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America’s Welfare-State Revolution


It is truly impossible to overstate the enormity of the welfare-state revolution that occurred in 20th-century America.

Consider that for more than 100 years — from the inception of the Republic until the 20th century — the American people lived under the most unusual and remarkable governmental system in history.

No, I’m not suggesting that it was a libertarian paradise by any means, especially when we throw slavery into the mix and such lesser things as government-business partnerships, but imagine: No income tax, no IRS, no Social Security, no Medicare, no Medicaid, no Obamacare, no education grants, no foreign aid, no farm subsidies, no FDIC, no welfare, no occupational licensure, no Federal Reserve System, no fiat (paper) money, and yes as to gold and silver coins being the official money of the nation. Americans were free to keep everything they earned and decide for themselves what to do with their own money.

No one can deny that that was truly the most unusual and remarkable system in history, one that lasted for more than 100 years.

Yet, what is also amazing is that by the time the 1930s had arrived, Americans had abandoned all that for an entirely different system. Equally amazing is that this was done without following the established procedure in the Constitution for changing the governmental system — that is, through the amendment process.

President Franklin Roosevelt and his New Deal programs were, of course, the catalyst for America’s transformation to a welfare state/regulated economy way of life. But the seeds for the change toward economic statism had been sown by the Progressives ever since the late 1800s. While it’s easy to revile FDR for changing America’s governmental system and for doing so in a dictatorial manner (such as by nationalizing people’s gold coins), the fact is that with or without FDR, by the 1930s the American people were bound and determined to do what the rest of the world was doing — embrace socialism and interventionism, in the form of a welfare state and regulated economy. By that time, the vast majority of Americans had bought into the Progressive notion that one of the prime purposes of government is to take care of people through welfare and regulation.

There were those who fought hard to preserve the nation’s founding principles of economic liberty and a free-market economic system—that is, one in which markets are free from governmental interference. They fought hard against the Progressives but by the time the 1930s came around, they never had a chance, given the overwhelming desire for socialism and interventionism among the vast majority of Americans.

There is one telling example that truly reveals the manner in which this giant transformation came about. During the early years of the FDR administration, there were justices on the U.S. Supreme Court who were declaring some of his economic program unconstitutional. With their rulings, they were saying to FDR and the nation: The charter that brought this federal government into existence does not permit this type of program and, therefore, we have no choice but to declare it unconstitutional. The Court’s message was clear: If you want to transform the country’s governmental system to one of socialism and interventionism, you need to follow the proper route: Seek a constitutional amendment that permits socialist and interventionist programs.

FDR would have none of that. Rather than following the correct route to change America’s system, FDR instead came up with a scheme to alter the composition of the Supreme Court, so that it would render his programs constitutional.

It would be difficult to come up with a more dictatorial or totalitarian scheme than that. The Constitution was supposed to be the highest law of the land. It was the document that called the federal government into existence. The powers of the federal government were limited to those enumerated in the Constitution. If a power wasn’t enumerated, it could not be exercised. If people wanted to add powers that were not enumerated, they would have to secure an amendment to the Constitution.

That type of arrangement obviously serves as a major obstacle for a president who wants to exercise whatever powers he deems necessary to the well-being of the nation. That was Roosevelt. Like other rulers of his time, he didn’t want to be restrained in doing what he considered was best for the nation. He wanted to do whatever he wanted. And he wasn’t about to let “nine old men” on the Supreme Court interfere with the welfare-state transformation that he was bound and determined to bring to America.

FDR’s court-packing scheme attempted to induce justices who were over 70 years of age to retire by offering them full retirement pay. In that way, FDR could replace them with justices who would do his bidding by upholding the constitutionality of his programs. Under the scheme, if a justice refused to retire, FDR would be able to add an additional justice, whose vote would then cancel out the justice who refused to retire.

One of the interesting aspects of FDR’s court-packing scheme was the public outcry against it, including among the mainstream press and even among FDR supporters. While the vast majority of Americans favored the welfare-state transformation that FDR was bringing to America, it was important to people that the trappings and appearance of the traditional structure be maintained. In that way, people could convince themselves that nothing fundamental had changed or, if it did change, it had been changed in accordance with the law.

FDR’s court-packing scheme went down to defeat. Nonetheless, he ended up winning the war. With retirements on the Court, FDR began packing the court with judicial cronies through appointment and Senate confirmation. That made everyone feel good because it felt like everything was normal — that nothing fundamental had really changed.

Thus, throughout the 20th century and into the next, Americans continued to tell themselves that the United States was still a “free enterprise” country. It was a classic case of self-deception, given that the United States now had a governmental system that was based on the things that previous Americans rejected, such as: income tax, IRS, Social Security, economic regulations, welfare, Federal Reserve, fiat (paper) money, and immigration controls, all of which would later lead to Medicare, Medicaid, Obamacare, farm subsidies, foreign aid, the drug war, and, well, to the massive welfare-state and regulated economy that we live under today.

We have now had two different economic systems in U.S. history: one based on the principles of economic liberty and free markets and the other based on the principles of socialism and interventionism. Given the disastrous results of the latter, how about another revolutionary transformation that restores the former?



This post was written by:

Jacob G. Hornberger is founder and president of The Future of Freedom Foundation. He was born and raised in Laredo, Texas, and received his B.A. in economics from Virginia Military Institute and his law degree from the University of Texas. He was a trial attorney for twelve years in Texas. He also was an adjunct professor at the University of Dallas, where he taught law and economics. In 1987, Mr. Hornberger left the practice of law to become director of programs at the Foundation for Economic Education. He has advanced freedom and free markets on talk-radio stations all across the country as well as on Fox News’ Neil Cavuto and Greta van Susteren shows and he appeared as a regular commentator on Judge Andrew Napolitano’s show Freedom Watch. View these interviews at LewRockwell.com and from Full Context. Send him email.