industrial revolution Archives — Laissez FaireLaissez Faire

It’s often said that Social Security was a response to the problems created by industrialization. Not simply that it was motivated by certain problems associated with industrialization, but that the conditions of industrialization necessitated Social Security—that industrialization created problems the free market could not cope with.

Here’s how one book puts it:

As the United States shifted from an agrarian to an industrial society, the intergenerational family support structure weakened. The jobs created in the cities provided new opportunities but also major insecurities. The number of indigent aged persons grew rapidly, vastly exceeding the capacity of private charities.

Social Security, the authors go on to say, was a response to these and other changes. All of these claims, however, are half-truths, outright falsehoods, or in desperate need of context. As Yaron and I have argued elsewhere, there were problems associated with industrialization, to be sure, but (a) they were not unmanageable and (b) they were diminishing as the economy progressed.

It wasn’t industrialization that led the U.S. to adopt Social Security: it was a set of beliefs about the world, including certain moral premises about the relationship between the individual and society, that led the U.S. to adopt Social Security. This is why, for instance, the United States was one of the first countries to industrialize but one of the last to adopt a social security program. Far from demanding Social Security, Americans were reticent. It took decades for left-leaning intellectuals to convince them that a welfare state was consistent with their values.

I always love going on Mike Slater’s show. He’s one of the few interviewers who asks good questions even when he agrees with you. Last Friday’s show was unusually fun. We covered a lot of ground, but ended with a particularly lively discussion of happiness—what it is and why the government can’t force it on you. Enjoy.

If you would like to ask me a question, you can submit it here.

The 19^th century, many people believe, was an era when workers were forced to toil in sweatshops for five cents an hour, twenty-eight hours a day. It was only when governments intervened, either directly on behalf of workers or indirectly by empowering unions, that conditions improved.

The facts tell a different story.

First, recall the historic context. As Ayn Rand reminds us, “Capitalism did not create poverty—it inherited it.” Here is a famous chart based on the research of the economist Angus Maddison.

What it shows is that for much of human history, the vast majority of the population was mired in poverty. All too often, the average individual lived in unimaginably wretched conditions. It was only in the 19^th century, and then only in the West, that the masses started to achieve anything approaching a modern standard of living.

Keep that in mind when you hear about living and working conditions during the 19^th century. Because it’s true—by today’s standards, the working conditions of the time were often wretched. But as Rand notes, “They were all that the national economies of the time could afford.” And for the men and women working those jobs, they were often a godsend.

Remember, the population of the time was growing at a rate never before seen in human history—so fast that early economists like Malthus wrung their hands over whether such growth could be sustainable. How did the West actually sustain those growing numbers? Only through the rising productivity made possible by capitalism. Many of the workers who manned the factories would not have been able to survive at all in the era before capitalism.

Indeed, two basic facts speak louder than any statistical study could. First, factory owners did not have the power to force workers to labor in their factories; all they could do was offer work at a given wage to people who were free to accept the offer, or reject it and look for work elsewhere. Second, people flocked to those jobs, emigrating to the cities from America’s farms and from abroad.

How, then, did conditions for workers improve? Just as businessmen had to compete for customers, offering better products and lower prices, so they had to compete for workers, offering them better wages and better working conditions. This process of competition led businessmen to bid wages up to the level of workers’ productivity: the more productive workers become, the higher their wages tended to rise.

As a result of the era’s mounting productivity, the statistics show steadily rising wages and steadily declining working hours—long before the government intervened to “protect” workers. Real wages more than quadrupled over the course of the 19^th century, even as people worked less.

In 1870, for instance, the average worker worked 3,069 hours a year. But as his productivity increased, by 1913 he could enjoy a much-improved standard of living working only 2,632 hours. Or consider how much easier it’s gotten to earn the money for a half-gallon of milk (56 minutes in 1900, down to 31 minutes in 1930) or 100 kilowatt hours of electricity (107 hours in 1900, but only 11 hours in 1930).

Life during the early days of capitalism was hard (as life had always been), but for anyone willing and able to work, life was getting better. The lesson for us today is that laissez-faire doesn’t impoverish workers, but makes them progressively richer.

Books

• F.A. Hayek – Capitalism and the Historians
• Ayn Rand – Capitalism: The Unknown Ideal
• Michael W. Cox and Richard Alm – Myths of Rich and Poor
• Julian Simon – The State of Humanity

Online Resources

• Ludwig von Mises – Remarks About the Popular Interpretation of the “Industrial Revolution”
• Burton Folsom – The Industrial Revolution and Free Trade
• Henry Hazlitt – The Conquest of Poverty