22. Theoretical Foundations of Social Legislation

The focus of this lecture is the Theoretical Foundations of Social Legislation[2]. As with the titles of scholarly works. articles and books. for this lecture as well was it necessary to keep wording to a minimum and explaining key terms. for the sake of clarity such as the adjectives social and theoretical:

• social legislation is a comprehensive wording that encompasses the entire spectrum of state interventions in social matters affairs.
• theoretical foundations indicates my intention to confine this discussion strictly within my personal boundaries. My aim is to limit speculation and focus on rigorous analysis grounded in established economic principles. This same academic hall is still echoing the lectures given in another lecture hall. in the one directly opposite this one. by renowned economists Léon Walras and Vilfredo Pareto. As the founders of the influential School of Lausanne they still resonate with their profound impact on economic science. which endured for over two-thirds of a century. Their echo serves as a reminder that our role. as economists. is to adhere and confine ourselves to our specialized task. to avoid any departure from our mission and utilise the tools and methods developed by our discipline over the past two centuries (our science is about this age) with proved to be effective in scientific investigation. We will therefore cease to be those who we can say something worthy of being heard.

23. The Concept of Competition

There is a familiar concept. known by all. though mostly assumed from other points of view as if it were an historical. political. or legal institution [3]. Within economics. this is simply an abstract framework designed to help interpret and simplify the complexities of economic reality.

Economists face a far more intricate reality than natural scientists. such as physicists. chemists or astronomers. Unlike these disciplines. we can not make use of their instruments of investigation and especially of experiment combined with reasoning. Consequently. economists have to construct theoretical models to simplify the complexities of real-world interactions. We can not. as the chemist does in his crucibles. combine the different raw elements of a society and. by varying their doses at will. observe behavioural laws. We cannot create societies; we can only observe them. Instead of the full reality. we grasp only one part of it and use it to penetrate into some of the aspects of the entire reality. Conclusions are partial; they are not true of the whole truth. but we need them in order to understand something about reality.

What did economists mean when they devised the survey instrument known as competition. They assumed a world populated by numerous buyers and sellers. as well as producers and consumers. each of whom is small enough that no single agent can significantly influence market outcomes on their own. Every participant in this hypothetical market is free to move between professions. industries. and markets. entering and exiting as they see fit. All market participants are assumed to possess the highest degree of foresight. enabling them to anticipate. to foresee changes based on the information available to them. They own labour. raw material and capital by divisible fractions. They can therefore adjust their investments on labour or savings according to their preferences and circumstances. Moreover. the factors of production are reproducible. ensuring that additional resources can be procured without increasing difficulty.

If we assume that the conditions of perfect competition hold true. if we assume to live and operate in a scenario of theoretical competition it would result that market prices would precisely reflect production costs. Each market participant would receive as the price of his products. of the use of his capital and labour forces. a remuneration that would perfectly match the cost. the merit. and the contribution made to overall production.

Producers. motivated by self-interest. would perpetuate in allocating their resources—labour. land. and capital—until their returns equal the costs of their production efforts. All productive factors would be employed at a point of equilibrium. where no alternative employment of resources would yield a higher return than any other point of employment. Should an above-average profit emerge in any sector for some time. mobile resources would quickly shift toward that new profitable sector. eliminating any excess profits through competition.

This shifting process does not necessarily require the reallocation of existing resources. Nor is it necessary for the shift to take place. if not by exception. by the factors already employed. Each day new savings are generated and new individuals reach their working age. The displacement of the new comers is enough to restore the marginal remuneration of the productive factors back to equilibrium.

24. The Absence of Social Issues in a Competitive Framework

If the abstract model devised by economists to interpret economic realities were to fully materialise. the fundamental question of this lecture would become entirely redundant together with the justification for state intervention in economic affairs.

Within such a framework. the rationale for state interference would vanish entirely. as each individual would receive remuneration aligned with their contributions and merits. If there were no disproportionate earnings. the government would have no reason to intervene. The so-called social issues would not exist. Entrepreneurs [4] would be naturally driven by their self-interest to employ productive resources up to the point where the remuneration offered to each factor were precisely equal for all production factors and the sum of remunerations were equal to the selling of the product. I mean that the total remuneration paid to all productive factors would be equivalent to the total revenue generated from the sale of the final product because each unit of the product would be sold at a price equal to the marginal cost of the final unit produced even though it was produced at a lower. And each unit of the production factors would be remunerated according to its marginal contribution whereas it is impossible to fix different prices for two identical units of a good or service. Hence. the total revenue accrued from production would correspond to the sum of all payments made to the factors of production effectively constituting the total cost borne by the entrepreneur. No surplus would remain to be redistributed. and every productive factor would receive compensation strictly commensurate with its marginal productivity [5].

25. How the Competition Scheme Does not Respond to the Present Reality

Had I delivered this lecture in 1914 rather than in 1944. I could have readily affirmed that the competitive model largely corresponded to reality. While not a perfect reflection of the entire economic landscape. it accurately captured significant aspects of it. Vigorous competition between products was an undeniable reality. and the expansive monopolistic conglomerates that would later emerge and consolidate over the following three decades had yet to take shape. Furthermore. in 1914. numerous institutions were in operation —institutions whose roles have since been. at least partially. obliterated. Today. the banking system. the stock exchange. clearing houses. futures contracts. and arbitrage mechanisms are no longer existing. These elements. which economists typically discuss in abstract terms. once tangibly and truly embodied fluidity. mobility. exchangeability. and divisibility in economic transactions. Markets across Europe were closely linked with those in America. and thus. price disparities in commodities such as grain. wool. cotton. and coffee could be swiftly equalised through spot and forward contracts. The reality of these mechanisms prior to 1914 extended the realm in which the theoretical construct of free competition was not merely a hypothesis but a functioning principle—contrary to what even the numerous doctrinaire critics of the time would have acknowledged. If. as some assert. the century spanning 1814 to 1914—from the conclusion of the Napoleonic Wars to the onset of the last world war—was among the most prosperous in history. comparable only to the age of the Antonines. and if wages had never before risen so significantly nor general prosperity expanded so remarkably. much of this grandiose economic progress and wealth allocation can be attributed to the substantial realisation of the competitive model. While impediments to its full implementation certainly existed. these frictions and barriers served not to invalidate the system but rather to drive its refinement and advancement.

Today. however. the domain in which the competitive model is operating is markedly narrower than it was in 1914. A confluence of factors—many. though not all. attributable to the war—has reshaped the global landscape. While a considerable number of independent producers. farmers. small and medium-sized industrialists. and craftsmen continue to operate- more than we can imagine - the presence of large-scale producers dominating key sectors is now undeniable. These powerful actors exert market control. compelling smaller players to align their actions with those of market leaders. Meanwhile. banks. stock exchanges. and futures markets no longer fulfil their former role as instruments of economic equilibrium which pertained to them. Forward contracts—a major mechanism of market equalisation— fell into disuse. Additionally. in numerous countries. banks now function primarily as state-controlled entities for the collection of savings. Contemporary markets. once interconnected and fluid. have now become stiffly regulated. Instead of a modern. open city. replete with public institutions. churches. residential blocks. and individual homes set amid green spaces today’s economic order resembles a cityscape dominated by towering medieval structures—monolithic skyscrapers that cast long shadows over the multitude of smaller dwellings still permitted to exist at their foot.

This depiction may appear overly bleak. for independent. non-monopolistic enterprises continue to constitute a substantial share of total economic output. Undoubtably. the cityscape of the skyscrapers over the multitude of ordinary housing looms ominously on the horizon.

Here is your refined version with more economic terminology. maintaining the original meaning and word count balance:

26. The Monopoly Hypothesis

Economists did not need to wait for the three decades between 1914 and 1944 to devise an appropriate theoretical framework to capture this alternate facet of economic reality. The foundations of monopoly theory were laid as early as 1838 in Recherches sur les principes mathématiques de la théorie des richesses. where Augustin Cournot rigorously formulated the hypothesis that stands in direct contrast to the competitive model. In a nutshell. he hypothesized monopoly: imagine a market in which. instead of numerous producers. a single entity holds exclusive control to dictate the volume of goods to be manufactured. and if not the precise quantity. at the very least. the price at which they are sold. Which price? Cournot’s conclusion was both elegant and profound. much like the fundamental discoveries that have shaped the trajectory of scientific progress. The monopolist. he argued. sets the price or price structure that yields the highest possible net profit.

Under conditions of perfect competition. prices gravitate towards production costs. ensuring that all factors of production are remunerated according to their marginal productivity and individual contributions to output. In contrast. a monopolist is indifferent to whether a large or small volume of goods is sold since priority is given to maximizing net profit. If this one is the price or the price system established in the market. the implications of this mechanism are twofold:

• A restriction of the output. Instead of producing the goods to be made available to consumers in a competitive market output is restricted. Producers compelled to expand production until marginal cost equates to price. under a monopolistic regime have vested interest in constraining output to the point where the revenue generated—calculated as the product of price per unit and quantity sold. less production costs—is maximised. This inevitably results in a lower quantity of goods. Indeed. For sure. under monopoly there is a smaller quantity of goods and services available to consumers who are then less well off than they would be under competition.
• And it is also true that under monopoly this smaller quantity of goods is distributed differently than under competition. Instead of remunerating the individual factors in relation to their respective contribution. here concentrated wealth pockets arise in favour of the monopolists; these ones will absorb a smaller or larger however considerable proportion of a smaller mass of production thus creating a damage to the overall Society

27. The Primary Rationale for State Intervention

It is now evident what constitutes one of the principal justifications for state intervention in economic affairs. Economists. as a rule. refrain from determining what is just or unjust but to outline the logical implications of one or either assumption. In presenting the two extreme theoretical frameworks—perfect competition and monopoly—economists approach the subject with the same analytical detachment as an astronomer studying planetary motion. The responsibility for moral or political evaluation falls upon policymakers. philosophers. and ethicists. Nevertheless. when confronted with the economist’s theoretical assessment. these figures are likely to conclude that monopoly generates profound inefficiencies and distributive distortions. leading to social conditions widely perceived as inequitable and unsustainable which prompts the call for state intervention. While the economist is not aware of what is just or unjust. he observes that the monopolistic framework results in economic disparities that the policymaker. the ethicist and the general public would characterize as unjust. Hence. the economist derives the consequence that he shall be required to identifying mechanisms to mitigate these outcomes. The logical course of action. therefore. is the curtailment or regulation of monopolistic structures and the restoration—whether directly or through alternative means—of competitive conditions. or at the very least. an environment that approximates the efficiencies of a competitive market.

The fight against monopolies manifests in two distinct forms. The first concerns artificial monopolies. The second pertains to the so-called natural monopolies.

28. The Struggle Against Artificial Monopolies

The expansion of monopolies and their growing dominance over the past three decades is not an inevitable phenomenon dictated by immutable laws of nature or divine decree. Rather. the proliferation of monopolistic structures—manifesting as trusts. cartels. and consortia—has been largely the result of deliberate legislative action. It is the intervention of policymakers that has facilitated the rise of these monopolies. and once they emerged. the very same legislators became alarmed by their detrimental consequences. The logical and effective means of countering monopolies that owe their existence to legislative constructs is to dismantle these artificial supports. Before 1914. the imposition of customs tariffs that is protection duties introduced by states at their borders to shield domestic industries from foreign competition—was the principal catalyst for the collusion of domestic trade-unions. which already existed. even though with a lesser power. Inland producers unite much more easily as they are insulated from the competitive pressures of international trade. It becomes significantly easier for local producers to consolidate market power if their number is kept artificially small than more extensive and diverse array of foreign competitors. Given that many monopolies owe their dominance to protectionist measures. the remedy is evident: to curb their influence. it is necessary to reduce or eliminate tariffs and trade restrictions.

Beyond traditional customs barriers - the primary instrument prior to 1914 —numerous other mechanisms of monopoly formation have emerged in the past thirty years such as: excessive patent protections. quotas. licensing regimes for the expansion or establishment of new enterprises competing with those already existing. and regulatory constraints requiring authorisation from the state or. worse. from clans where old manufacturers are over-represented. Autarchy is nothing but monopoly of the nationals. privileges of all sorts. If monopolies have proliferated. it is largely because the state has actively encouraged their formation by enacting legal frameworks that have nurtured and reinforced their dominance. The path forward is therefore clear: by repealing the legislative measures that have artificially created pockets of undue advantages for certain industries. these distortions can be dismantled. thereby fostering increased production efficiency and a more equitable distribution of economic resources.

29. The Struggle Against Natural Monopolies

The task remains unfinished. In dismantling the fragile colossi of artificial monopolies. we will have accomplished much—indeed. the most significant portion of the anti-monopoly endeavour. Yet. this will not constitute the entirety of the battle. Unlike artificial monopolies. these monopolistic structures will persist for their resting on forces which may be termed as natural: railways. electricity. gas. public lighting. potable water. tramway networks and similar undertakings.

This type of monopoly is not a product of legal imposition but rather an economic inevitability—almost a physical necessity. One cannot reasonably conceive of two competing railway lines operating along the identical route between Turin and Milan and serving the same intermediary locations. or connecting to the same spa towns. While this is not an inherently absurd proposition. Italian public works legislation of 1865 had already anticipated this could not last. hence in order to prevent unnecessary capital dissipation. explicitly prohibited it.

Other Countries pursued different policies. Between 1830 and 1880. the United States experimented with railway competition. However. this competitive structure proved unsustainable. If a new railway enterprise were to emerge along an existing route and serving the same stations in competition with a old-established one. its primary strategy to attract traffic would be fare reductions. Yet. any fare reduction by the entrant would compel the incumbent to match it to retain its market share. This competitive spiral. whereby fares progressively decline—from ten to nine. then to eight. and beyond—could ultimately lead to unsustainable pricing. even to the extent of negative fares! Historical records document cases where American railway companies. in an effort to outcompete their rivals. not only provided free transport but even offered complimentary meals to passengers. The objective was clear: to force the ostensibly weaker competitor into financial capitulation. Given that both firms had invested substantial and tangible capital in infrastructure—tunnels. ballast. bridges. and stations—the exit of one was inevitable with a total economic loss. Whether through mutual agreement or the bankruptcy of one party. the outcome was invariably the consolidation of monopoly power. Recognising this economic inevitability. the Italian law-making of 1865 preemptively restricted competition in railway operations. precluding the issuance of overlapping concessions to competing firms. Such a measure was justified by the imperative to avert capital misallocation that would ultimately yield negative economic consequences. The same rationale applies to tramways: the notion of multiple parallel tram tracks along Corso Vittorio Emanuele in Milan or Via Roma in Turin would result in untenable urban congestion. Extending competition to gas. electricity. water. and public lighting services would turn urban thoroughfares into perpetual construction sites as rival firms vied to install and maintain competing infrastructures. Where a single provider would ensure servicing in nighttime. with multiple competing entities needing incessant maintenance. night time would not be enough.

In cases of natural monopoly. the standard remedies applicable to artificial monopolies are inapplicable. Here. monopoly does not arise from legal constructs but emerges organically from pre-existing conditions.

At times. technological innovation unexpectedly disrupts entrenched monopolistic structures by introducing viable alternatives. The advent of motor vehicles. for instance. spontaneously reintroduced competition into the transport sector. providing substantial benefits to consumers. However. paradoxically. rather than embracing this newfound competition and its indisputable advantages to users. regulators entrenched railway interests—particularly state-owned enterprises—sought and obtained regulatory protections to curtail the competitive pressures posed by motor transport.

In the absence of technological breakthroughs capable of dismantling natural monopolies. it must be acknowledged that the conventional response to artificial monopolies—abolishing monopoly-enabling legislation—proves ineffectual. Instead. direct intervention by the state. municipalities. or other public entities becomes necessary to counteract private monopoly power by creating a surrogate. an alternative to such monopoly. The fundamental principle underpinning this intervention is the transformation of private monopolies into public monopolies that provide services at cost. By formally recognising natural monopolies as public utilities. the state can either manage them directly or grant operational concessions to private entities under strict regulatory oversight. ensuring that service tariffs are aligned with actual production costs. The conceptual framework is clear: while maintaining the monopolistic structure dictated by economic realities. public intervention seeks to replicate the core advantage of competition—the provision of services at cost-reflective prices.

The challenges. however. lie not in the theoretical foundations but in practical implementation. Should direct public management be preferred over delegated private operation? Should concessions be granted on a short-term or long-term basis? Should they be fixed-term or indefinite? What supervision mechanisms can be devised to ensure public fares do not exceed those of private pricing? How can rent-seeking within public enterprises—manifesting as excessive employment or political patronage—be prevented? These questions pose significant hurdles. yet they are not insurmountable within a governance framework characterised by continuous public oversight and accountability.

29. The Challenge of Natural Monopolies

The task remains unfinished. In dismantling the fragile colossi of artificial monopolies. we will have accomplished much—indeed. the most significant portion of the anti-monopoly endeavour. Yet. this will not constitute the entirety of the battle. as monopolistic structures will persist due to forces beyond mere legal constructs. Unlike artificial monopolies. which are a product of legislative or regulatory design. certain monopolies arise from intrinsic economic and logistical imperatives—these may be termed natural monopolies. Sectors such as railways. electricity. gas. public lighting. potable water. and tramway networks exemplify enterprises where monopolistic structures emerge organically.

In such cases. monopoly is not a product of legal imposition but rather an economic inevitability—almost a physical necessity. One cannot reasonably conceive of two competing railway lines operating along the identical route between Turin and Milan. serving the same intermediary locations. While this is not an inherently absurd proposition. Italian public works legislation of 1865 had already anticipated the inefficiencies inherent in such duplication and explicitly prohibited it to prevent unnecessary capital dissipation.

Elsewhere. different policies were pursued. Between 1830 and 1880. the United States experimented with railway competition. However. this competitive structure proved unsustainable. If a new railway enterprise were to emerge along an existing route. its primary strategy to attract traffic would be fare reductions. Yet. any fare reduction by the entrant would compel the incumbent to match it to retain its market share. This competitive spiral. whereby fares progressively decline—from ten to nine. then to eight. and beyond—could ultimately lead to unsustainable pricing. even to the extent of negative fares. Historical records document cases where American railway companies. in an effort to outcompete their rivals. not only provided free transport but even offered complimentary meals to passengers. The objective was clear: to force the ostensibly weaker competitor into financial capitulation. Given that both firms had invested substantial capital in infrastructure—tunnels. ballast. bridges. and stations—the exit of one was inevitable. Whether through mutual agreement or the bankruptcy of one party. the outcome was invariably the consolidation of monopoly power. Recognising this economic inevitability. the Italian legislature of 1865 preemptively restricted competition in railway operations. precluding the issuance of overlapping concessions to competing firms. Such a measure was justified by the imperative to avert capital misallocation that would ultimately yield negative economic consequences. The same rationale applies to tramways: the notion of multiple parallel tram tracks along Corso Vittorio Emanuele in Milan or Via Roma in Turin would result in untenable urban congestion. Extending competition to gas. electricity. water. and public lighting services would exacerbate these inefficiencies—turning urban thoroughfares into perpetual construction sites as rival firms vied to install and maintain competing infrastructures. Where a single provider ensures service continuity with minimal disruption. multiple competing entities would necessitate incessant maintenance. rendering the fundamental purpose of these utilities—to serve the public—unachievable.

In cases of natural monopoly. the standard remedies applicable to artificial monopolies are inapplicable. Here. monopoly does not arise from legal constructs but emerges organically from economic and technological conditions.

At times. technological innovation unexpectedly disrupts entrenched monopolistic structures by introducing viable alternatives. The advent of motor vehicles. for instance. spontaneously reintroduced competition into the transport sector. providing substantial benefits to consumers. However. paradoxically. rather than embracing this newfound competition. entrenched railway interests—particularly state-owned enterprises—sought and obtained regulatory protections to curtail the competitive pressures posed by motor transport.

In the absence of technological breakthroughs capable of dismantling natural monopolies. it must be acknowledged that the conventional response to artificial monopolies—abolishing monopoly-enabling legislation—proves ineffectual. Instead. direct intervention by the state. municipalities. or other public entities becomes necessary to counteract private monopoly power. The fundamental principle underpinning this intervention is the transformation of private monopolies into public monopolies that provide services at cost. By formally recognising natural monopolies as public utilities. the state can either manage them directly or grant operational concessions to private entities under strict regulatory oversight. ensuring that service tariffs are aligned with actual production costs.

The conceptual framework is clear: while maintaining the monopolistic structure dictated by economic realities. public intervention seeks to replicate the core advantage of competition—the provision of services at cost-reflective prices.

The challenges. however. lie not in the theoretical justification but in practical implementation. Should direct public management be preferred over delegated private operation? Should concessions be granted on a short-term or long-term basis? Should they be fixed-term or indefinite? What regulatory mechanisms can be instituted to ensure that public-sector inefficiencies do not exceed those of private monopolists? How can rent-seeking within public enterprises—manifesting as excessive employment or political patronage—be prevented? These questions pose significant hurdles. yet they are not insurmountable within a governance framework characterised by continuous public oversight and accountability.

30. The Second Critique of the Competition Paradigm

In formulating the theoretical framework of competition. economists were compelled to abstract from what may be termed the foundational moment of human activity within the market. They assumed the existence of a multitude of consumers. each endowed with a given purchasing power—predominantly in the form of money—and proceeded to describe the interactions between demanders and suppliers. as well as the determination of prices for consumer goods. wages. interest rates. rents. and capital goods. This analytical framework has been progressively refined and remains largely uncontested within academic discourse.

However. economists themselves recognised that this fundamental assumption—whereby each market participant possesses a predetermined purchasing power—concealed a deeper. unresolved issue.

John Stuart Mill. in his Principles of Political Economy (available in the Italian translation within the first series of La biblioteca dell’economista [The economist’s library] and in numerous French editions). asserted that while production is governed by physical laws. wealth distribution is shaped by human agency. Léon Walras expanded on this notion: production operates under natural laws. whereas distribution is a matter of justice. Vilfredo Pareto further concluded: income distribution may be altered without violating the conditions for maximal economic efficiency. Following Philip Wicksteed[6]. I could argue that the competitive framework fails to account for the initial moment of men’s operations at the point of market entry.

This framework assumes that market participants engage in the market with whatever resources they possess but the relative amounts of these resources is not a purely economic phenomenon—it is shaped by legal. historical. and political factors which depend upon legal enforcement within each society and include inheritance laws. education systems. socio-economic environments. pre-existing monopolies. and competitive advantages. For instance. an individual with 10 lire per day will rationally allocate expenditure to assign to each lira and cent the investment deemed to be most useful. hence he shall not purchase a book if he is starving. he shall primarily purchase food then he shall consider other discretionary items. He will try to distribute the 10 lire in such a way as to satisfy his most urgent needs first and in such a way that each monetary unit (whether lira or penny) has a marginale use with equal subjective advantage. For it would be absurd for a man to spend 1 lira to buy a good that has a utility for him only as 8. when he could still buy a good that has a utility for him as 9. The last liras spent must have an equal utility for him so that the utilities obtained from the last liras of the goods purchased by him are equal. In contrast. an individual with 100.000 lire may afford to spend even 10.000 lire for a kg of bread while the one who has 10 liras only may be obliged to spend all his 10 liras for that bread and be left without the means to buy anything else. It might also be the case that the one who. though spending 10.000 lire on the same kg of bread would still be left with 90.000 lire. would take it all away so that the other could find no more bread. Normally. bread is sold at prices affordable to most. but in periods of scarcity. such as wartime. rationing mechanisms are introduced to ensure equitable access thus avoid it be distributed according to the wealth available to each individual. but to ensure can everyone can get a given amount of bread that. given the quantity available. is due to each consumer. Ultimately. while the theoretical framework of competition (or monopoly) remains intact. the qualitative and quantitative characteristics of goods and services produced—and their distribution—are contingent upon the initial allocation of economic resources within society. If we suppose that a society is composed entirely of individuals who have 10 lire a day to spend. goods shall be distributed in a given way. If. on the other hand. we suppose that out of 45 million. most have only 10 lire and very few 100.000 lire. it is evident that both the quantity and the quality of the goods produced will be different from what they would be under the egalitarian hypothesis. The determining point is the possession of a certain quantity of means that each citizen holds at the original moment of his arrival on the market.

31. The Diversity of Possible Ideals Regarding Initial Economic Conditions

Human aspirations concerning wealth distribution span a spectrum from absolute equality to complete and unrestrained inequality. Some may advocate for an extreme scenario in which the vast majority possess very little while a select few accumulate immense wealth. whereas others may champion a vision of perfect economic equality. Between these two poles. numerous intermediary positions exist. The role of the economist is not to prescribe. I do believe that in contemporary discourse. even the most ardent admirers of D’Annunzian thought have largely abandoned Nietzsche’s ideal of the Übermensch. Likewise. proponents of absolute egalitarianism are scarce. if only because such a condition is inherently unsustainable. Both extremes—total equality and extreme economic concentration—tend to be precursors to tyranny. It is likely that most individuals. when reflecting on distributive justice. gravitate towards the ideal of a more equitable starting position. relative to a status quo deemed unjust. A prevailing view among those considered pragmatic is that individuals should enter economic maturity and engage with the market under conditions that. while not perfectly equal. are also not grossly skewed in favour of a privileged minority or of one only. Rather. initial economic endowments should be distributed in a manner that avoids excessive disparities between individuals. What constitutes the ideal standard of fairness remains an inherently subjective question. contingent on personal perspectives and ideological convictions. Nevertheless. a broad consensus appears to favour a societal structure that navigates a middle path—one that avoids both the regimented uniformity of absolute equality and the stark divide between mass destitution and the opulence of a privileged few. The former resembles the model of an ant colony; the latter. a system of servitude. The aversion to these extreme distributions stems from their association with autocracy and the erosion of individual freedoms.

32. The Second Avenue of State Intervention

This brings us to the second domain defined as social economic legislation. Here. state intervention is directed towards narrowing disparities in initial economic conditions to the greatest extent possible. Such intervention proceeds along two primary trajectories: one seeks to curtail excessive wealth accumulation at the upper end of the spectrum. while the other endeavours to elevate those at the lower end.

33. Descending from Above

Progressive taxation is a long-standing institution. The challenge lies in identifying an optimal approach—one that avoids the draconian levelling methods of Tarquinius Superbus or the austere collectivism of Sparta. while striving instead towards a model reminiscent of the liturgies of the Golden Age of Periclean Athens. During this era. whether through popular mandate or voluntary contributions from the affluent classes. wealthy citizens arguably made one of the most significant proportional contributions to public expenditure. The enduring grandeur of the Acropolis serves as testimony to the civic consciousness fostered under the guidance of a statesman who persuaded the populace to refrain from excessive confiscation while simultaneously encouraging the wealthy to contribute voluntarily. These great monuments are still bringing evidence of what had been achieved thanks to this delicate equilibrium between the affluent. the middle classes. and the less privileged which however persisted only briefly and was ultimately disrupted upon the statesman's demise. Taxation as a means of redistributing wealth requires an elevated sense of civic duty and an efficient. transparent allocation of public funds that demonstrably serves the collective interest. Many years ago. I had the privilege of meeting the last descendant of the Naville family of philosophers. the first of whom had been a friend of Count Cavour. while his successors held esteemed positions as professors of philosophy at the University of Geneva. The last of this lineage. in the modest surroundings of his home. once remarked: See. I own this house and a small farm across the border on Saleve. Savoie. The income from both properties is the same. In France. I pay only a third of the taxes I pay here. yet I resent those payments. whereas here I contribute gladly. In France. I complain because I do not perceive the benefits of my contributions; I see no tangible improvements for the community. Here. by contrast. I pay my taxes with satisfaction. as I know precisely how they are used and the public good they serve.

It is towards cultivating such a civic spirit that taxation policy must be directed. Taxes function as an instrument of public welfare only when the few who bear the greatest fiscal burden recognise that such levies are not motivated by resentment or envy but by a genuine commitment to the common good. The objective of progressive taxation is not to inhibit the generation of competitive profits—far from it. An economic system in which entrepreneurs thrive is one in which innovation flourishes. production costs are reduced. and society at large benefits.

The role of taxation should not be to stifle competitive enterprise but to reclaim. for the benefit of the state. that portion of profit which does not diminish the incentive for further productive activity. As for monopoly profits. the priority is not merely to tax them but to prevent their emergence altogether. as previously discussed.

34. Rising from the Bottom

After reducing wealth disparities through effective and stimulating taxation. the next step is to elevate those at the bottom. In a comprehensive approach to social legislation. all these aspects ought to be considered. Social legislation is not a novel concept in continental Europe. especially in England. where its roots date back to centuries. One of the most significant developments dates to Queen Elizabeth's era and saw considerable expansion throughout the last century. The much-discussed Beveridge Plan essentially proposed increasing national spending on social insurance from the £432 million allocated in 1938 to £650 million immediately after the war and £830 million twenty years later. This was not an innovation but rather an expansion of pre-existing institutions. In Italy. figures like Camillo Cavour and his collaborator Petitti di Roreto had already formulated social legislation proposals around 1850. Over time. laws supported by figures from across the political spectrum. including Luigi Luzzatti. have progressively shaped the country's social policies. These developments indicate that significant progress has been made. and future efforts should focus on reform. integration. and refinement rather than creating policies from scratch.

35. The National Minimum Standard of Living and the Limitation of Wealth

Due to the limitations of this introductory lecture. I will only outline the fundamental principle of social legislation: ensuring that every individual in a healthy society has access to a minimum standard of living.

Debate exists over whether this minimum constitutes a right. Rather than asserting an absolute right. it may be more practical to achieve the same outcome through alternative means. The principle is simple: in a well-functioning society. individuals should be assured - with no exception . the basic necessities of life. After all. for over a century. English trade unions have fought to compel employers to provide workers with a guaranteed minimum wage. These unions. akin to workers' organizations in our country. achieved this through prolonged struggles. including strikes. conciliation committees. and negotiations. Because the minimum wage was obtained through arduous collective effort. it has not encouraged idleness. Historically. what is suddenly acquired through coercion and without merit tends to be squandered. However. what was hard-won with timed effort is valued and preserved.

Both in England and Italy. significant progress was made between 1880 and 1914. as demonstrated by extensive data and the tangible results of deliberate efforts. By securing a minimum wage. workers ensured that labour conditions and compensation adhered to a common standard without going against any lax of Economics. The principle was affirmed and won that the worker could. on the base of his solidarity with other workers and the funds he had voluntarily accumulated in his union. negotiate on an equal footing with the employer and obtain that equal minimum wage and working conditions be guaranteed for all workers

Yet. work is not always continuous. Unemployment. accidents. illness. disability. and old age interrupt one’s ability to earn a living. This raises the question of whether the state should guarantee a minimum income in such situations when it becomes impossible earning a wage. Some extend this argument further. advocating for an unconditional minimum income simply because one finds oneself in life. He should benefit from the minimum income by virtue of being born.

While the notion of a guaranteed minimum for those unable to work garners considerable support. there is greater skepticism regarding unconditional guarantees for all. Accepting such policies requires careful consideration of a nation's wealth. living standards. and property distribution. Viable solutions must be grounded in practical realities rather than in idealistic but potentially harmful social fantasies. Even those who support economic equalization recognize the necessity of avoiding incentives for idleness.

A crucial caution is to avoid recreating the panem et circenses model that contributed to the fall of the Roman Empire. The empire did not collapse solely due to barbarian invasions; it was internally weakened. One key factor in its decline was that Roman citizens. sustained by state provisions. abandoned military service and productive labor in favour of passive entertainment and the spectacle of hunting given to the Christians by the beasts. etc. etc.

Instead. our objective should be different: the minimum standard of living should serve as a foundation for human development rather than an endpoint. If all individuals were assured a basic level of existence. they could better cultivate their talents. There is some truth in the idea that many inventions and projects fail to materialize because most people must devote all their time and energy to basic survival. By providing a minimum starting point. young individuals could continue their education. conduct research. innovate. and find their path without being forced into labour from an early age. This would encourage the emergence of scholars and inventors who currently lack such opportunities. We must strive for this ideal.

Nonetheless. we must remember that when Adam and Eve were expelled from paradise. they were told. "By the sweat of your brow. you shall earn your bread." While society must strive to ensure greater abundance and accessibility to essential goods. the fundamental principle remains: humans men are compelled to wrest by labour from the stingy earth the goods with which it is fruitful.

Chapter II. Social Security/ Insurance

36. Historical Origins

In any civilised society. it is imperative that all individuals are afforded the opportunity to elevate themselves above a basic standard of living. However. opportunity should not be conflated with entitlement—a legal construct whose precise nature remains subject to considerable debate. a discussion which is beyond our present scope. Opportunity. in contrast. constitutes a tangible reality. one that may be attained through diverse tracks.

One such track is encapsulated in the phrase "Beveridge Plan." which. over the past two years. has gained widespread recognition. attaining an almost mythical status—one of those rare myth that swiftly resonate with the ideals and sentiments of entire populations. Some sixty years ago. a myth of a similar nature captivated Europe when Bismarck initiated a comprehensive system of social insurance in Germany. This system extended from old-age pensions to disability provisions. from accident and sickness insurance to maternity benefits. and even encompassed death and unemployment coverage. In every facet of life. the German citizen was to feel the protective yet potent hand of the state. shielding him from destitution. from the agony of contemplating his abandoned wife and children. and from the uncertainty of the future. That Bismarck. influenced by the so-called "Kathedersozialisten"—the German academic economists who opposed the classical liberal tradition—was primarily motivated by a desire to counteract the growing influence of the socialist movements in parliament and on the streets is incidental. His aim was to demonstrate to workers that they were not outcasts. that the venerable German state was paternalistically concerned with their welfare. Vis-à-vis the establishment of such a highly structured system of social insurance. wherein workers and employers contributed in equal measure in commonality with other citizens. by means of general taxation to supplement these contributions. the European response was one of admiration and emulation. Workers. seeking security against misfortune. and employers. desiring social stability. found mutual benefit in this arrangement. Italy. too. followed suit. albeit in incremental stages. as dictated by fiscal constraints and prevailing public sentiment. ultimately constructing a system not dissimilar to the German model.

England. however. diverged from this path. adhering instead to its own long-standing traditions. These trace back to an Act of 1601. enacted under Queen Elizabeth I. which enshrined the right of every British citizen. whether employed or not. to state support by the Overseers of the Poor. This responsibility. previously borne by monastic institutions and religious foundations in the Middle Ages. was assumed by the state following the English Reformation under Henry VIII. In pair with the confiscated the property of the convents. secularised the ecclesiastical foundations. the state took upon itself the tasks previously performed by the charity of the faithful. and the right of the poor to be supported by the state was enshrined. Such principle established by this Elizabethan legislation remains the bedrock of British social policy to this day. Key milestones in its evolution include:

• 1834: A landmark investigation and subsequent report led to a radical overhaul, curtailing the provision of “outdoor relief”, which had, through indiscriminate distribution, effectively subsidised employers by supplementing inadequate wages. With the rise of the industrial working class, the 1834 legislation ensured that industry, no longer dependent on local land taxes and no longer lobbying for agricultural protectionism, was compelled to pay subsistence wages. Workers, reinvigorated in their struggle following the repeal of anti-trade union laws in 1824, fought for and achieved wages sufficient to sustain the typical working-class household. This engendered a culture in which reliance on the poor law became a source of shame, and admission to a workhouse was regarded as a mark of social disgrace.
• 1909: A second major inquiry, significantly influenced by the "Minority Report" of Sidney (later Lord Passfield) and Beatrice Webb—prominent Fabian socialists and authors of classic books on the history of the labour mouvement and industrial democracy [8] — gave impetus to a transformation initiated in 1897. The archaic, undifferentiated system of poor relief via workhouses and parish overseers was gradually supplanted by a structured regime of assistance and insurance tailored to specific contingencies: death and disability allowances, old-age pensions, sickness and maternity benefits, unemployment insurance, and family allowances. However, as with many British institutions, this framework evolved in a piecemeal fashion, lacking a cohesive blueprint, marred by inconsistencies, ad hoc legislation, and an array of overlapping and uncoordinated measures. By 1938-39, the financial burden of social insurance and assistance—borne collectively by workers, employers, the state, and local authorities—amounted to the vast sum of £342 million, rising to £432 million by 1945. The idiosyncratic nature of this system, reflective of the British constitutional order—an unwritten yet functioning entity—and the British Empire itself, an entity which defies precise juridical definition yet remains a tangible reality, is manifest in its administrative complexities. An unemployed individual seeking insurance benefits must apply to officials of the Ministry of Labour, yet upon exhaustion of these entitlements, welfare assistance falls under the jurisdiction of local Public Assistance authorities. Should illness or disability intervene, the claimant must turn to accredited societies of which he is a member (mutual aid associations, workers' leagues, and mutual insurance companies). subject to oversight by the Ministries of Health for England, Scotland, and Wales. A blind individual, by contrast, must address to county, borough, or municipal councils, which, for medical matters, report to the Ministries of Health but, for educational provisions, fall under the purview of the Ministry of Education. Workplace injuries necessitate direct negotiations with the employer regarding compensation, with disputes arbitrated by county courts when negotiations fail, except where medical determinations require expert adjudication.

Old-age pensions present an even more intricate landscape: universal pensions for the elderly are administered by committees appointed by county, borough, and municipal councils, acting on data supplied by the Commissioners of Customs and Excise—an agency originally tasked with this function by historical happenstance. Meanwhile, the newly introduced additional contributory pensions for insured workers are managed by the English, Scottish and Welsh Ministries of Health. A further pension supplement, available in certain circumstances, falls under the remit of local Public Assistance officials. For those who fall outside these specific categories—individuals for whom standard allowances and subsidies prove inadequate—recourse must be made to county and borough public assistance committees. Notably, the old poor overseers, relics of an earlier era, have not entirely vanished; in the labyrinthine structure that has emerged over the twentieth century, their role, though diminished, remains extant in certain cases.

37. The Beveridge Plan

One of the most compelling and distinctly insular justifications for the Beveridge Plan lies in its endeavour to impose order upon the labyrinthine complexities and inconsistencies that characterise existing British social legislation. Individuals facing adversity are compelled to navigate a bewildering array of bureaucratic channels, petitioning multiple authorities, contending with legal loopholes that leave certain contingencies unaddressed, and, conversely, exploiting instances of legislative redundancy by selecting the most advantageous subsidy available for a given situation. To remedy this, the author of the Beveridge Plan undertakes a rigorous process of simplification, coordination, integration, and rationalisation. By means of a single contribution and a uniform identification system, citizens are afforded access to their entitled benefits owed on the basis of the various contingencies of life through a streamlined network of skillful officials. The value of benefits allocated follows a methodical structure wherein each subsidy is determined in accordance with established proportional ratios vis-à-vis others of a greater or lesser relevance, ensuring a coherent and equitable framework. For instance, the retirement pension for a married couple aged 65 and 60 is set at 40 shillings per week, whereas a single individual shall receive 24 shillings. Similarly, benefits for individuals incapacitated by accident are stratified according to age, with a couple or single individuals aged 21 and above receiving 40 and 24 shillings, while younger recipients aged 18 to 20 are entitled to receive 20 shillings, youth aged 16 and 17, 15 shillings, and so forth.

While the necessity for such simplification and coordination is particularly acute in Britain—where institutions have been evolving incrementally for centuries in response to contingent exigencies rather than according to a unified plan, this one is however a requirement felt across all modern states, Italy, for instance, has developed its own corpus of social legislation in a similarly piecemeal fashion, progressing from the earliest statutes on workplace accident prevention and insurance as well as voluntary retirement and disability pension schemes in the 1880s to subsequent measures addressing health insurance, compulsory pension contribution, unemployment relief, maternity benefits, and family allowances. This extensive and multifaceted framework, though comprehensive, is also encumbered by administrative redundancies and inefficiencies, which, like those in Britain, necessitate systematic revision, rationalisation, and the streamlining of bureaucratic processes to reduce administrative overheads.

Yet, the Beveridge Plan aspires to more than the mere reorganisation of fragmented legislative components. It is animated by a fundamental principle: the assurance of a guaranteed minimum income in all circumstances of life where personal earnings or independent sources of revenue are disrupted: “a minimal income sufficient to meet the essential needs of a household” encompassing provisions for food, clothing, housing, heating, and other fundamental requirements, as defined by pre-war (1938) standards of subsistence. While the initial figures are based on forecasted economic conditions for 1945, they shall be submitted to periodic reassessment to keep in consideration the evolving cost and standard of living.

38. The Principles of Social Insurance

Let us momentarily set aside the question of principle—namely, whether a minimum standard of living should be guaranteed. The plan, as it stands, does not directly engage with this issue in its most fundamental formulation; rather, it simply asserts that when certain economically disruptive or burdensome events occur—such as accident, disability, old age, death, marriage, childbirth, widowhood, illness, or unemployment—an allowance or subsidy pension must be granted to the insured. The key questions arising from this premise are not uniquely British, Italian, or German; rather, they manifest universally across all nations. The peculiarities dictated by variations in living standards, income levels, and fiscal constraints must be considered separately. Here, however, our concern lies in the outlining of the fundamental principles underpinning state intervention to be faced on the base that response needs to be defined upon the occurrence of onerous or adverse events.

A pivotal question is whether a social insurance system should be structured around the citizen as an individual or as a worker. The continental approach, shaped by the German Bismarckian model, has traditionally assumed a relationship of economic dependency between employer and employee thus resting on the tripartite funding model and reflecting the interests of employers and the state in maintaining social stability, and of workers in securing pensions, allowances, or benefits. Since the rationale underpinning such a system is the ideal of social harmony, intervention is deemed unnecessary where class conflict does not exist. Consequently, continental schemes have historically excluded those outside formal employment: children, housewives, artisans, professionals, self-employed artists, industrialists, and tradespeople.

The British model, in contrast, has its roots in the ancient Poor Relief Act, enacted in 1601 at a time when modern industry—and the corresponding employer-employee dynamic—was yet to emerge. British social policy has therefore been driven not by the concept of class conciliation but by the broader imperative of public order and social justice, which the state, as the representative of the national community, is obliged to uphold. Thus, the Beveridge Plan—which, as previously noted, is primarily a consolidation, coordination, and expansion of pre-existing institutions and accepted principles—extends its scope far beyond the wage-earning class. It encompasses 18.1 million wage earners (first category), 2.6 million self-employed individuals, including business owners and tradespeople (second category), 9.45 million housewives (third category), 2.3 million individuals of working age who are not engaged in paid employment (fourth category), 9.8 million minors below working age (fifth category), and 4.75 million individuals beyond working age (sixth category). Each category contributes and receives benefits in proportion to its specific needs. Only the fifth and sixth categories are exempt from contributions—the former due to youth, the latter because they have reached an age where they are entitled to receive rather than contribute. The archetypal category remains that of wage earners, who are eligible for all benefits. The self-employed and the non-employed (second and fourth categories) are excluded from unemployment and workplace accident insurance, as such contingencies do not apply to them.

Of the two models, the British is the only truly universal approach, and it is difficult to see how social legislation in other nations could avoid evolving towards a similar inclusivity. Is not every individual fundamentally equal? Do not life events—such as accident, illness, large family burdens, decease, or marriage—produce comparable consequences regardless of occupational status? What substantive distinction exists between labour performed under the direction of an employer and that undertaken autonomously by a shopkeeper, industrialist, artisan, professional, or artist serving the public? Is not an elderly person equally so, irrespective of their past occupation? Practical difficulties may arise when extending insurance provisions beyond waged employment, but the principle itself is unassailable. In a society that acknowledges no formal class privileges and upholds legal equality among all its citizens, the primacy of pax publica must supersede mere social stability.

One potential objection to a universal system is that it risks granting benefits—pensions, allowances, or subsidies—to those who are financially self-sufficient and have no need of public support. Why, for instance, should a couple with an independent income equal to or exceeding 40 shillings[9] per week receive a state pension of the same amount? To this, the British working class has provided a resolute and unanimous answer: "Better that pensions be granted to all, including the wealthy and the opulent, than that we, the working class, be compelled to prove our destitution in order to qualify for them." Among the most universally reviled institutions in Britain is the means test—a process employed to determine whether the elderly, the sick, or the disabled possess sufficient personal resources to forfeit their entitlement to public assistance. The working class rejects such scrutiny not merely as an intrusion into private affairs but, more fundamentally, because it is immoral and economically discouraging to deprive someone of their right to a pension just because and to the extent that one has been frugal and provident and has accumulated a pecuniary allowance during working life for the days of adversity or old age. The means test effectively rewards irresponsibility and waste. Why make savings, why making sacrifices if treatment shall be exactly the same as those who spend money like water? The argument that universal pensions would unfairly benefit the wealthy does not withstand scrutiny. First, the affluent, like all others, will have paid compulsory contributions amounting to 22.4% of the total cost of the scheme; it is difficult to justify why their entitlements should be any less than those of others. Secondly, as employers, they will also have contributed - them only - an additional 15.4%, and as taxpayers, they will have shouldered the majority of the 60.5% state share of the scheme’s funding, i.e. the share paid by all taxpayers. They will, in other words, have paid significantly more than they will receive, and there is no rational basis for denying them equal treatment. Just as scholarships and prizes in the education system are awarded on the basis of merit rather than financial need, so too should the benefits of social insurance be distributed universally. That is why workers the means test as detrimental to human dignity and morally hostile to individual welfare contribution. Their aim is find in insurance legislation an incentive to rise and not to fall; they demand that the rich also share in the benefits of the social security programme.

This, then, is the reasoning of the working class and the verdict of British public opinion—perspectives that, while lying beyond the economist’s immediate domain, cannot be disregarded. Economists have to start from premises set by politicians, moralists and philosophers who determined the ultimate goals of social policy. However, it must be acknowledged that the British workers’ stance is robust and aligns with the fundamental principles underpinning social legislation, as outlined in the introductory words of this lecture.

In evaluating individual branches of the insurance system, what criteria should guide our judgement? If we adhere to the principles already established, then our assessment of any given policy will depend on whether it advances or undermines human dignity (that is, whether it upholds the principle of a guaranteed minimum as a starting point rather than an endpoint). It will also depend on whether it facilitates or impedes labour mobility, divisibility, predictability, and labour reproduction, as well as the freedom of entry and exit from employment—all of which are essential to a competitive economy.

39. Workplace Accident Insurance

It is difficult to discern any inherent contradiction between workplace accident insurance and the principles previously established. Presently, the legislation of developed nations—whether enacted or merely proposed—is confined to workplace accidents and does not extend to general accidents. However, the underlying reasoning could be applied more broadly. A workplace accident is analogous to a fire. Just as the distribution of fire risk across multiple property owners mitigates the financial burden on any single owner, thereby increasing investment in construction, enhancing the supply of housing, and ultimately benefiting society through lower housing costs, so too does workplace accident insurance distribute risk across a wide pool of employers. These employers, in turn, pass the cost on to an extensive base of consumers of their goods and services. This redistribution prevents the disproportionate impact of workplace accidents on individual workers or employers who would otherwise bear the full financial burden of compensation. By reducing the risk associated with employment - at least the one that would be calculated individually in the case of non-insurance - it fosters a greater sense of security among workers, enabling them to plan for the future with more confidence. This predictability, in turn, encourages them to engage fully in their work, thereby elevating their moral and professional stature. If an individual sustains physical impairment while engaged in productive service to society, and if the beneficiaries of that service—the broader citizenry— fail to restore damage, at least with pecuniary compensation, a feeling of unresolved wrongdoing arises within society. This failure undermines the very foundation of public order (pax publica), which is the paramount objective of the state. By alleviating the financial consequences of workplace injuries, insurance equalises risk between hazardous and low-risk industries, thus facilitating labour mobility and enhancing competition. This, in turn, drives increased labour productivity. In a theoretical society where all individuals are perfectly rational and forward-thinking in a situation of perfect competition, wages in hazardous industries would be higher than in other low-risk industries. Workers in such industries would not immediately consume the wage premium but would instead allocate a portion towards personal savings to prepare for potential misfortune. Even under these ideal conditions, voluntary insurance would still be necessary to transfer risk from individuals—who may not have yet accumulated sufficient reserves—to the broader collective of workers. Through the law of large numbers, a well-functioning society would effectively set aside the requisite amounts daily to cover total risk exposure, However, given that human nature is neither perfectly rational nor consistently foresighted, mandatory insurance becomes a practical necessity. The case for compulsory insurance is further reinforced by a universally observed legislative principle, including in Italy, which distinguishes workplace accident insurance from other forms of social insurance. Unlike other types, where the financial burden is shared in varying proportions between workers, employers, and taxpayers, workplace accident insurance uniquely exempts workers from direct contributions. Instead, the responsibility falls upon businesses—more precisely, upon the consumers who purchase the goods and services produced by these enterprises—to ensure that workers injured in the course of their duties are restored, at least economically, to their prior state of physical well-being.