Illusration by Bryan Dalton
Illusration by Bryan Dalton

“You are young, pretty, rich, clever, what more do you want?” Beatrice Potter’s poor relation asked her with a trace of exasperation. “Why cannot you be satisfied?”

Like the heroine of Henry James’s 1881 novel, “Portrait of a Lady,” Beatrice had been brought up with an unusual freedom to travel, read, form friendships and satisfy her “great desire for knowledge.” Born in 1858 as the ninth daughter of a railway magnate and political liberal, she was “brought up in the midst of capitalist speculation” and “the restless spirit of big enterprise.”

She longed for a “real aim and occupation.” Her early mentor was Herbert Spencer -- the libertarian philosopher who coined the term “survival of the fittest” -- who encouraged her to pursue a career as a “social investigator.” She took the advice to heart, and by the time that career was over, Beatrice had invented the think tank, supplied the young Winston Churchill with a reform platform, and conceived the modern welfare state decades before the New Deal.

Treadmill of Labor

Yet as a young woman, Beatrice yearned for a masterful man. She fell violently in love with Joseph Chamberlain, who was 20 years her senior, handsome and the most charismatic politician in England.

Beatrice was schooled in Spencer’s strict minimalism with respect to government, and she disliked Chamberlain’s populist politics and demands for government activism on behalf of the unemployed. And she knew very well that the commanding Chamberlain was looking for a woman who would stand by her man - - not one with a mind and agenda of her own.

Hopelessly in love, Beatrice was devastated when he rejected her. She tried to master her obsession by plunging first into charity work and later into a massive survey of London’s poor. When her father suffered a stroke and required her constant care, her despair deepened to suicidal depression. She reflected bitterly that the plight of women resembled that of working men with “active brains doomed to the treadmill of manual labor.”

‘Hooting Howling Mob’

An electrifying surge of violence in London dispelled her suicidal mood. On Feb. 8, 1886, 10,000 unemployed workmen and thousands of radicals rallied peacefully in Trafalgar Square, surrounded by 2,500 police. When the demonstrators poured into the main streets, they began “cursing the authorities, attacking shops, sacking saloons, getting drunk, and smashing windows,” according to a newspaper account. The police were unprepared and grossly outnumbered. For hours, a “hooting howling mob” ruled the West End.

Queen Victoria’s charge that the episode constituted “a momentary triumph for socialism” was hyperbolic, but the eruption of anger stimulated a revival of middle-class activism. It ultimately led Beatrice to try her hand at investigative journalism. “Social questions are the vital questions of today,” she wrote. “They take the place of religion.”

She decided to go undercover to share the experiences of sweatshop workers. To prepare for the role, she plowed through piles of “Blue Books, pamphlets and periodicals bearing on the subject of sweating.” She moved to a shabby East End hotel, and spent eight to 12 hours a day learning how to sew at a cooperative tailoring workshop only to flit off to fashionable West End dinner parties at night.

When she felt prepared, she dressed in dingy clothes and set off on foot to find a job. Within 24 hours, Beatrice was sitting with a dozen other women at a large table making a mess of sewing buttons on pairs of trousers. Her eyes hurt, her back ached and she found the heat from the gas lamps stifling. When a shrill voice finally cried out, “Eight o’clock by the Brewery clock,” she received a shilling, the first money she had ever earned. And when “Pages of a Workgirl’s Diary” was published in a liberal journal, its success and the newspaper coverage of her escapade were delicious.

Beatrice was a 32-year-old spinster when Sidney Webb, the brainy son of a London hairdresser, proposed they write a book on labor unions together. She knew that Webb was the intellect behind a coterie of young men who were manipulating the mainstream parties “to voice a growing desire for state action.” The Fabians, as they were known, called themselves socialists, but they wished to tame the “Frankenstein” of free enterprise rather than kill it, and to tax the rich rather than wipe them out.

‘Everybody Comes Here’

After a year of telling Sidney “I do not love you,” and Sidney’s promising that life together would consist of abstemious living, copious research and constant socializing -- presumably in lieu of sex and babies -- Beatrice reluctantly married him.

“It seems an extraordinary end to the once brilliant Beatrice Potter,” she wrote on returning from the registry office, “to marry an ugly little man with no social position and less means, whose only recommendation so some may say is a certain pushing ability.”

Her marriage instead became the key to her professional fulfillment. The Webbs constituted themselves as a husband and wife think tank, directing research assistants, analyzing data and writing by day, while lobbying politicians and journalists in their own political salon at night.

“Everybody comes here,” says a regular in H.G. Wells’ 1910 roman a clef, “The New Machiavelli,” calling the Webbs’ salon a “center of reference for all sorts of legislative proposals and political expedients.”

The idea of the welfare state, typically attributed to Roosevelt’s New Deal or the 1944 British Labor Party government, was actually Beatrice’s invention in these years. Seizing on the economist Alfred Marshall’s suggestion that “the cause of poverty is poverty,” she defined the problem in absolute rather than relative terms in a book she wrote with Sidney called “The Prevention of Destitution.”

National Minimums

Inequality, and poverty in the sense of having less than others, is inevitable, they wrote. But destitution is not. Eliminating destitution would prevent the poverty of one generation from passing automatically to the next, and could be accomplished by establishing national minimums, including a national minimum wage -- the essence of the modern welfare state.

Before Marshall, the founding fathers of political economy had held that government provision for the poor was incompatible with a market economy. John Stuart Mill argued that if the government intervened by taxing the affluent to subsidize wages, the working population would increase, causing more unemployment and even higher taxation. Moreover, as Karl Marx also pointed out, the use of taxes to subsidize pay would reduce efficiency by removing competition and the fear of unemployment.

But by defining poverty in terms of absolutes, Beatrice could overcome these objections. In contrast to the socialist state, she believed, the household state was perfectly compatible with free markets and democracy.

Beatrice and Bulldog

“I never do my own brainwork that anyone else can do for me,” Churchill bragged in 1904, the first time he sat next to Beatrice at dinner. She wrote him off then as “egotistical, bumptious, shallow-minded and reactionary.”

But, as the son of a leading conservative and a rising political star, Churchill sensed the Tories’ growing irrelevance and realized that the Liberals were ready to move to the left with the rest of the nation. Without trade-union votes they couldn’t stay in power, and that meant that they had to address the social question -- somehow.

Two years later, Churchill was stumping for election as a Liberal, preaching what he called the “cause of the left-out millions” and urging the government to draw a line below which “we will not allow persons to live and labor” -- precisely the policy that Beatrice had been urging on him.

Liberals won a majority by a landslide. Beatrice supplied Churchill with the rationale for the “assumption by the state of responsibility for an increasing number of services, administered by a growing class of experts, and supported by an expanded apparatus of the state,” according to historian Eli Halevy. Legislation of “almost revolutionary importance” started to pass at Churchill’s prodding.

Among these measures, Halevy wrote, was the “first attempt to introduce a minimum wage into the Labor code of Great Britain, which formed part of the Webbs’ formula for the ‘National Minimum.’”

The welfare state, as envisioned by Webb and embraced by politicians like Churchill, depended on private sector productivity and income growth to generate tax revenue without undermining enterprise. When World War I broke out in 1914, it disrupted what had been an increasingly integrated, interdependent world economy. And it threatened to reverse the achievements of the Victorian economic miracle -- and to discredit the ideas that enabled mankind to make its first successful attempt to escape its age old fate of deprivation.

(Sylvia Nasar, a former New York Times economics reporter and the author of “A Beautiful Mind,” teaches journalism at Columbia University. This is the second in a five-part series excerpted from her new book, “Grand Pursuit: The Story of Economic Genius,” to be published by Simon & Schuster on Sept. 13.)

To contact the writer of this article: Sylvia Nasar at szn1@columbia.edu.

To contact the editor responsible for this article: Timothy Lavin at tlavin1@bloomberg.net.