J. Douglas Brown
THE BIRTH OF OLD-AGE INSURANCE, 1934-35*
by J. Douglas Brown
* Delivered at a conference of Social Security District Office Managers at Yonkers, New York on May 17, 1963.
It is not easy in 1963 to put oneself back thirty years to 1933. It is not only the time which has elapsed, but the great events which have intervened.
In 1933, the United States was flat on its back. We had the largest number of unemployed in our history. Discouragement and distress were widespread. Millions were on relief. There seemed to be little hope for getting out of a growing state of shock and paralysis.
In the fall of 1930, some of us were called to Washington to serve on President Hoover's Emergency Committee for Employment. We pushed a "Spread the Work" program with nationwide broadcasts, distributed hundreds of thousands of leaflets, prepared advertisements, and exhorted industry leaders. We proposed a $450,000,000 appropriation for highway construction, and President Hoover fired us after four months for being too radical. I came back to Princeton with a deep sense of the immensity of the problem of insecurity, and put our staff at the Industrial Relations Section to work on what could be done.
The election of Roosevelt in 1932 made the first great change in the downward drift of the country, but the bottom did not come until early 1933 with the closing of the banks. The N.R.A. and a rapid succession of programs, C.C.C., C.W.A., W.P.A., P.W.A., began to chip away at the vast glacier of despair and distress which had spread over the country.
Again some of us that had made Hoover so unhappy were called back to Washington. Several of us were assigned the job of working but a way of taking care of the vast unemployment on the railroads and, at the same time, of getting the roads into a more economical shape. We developed the basis of the Railroad Retirement Act and various other programs. With the help of the C.W.A., we employed hundreds of unemployed railway clerks to build the records for the new retirement system.
In 1933, Roosevelt was too busy putting out fires to think or more permanent solutions to insecurity. But ideas were being pushed in Wisconsin, Ohio, New York, and other states. Abe Epstein and I. M. Rubinow had written persuasive books. College professors were studying and writing articles. By the summer of 1934, Roosevelt started the push for a long-run attack by setting up a cabinet Committee on Economic Security
Frances Perkins, then Secretary of Labor, was chairman of the cabinet committee. Professor Ed Witte of the University of Wisconsin was appointed Executive Director of its staff. On August 4, 1934, Witte tried to reach me by phone. A letter requesting me to come to Washington immediately reached me on vacation. From then on, it was a long year's battle to develop what became the Social Security Act from a "gleam in the eye" to a statute on the books.
The staff of the Committee on Economic Security was divided into the unemployment group, the old-age group, the health group, and some others. The health group immediately got into trouble with the American Medical Association and never got off the ground. The unemployment group got the major attention from everybody since millions were unemployed and Wisconsin, well represented in the staff, already had an unemployment insurance plan. Perhaps it was lucky that our little old age group was out of the spot light. It gave us a chance to work out something new.
Our group consisted of Professor Barbara Armstrong of the University of California Law School, Murray Latimer of the Industrial Relations Counselors in New York, and myself. Latimer and I had worked on the Railroad Retirement Act. Otto Richter of the American Telephone and Telegraph Company helped us as an actuary, and later Robert Myers, the present actuary of the Social Security Administration. Armstrong knew foreign social insurance and constitutional law. Latimer knew private annuity programs, and I added the economic approach.
It was obvious from the first that the old age security problem of the United States was vastly bigger than the alleviation of the distress caused by a single depression. The more we studied the shifting age balance in the country, the more we were convinced that we were dealing with a great secular trend which the current depression had, for the first time, made all too apparent.
Our conclusion was that we must build a contributory old age insurance system which, year by year, over the decades ahead would prevent distress among old people by a life-long system of contributions. We knew that old age assistance had to be widely extended and improved to meet the immediate and residual problem. But to rely on assistance alone we were convinced, was both socially bad and fiscally dangerous.
From then on, our battle was first to develop the best plan for old age insurance we could which would fit the United States; second, to design a way to make it constitutional; and third, to rise the obvious need for old age assistance to get political support for contributory old age insurance by marrying the two together by every argument we could muster. We had to be ready by the opening of Congress in January 1935.
In developing the plan for old age insurance, we had the tremendous advantage that, no matter how little we knew, nobody around Washington knew any more! To enumerate a few of our skirmishes:
1. We decided that the system must be a national one. It was the only way it could work. We scared off the "state-by-state" opposition by showing how ridiculous it would be for a man becoming 65 to get insurance checks from a dozen states; by showing how impossible 48 state reserves, 48 state actuarial controls, and 48 state benefit, structures would be to operate, and warning of the effects state plans would have on life-long mobility.
2. We decided that equal contributions by employers and employees were necessary, with the government contributing a third share as an offset to the assistance costs to be saved. I remember getting Bill Green's approval to this on the way into the White House. He was then the President of the American Federation of Labor.
3. Age 65 seemed the right age for the beginning of benefits. There was no great justification for it, but it seemed about right. Nobody ever questioned it.
4. We wanted the widest coverage we could get without Stirring up opposition from farmers, housewives, police or firemen. Also, we wanted coverage of everyone for a basic segment of protection. We strongly opposed "contracting out" of existing industrial programs.
5. We tried our best to prevent the accumulation of a gigantic reserve fund by working out a gradual rise in contributions as the benefit load rose. We were licked on this by Secretary Morgenthau, but Congress later reversed "itself by delaying the rise in the rates of contribution.
In the second main battle, to assure constitutionality, we got the advice of some of the best professors of constitutional law in the country to help us design a double-barrelled law: one barrel covering the contributions, based on the taxing power; the other barrel covering the benefit payments, based on the appropriation power. The only link was the wage records, a sort of coincidental hyphen between the two titles of the Act. Thanks to the genius of Justice Cardozo, helped by a beautiful brief by Charlie Wyzanski, the plan worked.
The third main battle, to keep the old age insurance program in the Social Security Act, was the hardest of all. Our success was President Roosevelt's great contribution, supported by some glorious infighting.
We got tremendous unintended help from the Townsendites. That winter thirty million postcards came into Washington supporting their $200 a month scheme. It was crazy, but it scared Congress green. Their most effective propaganda was a postcard with two pictures, side by side: one, "Over the Hill to the Poor House," showing an old couple trudging up a road in the winter snow to the poor house over the hill. The other picture was "Comfort in Old Age," showing the same couple in front of a cozy fire, the man smoking his pipe and the woman knitting. Under the picture was printed "Vote Townsend Plan," signed by the sender.
Our argument was a simple one, if you don't provide adequate assistance, the Townsend Plan will win! If you do provide adequate assistance, the shifting age balance will cause it to grow in cost to billions and billions! The only way to control this vastly mounting cost was to start contributory old age insurance immediately. Our plea was to prevent dependency in old age, rather than just to relieve it after it had occurred.
It is difficult now to recall how new and radical the idea of a national old age insurance scheme was to those congressmen and senators who considered social insurance first cousin to socialism. But the shadow of a great depression and the brilliant leadership of a great President swung hundreds of congressional votes. It was an example of grand opportunism, of satisfying a great unfilled want for security--the political urge--with a plan of truly constructive design which most politicians had to take on faith. Roosevelt could understand the ways of academicians and politicians--both--and was able to use the contributions of both for the benefit of the people.
I remember well the day of crisis for the old age insurance program. The Senate Finance Committee, in executive session, was coming to the moment of truth. Should the old-age insurance titles stay in the bill? Ed Witte and I were the only so-called "experts" permitted in the committee room. Pat Harrison, the Chairman, under orders from F.D.R., had been jockeying section after section through, watching which senators were present for each vote. Just before the old-age insurance titles were up for vote en bloc, Senator King, the senior minority member, read a strong statement against the plan. Senator LaFollette asked that it be answered by the staff and indicated Witte. Although I was supposed to handle old-age insurance, Witte got up, trembling like a ship in a storm, and made the best ten-minute defense of the old-age insurance plan I have ever heard. Senator Harrison immediately called for the vote and we won 9 to 4.
There were further battles, but that is enough history for now. I could tell of the two-year job of revising the program to its present basic structure in 1937-38, when I was chairman of the Advisory Council on Social Security. But people approaching 65 should know when to stop talking, even about old-age insurance.
Selected Readings on the Beginnings of Social Security
1. Abbott, Grace, From Relief to Social Security: The Development of the New Public Welfare Services and Their Administration, University of Chicago Press, Chicago, 1941, 388 pp.
2. Altmeyer, Arthur J., The Formative Years of Social Security, The University of Wisconsin Press, Madison, 1966, 314 pp.
3. Brown, J. Douglas, An American Philosophy of Social Security: Evolution and Issues, Princeton University Press, Princeton, 1972 244 pp.
4. Cohen, Wilbur J., "The First Twenty-Five Years of the Social Security Act; 1935-1960", Social Work Year Book 1960, National Association of Social Workers, New York, 1960, pp. 49-62.
5. Epstein, Abraham, Insecurity: A Challenge to America: A Study of Social Insurance in the United States and Abroad (3rd revised edition), Random House, New York, 1936, 821 pp.
6. Haber, William, and Cohen, Wilbur J., (eds.) Readings in Social Security, Prentice-Hall, Inc., New York, 1948, 643 pp
7. Lampman, Robert J., Social Security Perspectives: Essays by Edwin E. Witte, University of Wisconsin Press, Madison, 1962, 419 pp.
8. Lubove, Roy, The Struggle for Social Security, 1900-1935, Harvard University Press, Cambridge, 1968, 276 pp.
9. McKinley, Charles, and Frase, Robert W., Launching Social Security: A Capture-And-Record Account 1935-1937, The University of Wisconsin Press, Madison, 1970, 519 pp.
10. Mitchell, Broadus, The Economic History of the United States, Vol. IX, "Depression Decade: From New Era Through New Deal, 1929-1941," Rinehart and Co., New York, 1955, 463 pp.
11. Perkins, Frances, The Roosevelt I Knew. Harper and Row, New York, 1964 (paperback edition), 409 pp.
12. Rubinow, I. M., The Quest For Security, Henry Holt and Company, New York, 1934, 683 pp.
13. Schlabach, Theron J., Edwin E. Witte: Cautious Reformer, State Historical Society of Wisconsin, Madison, 1969, 290 pp.
14. Schlesinger, Arthur M., Jr., The Age of Roosevelt-The Coming of the New Deal, Houghton-Mifflin Co., Boston, 1958, 669 pp.
15. Social Security In America: The Factual Background of the Social Security Act as Summarized From Staff Reports to the Committee on Economic Security, Social Security Board Publication No. 20, Government Printing Office, Washington, 1937, 592 pp.
16. Witte, Edwin E., The Development of the Social Security Act, University of Wisconsin Press, Madison, 1962, 220 pp.
EDITORIAL NOTE:
About 10 publications are expected to be printed in the series captioned "The Beginnings of Social Security." This publication is in that series. In addition, the selected, annotated bibliography entitled Basic Readings In Social Security, published by SSA's Office of Research and Statistics, contains many additional readings relating to the beginnings of social security.