this colors their thinking on the most crucial political questions. Many people believe for instance that there was a period when again capitalism ruled unrestrainedly this led to imperialism, scramble for Africa, exploitation of third world countries. This again to the debit of capitalism, to the debit of the market as if there were no such things as in the scramble for empire at the end of the 19th century as if there were no such things as French generals and imperial Russian bureaucrats and Japanese militarists and conniving Italian politicians and British bureaucrats interested in the strategic interests of Britain throughout the world and in national prestige. It's all to the debit of capitalism. Okay. Of all the historical interpretations that people have, of all of the historical views that influence their political positions, there is one that has been the most decisive of all. This is the set of pictures that every educated person in the world carries in her head about what happened in England between 1750 and 1850 to the working class. I say this advisedly and I think it's the case. The interpretation itself started in England but then spread to the continent. It rains in America and in the schools of the third world also. Something happened there in that period of laissez-faire that was awful and that should teach us a lesson that never again will we permit this horrid thing called laissez-faire because we know what it led to. I would dare say that I am speaking to an audience that perhaps is, shall we say, a little more sophisticated on this question than most, than an audience I could select at random. But nonetheless, you too, I would guess, carry in your head pictures when I use the phrase industrial revolution, things come into your head, uncalled for automatically, that derive from this entrenched historiographical view. I'm leaving aside a few Randians who might, when I say industrial revolution, think of locomotives and the glory of man and so on. The common view, I feel sure, is this other one. And to unpackage it a bit, this is how the view goes. Before this thing called the industrial revolution, life in England was fairly simple but quite decent for the average Englishman. One thinks of pink roast beefs and Yorkshire pudding and kids gambling among the meadows. It's really nothing more than a working out of the New Jerusalem concept which is implied in William Blake's famous poem that is now a hymn of the Church of England. England was so lovely in those days. One might almost have thought that Jesus walked there. But what came then, the dark satanic mills, the dark satanic mills. And this is the view continuing now. This plague that was the industrial revolution fell upon the working class of England, battered them into the ground. Until the time came when enlightened public opinion demanded government action, government appeared on the scene again like the U.S. cavalry and American western films, tooting the horn and charging there onto the scene to save things, plus the labor unions. And then finally things became decent again. This more than anything else has conditioned people's views, I think, on politics. Maybe we're getting a sense of how important history is. And why, in George Orwell's 1984, one might say this was a novel about history in 1984. Do you remember the phrase, he who controls the present controls the past. And he who controls the past controls the future. This is what essentially is being said, and this is the core of that novel. And it's a very deep truth. I don't have very much hope in the short time that we have available of really permanently eradicating these pictures you have in your head. I don't think that a generation of scholarship could do that, even if it were taught as it should be at universities. But I would like us for a moment maybe to look at it from a different angle. Instead of that prevailing picture, let us consider, let us try to form another picture. Let us try to glimpse what life was, what the world was like in the centuries before this terrible industrial revolution, and liberalism, which was its philosophy, came onto the scene. Let's pick a date, 1750. And I've assembled a few very commonly known historical items, I didn't have to research this very much, to give you an idea of what life was like spiritually and materially for the massive people before capitalism and before liberalism changed the face of things. Try to imagine to yourself a world which is compatible with these facts. And I'm selecting these at random, both from the spiritual realm, as I say, and also from the material realm. In 1750, at the University of Salamanca, one of the great centers of learning of the Western world, it was prohibited to teach that the blood circulated in the human body because this was a terrible heresy. And we were very far from any kind of free market and ideas. The authorities ruled over human minds. Indeed, in Spain, there still existed the Inquisition. This world that was replaced by liberalism and capitalism in 1750 was a world where in the great cities of central Europe every night at a given hour, the Jews returned to their ghettos. That was the law. They were resident aliens, barely tolerated, in Koblenz, in Frankfurt, in Rome, in Venice, Vienna. You would see them go back to their area of town and that's the way the world was like. In 1740, Frederick II of Prussia called the great, probably like most politicians would call the great because it was a mass murderer, plunged the world into war and afterwards when they asked him why he said, because I want it to be talked of. He was a new king and he wanted to be talked of, very frivolous. And it was possible in this world before liberalism and capitalism to talk of war in those terms because liberalism and the liberal ideology had not yet made war into an awful thing. And now to get closer to the individual and his relationship to the material world and the material conditions of his life to take another fact from this world. In the year 1732, when he was born into a middle class family in England, a man who afterwards became Edward Gibbon, the great English historian of the decline and fall of the Roman Empire. In his autobiography he says that, in my family, several of the boys were named Edward. What happened to the family? They had some crazy Edward fetish. What is this? He said, well, the reason was, of course, obvious and that is that most of the children were going to die and Edward was the name of my father and they wanted to make sure that the father's name was kept by one of the sons. And he says, it may seem a strange thing, but it is in the course of nature that a child dies before his parents. You can find this in his autobiography. And we read that in Sweden and in Norway in those days, the peasants who, of course, were the great majority of the people, mixed the bark of trees with their grain to make bread. Now, this wasn't any sort of yuppie search for increased fiber in their diet. I mean, don't get that sort of idea. It was a consequence of their utter to us unimaginable poverty. We're used to thinking only of dark-skinned people as poor and as miserable as that. And here's the fact that I like it. Comes from the great French historian Fernand Braudel. And much of this increased knowledge of the world before industrialism does come from this school of French historians, the Annales School, who make it their business to study the fabric of society and not simply what the kings and popes are doing at the top. And Braudel points out that in 1695, it was a terrible, terrible winter. The peasants were starving and freezing and dying in their hovels. And Louis XIV, the palace of Versailles, the son king, Lois Ali, looked down and noticed that the wine had frozen in his glass. Even the king of France could not lead a simple, comfortable life of the sort that's enjoyed by the great majority of the people in the West. We read that at the end of the 18th century, a French revolutionary says, happiness is a new idea in Europe. And we read of the emphasis, of course, in the Declaration of Independence by Thomas Jefferson on the concept of the pursuit of happiness. Now for the first time, it's becoming a possibility that the majority of people, the great masses, could, if things work out right, with the right institutions, with luck, be happy. It did not occur to people in ages before. This is the world as it has existed before. And in fact, as I'll mention, a great change is coming over the scholarly world in connection with their view of what things were before and during the industrial revolution and after. However, the old view, as I said before, seems fixed, seems fixed at least for a long while. As this old view, if you think about it, really was kind of a snapshot. That is, what the old view did was say, look, these are the conditions of working people in England in 1820, 1840, whatever. The more sophisticated view takes a different approach. Because it says, for instance, a snapshot can't tell you, a single snapshot can't tell you what change occurred, whether this was better than what had gone before. A snapshot can't tell you, most importantly, any kind of answer to the hypothetical question, is this better than what might have been? The snapshot cannot sort out the factors. Okay, these people are very poor. What caused their poverty? There were other factors working at the time besides the industrial revolution, obviously. What causes their poverty? Could it be that part of that miserable condition is due to totally different or even antithetical causes and not to industrialization? Even on the narrow question of, did living conditions improve or collapse during the industrial revolution? It seems to me, and I can only give you a brief summary of the research, that the Liberals have won the case. Let me mention, by the way, that I'm simply amazed, I think all of the people from the United States and England and other English-speaking countries are amazed here with the knowledge of English of the Europeans, so that it won't be a problem if I mention a book in English for you. Well, you can see that this is a very good book. It's a small book, but it gives the debate. That is, it gives big chunks and significant excerpts from people who want to downplay any kind of advantage of the industrial revolution, who want to insist, no, all in all, it was bad for the working class. But it also gives the other side, those who want to say that all in all, it was an improvement for the British working class. It's a book published in London in 1975, and the editor, Arthur J. Taylor, and it's called The Standard of Living in Britain in the Industrial Revolution, a very straightforward title. And there, you can read in much more detail the sort of things that I'm trying to summarize now. I can only give you one part of the debate fundamentally, but you can read this, you can read other works, which are mentioned in the index, you can read other works I'm going to mention, and you can come to your own conclusion. Now, the new research that has been done on this question, Living Standards Improve or Go Down, has had its effect even on the opposition. Now, here's an author who is one of the most famous economic historians who still wants to say, no, capitalism did working people a very great wrong. He's an English historian named E.P. Thompson, and he has a great famous book called The Making of the English Working Class. And here, it's a very big book dealing with class consciousness and many different issues, but he does at one section deal with this debate. And as you can see, what he and his friends are trying to do is to shift the ground of the traditional debate. I want to quote from him. He says, it is quite possible for statistical averages and human experiences to run in opposite directions. You see that already he's trying to set up the grounds for some kind of concession. A per capita increase in quantitative factors may take place at the same time as a great qualitative disturbance in people's way of life. People may consume more goods and become less happy or less free at the same time. Okay, these are wonderful, true, very true. What is he trying to do here? He's clearly trying to discount the concession that he's about to make. And keep in mind what great concession this is, because this is from the most severe critic. You understand all these things are debated, what wages really, how much did people consume, indices are examined, and so on. So this is the most severe critic of the point of view of improvement. And this is what he says. Over the period 1790 to 1840, notice he selects the year 1840, not the year 1850, because that's going to make a difference to his argument. There was a slight improvement in average material standards. We are a long way now from J.L. and Barbara Hammond, who set the opinion of a whole generation and more, the British economic historians who said the Industrial Revolution fell like a plague on the working class of England. Okay, we're a long way from that. We have the concession that there was no collapse of living standards. There was in fact a slight improvement. Thompson says, by 1840, most people were, quote, better off, unquote, his quotes. I mean, I don't understand why you have to say, put that in quotes. I mean, they were better off, sure. Why don't you just say it? They were better off than their forerunners had been 50 years before, but they had suffered and continued to suffer this slight improvement as a catastrophic experience. Well, okay, debatable. That certainly is debatable. What he has conceded is what all along was the central part of the debate, was the theme of the contention. And that, what he surrendered, is the question of living standards. I might mention, this is now the tactic that's being taken. People who want to still continue to attack capitalism say that, okay, okay, living standards, as if that were important. What really is important is the tight network of community relationships that existed in the countryside. What is really important is the sense of independence of a boss, of a working family that tills their own land or works 18 hours at domestic industry, 18 hours a day domestic industry. Those sort of things are more important than mere material standards. The reductioid absurdum of this is an American professor named Iggers, who happens to teach at the University of Buffalo, fairly well known, who wrote on this issue. And he divides the people off on this question of, it's a historiographical essay. So in the question of what happened in the Industrial Revolution, he's examining that. Now, the people who think that conditions improved are generally called optimists in the literature. And the others are called pessimists. He calls the optimists the materialists. And the pessimists the humanists, okay? Materialists, because they dealt with the living standards. I really wish that Karl Marx or Bertolt Brecht were here to deal with that. Somebody scoffing at having enough food to eat as mere, a Marxist scoffing at having enough food to eat as mere materialism. Can you picture what Marx or Brecht would have said about that, the stinging irony of it? It's all turned around now and it's these vague so-called humanistic things that they want to make the center of the argument. Now, to return to Thompson, who's a much more significant historian, he talks about the terrible living conditions, for instance, these slums. And Thompson has enough honesty to admit the following. Despite all that can be said as to the unplanned Jerry building and profiteering that went, the unplanned Jerry building and profiteering that went on in the growing industrial towns, the houses themselves were better than those to which many immigrants from the countryside had been accustomed. Okay, I mean, they were awful, they were smelly, they were disease written, but what do you think life was like in the countryside? You think rural Europe was the San Joaquin Valley? And here, Thompson, who has a sense of that, the life of the people in the countryside, yes, he says, yes, it was awful. But do you know, they lived in hovels with thatched roofs, with mice and rats living in the thatch. He understands that, but that's not part of the picture that you have in your head, huh? What about child labor? As he says, child labor was not new. The child was an intrinsic part of the agricultural and industrial economy before 1780. Certain occupations, climbing boys, I think he means chimney sweeps, and ships boys were probably worse than all, but the worst conditions in the early mills. Okay, that puts into perspective, children had always been working. Whether children, very young children should have been permitted to work is a totally different question. It's very much open to classical liberal to say, no, but below a certain age, a child cannot be contracted for, so they can't make his own contract. But as far as the reality went, children had always worked. And as far as female labor goes, I don't know what people, and people talk about women working in the factories. I don't understand what picture they must have of what women have done through history. Since at least the Neolithic age, most of the work of mankind has been done by women, don't they know that? The women first of all worked in the field, then when that was done, had to take care of the kids, bring the watermen, make the food, bake the bread, do everything there, right? Well, the guys sort of hung around talking about the, the time they went out hunting and one guy saying, do you see how I got that mammoth? The other guy said, no, do you see how I went and got that mammoth? And they're meanwhile talking there and the woman does all the work. Okay? That's the way they think, what, that women have been ladies in medieval towers. And what the factory did, as it has always done, under conditions of competition and under conditions of competitive capitalism, what the factory did was finally free the woman. As a factory did in America, when the factory system left New England and hit the South with black women and white women coming to the factory, as the factory system does in the third world countries, now at last she can earn her own income. Now she doesn't have to be under some man's thumb and put up with all his grossness, anything he wants to deal out to her. Now she has a certain amount of independence. Now this is then Thompson's position. I want to quote from a man who from all evidence takes no particular ideological stance on this as someone like Thompson is a leftist, someone like Max Hartwell is a believer in the free market. This is a book by NFR Crafts, C-R-A-F-T-S. British Economic Growth During the Industrial Revolution. And it comes from Oxford, 1985. His conclusion that all in all, in the period under discussion, the data indicate a growth rate of real wage earnings, even allowing for unemployment, of around 0.55% per year from 1780 to 1820. And 1.2% per year for 1820 to 1850. That must be for the great massive people, the most unprecedented continuous period of economic growth in history. And I'll mention in a moment that significant, that highly significant difference in the two periods under discussion. The earlier period, a rather slow growth, 0.55% in wages, in the earnings of working people per year. The later period, a larger growth of more than twice that amount. And then accelerating later on. Crafts says, living standards do not grow very quickly prior to the 1820s, at this lower rate. Nonetheless, on average, they grew. It seems that the most important underlying reasons are to do with the economy's inability to achieve high rates of growth or productivity, rather than with any tendency for real wages to be held below the overall rate of economic growth. In other words, the problem has to do, this conclusion is that there was growth of wages not as much as one would have wished. The reason has to do with the general low productivity. And here, we begin to see that there is more to the issue than just the question of, did living standards improve or not? We can go back, check that out statistically to some extent, come to a conclusion, but that's still not the end of the story. Because there are other things to be considered. And the most important thing to be considered is the fact, which is emphasized now by a number of economic historians. The man I just mentioned, okay, Jeffrey Williamson of Harvard University. In a book, did British capitalists, in a book, did British capitalism breed inequality? And also in a number of journal articles has pointed to the chief distorting and contaminating factor, and that was war, war. You think that some of the people who condemned capitalism for the low standard of living of working people might have paid a little attention to what else was going on in the time. In England, and England, let me repeat, is a test case that everybody takes. This is what we talk about all the time. In England, there was war from 1756 to 1763, the World War that's called the Seven Years War. Then from 1776 to 1783, it's a little matter of settling accounts with our British cousins. Then from 1793 to 1815, 1793 to 1815, a whole generation of war, the war against Revolutionary France and against Napoleon. So that in the first half of this whole period of the Industrial Revolution, England, at a period of 65 years, England was at war for 36 years. And the war against France was the costliest, really the most expensive war in the history of the world up to that time. One might have thought that these historians who talk about why were the working people so badly off, might pay a little attention to the fact that vast quantities of money, in those days unimaginable quantities of money that might have gone into the creation of capital, for the creation of consumer goods were being taken and as good as a metaphor as any, simply thrown into the English Channel, from the point of view of anything that was of use to the consumers and to the working people. It was used on boats, on guns, on shells, to pay soldiers. And it was not available to help people. This is the chief thing that has to be kept in mind. Not only that, but this war was financed by a system that was basically a system of steeply regressive taxes. The great bulk of what paid for the war and what paid for the bonds for the money that was borrowed came from excise taxes. We know something, if we've studied the literature about some of these and we know something about the role of taxes in keeping the conditions of working people, living conditions down. If you remember T.S. Ashton in his fine book on the Industrial Revolution, I think also in his essay on Capitalism and Historians, mentions the little fact that when we talk about how bad housing was in the towns and the Industrial Revolution, we might keep in mind that the government levied attacks on windows. The more windows in the house, the higher your taxes. Now, what sort of effect would that have on the amount of ventilation and light that could come into a house? I mean, you don't have to be a super economist to figure that one out. There were taxes on the importation of timber from the Baltic. Worst of all, there was the corn law. There was a tax on the importation of cereal into England at a time when bread was the single largest expenditure in the budget of working people. It's hard for us to imagine that, but that was literally the case, especially of poor people. They had to live on cereals. They had to live on bread. Much of it was imported and in 1815, after stabilization came, the British aristocracy, the owners of the land of Britain, decided that they didn't want to do away with their windfall profits that had come from being difficult to import cereals during the time of the war against Napoleon. So they levied the corn law tax, which was a tax on those who consumed bread. If you want to know about the standard of living of people, as I say, you can't take a snapshot. Did they simply look and see were these people miserable? Yes, they were very miserable. They were quite poor from our point of view. First of all, what were things like before? And secondly, what caused that misery? And then the further question comes up, and in a sense the most important question, what would things have been like if there had never been an industrial revolution in England? What would things have been like for the working class? Okay, it's very easy for tenured professors to tut-tut about how bad things were. It's very easy for bureaucrats to tut-tut about the awful conditions in sweatshops for the Hong Kong Chinese or for El Salvadorans in New York. It's very easy for them to tut-tut about how terrible things are for agricultural laborers who come in from Mexico and Honduras to work in the United States. So what did they do? They shut down the sweatshops. They patrol the border so the Mexicans and Hondurans can't come in to work in these awful conditions. That's certainly a very great advantage for the Hondurans and the Mexicans and the Hong Kong Chinese, isn't it? So it's very easy for people to say how awful things were for the working class. But what things have been like for the English working class if there had been no industrial revolution? We have to consider a very important fact, and that is that England went through a population explosion. The population of England in the period we're talking about increased by something like two and a half percent, two and a half times, okay? There were millions and millions of Englishmen now to be taking care of somehow, and one wonders how that would have been done in the absence of the increased productivity that came from industrialization. What would have happened to them? What would have happened to them? This is, by the way, the judgment of another author, a British historian named Edward Evans. Again, a book from last year on the industrialization of England. Again, a man who was not a liberal particularly. In fact, he attacks the industrial revolution. He says he created a good deal of pollution. Now he's not obviously sophisticated enough to know that pollution is not per se a problem of capitalism. Pollution has to do with the vagueness and indeterminateness of property rights in many cases that permits pollution to take place. But anyway, that shows that he's not some free market here. And he confirms what Ashton already had said, what Max Hartwell says on this issue. Do you want to know what would have happened to the English working class? With the population explosion, if there had been no industrial revolution, then go to Calcutta. Or, closer to home, go to Ireland in the 19th century. There was a society that increased also in population tremendously by about the same rate that the British did. And they were fortunate enough not to be subjected to those dark satanic mills. They were lucky. So that, when the potato crop failed in 1845, there was nothing. Ireland today has a population less than half, less than half of what it had at its peak in the 19th century. As far as I know, Ireland is the only country in the world that's gone down in population. What happened to all these people? Once subsistence agriculture failed them. As Evan said, they fell right down into the Malthusian trap. About a million died of starvation. Another million immediately emigrated to America and England and other places, and more emigrated as time went on. So that this, in a sense, is the crucial question. Not what actually did absolutely historically happen, because a large part of what happened was not the result of the industrial revolution, but of other things, for instance, the war. The question is, what was the net result of the industrial revolution? And here, I think, one could say, the case is really closed, except that is the net effect of industrialization, not the question of the actual living standards, but the net effect of industrialization, except for a few diehards, I think the verdict can be said to be in. And that is that the industrial revolution, to put it in our terms, historians don't generally talk in superlatives, the industrial revolution was the greatest blessing that could have occurred to the British working class. It saved them from the horrors that non-industrial societies had to undergo under the same circumstances. Finally, our knowledge of the meaning of the industrial revolution has been immensely deepened by studies of what life was like before. Here I can mention another book by Neil, another British economic historian, The Making of a Consumer Society, where he says, when we read of what life was like before the industrial revolution, when we read about the fact that purchasing a garment or purchasing the material to make a garment was an event that a working person could expect to experience only once or twice in his or her lifetime, when we read of the fact that the clothes of plague victims were fought over by their relatives, when we read of the pitiful inventories of the possessions of working people, where a man will bother to mention a chair with only three legs, three pieces of cracked china. In a way, it's kind of heartbreaking that this is the result then of a lifetime of very hard labor, these few pitiful possessions. When we read of the sickness that threaded their lives, when we read of infant mortality, then the difference the industrial revolution made to mankind becomes evident. And just a few, a couple of hundred years after that, after this enormous change in the course of mankind that was brought about by industrialization and by laissez-faire, just a relatively short time after that. You have social democratic and commie professors teaching their students that the greatest horror in the world is to die of boredom in a consumer society. Okay, this then was what was occurring, this change in the material conditions of life, accompanied by the change in the spiritual conditions of life, which I sort of implicitly indicated by my examples at the beginning, a greater freedom for the individual in his religion and expressing his point of view and learning about the world, together with the greater dignity and details that comes from having a certain amount of comfort and affluence. This is what was occurring in England and then in America and then in Europe in the course of the 19th century. As time went on, it could not be denied any longer that things were improving for working people. Meanwhile, something else began to happen, not among the English but among another European people, also quite conspicuous. And this other development was to have the greatest of consequences. The people among whom this happened was the Germans. There began a reaction against liberalism, against laissez-faire, towards authority, towards the state, and with all this, the invention of the welfare state. I speak of the invention of the welfare state and I will be speaking of its inventor. As Professor Gordon Tullock has emphasized, we can, in this case, pinpoint the inventor and his name was Otto von Bismarck. The old Junker, oddly enough, was the inventor of this sleek, streamlined, modern, wonderful thing. Now this, in a sense, goes against what is sort of the consensus of views very often among historians of social policies that's sometimes called. They want to say that the welfare state is a reaction to the logic of industrialism or somehow inevitable. Two British historians, historians of social policy, have published a number of very interesting articles about this. John Carrier is the name of one man, Ian Kendall the name of another man, and you read journal articles all the time if you're in that kind of business. It seems to me that their articles have made a difference, have made a difference in my thinking. Their point is that there's a kind of bad faith involved in that approach. What people who talk that way want to say is that somehow what happens in human affairs is an automatic, mechanical reaction to external conditions. They want to say that there was no choice involved in the matter. It's sort of like a flow of a current of a period that basically cannot be stopped. One well-known historian of social welfare even goes so far if they have this kind of point of view thinking of an inevitable progress to talk about some countries as welfare state leaders and other countries as welfare state laggards. Okay, this is in virt fry, value free science, right? When you start with the assumption that somehow industrialism per se produces a welfare state, they have a different kind of approach. They think that these questions are often and to a large extent the result of human choice. So that we want to examine the conditions of choice and the people who made these choices. As they say, the social problems of industrial society are first of all never self-evident. The supporters of the standard view seem to ignore the possibility that the development of welfare activities could result from the purpose of action of members of society. They also point out what creates a problem. How does a social problem become a problem? Does it come with a label that says it's a problem? There are certain people who argue, perceive, want to maintain, want to convince you that that's a problem. Why is one thing a problem at one time and not at another time? You understand? It doesn't make itself obvious as a problem. It has to be accepted and taken to be a problem. And there are people who do that, who do the taking and the labeling of that as a problem. If the social welfare legislation were an inevitable reaction to industrialism and to the industrial revolution, then it is very hard to understand why it should have originated in Germany and England only taking it up decades after the Germans did, whereas England was the first industrial power and much more highly developed than the Germans. And it's also, as these gentlemen point out, very hard to understand, and as others have pointed out, why social welfare legislation should have appeared in Ecuador and Brazil and Ethiopia before it did in the United States. One doesn't want to be insulting towards developing and struggling nations, but still, when all is said and done, they are hardly as advanced as the United States in industrialism. So how come the welfare state on the federal level, at least, only exists in America from 1933 on and already had become accepted in very backward countries? It is a question of decision. It's a question of human choice. And let us examine what I want to do is direct some attention to this inventor of the welfare state. Who is this Bismarck? To put it most briefly, I would say he was a catastrophe of world historical proportions. He was a man of great political genius, perhaps the greatest of the 19th century, placed in the service of state power. And I would say, parenthetically, that until the Germans realized this and come to terms with it, one still cannot be certain about the Germans. I was depressed to see that just recently, they celebrated an anniversary of Frederick the Great, whom I mentioned before, the man who plunged the world into World War so that he might be talked of. And the president of Germany, I think he's a Christian Democrat and thank God not of the small party that calls itself liberal, which would be the ultimate irony, gave a speech praising Frederick the Second. And whenever the Germans talk about these things, what they want to say is, please, please, this guy or that guy, he wasn't Hitler, please, don't think he was Hitler. Okay, he wasn't Hitler. Imagine if there were another Hitler. But when one searches through German history, it's interesting the threads that can be found. Someone like Frederick the Second, there is the constant steady emphasis on the supremacy of the state and the subordination of the individual. In any case, as far as Bismarck goes, as I say, if they simply continue trying to apologize and trying to say that he's not Hitler, not very much is going to be accomplished. In, who was this man? Well, in the 1860s, there was a great constitutional struggle that was going on in Prussia, which was by far the largest of the German states. This was a struggle between, on the one side, the self-aware middle class, led by the German liberals, that had to form themselves into the progressive party. On the other hand, the other side was the, well, the Junkers, the land-owning class, and led, of course, by the Prussian monarch, happened to be William I at that time. The struggle was over. Who was going to rule in Prussia? Was it going to be the monarch, not through his appointed chancellor, or was it going to be Parliament? And in particular, who was going to have control of the army and the army budget? Was it going to be the king, or was it going to be Parliament? It's hard to get back into the spirit of those times, but imagine to yourself, if you want, if it doesn't sound like a paradox or a contradiction in terms, an almost revolutionary German middle class. They were on the point, it seems, at least that's what the leaders thought. They thought at the time, they'd come to give in, or if not, then William I would go the way of Charles I and of Louis XVI. The German middle class seemed to be really serious about this, and they had growing power at this time. Their last ditch hope was an old Junker who had been in the diplomatic service for a long time, considered very reliable. Nobody understood how smart he was. And at the last minute, Bismarck was made Chancellor. Instead of giving in to the liberals, instead of compromising the last hope of reaction and absolutism, was Bismarck. He was called in. And the man certainly had arrogance, didn't give an inch to these businessmen and their liberal representatives. He'd said in his first speech before the Lundestag, I'm interested in the unification of Germany. It's not going to be done. The unification of Germany, which is our great hope, will not be accomplished by resolutions and democratic votes. That was the mistake of the Revolution of 1848. German unity, when it comes, will be achieved through blood and iron. Through blood and iron. And this phrase stuck to him, and it's not an unfair representation of what his value system was like. Well, to put it briefly, Bismarck broke the back of German liberalism. It was their last hope, and Bismarck, at this time, the struggle, victory in the struggle, and Bismarck robbed them of it. Through a series of three brilliant wars and the diplomacy that provided the context for it, he achieved what, unfortunately, to many liberals turned out to be more important than a free society, he achieved a unified Germany. And from then on, for the next two decades, he always had that trump card to play in his opposition to the liberals. He was the founder of German unity. And who were they? They were professors, they were journalists, they were bankers, they were nothing. Nothing compared to those glorious achievements of Bismarck. He founded unified Germany, and he prussianized Germany. He made it into a state which had a parliament, which had a certain amount of freedom of expression, but where the ruler, and his appointed chancellor, was still in control. Where the people were not so much citizens as subjects. Now, in the last half of the 19th century, the condition of German workers was improving as the condition of European workers as a whole was. The chief reason for this was the creation of a, in those days, vast free trade area among almost all the German-speaking people, called the Zollverein, or the Tariff Union, and the advantages which economic theory and experience demonstrate come from such a free trade area. It was a question of the general loosening up of society in the direction of the free market. They did away with gills, there was a free movement of people throughout the whole country, free entry into all professions, and the result was what we could expect, together with steady capital accumulation, a law of incorporation that favored people pooling their stock and joint stock companies. All of these changes that occurred brought it about that little by little things were improving. And for a while, Bismarck allowed the liberals, now mostly tamed and docile, to change Germany along these lines. Then, at the end of the 1870s, a change occurred. The first thing that happened in 1789 was that Bismarck moved Germany away from protectionism, away from free trade and towards protectionism. He brought about an alliance between heavy industry and the Junkers, the landowners, protecting both of them at the expense of working people and the consumers. The argument that was used then was a very silly argument, which I'm sure has been used in every European country, and that is free trade is only good for the English. You know why the English went over to free trade? Because they were ahead and they wanted everybody else to level their tariff barriers so every country in the world would be flooded with British goods. That's the only reason they're in favor of free trade, typical, hypocritical English. And this argument, by the way, you'll find very often, not just in the old pamphlets of nationalists, French and German and other nationalists, you find this actually in history books. This view does not explain why, famously, when England began to decline relatively as an industrial power, when Germany and America overtook England, the British stuck to free trade. And in a famous election decided for free trade against protection as late as 1906. This doesn't explain why the British only gave up free trade under the pressure of the Great Depression in 1932. If they had only wanted free trade in the beginning because they were ahead and they thought it was advantageous to them, then why didn't they give it up once other countries had passed ahead of them? The reason? Well, because the English Liberals had done their work very well. And not only the middle class, but the English working class understood that free trade was in the interest of consumers and that they would be spiting themselves, they would be harming themselves to set up tariffs. Nonetheless, the Germans bought this argument and protectionism came about, had a domino effect, the age of free trade was over. Nobody realizes the kind of seeds that are planted by something like this. As Leonard was talking about the other day, people think that they're only putting up protective tariffs. People don't realize they're also changing things in the other country. The Smoot-Hawley Act had disastrous consequences for American consumers. It also had the consequence of convincing many Japanese that the only chance to survive in this world was now to carve out an empire of their own and to go the militaristic route. One of the consequences of the Bismarck tariff was the beginning of alienation and hostility with Russia. The Germans and the Russians had been friendly for quite a while, Bismarck friendly towards the Russian government. Now the Germans are excluding Russian wheat. Russian wheat can't get into the German market. This certainly adds to the hostility that afterwards snowballs, other factors come into play and you have 1914. But as another part of Bismarck's program, what he does is come up with the concept of social insurance. Afterwards he's going to also add to this package not only protectionism and social insurance, but colonialism and imperialism. This is truly the invention of the welfare state because now the state is not saying, as it has said for a long time, we will provide for the indigent. We will provide for porpers. The state is saying we will provide for all working people or afterwards we will provide for all the people of society so that you have now an important change of principle. Why did Bismarck do this? Well, first of all, he personally had been for a long time an opponent of the new industrial system, did not like to see the old craft gills replaced by the factories. He has statements that come from the earlier part of his career. Sounds like some British Tory talking about the terrible factory system, the creation of a new proletariat that is being exploited by the capitalists. He says nobody is ever hungry in the greatest states of Prussia where I come from, where they looked after by their protective lord and the ruler of the estates. Those people are not hungry, those are happy farm folk. The only hungry and miserable people have been found in the factory town. So he was a man who was at odds, you might say, with the new world system. But more important than that, he first of all had an immediate political aim, which was to combat the social democrats, and beyond that, and most of it basically, he wanted to tie the working class of Germany to the state. He wanted to create a kind of symbiotic relationship where the state looks after the working people and in return they give to the state a humble obedience and gratitude. The issue comes up then in 1881 when he proposes his first accident insurance bill. It's very interesting to note, by the way, that before he did this, he had long conferences with German industrialists, with the representatives of German heavy industry. You'll find this in the history of the United States. I'm not sure, to a degree in the history of England, I'm not sure about other countries, but there's the cloven hoof of corporate capitalism very often there at the beginning of these social insurance schemes. We're talking about accident insurance now. What had existed was a liability law dating from 1871, and many of these industrialists did not like the fact that, first of all, their workers could haul them into court over some accident that occurs with the job and prove in court it was the boss' fault and I have to be compensated now by the boss. They didn't like that. They also were aiming at, with the state subsidy for this insurance, to socialize the costs of accidents in heavy industry where most of the accidents occurred, so that when confined in the history, early history of the social legislation, a name such as Carl Ferdinand von Sturm, who was called the barren of the Tsar area, coal and steel, why somebody like this interested in social insurance and pushing for a welfare state? To a degree, he had a self-interest involved and this was important in getting some of the votes that pushed the bill in. Bismarck proposed a compulsory insurance scheme for accidents where one-third was to be paid by the worker, one-third by the employer, and one-third by the state. It was to be administered by the state, Bismarck said, no private insurance agencies. He said, no dividends from human misery, as if of course the landed aristocrats didn't make dividends or profits off the scarcity of food, but you see here the kind of deep animosity towards capitalism and towards a marked way of earning a living that was typical of an aristocrat such as Bismarck. The whole ideology that was involved was highly significant. Bismarck hated, even more than he hated the socialists, the liberals of his time, because he thought they were a greater threat. He didn't think the socialists were going to be that much of a threat. Okay, this is the great conservative talking. You might try to think who this reminds you of. This is in a private conversation that was later recorded. The progressive party that is the liberal party and its clique of Manchester politicians, the representative of the pitiless money bags has always been unfair towards the poor. They have always wanted to the extent of their powers to hinder the state from protecting the poor. Laissez-faire, the greatest possible self-government, lack of any control, opportunity for the absorption of small business by big capital for the exploitation of the unknowing and inexperienced by the clever and the cunning. The state should be merely the police, especially for the exploiters. That's the sort of thing one can find among German nationalists and conservatives and right-wingers all the way up to Joseph Goebbels. This very particular special hatred of capitalism. To the point where Bismarck entered into conversations with the leader of the, secret conversations, with the leader of the German socialist Ferdinand LaSalle. What Bismarck wanted to do was what Napoleon III had done to an extent in France, what other conservatives in Europe in the situation were toying with. The idea of a coalition between the old traditional elite, the monarchy and the landed aristocrats on the one hand and the masses on the other, both against the middle class led by the liberals. Which is one reason why Bismarck, when he sets up his Reich, introduces universal male suffrage, which was very unusual for Europe at that time. All the people, all the masses of people, peasants and workers have the right to vote. Bismarck did not hesitate to go so far as to call himself a state socialist. He said, state socialism will win through, whoever grasps it will grasp power. State socialism, not worker socialism, not revolutionary socialism, but socialism from the top down. So the stage was set a little over 100 years ago for the first conflict of two world views on the first proposal for social insurance, the development of the welfare state. The liberals were ready and they made a heroic stand. It was Ludwig Bamberger. These names are all forgotten now, but maybe they deserve to be mentioned sometimes. Ludwig Bamberger. What will one of the representatives of German Jewry, who are a mainstay of German liberalism, what will be the, sorry for keeping interrupting myself, but also a translator into German of Bastia, what will be the limit of state intervention? My question is whether in the place of human individuality, self-determination of the free initiative of citizens who are of age should be placed the supervision of the police and the providing hand of the state. He says this is reminiscent of the last days of the Roman Republic where the state showers benefits or pretends to shower benefits on the people. Another leader of the German liberals, Oegen Richter, who was the, is Mark's most bitter opponent, really a man I think that most of us would like very much. After I leave here, I'm going to be traveling down to the south of France by way of Germany. And when I'm in Cologne, I will take a bus trip to Hagen and I think I will probably be the first person in a long, long time to go to Hagen specifically to see the statue of Oegen Richter, for many years the member of the Reichstag from that town. He fought against it all, he fought against the law, against the socialists, he fought against the laws against the Catholic Church, he fought against the protective tariff, against colonies, against the big naval bill that put Germany and England on a collision course that was going to lead to 1914. They said about him that he was always against things. I like politicians who are always against things. Some of his arguments were, as our arguments might be, pragmatic arguments, sort of utilitarian or consequentialist arguments. He says private insurance companies are always going to do it better. They're also going to have a special interest in seeing that accidents don't occur so that they don't have to pay off. He says we have private insurance companies that are blossoming now. We have mutual self-help associations for workers. They're going to be killed when the state steps in and takes over everything. He says, he spoke to Bismarck and the conservatives and the Reichstag. He says that is the fundamental difference between the conservative and the liberal party. You conservatives overestimate the use of force, the influence of the police. While on the liberal side, there is a preference for voluntary action. And then in his major speech, he warned, as Bomberger had warned, that this was only the first step. It would open the door to the principle that the state is now responsible for alleviating the inadequacies of society. It would counteract the growing sense of individual independence in society. Bomberger had said very perceptively that we are now taking a step which will be of the greatest consequence for Germany and perhaps for the world. But the liberals were defeated. Bismarck in this was aided by a group that was coming to influence in Germany called the Socialists of the Chair. The Catae the Socialist. That means the chair in the sense of a professorial chair, an endowed chair. They were professors. And the Socialists of the Chair was against the Marxists who were the Socialists of the street. They were men like Gustav Schmoller who said that any follower of Adam Smith is unfit to hold a chair of economics. I remember years ago, there was a special bet noir, a special hobby horse that Mises used to ride all the time. At the seminar at NYU, every once in a while Mises would talk about Schmoller and you could see his eyes sort of blazing with suppressed hatred from generations back. And we thought it was kind of funny. I mean, how can anybody get excited by an old dead German professor, Gustav Schmoller? But then when one learns things as one gets on I think one sees what Mises had in mind. The consequences of someone like Schmoller and the things he taught and the domination of the school in German universities were much worse than the consequences of some maniac killing somebody in the street. The main influence they had was to work on public opinion, the direction of state responsibility, the direction of social insurance and the welfare state, and also particularly on the opinion of the German civil service itself which for a long time had been liberal being convinced of the great efficiency of the market not for any particular freedom ideas per se but had been liberal and now these professors through their associations and through their books and articles beginning to work on them. These German socialists of the chair and their successors innumerable professors of sociology and social work and social policy in all the universities of the world remind one of what an American sociologist named Alvin Gouldner what Alvin Gouldner wrote in his book on the coming crisis of western civilization. There's a chapter on the welfare state and he says this there are continuing pockets of resistance to governmental intervention by the way he's no libertarian he's a kind of Marxist oriented man but he sees social reality with some clarity sometimes there are continuing pockets of resistance to governmental intervention portly in consequence of the higher levels of taxation required to finance it. The state therefore does not only require a social science that can facilitate planned intervention to resolve certain social problems the state also requires social science to serve as a rhetoric to persuade resistant or undecided segments of the society that such problems do indeed exist that this is a social problem this is the famous social problem you've heard of that such problems do exist and are of dangerous proportions once committed to such interventions the state requires a vested interest of its own in advertising the social problems for whose solution it seeks the financing he points out of course that this then becomes a kind of professional relationship social science that talks about this social science that points out social problems and the need of the state to come in is very well funded by the state and we have in Germany not only the creation of the welfare state we have also the first middle class college educated beneficiaries the German professor yet well finally although thwarted for a while by the liberals Bismarck has his way in the 1880s liberalism is dying out in Germany the election of 1884 is catastrophic they're decimated and finally a coalition of Catholics that is a Catholic center party and conservatives push through the legislation, sickness insurance accident insurance finally old age insurance Germany was now in place to act as a model for the rest of the world and it became such a model this is one of the important things that's happening in the subconscious mind of Europeans in the last decades of the 19th century the growing perceived relevance of Germany the growing power of Germany as a model it's something that the Italian philosopher Croce referred to England, America, France these were no longer considered the most modern up to date countries for much of Europe especially for central Europe and for Eastern Europe Germany took that role but also for intellectuals in the western countries for American professors for the English intellectuals Germany had this role of being the advanced in the modern country and Germany was inevitably and understandably tied in with the values of power the state of centralized authority and of government welfare programs when England, when the time comes for England to accept the welfare state starting in 1911 under the liberal government so called the Asquith cabinet one of the men who's pushing for the welfare state is a young English politician named Winston Churchill he's for what he calls a policy of social organization in emulation of what has been done in Germany thrust a big slice of Bismarckianism over the whole underside of our industrial system was his advice to the prime minister it would not only benefit the state but fortify the party very typical of Churchill again looking for the political advantage other places could be mentioned also as pursuing the German model I don't think it's unfair to say that it was part of Bismarck's aim to lock the working class and then all the rest of society into a kind of perpetual childhood such that even when the time came that society became immensely more wealthy there would be no way to get rid of the system of government social insurance the assumption was that the provision for illness for accident and for old age would always be the business of the state would always be arranged for the people through compulsion there would never come a time when working people the people at large could arrange for these needs for themselves and voluntarily this was a crucial part of Bismarck's vision of the good citizen a good citizen was one who was bound by feelings of love and gratitude to the state he acknowledged his own personal inadequacy and he acknowledged his need for the state to look after him in his time of troubles there would never come into existence an independent human being standing on his own feet making his own decisions and that's what Bismarck wanted it seems that that's what he's achieved I want finally to draw to your attention a prophecy which came about about 50 years before Bismarck undertook the creation of the welfare state it was uttered by a great Frenchman Alexis de Tocqueville the last pages of the second volume on democracy in America where he looked into the future that was a great thing about de Tocqueville he's been able to sense something in the air even though no one else could sense it this is what he thought might happen might very well happen above this race of men the members of society stands an immense and tutelary power which takes upon itself alone to secure their gratifications and to watch over their fate that power is absolute, minute regular, provident and mild it would be like the authority of a parent if like that authority its object was to prepare men for manhood but it seeks on the contrary to keep them in perpetual childhood for their happiness such a government willingly labors but it chooses to be the sole agent of that happiness what remains but to remove from individuals any need to live their own lives any need to think their own thoughts thank you