Here we will see how a virtuous cycle of ideational competition led to the formation of the world’s first welfare state in late nineteenth-century Germany. In the first part, we will follow nation building and industrialization in nineteenth-century Germany. Industrialization and the confessional cleavage produced a specific political constellation in which the growth of a pauperized working class not only led to a political conflict between capital and labor but also reinforced the existing confessional cleavage between Protestants and Catholics. In the second part, we will see how the cleavages led to a specific cycle of ideational competition between the dominant political forces of the German Empire (Catholicism, conservative Protestantism, liberal Protestantism, and socialism). In the second half of the nineteenth century, they all started to develop modern social security ideas. The development of these ideas paved the way to the formation of the world’s first welfare state. This chapter looks closely at the evolution of German Catholic social thinking, developing from antiquated medieval social ideas to one of the most sophisticated Catholic social security ideologies at the end of the century. The third part of the chapter gives an account of the making of Bismarck’s social security legislation in the 1880s.