A History of Austrian Economics in Three Lectures

These are the first three lectures from Joseph Salerno’s 2005 seminar “Austrian School of Economics: Revisionist History and Contemporary Theory”, and give a history of the Austrian school from the French liberal school to Rothbard and the 1974 South Royalton conference.


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A Short History of Benefit Societies

Knights and Ladies of Security pin button 2016-11-03.jpg
Knights and Ladies of Security pin buttton. Public Domain.

The following is an excerpt from my paper “American Welfare Reform in Historical Perspective: Marriage, the Family, and Mutual Aid Societies,” which you can download from my Academia.edu profile (see side bar for link). Here I summarize the history of American benefit societies (also known as “fraternal societies” and “mutual aid societies”) in welfare provision and poverty alleviation until the early 20th century. And yes, I do plan on blogging more frequently from now on. – Karl “With A K”

Besides the family and religious institutions, another source of welfare provision was the mutual aid society. Mutual aid societies are as old as the American colonies. In fact, the Freemasons (commonly known as Masons) were the first to establish mutual aid societies in the American colonies. Early Mason members consisted mainly of Americans from the higher classes; this changed with the American Revolution, as the Masons spread to establish lodges wherever chartered members had been stationed. Many mutual aid societies established in the nineteenth century were based on the model set by the Masonic mutual aid societies (Beito 1994, 55).

Unlike modern insurance companies, mutual aid societies “were controlled by their members”, organized at the local level via lodges (Beito 1990, 712). While secret societies “specialized in the social and informal components of mutual aid”, the formal aid offerings of mutual aid societies “had a more substantial social welfare impact” (Beito 1990, 712, 713). A 1910 article noted that the main purpose of mutual aid societies was “insurance against want, the poorhouse, charity and degradation” (Beito 1990, 713). Even in 1931, mutual aid societies provided aid for (at least) ten times as many individuals as mothers’ pensions did (Beito 1990, 714). Death benefits (akin to life insurance) were the keystone of mutual aid assoctiations for a long time; however, societies started offering health and accident insurance in the early twentieth century (Beito 1990, 713, 714).

Around the early twentieth century, mutual aid societies started to decline in membership. According to numbers from the National Fraternal Congress, the number of associated lodge was at 120,000 in 1925. Membership in mutual aid societies then declined through the next eight decades, the pace of which increased during and after the Great Depression (Beito 1994, 59). Twenty percent of member lodges shut down during the 1970’s. Only 52,000 lodges remained in 1986 (Beito 1990, 724). Founded in 1886, the American Fraternal Alliance reports that only sixty-three member societies exist to date (American Fraternal Alliance).

Historians have given several explanations for the decline in mutual aid societies (Beito 1990, 724–729). The most prevalent is actuarial problems as a source of stress on fraternal societies. Similar to problems in today’s Social Security program, letting members pay a basic premium regardless of risk or age came “under severe strain when the membership aged” (725). However, this could not explain how many smaller African–American mutual aid societies were still able to operate efficiently on this system.

David Beito highlights two of these explanations for contemplation. The first, proposed by Roger L. Ransom and Richard Sutch, is that legal prohibitions on certain forms of insurance incentivized “consumer dependency on employer benefit plans and government programs”. Beito notes that this thesis requires development societies (Beito 1990, 726).

A second thesis Beito considers posits a causal relationship between the early expansion of government welfare and the decline of mutual aid societies. According to Beito, the historical evidence “is fairly clear” that “weakened mutual aid coincided with the growth of government’s social–welfare role” (Beito 1990, 726). Two types of government aid that predated the New Deal were workers’ compensation and mothers’ pensions. The number of states offering the later type grew from twenty in 1913, to thirty-nine in 1919, and all but four in 1931 (Beito 1990, 726–727). While correlation is not causation, Beito notes that since mutual aid societies “had [historically] been a creature of necessity,” the government’s increased provision of welfare “must have undermined much of this necessity” that characterized mutual aid societies (Beito 1990, 727).

Bibliography

Beito, David T. “Mutual Aid for Social Welfare: The Case of American Fraternal Societies.” Critical Review 4, no. 4 (1990): 709-736.

___. “Thy Brother’s Keeper: The Mutual Aid Tradition of American Fraternal Orders.” Policy Review 70 (1994): 55-60.

___. “From Mutual Aid to Welfare State: How Fraternal Societies Fought Poverty and Taught Character”. Research report for the Heritage Foundation, 2000.

___. From Mutual Aid to the Welfare State: Fraternal Societies and Social Services, 1890-1967. University of North Carolina Press, 2003.

Olasky, Marvin. The Tragedy of American Compassion. Washington: Regnery Gateway, 1992.

Trattner, Walter I. From Poor Law to Welfare State: A History of Social Welfare in America. New York: Free Press, 1994.

West, Thomas G. Vindicating the Founders: Race, Class, Sex, and Justice in the Origins of America. Rowan and Littlefield, 1997.

___. “The Economic Principles of America’s Founders: Property Rights, Free Markets, and Sound Money.” First Principles Series 32. Heritage Foundation, 2010.

___. “Poverty and Welfare in the American Founding.” First Principles Series 53. Heritage Foundation, 2015. (Updated version of West [1998], 131–146.)

___. The Political Theory of the American Founding: Natural Rights, Public Policy, and the Moral Conditions of Freedom. Cambridge University Press, 2017.

Was the National Bank a Precursor to the Federal Reserve?

Many seem to think so, especially the Federal Reserve. However, Richard Salsman at Duke University doesn’t agree:

Hamilton’s proposed “Bank of the United States” was to be a national bank, but not a central bank in the modern sense of a banker to government, or a bank that issues a monopoly fiat money, controls system reserves, and at root is beholden to the government that sponsors it and makes sure it underwrites (monetizes) and trades its own debt securities, the more so as more debt accumulates. For Hamilton the purpose of establishing a national bank was to asset the Treasury in collection and disbursing revenues (thus more easily servicing the nation debt) and to ensure that the national currency be gold-backed and that private banks issue their own currency by reference to the same uniform standard; above all, the national bank (what became the Bank of the United States, with a limited twenty-year charter lasting from 1791 to 1811) would not be co-opted into becoming the government’s pet bank. (“Hamiltonian Principles of Public Finance as a Guide to Current U.S. Debt Dilemmas,” April 2012)

Salsman is the only person I know who makes this case. I will have to do some more research on this issue. (Stay tuned!)

Happy Thanksgiving!

Whereas it is the duty of all nations to acknowledge the providence of Almighty God, to obey His will, to be grateful for His benefits, and humbly to implore His protection and favor; and — whereas both Houses of Congress have, by their joint committee, requested me “to recommend to the people of the United States a day of public thanksgiving and prayer, to be observed by acknowledging with grateful hearts the many and signal favors of Almighty God, especially by affording them an opportunity peaceably to establish a form of government for their safety and happiness”:

Now, therefore, I do recommend and assign Thursday, the 26th day of November next, to be devoted by the people of these States to the service of that great and glorious Being who is the beneficent author of all the good that was, that is, or that will be; that we may then all unite in rendering unto Him our sincere and humble thanks for His kind care and protection of the people of this country previous to their becoming a nation; for the signal and manifold mercies and the favor, able interpositions of His providence in the course and conclusion of the late war; for the great degree of tranquillity, union, and plenty which we have since enjoyed; for the peaceable and rational manner in which we have been enabled to establish constitutions of government for our safety and happiness, and particularly the national one now lately instituted; for the civil and religious liberty with which we are blessed, and the means we have of acquiring and diffusing useful knowledge; and, in general, for all the great and various favors which He has been pleased to confer upon us.

And also that we may then unite in most humbly offering our prayers and supplications to the great Lord and Ruler of Nations, and beseech Him to pardon our national and other trangressions; to enable us all, whether in public or private stations, to perform our several and relative duties properly and punctually; to render our National Government a blessing to all the people by constantly being a Government of wise, just, and constitutional laws, discreetly and faithfully executed and obeyed; to protect and guide all sovereigns and nations (especially such as have shown kindness to us), and to bless them with good governments, peace, and concord; to promote the knowledge and practice of true religion and virtue, and the increase of science among them and us; and, generally, to grant unto all mankind such a degree of temporal prosperity as He alone knows to be best.

Given under my hand at the City of New York the third day of October in the year of our Lord 1789.

Go. Washington