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Some Social Aspects of Medical Socialism

05/03/2010Melchior Palyi

[Excerpted from Compulsory Medical Care and the Welfare State]

"Utopias are realizable. Life marches toward the Utopias. And perhaps a new century begins, a century in which the intellectuals and the cultured class will dream of means to escape the Utopias and to return to a non-Utopian society less 'perfect' and freer." — Nicolas Berdjaev.

The 18th century proudly called itself the century of reason. The 19th boasted of being the century of progress. In the same fashion, the 20th deserves one of two titles: the century of Marxian totalitarianism or of Bismarckian social security.

That the two movements, for governmentalizing the security of the individual and toward unrestrained absolutism, coincide is far from accidental. Both have the same deep psychological root: the longing in the heart of the masses, on which the politician can capitalize, for protection against the hazards of life, cost what the protection may. And both imply vast controls by the state to replace the responsibility of the individual.1 Both belong in the same chapter of the history book: the welfare (police) state.

Short of having reached total power, the welfare state, like any other, has to win the mass loyalty on which power depends. Spending one way and taxing the other is the age-old formula. Both have to be supported by arguments.

Humanitarianism and Paternalism

Until after the turn of the century, the appeal to humanitarianism provided the number-one argument for governmentalized medicine. Poor people cannot afford to take care of their own health. To leave them to charity, public or private — and both were highly developed long before Bismarck — would be "humiliating." Why, the poor may be so proud that they might not take the alms and would rather suffer or even die, so the argument implied. Then, there are the semi-poor who could get along normally, but who might be wrecked by major sickness in the family.

After World War I, more rationalization was needed to justify the expansion of the schemes to ever-higher income brackets. It was easily found in the Bismarckian armory of ideas: people must be insured against sickness in a compulsory fashion because they do not take care of themselves. They do not know how to use their money rationally; the government has to step in and teach them to make sound use of their incomes. The paternalistic image supplements the humanitarian vistas. The implication is that people

lack the insight and the moral strength to provide spontaneously for their own future. But then it is not easy to silence the voices of those who ask whether it is not paradoxical to entrust the nation's welfare to the decisions of voters whom the law itself considers incapable of managing their own affairs; whether it is not absurd to make those people supreme in the conduct of government — who are manifestly in need of a guardian to prevent them from spending their own income foolishly. Is it reasonable to assign to wards the right to elect their guardians?2

Also, substituting by authority for the private propensity to save tends to undermine the saving habit which it is supposed to inculcate and to supplement.

Note in passing that the most effective argument for compulsory medicine is still to provide for people in the low income brackets who cannot provide for themselves. But in practice, and from the outset, the schemes always include a majority of members who could very well take care of themselves. And almost always they leave out a minority, especially the lowest income group, that still has to fall back on poor relief or private charity.

Authoritarians Turning Red

World War II has opened a new ideological era. The question is not only of being humanitarian or of teaching people how to spend properly. The question is to provide security for all, and to do so in such a fashion as to equalize the hazards of life between rich and poor, between high-salaried and low-paid, between skilled and unskilled, etc. Equalitarian security is the new goal — the professed goal, anyway.

He who wishes to understand the trends of Europe in the face of the soul-searching effects of World War II must visualize this underlying equalitarian trend. It permeates politics and economics. It is expressed in communist and socialist strength. Equalitarian ideas often blend even with those of parties and movements of a conservative character, to say nothing of those of "fascist" leanings.

Professions Losing Status

Equalitarianism is a psychological power of the first magnitude, which creates a new outlook on life. In Europe, even on this side of the Iron Curtain, it has become almost a part of many people's mental makeup. One of its most spectacular, and from the cultural point of view most significant, manifestations is the pressure to deflate the white-collar middle-class and upper-middle-class type of society, with its conventional values, its comparative leisure, and its cultural interests.

In Britain, in particular, the outspoken sentiment of the masses and the political and administrative weapons in the hands of their representatives are being used to depreciate the position of the professions. Why should anyone be better off than a mechanic or lead a life different from his? What that means, why the professional is in need of higher income and more leisure' than the artisan, has been succinctly formulated by an English economist.3

High-grade intellectual work … demands a measure of freedom from incessant preoccupation with penny saving; the half hour in the rain at the bus stop, the long wait to borrow the book which one cannot afford to buy, the odd jobs and make-do-and-mend which nibble away time and energy. These things are not necessarily more unpleasant to the professional than to the artisan … but they affect his work as they do not affect the artisan's. It demands, more positively, opportunity; the relaxation in which, deep in the apparently idle mind, ideas meet and cross-fertilize and mature; the stimulus of informal, as well as professional meetings with colleagues and … others concerned with a widely different expertise, at home and abroad; the leisure and means with which to balance the claims of specialty with a saving leaven of civilization. All these are expensive.

The medical profession is perhaps most sensitive among all groups of the "intelligentsia" to the effects of this leveling process. In the medical field, study is longer and more expensive, the earning life period shorter, and the investment in technical installations more costly than in any other "academic" activity.

Indeed, its contribution to the civilization and progress of humanity rests on a material foundation. To deny the latter is tantamount to stultifying the former. Such a policy may fit into the garrison state of the Soviets, in which civilization is identical with military preparedness, and progress with regimentation.

Intra-Professional Equalitarianism

"You know, Lord Horder, as I do, that one doctor is as good as another doctor," said Aneurm Bevan to the spokesman of the British profession. The tendency of authoritarian medicine to level the differences within the profession may be even more significant, perhaps, than the tendency to level the profession as a whole.

The second pressure could be corrected by raising the doctors' honoraria — if that were financially possible and politically expedient. But the first is inherent in the very nature of the system. How should the bureaucracy distinguish between one surgeon and another in terms of respective ability? It has to pay both on the basis of well-defined, uniform standards, lest purely arbitrary judgments and corruption should prevail.

The effect on medical practice would be similar to that on a business which had ceased to distinguish between the shipping clerk and the executive vice president, except in terms of seniority and stopwatch records.

Continental panel systems mitigate the devastating ill effects by leaving a substantial sphere of the medical business in freedom. Doctors fortunate enough to retain or to develop a private practice can afford to devote part of their time to the "mechanized" panel practice, while still having sufficient leisure left to develop their art. Where medical security is newly introduced, the profession lives for years on its accumulated capital, so to speak, of past experience and accomplishment. What will happen when private practice fades out, together with the old generation of doctors who grew up in it? So will the beneficial results of private practice on the medical art in itself.

"Equalitarianism is a psychological power of the first magnitude, which creates a new outlook on life."

The new generation of doctors, whose future lies in the compulsory system, does not even need the training the old used to acquire. Characteristically, from England comes the suggestion that, in view of the urgent demand for more doctors to relieve the shortage caused by the onrush of nonpaying patients, the rank and file of young doctors should be permitted to pass with training less comprehensive than required at present.

According to Dr. J. Plesch, London, a four-year vocational course would do, while future consultants, specialists, and scientists should be the only ones to receive a full-fledged academic and clinical training. Lancet, the pro-Bevan (!) British medical journal, commented caustically (April 2, 1949),

Retrograde as this proposal may seem, it is none the less in line with the present tendency of the over -burdened general practitioner to disuse his medical skills and practice medicine on a level little above that of a competent orderly. If we are going to be content with conditions under which real medicine is to be practiced almost exclusively at or from hospitals, why not frankly acknowledge the fact and accept Dr. Plesch's proposal to train our students accordingly?

A second-class training for scheme practitioners should be in accordance with the second-class medical service they tend to supply in most scheme frameworks.

Socialist Purpose of "Security"

The socialistic implications of compulsory medicine, especially in the health-security systems of France and Britain, to say nothing of Soviet Russia, have far greater significance than the leveling trend that affects the doctors.

The idea underlying those security systems has been clearly formulated by their leading French representative. According to Monsieur Laroque,

The French social security plan was aimed in essence at no other target than to introduce a little more justice into the distribution of the national income.

In other words, and this holds for the British approach as well, healthcare per se is not the prime objective.

"Security of the power to work" is incidental only, or so it appears, to the goal of correcting inequalities and injustices in the capitalistic pattern of income distribution. Healthcare turns out to be one of the pipelines through which the recanalization of wealth is to be accomplished. It is, to repeat, "distribution, by authority, of part of the national income."4

And the master mind whose industry and political efficacy were responsible for putting over the new scheme in France does not hesitate to draw the logical conclusion: a high-wage country like the United States needs no compulsory medicine, as does a low-wage country like France.

Assuming that the income pattern needs correction, do health schemes help or at least do they contribute to that goal? It takes economic illiteracy to overlook the fact that their costs, if shifted onto business, are most likely to be added to the price of the product which those people buy whose income is supposed to be hiked.

"The national income pattern is being reshuffled in the direction of reducing the incentive for productivity."

As a class, the beneficiaries receive at best with the left hand what they lose with the right. Inasmuch as they carry the cost themselves, as they do to an appreciable extent even in France, it obviously comes out of their own pockets.

Even nominal wages tend to be directly affected. It is widely understood that the benefits of social security in general and of health security in particular, are substitutes for higher wages. A redistribution still does take place, indeed, but not so much between labor and capital as rather among the "beneficiaries" themselves.

The young, the healthy, and the productive workers have to contribute but may get little or nothing out of the sickness schemes. The sick, the hypochondriac, the unproductive may get much more than they put in themselves or what their share would be in terms of marketwise remuneration for services rendered.

Thus, the national income pattern is being reshuffled in the direction of reducing the incentive for productivity. Together with a system of subsidies per child, a system which is part and parcel of social security in Russia as well as in Britain and France, the negative incentive already has reached such proportions that in France, at any rate, special measures had to be taken to stem the inclination of family heads to "retire" on steady family allowances (plus occasional sickness benefits).

Such and similar disincentives account in part for a daily absenteeism among British coal miners that lingers, at this writing, in the neighborhood of 14 per cent of the manpower — in spite of all official "pep-talks" to boost the working morale.

The effect on production costs is enhanced by the fact that the most productive workers — the healthiest — consider their contributions to the sickness scheme as an unjustified head tax. They try to shift it by clamoring for higher wages.

The Security Cart before the Economic Horse

In Europe, medical benefits are the origin and the core of all social security. Therefore, the economic, fiscal and financial implications of the one scarcely can be discussed lest the discussion encompass the whole field.

The effects of health "security" on the level and structure of wages, on labor mobility (or immobility) and productivity, on production costs and commodity prices, on the saving propensity of the public and its economic "morale" in general, would have to be analyzed in conjunction with old age pensions, family allowances, unemployment insurance, etc.

Nor should such "direct" social subsidies as those for education and housing be left out of the picture. For all of them it is logical, as expressed by the clear-sighted Canadian economist, Gilbert Jackson, "that a point must at some stage be reached when (for example) the marginal tooth extraction must be balanced off and weighed against the marginal ticket to the rugby game." In other words, the national income has to pay for everything the nation consumes — unless it lives on its capital or on charity from abroad.

Society is free to turn charity into what is considered the right to minimum welfare for every individual — to "put a floor under poverty." But it has to balance the welfare results with the consequences in terms of output. And it has to remember that the volume of output is not merely a matter of technology. It depends on "psychology," on the interplay of incentives and disincentives, and the resultant readiness or lack of it to carry risks and responsibilities, which in the ultimate resort determine the direction and the measure of the productive effort.

"The volume of national output is not merely a matter of technology. It depends on 'psychology,' on the interplay of incentives and disincentives."

All of this may be boiled down to the preference, again quoting Dr. Jackson, between the two very simple philosophies — between the conviction that "every tub must stand on its own bottom" and the other belief that "every tub needs to be propped up."5

From the point of view of a noncommunist society, social security stands or falls on the assumption that it contributes to economic stability. Leaving aside the broad aspects of this question, this much is certified by all experience: medical security does not fulfill that goal, whatever else it may accomplish. The medical as well as all other branches of social security can be only a minor factor in the quest for economic stability.

As a matter of fact, their utility for that purpose "is dubious unless economic stability is attained."6

More is "dubious" than that. Actually, compulsory medicine creates ever-new maladjustments, psychological unrests, political conflicts and social disequilibria. It engenders instability rather than contributes to stabilizing of the economic system. There is no sign anywhere, and no serious student has put forth the claim, that the availability of "free" healthcare, be it on an insurance scheme or on a security plan, has stimulated incentives, mitigated industrial strife, reduced absenteeism, forestalled radicalism, strengthened the respect for the law, or made labor disclaim higher than "economic" wages.

Compulsory Medicine vs. Social Security

So much has been written about social security in general that it would fill a major library. But very little has been said about the specific nature and implications of compulsory medicine. Authoritarian medicine is the only branch of the security system the major function of which is to provide gratuities in kind.

We have discussed the virtually insoluble problems created by such a design. As no other "security" does, this kind necessitates direct, physical controls that threaten to interfere with basic rights and freedoms. It is a difference such as exists between the government's taking over and running a nation's industry and its protection of such industry by tariffs — the difference between socialism and subsidy.

Of all branches of that great field of humanitarianism called social insurance, the medical is the least predictable in costs and in consequences. As no other, it tends to foster the very thing against which it is supposed to provide insurance. Ironically, in a world that spends more and more to combat physiological diseases, more and more psychological incentives for illness are being fostered.

Another unique feature of compulsory sickness care is that it pretends and tends to offer full security of its kind. The idea underlying all other "security" is to give partial aid only, to furnish a minimum necessary (allegedly) for existence. But in the case of medical benefits in kind, the minimum must be sufficient to restore health, which is the complete service, not just the minimum. This is what constitutes the crucial problem of every compulsory scheme.

Too Little or Too Much?

Scant attention is being paid to the fact that governmentalized medicine performs in one of two ways: it provides either too little or too much. It does not fulfill its function of caring for the sick if the care is restricted by bureaucratism and by high costs (contributions and deductibles) to the beneficiary. In that case, "too little" is given from the point of view of the needy who again might have to fall back on charity.

"Too much" is the real danger. Artificial cheapening of the medical services invites an excessive consumer demand, which the available means — doctors, nurses, hospitals, etc. — can not satisfy. That, in turn, not only tends to reduce the quality of sickness care to the point where it ceases to be meaningful, but also creates a disequilibrium in the distribution of national resources.

The consequences are manifold; they add up to a significant unbalancing factor in the economic system. Free medicine in Britain, as an example, has caused such a rush of adults for dental care that the number of dentists available for the school dental program has fallen from 3,000 to 700.7 Too much of curative medicine results in too little preventive medicine.

Historical Necessity?

When reasoning ends, "historical necessity" serves as a convincing argument. Ever since Hegel and Marx, the alleged logic of history, construed to fit the constructor's purpose, has been the successful technique of political and economic propaganda. It works remarkably well. It does so in the hands of governmentalized medicine advocates who use it to provide a pseudophilosophical background.

The idea is that compulsory health security, whether we like it or not, is a necessity in industrial society and as such cannot be escaped. Look at the facts, they say: it spreads all over the world in the wake of industrial development.

That, of course, would not prove per se either its necessity or its rationality. But the facts do not corroborate the thesis at all.

"Too much of curative medicine results in too little preventive medicine."

Actually, Bismarck's Germany of the early 1880s was only at the threshold of industrialization. England, on the other hand, the leading manufacturing country of the epoch, reluctantly followed in the path of governmentalized healthcare a generation later, more than 20 years after the overwhelmingly agrarian Austro-Hungarian Monarchy adopted a compulsory scheme. Portugal had a nationalized system long before France; backward and rural Romania preceded by some 30 years progressive Belgium, teeming with factories; primitive Czarist Russia anteceded an old capitalistic country like Holland.

And when Lenin introduced the most comprehensive and "progressive" healthcare plan, Soviet Russia probably was the most retrograde of any country in Europe in terms of per capita motor power.

Presently, of all the great industrial nations, only two do not have any sort of governmentalized sickness plan, and they happen to be the world's leaders in industrial mechanization: the United States of America and the Dominion of Canada. In all of this, just where is that famous historical necessity?

If a modern country such as Sweden, with its very high degree of industrial skill, is a latecomer among the governmentalizers of medicine, if Switzerland refuses to go all of the way, and if Finland stands aloof, well, the reason is, we are being told, that to a large extent these nations still are dominated by farming communities. And there is less need for healthcare in the salubrious atmosphere of rural life, so they say, than in the congestion of metropolitan centers.

But the facts are that overwhelmingly agrarian countries like Australia and New Zealand are among the leaders in medical governmentalization. In Germany, on the other hand, the same advocates of authoritarianism want to extend their system into the farming communities, and point out rightly the higher rural mortality rate. Apparently, if one believes in a system, self-contradictory arguments can be used in its favor without intellectual embarrassment.

Balance Sheet of Medical Governmentalization

Reduced to a rational denominator, the "historical argument" boils down to something worth serious contemplation. It is this: Disregarding the humanitarian aspects of the question, labor is the most valuable "natural resource" we possess. It has to be protected in every way against "depreciation and obsolescence."

From a purely economic point of view — if it is permissible in this emotional age to think for the moment in such "inhuman" terms — the implication is that the cost of governmentalized medicine is money well spent on maintaining labor's productivity, avoiding longer than necessary incapacitation and early invalidity. Eliminating the psychosomatic effects that otherwise reduce the output of the worker, whose mind is burdened with the fear of illness, in itself would be a worth-while objective.

Who would quarrel with the obviously sound base of this reasoning? It is as economically sound as is ethically axiomatic the humanitarian argument that the helplessly sick must be cared for.

As a matter of fact, if the "statesmen" have been able to make capital of medical care, it is because they could and can appeal to incontestable social reasons and sentiments.

But that is not the problem. The problem is whether the sound and desirable objectives on which we all agree could or could not be pursued but by the one and only way of salvation, as the opportunistic politician claims: by recourse to governmentalized compulsion and to massive subsidies.

It definitely is desirable that the public should be protected by compelling every car owner to buy a liability policy. But does it follow by any logic that therefore the casualty-insurance business must be nationalized? By the same token, life-insurance companies would have to be nationalized, too, and the amount of the individual's coverage fixed by law.

Who would object to providing the indigent with the necessary food? But does it follow that the distribution of food for every one or for all wage earners should be put into the government's hands?

The simple logic of the matter was expounded seventy years ago by true Liberals — like Lujo Brentano of Germany — who did not oppose Bismarck on dogmatic laissez-faire grounds.8 They actually proposed compulsion, but with the free choice of the workers to build their own panel organizations or to join any of their liking.

This, in essence, is the Swiss system, or it comes nearest to it, although much improvement on it could be made. And the indigent still could be cared for by special charity arrangements — which need not be "humiliating," subsidized by local rather than national governments.

Such a system would fulfill the desirable objectives, economic and humanitarian, and would avoid the political, bureaucratic, financial, and ethical fallacies that corrupt the govemmentalized systems to the serious detriment of national life.

Even so, the fundamental fact remains that no country can provide more in sickness care than its economic production permits. Ultimately, the status of healthcare depends on the level of wealth, not on schemes of one kind or another.

When the state enters a field of private activity, that field turns into a battleground of organized pressure groups, political and professional, pro and con, and disguised ideological movements. The one group that is not suited for organization, but the one in whose name all others claim to speak, rarely receives adequate representation in the literature and even less so in the political arena.

The unknown patients lost in the scramble of selfish powers are the ones whose welfare should be the sole guiding principle of public policy in the medical field.

  • 1. "It should be remembered that the rise of the totalitarian state was coincident with the general reception of the idea of the service state and that both have Marxian socialism in their pedigree. Each in its way postulates an omnicompetent administration by supermen. If experience may be vouched, that means in the end supermen under the direction of an ex-officio superman." Roscoe Pound, "The Professions in the Society of Today," in New England Journal of Medicine, September 8, 1949.
  • 2. Ludwig von Mises, Human Action, Yale U. Pres, 1949, p. 613. [See also Human Action: The Scholars Edition, Mises Institute, 1999.]
  • 3. Honor Croome, "Liberty, Equality and Full Employment," in Lloyd's Bank Review, London, July 1949.
  • 4. Pierre Laroque; "From Social Insurance to Social Security: Evolution in France," in International Labor Review, June 1948, p. 588. Actually, a modernistic school of French economists (e.g., Louis Alvin, Salaire et Sécurité Sociale, Paris 1947) speaks of a salaire d'inactivité — a wage for not doing anything — as a new constituent of workers' income.
  • 5. Gilbert Jackson, "Resurgam: The Gold Standard vs. Modern Substitutes," The Canadian Banker, Spring 1949, p. 3.
  • 6. Lewis Merian, "Social Security in an Unstable World," American Economic Review, May 1941, pp. 335 ff.
  • 7. Dr. Harold Hillenbrand, "Britain Pays Through the Teeth," in Nation's Business, December 1949.
  • 8. L. Brentano, Die Arbeiterversicherung gemäß der heutigen Wirtschaftsordnung, Berlin, 1879.

Melchior Palyi

Melchior Palyi (1892–1970) was an American citizen of Hungarian descent — a distinguished, internationally recognized educator, author, economist, and financial expert. He taught in the Universities of Kiel, Goettingen, and Berlin. In 1928 he was appointed chief economist to the Deutsch Bank in Berlin. From 1931 to 1933 he served in the capacity of scientific advisor to the Reichsbank of Germany. In the United States, he taught at the Universities of Chicago, Wisconsin, and Northwestern. He acquired a national reputation as a scientific and popular writer, public lecturer, radio commentator and consulting economist.