by Ludwig von Mises
http://mises.org/story/3647

Compulsory Social Insurance

The essence of the program of German étatisme is social insurance. But people outside the German Empire have also come to look upon social insurance as the highest point to which the insight of the statesman and political wisdom can attain. If some praise the wonderful results of these institutions, others can only reproach them for not going far enough, for not including all classes, and for not giving the favored all that, in their opinion, they should have. Social insurance, it was said, ultimately aimed at giving every citizen adequate care and the best medical treatment in sickness and adequate sustenance if he should become incapable of work through accident, sickness or old age, or if he should fail to find work on conditions he considered necessary.

No ordered community has callously allowed the poor and incapacitated to starve. There has always been some sort of institution designed to save from destitution people unable to sustain themselves. As general well-being has increased hand in hand with the development of capitalism, so too has the relief of the poor improved. Simultaneously the legal basis of this relief has changed. What was formerly a charity on which the poor had no claim is now a duty of the community. Arrangements are made to ensure the support of the poor. But at first people took care not to give the individual poor a legally enforceable claim to support or sustenance. In the same way they did not at once think of removing the slight stigma attaching to all who were thus maintained by the community. This was not callousness. The discussions which grew out of the English Poor Law in particular show that people were fully conscious of the great social dangers involved in every extension of poor relief.

German social insurance and the corresponding institutions of other states are constructed on a very different basis. Maintenance is a claim which the person entitled to it can enforce at law. The claimant suffers no slur on his social standing. He is a state pensioner like the king or his ministers or the receiver of an insurance annuity, like anyone else who has entered into an insurance contract. There is also no doubt that he is entitled to look on what he receives as the equivalent of his own contributions. For the insurance contributions are always at the expense of wages, immaterial of whether they are collected from the entrepreneur or from the workers. What the entrepreneur has to pay for the insurance is a charge on labor's marginal productivity, it thus tends to reduce the wages of labor. When the costs of maintenance are provided out of taxes the worker clearly contributes towards them, directly or indirectly.

To the intellectual champions of social insurance, and to the politicians and statesmen who enacted it, illness and health appeared as two conditions of the human body sharply separated from each other and always recognizable without difficulty or doubt. Any doctor could diagnose the characteristics of "health." "Illness" was a bodily phenomenon that showed itself independently of human will and was not susceptible to influence by will. There were people who for some reason or other simulated illness, but a doctor could expose the pretence. Only the healthy person was fully efficient. The efficiency of the sick person was lowered according to the gravity and nature of his illness, and the doctor was able, by means of objectively ascertainable physiological tests, to indicate the degree of the reduction of efficiency.

Now every statement in this theory is false. There is no clearly defined frontier between health and illness. Being ill is not a phenomenon independent of conscious will and of psychic forces working in the subconscious. A man's efficiency is not merely the result of his physical condition; it depends largely on his mind and will. Thus the whole idea of being able to separate, by medical examination, the unfit from the fit and from the malingerers, and those able to work from those unable to work, proves to be untenable. Those who believed that accident and health insurance could be based on completely effective means of ascertaining illnesses and injuries and their consequences were very much mistaken. The destructionist aspect of accident and health insurance lies above all in the fact that such institutions promote accidents and illness, hinder recovery, and very often create, or at any rate intensify and lengthen, the functional disorders which follow illness or accident.

A special disease, traumatic neurosis, which had already appeared in some cases as a result of the legal regulation of claims for compensation for injury, has been thus turned into a national disease by compulsory social insurance. No one any longer denies that traumatic neurosis is a result of social legislation. Overwhelming statistics show that insured persons take much longer time to recover from their injuries than other persons, and that they are liable to more extensions and permanent functional disturbances than the uninsured. Insurance against diseases breeds disease. Individual observation by doctors as well as statistics prove that recovery from illnesses and injuries is much slower in officials and permanent employees and people compulsorily insured than in members of the professions and those not insured. The desire and the necessity of becoming well again and ready for work as soon as possible assist recuperation to a degree so great as to be capable of demonstration.

To feel healthy is quite different from being healthy in the medical sense, and a man's ability to work is largely independent of the physiologically ascertainable and measurable performances of his individual organs. The man who does not want to be healthy is not merely a malingerer. He is a sick person. If the will to be well and efficient is weakened, illness and inability to work is caused. By weakening or completely destroying the will to be well and able to work, social insurance creates illness and inability to work; it produces the habit of complaining — which is in itself a neurosis — and neuroses of other kinds. In short, it is an institution which tends to encourage disease, not to say accidents, and to intensify considerably the physical and psychic results of accidents and illnesses. As a social institution it makes a people sick bodily and mentally or at least helps to multiply, lengthen, and intensify disease.


The psychic forces which are active in every living thing, including man, in the form of a will to health and a desire to work, are not independent of social surroundings. Certain circumstances strengthen them; others weaken them. The social environment of an African tribe living by hunting is decidedly calculated to stimulate these forces. The same is true of the quite different environment of the citizens of a capitalist society, based on division of labor and on private property. On the other hand, a social order weakens these forces when it promises that if the individual's work is hindered by illness or the effects of a trauma, he shall live without work or with little work and suffer no very noticeable reduction in his income. Matters are not so simple as they appear to the naive pathology of the army or prison doctor.

Social insurance has thus made the neurosis of the insured a dangerous public disease. Should the institution be extended and developed, the disease will spread. No reform can be of any assistance. We cannot weaken or destroy the will to health without producing illness.