The Economics of Welfare

Part IV, Chapter X

THE EFFECT ON THE NATIONAL DIVIDEND OF THE EXPECTATION OF TRANSFERENCES TO THE POOR

§ 2. The first of these groups is made up of those transferences which are conditional upon the recipients making provision for themselves on a scale that is fairly representative of their individual capacity. These transferences can be arranged as follows. First, the poorer members of the community are classified according to the amount of provision that they “could
reasonably have been expected to make” for themselves, apart from any transference of resources in their favour. The standard of capacity set up is, of course, different for different sorts of people with different opportunities. For example, the income from savings, which a man can reasonably be expected to have secured at a given age, varies with his situation in life. If, before the war, a man on 12s. a week had secured for himself an annuity of 1s. a week, his thrift was much more real than if a man on 50s. had got an annuity of 3s. a week. The classification of different people into different groups with different standards may be carried out with any degree of roughness or exactness, according to the scope and skill of the various classifying authorities. In ideal conditions a separate standard capacity would be estimated for every individual. Secondly, the standard having been set up, resources are transferred to poor persons on condition that their productive activity comes up to the standard assigned to them, an extra amount, perhaps, being transferred in recognition of any excess above standard to which they may attain. It is not, of course, necessary that the same grant should be made to all persons who live up to their capacity; and, in general, we may presume that a poorer man satisfying this condition will receive more than a less poor man who also satisfies it. The kind of arrangement which this policy embodies has been advocated for certain purposes by Marshall. “Should not indoor and outdoor relief,” he asks, “be so administered as to
encourage providence, and to afford hope to those whose means are small, but who yet desire to do right as far as they can?”
*74 Practically the adoption of this ideal would mean that persons coming up to, or exceeding, the standard adjudged reasonable for them would be treated more favourably than similar persons failing to do this. A rough application of it is made in the rules governing the grant of old-age pensions in Denmark. In order to qualify for a pension, a man must have worked and saved enough to keep off the rates between the ages of fifty and sixty. Under this system, though, possibly, thrift, labour and private charity are discouraged, so far as they touch the provision for maintenance after sixty, “on the other hand,
both thrift and private charity have been stimulated, so far as they are concerned with provision for maintenance between the ages of fifty and sixty. The motive for maintaining independence during these years is strengthened, and its effectiveness is greatly increased, by the consideration that a limited task, the completion of which is not so distant and uncertain as to deter men from attempting it, is all that is now imposed on the honest and industrious, though indigent, person, or on friends, former employers or others, who may be interested in helping him. Many shrink from trying what seems impossible of achievement, and much effort, which would otherwise have remained latent, has been evoked by bringing the task within the reach of a wider circle of persons.”
*75 There can be little doubt that openings exist for a further application of methods of this kind. It is plain that the expectation of transferences to poor persons, engineered by means of them, will stimulate, and will not diminish, the contribution which potential recipients make towards the upbuilding of the national dividend.

§ 3. The second group, neutral transferences, is made up of those transferences which are dependent on the attainment of some condition, not capable of being varied by voluntary action in the economic sphere, on the part of possible beneficiaries. It thus includes schemes for universal old-age pensions (dependent only on the attainment of a certain age), the universal endowment of motherhood (dependent only on the fact of motherhood), or the universal gift to everybody of a sum deemed sufficient to furnish by itself the essential means of subsistence. These wide-reaching arrangements are, hitherto, nowhere more than projects. But less ambitious examples of neutral transferences have been embodied in actual law. Under them grants of help are made to depend, not on the performance of the recipient, nor on the relation between performance and estimated
capacity, but upon estimated capacity itself. The root idea of this system was approached in a Report made to the Poor Law Authority in 1872 by Mr. Wodehouse, in which he endeavoured to distinguish between relief in aid of wages and relief in aid of earnings. “Relief in aid of earnings,” he wrote, “is clearly inseparable from any system of out-relief. Thus, in all unions, relief is afforded to able-bodied widows with children, and it is clear that all such relief is in aid of an income obtained by the widow by washing, charing, or other similar employments. So, again, in almost every union that I visited, relief is given to old and infirm men, who, though past regular work, are from time to time employed on occasional odd jobs of various sorts. Relief to these two classes of paupers may, I think, be distinguished from that system of relief in aid of wages, which was so generally prevalent prior to the introduction of the present Poor Law.”
*76 A closer approach to the above idea is made in the treatment which many Boards of Guardians before the war accorded to old and infirm women and to widows with several children. They appeared to hold that, whereas most of the regular trades followed by men provide persons of average capacity, in full employment and without encumbrances, with fairly adequate earnings, most women’s trades do not do this. It is not at all obvious that a widow of ordinary ability, even without children,
can, with reasonable hours and so forth, earn enough to “maintain herself and provide for the ordinary vicissitudes of life.”
*77 Hence we read: “Once a woman is put on the roll (for out-relief), provided she is not guilty of immorality or frequent intemperance, she is not disturbed. Her earnings may rise and fall, but the relief will not vary. The inquiry as to her earnings is made at her first application and rarely
afterwards…. One officer put the common practice into a few words: ‘We never bother about what the women earn. We know they never earn ten shillings. They can always find room for half-a-crown.’ It follows that, in unions where minute inquiry is the exception—that is to say, in most unions—the pauper worker is not discouraged from working up to her full capacity.”
*78 The French law of 1893 concerning sick relief is of kindred character. It provides that in every commune there shall be drawn up periodically a list of persons who, if they become sick, will be entitled to assistance, the persons on the list being placed there on the ground that they have not the capacity to make provision against sickness for themselves. Yet again, the same principle is embodied in the English system of exacting payment (whether through recoverable loans or otherwise) from persons adjudged capable of making some contribution, to whom medical aid has been given, or whose children have been fed by public authority. A charge is made, based, not on what the actual service rendered to the poor man has cost, but on an estimate of the provision which, apart from the hope of outside help, he might have been expected to make. Thus Circular 552 of the Board of Education urges that, when the parents cannot pay the full cost of meals provided for their children, “it is better that they should pay what their means permit, rather than that meals should be given free of cost.”
*79 In other words, an
attempt is made so to arrange the State’s contribution to different families that it shall depend upon, and vary inversely with, their estimated capacity to make provision for themselves.

§ 5. The transference may, however, be made in the form, not of money, but of things. If these things are things which, apart from the transference, a recipient would have purchased out of his own earnings, or if, not being such things, they are capable of being sold or pawned and thus converted into money, the effect is the same as if money had been transferred. But transference of objects not capable of
being sold or pawned, and designed to satisfy needs, which, apart from the transference, a recipient would have left unsatisfied, have a different effect. The last unit of money which a man earns for himself in industry will be required to satisfy the same needs, and will, therefore, be desired with the same intensity as it would have been if no transference had been made. Hence no contraction will occur in the contribution which, by work and waiting, he makes to the national dividend. Thus public parks for the collective use of the poor, or flowers for their private use, can be transferred to them, without the expectation of the transference reacting injuriously upon the dividend. The same remark holds good of general sanitary measures. The grant from State funds of the expenses involved in such things is on a different footing from the grant of funds for ordinary medical treatment. As the Poor Law Commissioners write: “Sanitary measures, for the most part, lie beyond the reach of the individual, and are a common need, which must be provided for in common; while medical treatment is essentially an individual need, and is, for the most part, easily attainable by the individual.”
*80 Similar considerations hold good, in some degree, of the gift of free school education, or of a portion of the costs of it—when the amount of education to be covered is authoritatively fixed—to the children of the poor. For some persons are so poor that, if left to themselves, they could not devote any of their earnings to the purchase of school education, and, therefore, the free provision of it by the State does not lower their desire for any unit of these earnings. Since, when children are taken to be educated, their parents are deprived of the wages they might otherwise have obtained, it may be that, even when to free education free meals are added, there is no net lightening of the costs of living to parents, and, therefore, no diminution in the contribution of work and waiting which they find it profitable to make. In these circumstances the expectation of this variety of neutral transference will leave the size of the national dividend unaltered.

§ 6. There remains the third possibility. There are some commodities and services, the demand for which is so correlated
with that for certain other commodities and services that the gift of them increases the recipient’s desire for these others, thus increasing his desire for any
rthe unit of purchasing power that he may be able to earn, and thus, finally, increasing the work and waiting that he is willing to provide in exchange for purchasing power. It is claimed, for example, that the gift of medical treatment to children in some elementary schools reacts beneficially on the energy of their parents by enlisting co-operation and thought from them. The possibility thus opened up is illustrated in the following passage from Mr. Paterson’s
Across the Bridges:

At present the difficulty of school dinners centers round the position of the mother. Her apathy towards the education of her child, her severance from any sense of partnership with the school, makes her sometimes ready to snatch advantages, but slow to bear her proper share. Her lack of responsibility arises, not from the fact that so much is done for her, but that so much is done without her. As long as the education of the boy is taken completely out of her hands, so long will she be apt to stand aloof, regard every committee as a natural enemy, and grasp at all that she can by any manœuvre hope to be given. The absence of home work, visiting, reports, and all natural ties between school and home are the real enemies of parental responsibility. No mother is harmed by kindness done to her child, so long as every such kindness exacts from her a higher standard and ensures her active co-operation with the school.
*81

A like suggestion is contained in the following extract from the
Letters of Octavia Hill:

I sometimes dream about the time that shall come, “when we shall try to keep up the spirit of our poor,” not by shutting up their hearts in cold independence, but by giving them others to help, and thus rousing the deepest of all motives for self-help, that which is the only foundation on which to build our service to others.
*82

An illustration of what is meant is furnished by the late Canon Barnett thus:

The Children’s Country Holiday Fund, for instance, by giving country holidays to town children, and by making the parents contribute to the expense, develops at once a desire for the peace
and beauty of the country and a new capacity for satisfying this desire. When parents realise the necessity for such holiday, and know how it can be secured, this fund will cease to have a reason for existence.
*83

In undertakings of this kind there is a field for neutral transferences of resources, the expectation of which not merely leaves the national dividend undiminished, but, by creating a new inducement for work and saving, actually increases it.

§ 7. We now pass to the third main group of transferences—namely, those which differentiate in favour of idleness and thriftlessness by making the help that is given larger, the smaller is the provision the recipients have made for themselves. Some resort to this type of transference is involved in all Poor Law systems that fix a state of minimum fortune below which they will not allow any citizen to fall. For, in so far as they raise to this level the real income of all citizens whose provision for themselves falls below it, they implicitly promise that any reduction in private provision shall be made good by an equivalent addition to State provision. It is plain that the expectation of these differential transferences will greatly weaken the motive of many poor persons to make provision for themselves. For, whatever the standard is below which the State has determined that nobody shall fall, any person, who could not provide as much as this for himself but could provide something, will be equally well off if he provides nothing. In so far, therefore, as what a person provides for himself corresponds to what he contributes to the national dividend, transferences that differentiate in favour of small provision threaten grave injury to the national dividend.

§ 8. A recognition of this fact has led many persons to consider plans for limiting the scope of this class of differential transference. Since everybody agrees that in a civilised State no citizen shall be allowed to starve, this can only be done by so enlarging the scope of neutral transferences that the elementary needs of practically all persons, whatever their income, are met through them. The movement in this
direction is well illustrated by the debate between advocates and opponents of a universalised system of old-age pensions.
*84 If, say the advocates of this plan, all persons over a given age, irrespective of their income, are awarded a given pension, there will be no differentiation tempting people in old age to earn smaller incomes than they are able to earn; whereas, if only those persons above the given age who are in receipt of an income below some specified maximum are awarded a pension, there will be an inducement to all persons, who could have earned an income between this maximum and this maximum
plus the pension, to earn less than this maximum: and an effect similar in kind, though less in extent, will be produced by sliding-scale pension schemes. On the other side, however, it is pointed out, in accordance with the reasoning of the last chapter, that money cannot generally be collected through taxation without some injurious reaction on the national dividend being produced. This reaction is likely to be more extensive, the greater is the amount of the money that is raised. Since, therefore, universal old-age pensions necessarily cost more than limited old-age pensions, the argument in favour of the universal form is confronted with an argument of the same order that tells against it. Exactly the same issue, somewhat complicated in this instance by eugenic considerations,
*85 is raised between persons who wish to confine State aid for mothers to those families with young children in which the parents are unable, out of their own resources, to provide for their children adequately, and advocates of the “endowment of motherhood” generally; and again between the advocates of free meals for all school children in elementary schools and advocates of free meals only to those whose parents cannot afford to pay for them. In this last case there has also to be considered the social awkwardness in the schools themselves of distinguishing between two classes of children, and also the practical difficulty of determining which parents can, and which cannot,
afford to pay.
*86 To strike a balance between the conflicting considerations in controversies of this kind is a very delicate task, and one that need not be attempted here. If, however, the method of obviating differential transferences contemplated by the advocates of universal pensions and universal endowment of motherhood were itself universalised, in such wise that the minimum required for subsistence were paid out by the State to everybody, whatever his income might be, the task of balancing gain against loss would no longer be delicate. In these circumstances there can be little doubt that the type of reaction described in § 7 would operate so strongly that the dividend would be seriously injured. In any event, among practical politicians the device of universalising grants to large categories of persons, irrespective of their individual needs, is greatly disliked. There is no real question of pressing it far enough to do away with the need for differential transferences based directly on the poverty of recipients.

§ 9. The expectation of these transferences must, as we have seen, damage the national dividend. If, however, to the receipt of the help they give deterrent conditions are attached, the damage can be mitigated. Consequently the question arises, in what circumstances it is desirable, in the interest of the national dividend, to attach deterrent conditions to State aid, and what form the deterrent conditions, if decided upon, can best assume. To answer this question correctly we need to revert to the concluding sentence of § 7, in which it was indicated that differentiation in favour of people who make small provision for themselves injures the national dividend,
only in so far as what a person provides for himself corresponds to what he contributes to the national dividend. It is common to assume that the provision which a person makes for himself must correspond exactly to his contribution to the national dividend, and that, therefore, the contraction of the aggregate provision thus made—which results from the establishment of a system of differential transferences to poor people—implies an equal contraction of the national dividend. This is substantially true of provision made through work and through savings invested in industry and not subsequently
withdrawn. But it is not true of provision made in the form of a claim to benefit from a mutual insurance society, secured by the payment of previous contributions to that society. For what a sick or unemployed member draws from this source is only in small part the fruit of savings that have been built up into productive capital investments. In the main it consists of payments made out of the contemporary earnings of other members—payments which they are willing to make in return for a promise that they themselves shall, at need, receive similar assistance; but payments, none the less, which represent a transference of real income, just as the gift of a friend would do, and not a creation of real income. In practice the chief part of the provision which poor people make for themselves, otherwise than by contemporary work, is made by way of some form of insurance, though it is loosely and popularly credited to saving. Consequently, we may conclude broadly that, while any check, caused by differential transferences, to the provision that poor people make for themselves through contemporary work involves a corresponding diminution of the national dividend, any check to the provision they make otherwise than through work involves a very much less than corresponding diminution in the dividend. It follows that there is little to be gained by imposing deterrent conditions upon those recipients of State help who have failed to make this sort of provision.

§ 10. But differentiation in favour of small provision made through contemporary work is a serious matter. If, for example, it is understood that everybody’s income will, at need, be brought up by State aid to, say, £3 a week, it will, generally and roughly, be to the interest of everybody capable of earning by work any sum less than £3 a week to be idle and earn nothing. This
must damage the national dividend. How much it damages it will, of course, depend on how large the sum fixed on as a minimum is, and how many people in the country would normally earn by work less than that sum. If the sum exceeds the normal earning power of a large part of the community, the damage done must necessarily be very
great. It is probable that this consideration lay behind the recommendation of the 1832 Commission, that “the situation on the whole of able-bodied paupers should not be made really, or apparently, so eligible as the situation of the independent labourer of the lowest class”—that is to say, of the ordinary unskilled labourer of full age and in good health. At that time unskilled labourers formed a very large proportion of the population. To have guaranteed to everybody a situation better than these labourers could ordinarily earn would, therefore, have threatened the nation with the withdrawal from work of a mass of people whose aggregate efforts were responsible for an important slice of the dividend. It may be observed, however, that to guarantee now a situation better than that represented by the earnings of an unskilled labourer of 1832 would inflict a much smaller proportionate injury upon the dividend, because the proportion of the population, who are not capable of attaining a situation better than this, has become much smaller. Even to guarantee now a situation represented by the situation of the unskilled labourer of to-day would have a smaller proportionate effect, because the proportion of the dividend contributed by unskilled labour now is smaller than it was in 1832. Plainly, however, for the State, tacitly or openly, to guarantee any standard high enough to affect a substantial number of people must threaten considerable injury to the dividend. Here, therefore, there is real scope for the association with State help of deterrent conditions. Of course, there is no object in attaching such conditions to help given to a man who is idle because he is genuinely unable to find work. The knowledge that he cannot get help without these conditions will not remove this inability. But there is an object in attaching them to help given to those who are idle because they are unwilling to find (or to keep) work. The deterrent conditions will make them less unwilling. Until recently the practical difficulty of distinguishing between these two classes of persons, coupled with a general and justified unwillingness to deal hardly with the former of them, made it impossible to arrange these conditions satisfactorily. A compromise was accepted, under which, instead of no deterrence on the one class and strict deterrence on the
other, mild deterrence was imposed on both. This plan did, indeed, save the innocent from gross tyranny, but at the expense of leaving the guilty relatively immune and, therefore, inadequately deterred. Of late years, however, the establishment of employment exchanges has provided machinery by which the truth of a man’s plea that he is out of work through no fault of his own can be, in some measure, tested. In trades where the jobs, once obtained, are of “presumed permanence,” if the employment exchanges are unable to find employment for a man who applies to them, more particularly if that man has a definite settled home, the plea that he is a victim of misfortune, and not of laziness, may be provisionally accepted. This test is, indeed, not easily applicable to casual trades, where workpeople continually alternate between work and idleness; for in these trades a man might be prepared to accept work for a day or so, whenever it was offered through an employment exchange, and yet might deliberately spend a much longer period out of work than there was any need for him to do. This difficulty must be recognised; and it must be admitted, further, that in the exceptional period of free insurance granted by the British Government after the armistice of November 1918, a number of persons obtained unemployment donation who might, had they wished, have been employed. But, in spite of this, there can be no doubt that the development of employment exchanges has made it possible, over a wide field, to distinguish directly those who cannot from those who will not find work. Consequently, since the former class can be withdrawn altogether from the range of deterrent conditions, it is now feasible so to stiffen up the conditions against the latter class—people who are in need because they
will not work with reasonable continuity in private industry—as to make them really effective.

§ 11. Some guidance as to the form that deterrence should take can be obtained from English Poor Law experience. It is clearly suggested, for example, that some degree of enforced labour is an essential ingredient. The importance of this element is well illustrated in some of the evidence given before the Royal Commission of 1832. Thus one witness, in a
Memorandum on Liverpool, stated: “The introduction of labour thinned the house very much; it was sometimes difficult to procure a sufficient supply of junk, which was generally obtained from Plymouth; when the supply was known to be scanty, paupers flocked in; but the sight of a load of junk before the door would deter them for any length of time.”
*87 In the same spirit, the Comptroller of the Accounts for the township of Salford stated: “Finding work for those who applied for relief in consequence of being short or out of work has had a very good effect, especially when the work has been of a different kind from that which they have been accustomed to. In Salford employment to break stones on the highways has saved the township several hundred pounds within the last two years; for very few indeed will remain at work more than a few days, while the bare mention of it is quite sufficient for others. They all manage to find employment for themselves, and cease for a time to be troublesome; although it is a singular fact that, when the stock of stones on hand has been completely worked up before the arrival of others, they have, almost to a man, applied again for relief, and the overseers have been obliged to give them relief; but, so soon as an arrival of stones is announced, they find work for themselves again.”
*88 The information given in a later Report on the Poplar Union points in the same direction. But, though enforced labour seems to be an essential ingredient in deterrent conditions, it is not by itself sufficient. The chief reason for this is the extraordinary difficulty of making a man work for the Poor Law Authorities with anything approaching the energy that he would need to put forth for a private employer. It is practically impossible to set relieved persons to work, each at his own trade. Consequently some general form of labour has to be required: and it is impossible to fix, for a miscellaneous assortment of different people, any single standard of performance. Hence the standard exacted has to be measured to each man “with due regard to his ordinary calling or occupation, and his age and physical ability.” Since this cannot be tested objectively,
“no specified task can be enforced. The capability of the persons employed varies, and it can only be required that each person shall perform the amount of work that he appears to be able to accomplish…. The standard of accomplishment is practically fixed by the unwilling worker.”
*89 The fact that resort cannot be had to the ordinary practice of dismissal leaves the Poor Law Authority without any real defence against this tendency. Consequently potential beneficiaries are aware that the labour which will be imposed upon them if, through unwillingness to work in private industry, they become candidates for public assistance, will not be severe labour. Furthermore, even if this difficulty could be overcome, work for the Poor Law, because its certainty and continuity absolve those engaged in it from the risk, trouble and cost involved in occasional loss of employment and the need of finding a new job, might still prove more attractive than independent labour. Thus, for effective deterrence, something more than enforced labour is required. Disfranchisement (abolished in England in 1918) and the stigma of pauperism are, in the opinion of practical administrators, quite inadequate. Consequently, for those who need support, but will not work to get it, resort must be had to disciplinary measures. This implies detention under control without excessive leave of absence. On the Continent of Europe able-bodied men who fail to support themselves because they will not work are subjected to long periods of detention in labour colonies. In Belgium such persons may be committed to the penal colony of Merxplas for not less than two years nor more than seven years.
*90 The cantonal law in Berne provides for their internment in a labour institution for any time between six months and two years.
*91 The German Imperial Penal Code has a similar provision.
*92 The practice of the Continent is coming to be proposed seriously for adoption in this country also. Thus the Committee on Vagrancy recommended “that a class of habitual vagrants should be defined by Statute, and that this class should include any
person who has been three or more times convicted, during a period of, say, twelve months, of certain offences now coming under the Vagrancy Act, namely, sleeping out, begging, refusing to perform his task of work in casual wards, or refusing or neglecting to maintain himself so that he become chargeable to the poor rate.”
*93 There is no reason—much the contrary—why the conditions of deterrence should not be arranged with a view to “improving” the deterred persons, if that be possible; for to a man wishing to be idle the prospect of improvement, whether by training or by education or in any other way, will be as deterrent as anything else. Detention, however, is essential. Its adoption—which the development of employment exchanges as a means of separating the sheep from the goats has made practicable—would enable a far more effective system of deterrence to be associated with State aid to the deliberately idle than is at present known in this country. We cannot, however, seriously expect that the system will ever become perfect enough to prevent the expectation of differential transferences from contracting, in some degree, the size of the national dividend.