"Grain farmers used the Poor Law to reduce their annual labor costs by laying off much of their workforce during the winter. Thus, some share of the increase in relief spending represented a subsidy to farmers rather than a transfer from farmers and other taxpayers to agricultural laborers and their families."
Economists and even some politicians are skeptical of the need for agricultural subsidies in America. Yet just this past year, Congress increased such subsidies dramatically. The persistence of agricultural subsidies often is attributed to the political power of farmers. When every state gets two senators, those from farm states get clout out of proportion to the population they represent.
The political power of farmers also helps explain a political economy puzzle of the early nineteenth century. Between 1780 and 1820, aid to the poor in England more than doubled. No other western European country experienced such a rapid increase in relief spending. As a result, poor relief expenditures as a share of national product were significantly higher in England than elsewhere in western Europe from 1795 to 1834. How and why this increase in spending occurred largely is a political story—a story of how farmers used the Poor Law to reduce their labor costs, by substituting relief benefits for wage payments. The increase in relief expenditures helped subsidize farmers at the expense of non-farming taxpayers. By the second decade of the nineteenth century relief spending was so high that it alarmed the British public, and Thomas Malthus, David Ricardo, and other economists gained center stage by calling for the repeal of the Poor Law. Their concerns over the disincentives of generous poor relief quickly came to dominate the political discussion, and led to the reform of the Poor Law in 1834.
The Poor Law dates back to Tudor England. In Acts of 1598 and 1601, Parliament established a compulsory system of poor relief that was administered and financed at the local (parish) level. The Elizabethan Poor Law was adopted largely in response to the dissolution of the monasteries, religious guilds, almshouses, and hospitals under Henry VIII, institutions that previously had provided charitable assistance to the poor. During the seventeenth and early eighteenth centuries, the bulk of relief recipients were elderly, orphans, or widows with young children, and the great majority were female.
The nature of poor relief changed significantly after 1750. Spending increased sharply, as did the share of paupers who were prime-aged males. The changing nature of the Poor Law was caused in part by an increase in the extent of poverty among agricultural laborers. However, the increase in spending overestimates, perhaps significantly, the increase in poverty, because during this period politically-dominant farmers took advantage of the Poor Law to shift some of their labor costs onto other taxpayers.
In the second half of the eighteenth century, a significant share of rural households in southern England suffered non-trivial declines in real income. Farmers responded to rising wheat prices by increasing their specialization in grain production (as opposed to livestock). Because the demand for labor is far more seasonal in grain production than in pastoral farming, the concentration in grain caused an increase in seasonal unemployment among farm laborers. The enclosure movement, and the plowing over of commons and waste land, reduced the access of rural households to land for growing food and grazing animals. Finally, employment opportunities in cottage industry declined, which reduced the ability of women and children to contribute to household income. The increase in seasonal unemployment, the decline of cottage industry, and the loss of common rights caused severe hardships for many rural southern households, especially during the winter months. The situation was different in the north and midlands, areas dominated by pastoral agriculture, where the demand for labor was relatively constant over the year. Moreover, the beginnings of industrialization in the northwest, and in particular the rise of textile factories, led to increased employment opportunities for women and children.
Largely in response to the decline in household income in the rural south, Parliament in 1782 sanctioned the granting of outdoor relief to able-bodied males. This change in relief administration offered politically-dominant farmers an incentive to take advantage of the poor relief system to shift some of their labor costs onto other taxpayers. Relief expenditures were financed by a tax levied on all parishioners whose property value exceeded some minimum level. A typical rural parish's taxpayers can be divided into two groups: labor-hiring farmers and non-labor-hiring taxpayers (family farmers, shopkeepers, and artisans). Poor relief was administered by the parish vestry, elected by the taxpayers. Most rural parish vestries were dominated by labor-hiring farmers as a result of the system of plural voting introduced by Gilbert's Act in 1782 and extended in 1818 by the Parish Vestry Act, which gave large property holders (typically labor-hiring farmers) up to six votes in parish elections. Large farmers used their political power to tailor the local administration of poor relief so as to lower their labor costs.
Farmers needed to pay their workers enough over the year to keep them from taking jobs elsewhere, either on other farms or in urban areas. They could do this by offering workers annual labor contracts. Alternatively, they could employ labor only when needed, but pay their workers peak season wage rates that were high enough to sustain the workers' families for the entire year. With both of these methods, farmers bore the entire cost required to keep their workers from leaving the farm. The Poor Law offered farmers another option. They could hire workers by the day, and during slack seasons have unneeded workers collect poor relief. Under this option, farm workers' annual income was made up partly of wage payments and partly of poor relief. Because labor-hiring farmers paid only part of the cost of poor relief, this option enabled them to shift some of their labor costs onto other taxpayers.
This third alternative proved to be quite attractive to farmers in grain-producing areas, where the demand for labor varied greatly over the year. Grain farmers used the Poor Law to reduce their annual labor costs by laying off much of their workforce during the winter. Thus, some share of the increase in relief spending in the grain-producing south from 1780 to 1820 represented a subsidy to labor-hiring farmers rather than a transfer from farmers and other taxpayers to agricultural laborers and their families. This subsidy was larger the greater the share of the poor rate paid by non-labor-hiring taxpayers. In the pasture-farming north and west, where the demand for agricultural labor was fairly constant over the year, it was not in farmers' interests to shed labor during the winter, and the number of able-bodied laborers receiving relief was smaller.
The sharp increase in spending on poor relief after 1780 sparked a major debate on the Poor Laws in and out of Parliament, which continued until the adoption of the Poor Law Amendment Act of 1834. Most participants in the debate were sharply critical of the granting of outdoor relief to able-bodied males, on the grounds that such aid created serious work disincentives. For example, Frederic Eden, author of The State of the Poor (1797), maintained that "a legal provision for the Poor... checks that emulative spirit of exertion, which the want of the necessities... gives birth to: for it assures a man, that, whether he may have been indolent, improvident, prodigal, or vicious, he shall never suffer want." Thomas Malthus was by far the most influential critic of the Poor Law. Chapter 5 of the first edition of his Essay on the Principle of Population (1798) was devoted to the Poor Laws. A more detailed critique of the Poor Laws followed in the greatly expanded second edition of 1803, and this was further expanded and refined in the Essay's succeeding four editions. Malthus argued that, by guaranteeing parish assistance to able-bodied laborers, the Poor Laws "diminish both the power and the will to save among the common people, and thus... weaken one of the strongest incentives to sobriety and industry, and consequently to happiness." The payment of child allowances offered "a direct, constant, and systematical encouragement to marriage by removing from each individual that heavy responsibility, which he would incur by the laws of nature, for bringing beings into the world which he could not support." In the long run, the Poor Laws "create the poor which they maintain." Malthus proposed a plan to gradually abolish the Poor Law, so that no child born after a certain date would ever be able to obtain parish relief.
David Ricardo was at least as critical of the system of outdoor relief as was Malthus. He wrote:
The clear and direct tendency of the poor laws, is... not, as the legislature benevolently intended, to amend the condition of the poor, but to deteriorate the condition of both poor and rich;... If by law every human being wanting support could be sure to obtain it, and obtain it in such a degree as to make life tolerably comfortable, theory would lead us to expect that all other taxes together would be light compared with the single one of poor rates. The principle of gravitation is not more certain than the tendency of such laws to change wealth and power into misery and weakness.
Ricardo advocated the gradual abolition of the Poor Laws, in order to impress "on the poor the value of independence, by teaching them that they must look not to systematic or casual charity, but to their own exertions for support, that prudence and forethought are neither unnecessary nor unprofitable virtues."
The attacks on the Poor Law by Malthus and Ricardo were echoed by others, including popularizers of political economy such as Jane Marcet and Harriet Martineau. Their writings, along with the fear generated by the agricultural laborers' revolt of 1830-1 (the Captain Swing riots), led the government to appoint in 1832 the Royal Commission to Investigate the Poor Laws. The Commission's 360-page report, written by political economists Nassau Senior and Edwin Chadwick, was published in March 1834. It called for sweeping reforms of the Poor Law, including the abolition of outdoor relief for the able-bodied and their families. The report maintained that "out-door relief ... appears to contain in itself the elements of an almost indefinite extension... Among the elements of extension are the constantly diminishing reluctance to claim an apparent benefit, the receipt of which imposes no sacrifice, except a sensation of shame quickly obliterated by habit, even if not prevented by example."
The report explicitly recognized that the Poor Law was being abused by large farmers, who supported outdoor relief because it "enables them to dismiss and resume their labourers according to their daily or even hourly want of them, and to... throw upon others the payment of a part... of the wages actually received by their labourers." Senior and Chadwick argued that farmers' perceptions of the benefits of outdoor relief were shortsighted. In the long run, the ready availability of poor relief reduced workers' skill, diligence, and honesty, and caused labor productivity to decline, which in turn led to a decline in profits. When this occurred, the farmer could "either quit [the farm] at the expiration of his lease, or demand on its renewal a diminution of rent." Much of the long-run cost of increased relief spending therefore fell on the landowners; Senior and Chadwick claimed to have found many parishes in which rents had declined by 50% or more as a result of pauperization.
The report urged the adoption of a policy of "less eligibility," by which the condition of paupers would be worse than that of the lowest-paid independent laborers. To achieve this, Senior and Chadwick recommended that relief should be granted to able-bodied laborers and their families only in well-regulated workhouses, and confidently predicted that the use of workhouses would restore the industry and "frugal habits" of the poor, and improve their "moral and social condition."
It is important to note that the report did not seek to abolish the Poor Law. Senior and Chadwick acknowledged that "circumstances will occur in which an individual, by the failure of his means of subsistence, will be exposed to the danger of perishing. To refuse relief... when it cannot be proved that the offender could have obtained subsistence by labour, is repugnant to the common sentiments of mankind." All civilized societies should provide aid to those unable to obtain the means of subsistence. The problem with the administration of the Poor Law, in their view, was that it offered relief to able-bodied individuals who could without any help earn a subsistence income. Their solution was the policy of less eligibility; it would reduce the suffering of the truly needy, and at the same time provide incentives for the poor to find work.
Soon after the report was published Parliament adopted the Poor Law Amendment Act of 1834, which implemented many of the report's recommendations and established a three-member Poor Law Commission to regulate the administration of relief. By 1839 a majority of the newly-formed Poor Law Unions had built or were building workhouses, although many unions evaded the Commission's attempts to eliminate the payment of outdoor relief to able-bodied males, largely because taxpayers balked at the high cost of relieving paupers in workhouses. Still, the existence of workhouses reduced the attractiveness of relief both to the poor and to cost-conscious farmers, and altered the form of farmers' cost-minimizing labor contracts. As a result, per capita relief expenditures declined after 1834 and never again came close to their level in the 1820s. By the 1840s, relief expenditures in England once again were comparable to those on the continent.
In sum, the dramatic increase in aid to the poor from 1780 to 1820, and the sharp fall in relief spending after 1834, were caused in large part by changes in the administration of the Poor Law, rather than by a rise and then a decline in the share of the population living in poverty. Politics, along with economics, explains the puzzling trend in relief spending in early nineteenth century England.
We are confronting in the United States today many of the same issues regarding welfare reform confronted by the English nearly two centuries ago. There continues to be a tension between our desire to help the poor and our desire to preserve work incentives. Politicians and economists are still trying to design a welfare system that assists the truly needy without making them dependent on relief and without making welfare attractive to those able to work. Many solutions to this problem have been offered over the years, but most if not all of them include some form of less-eligibility, an idea put forward 180 years ago by Nassau Senior and Edwin Chadwick.