Since when do public authorities care about poverty (2/3)

1st Poverty Enlightenment – From the late 18th to the mid of the 20th century.

There exists nowadays a widespread agreement on the idea that poverty is a social plague against which governments and agencies must take action. As a recent paper by Martin Ravallion explains, this has not always been the case in the past. [1] His paper investigates the reversal that occurred over the last three centuries in the political and economical thinking about poverty. This post is the second of a series of three aiming at covering the story told by Ravallion. The first post explained that before the late 18th century, mercantilist thinking perceived poverty as a necessary ingredient of a prosperous society. The elite believed that, without the threat of hunger, the labor class would not be industrious. Furthermore, poor individual were held responsible for their misfortune, because of their supposed moral weaknesses.

The late 18th century saw the emergence of new ideas regarding distributive justice. During a large part of this period, the incidence of poverty has been rising, as the result of falling real wages.[2] This caused social instability, especially since the mass became aware of the scope for economic and political institutions to serve their material needs. Political representation became viewed as the key for obtaining the desired change.

New philosophical and economical thinking was at the origin of this awareness. In 1776, Adam Smith questioned the mercantilist practice of judging the economic performance of countries by looking at their trade balance.[3] He proposed rather to emphasize the population’s command over commodities. In 1785, Immanuel Kant defended that no rational human beings should ever be treated as a mean for promoting whichever (national) objective but should rather be considered as an end in themselves.[4] He criticized strongly the unequal relationship existing between the giver and the receiver in charity for poor people. A couple of years latter, the French Revolution putted forward the slogan “Liberty-Equality-Fraternity”. A major reform adopted was to place all citizens equal before the Law, in order to promote equality of opportunities. Finally, the beginning of the 19th century saw the emergence of Utilitarianism. According to that school of thought, the objective of public action is to maximize the sum of utilities across all individuals. For its major founding father Jeremy Bentham, utility was to be equated to happiness. Assuming that the marginal utility of income is decreasing gives then an argument for promoting income equality. Indeed, transferring a unit of income from a wealthy person to a poor increases the total happiness, since the poor enjoys more that unit of income.

An important consequence of those ideas is that governments could not ignore the situation of poor people anymore. The happiness of poor people must enter the sum of utility to be maximized by the utilitarian observer. This did not mean however that massive social plans for poverty alleviation had to be engineered and put in place. Indeed, the poor were still largely blamed for their situation and stigmatized for their moral weaknesses. Therefore, it was argued by opponents of social policies that their perverse incentives were at the origin of the lack of resources of poor people. A typical example of their reasoning was the following: Poor individual spare less, than the wealthy, if at all. Taxing the wealthy and transferring the tax towards the poor thereby reduces the savings available for investments, thereby reducing economic prosperity. The conclusion drawn from those reasoning were that governments face a trade-off between equality and national prosperity. Promoting the greatest happiness requires finding the good balance between the interests of the poor and those of the wealthy. But it was not clear how governments could improve the lot of the poor. Because of potential perverse effects, the ability of reducing poverty of any social policy was questioned.

Most notorious economists like Malthus and Ricardo were not optimistic about the possibility that the poor would share the growth resulting from the industrial revolution. Even when productivity increased, they conjectured that, economical forces would push the real wages of the working class down to subsistence levels. In the theory of Malthus, any increase of the real wage of workers was deemed to be transitory because of the subsequent growth of the population it would cause. This supposed incapacity of the capitalistic system to benefit the poor is one of the factors explaining the emergence of socialism. Marx and Engels published the Communist Manifesto in 1848, in which they advocated for progressive income taxation and free education in public schools. If such policies are seen as mainstream today, contemporary economists were largely against the idea of anti-poverty policy, for incentive arguments. They argued that such policies did more harm than good. Even though the incentive arguments were not based on conclusive empirical evidence, they gained acceptance and the Poor Laws were eventually slashed. In order to counter any incentive problem, the beneficiaries have been better targeted, based on the principle of self-selection. The beneficiaries were reduced to individuals coming to live in workhouses. Those were publicly financed workplaces where poor people could get a job for a low wage. The only condition was to live in the workhouse, where their bad behavior could be controlled. If better targeted, workhouses were nevertheless criticized for their severe living conditions and for treating their beneficiaries as criminals.

In spite of the new ideas of the First Enlightenment, the lives of the poor did not really improved. The changes benefited mostly to the bourgeoisie that could take advantage of opportunities that were before only accessible to members of the aristocracy. Poverty became increasingly seen as a social problem. This has lead to the emergence of social research in the late 19th century. In particular, Charles Booth documented the living conditions of the poor in London and York.[5] He introduced the notion of poverty line and measured that the third of London’s population, one million persons in that time, lived below a very frugal poverty line. The result of these calculations shocked the English public. Other such studies were conducted in Germany or in the US. The idea of the inevitability of poverty in capitalistic economies became severely challenged. The poor were less and less held responsible for their own fate. If doubts persisted, the massive unemployment of the Great Depression offered a tragic illustration. The idea that social arrangements influenced poverty gained recognition. More and more voices were heard asking governments for policies aimed at the reduction of poverty. This goes further than just protecting against adverse events, it implies sustainably promoting from poverty.

So if the lot of the poor did not significantly improve consequently to this first enlightenment, poverty did become perceived as a social bad, requiring public action. Nevertheless, there was no wide adoption of anti-poverty policies. This happened only after the second enlightenment, covered in the third post of this series.

[1] Martin Ravallion, “The Idea of anti-Poverty Policy”, 2013.

[2] Robert Allen, “Pessimism Preserved, Real Wages in the British Industrial Revolution”, 2007.

[3] Adam Smith, “An Inquiry into the Nature and Causes of the Wealth of Nations, 1776.

[4] Immanuel Kant, “Fundamental Principles of the Metaphysic of Moral”, 1785.

[5] Charles Booth, “Life and Labour of the People of London”, 1903.

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