Ewan Clague
FACTORS CONTRIBUTING TO THE PASSAGE OF THE SOCIAL SECURITY ACT
by Ewan Clague
Delivered at a general staff meeting at the Social Security Administration Headquarters, Baltimore, Maryland on July 20, 1961.
I've been asked to go back to the 1930's and before to discuss the factors contributing to the passage of the Social Security Act. This takes us back to a time when most of you were not doing much more than learning to talk, and to a period when we had The Depression--a phenomenon never experienced by you, especially if you were born after 1940. For example, the Bureau of Labor Statistics issued figures on unemployment the other day, and it turned out that there were 5.6 million unemployed in June. Seems like an enormous number! Do you know how many unemployed we would have if we had the unemployment rate that existed at the bottom of 1932? We'd have pretty close to 25 million, and many of them would have been unemployed for 2 or 3 years. It is out of this kind of turmoil and disaster, which is almost unthinkable today, that the Social Security Act came. In fact, it's hard to imagine how the country would react today if anything like 15 million, 20 million or 25 million people were out of work. The situation improved in the mid-1930's, but we didn't really get out of the unemployment problem until 1940.
Workmen's Compensation-First Social Insurance Program
The first social insurance activity that was undertaken in this country was workmen's compensation for industrial accidents. Prior to the 1910's or thereabout the only way in which a worker injured on the job could get any help for himself was to go to court and sue. He had to hire a lawyer, sue the employer, and prove negligence in order to get damages. Maybe the worker would get a lot of money, or maybe held get nothing. If he won the case, held get some money. If he didn't win, he didn't get much, if anything. This meant that lawyers competing against each other, judges, juries, and courts were determining what happened to the families of workers injured in a plant. The employers had certain defenses to block the recovery of damages. An employer could always contend that the injury was due to (1) a normal risk of the work (voluntary assumption of the risk); (2) the negligence of a fellow worker (fellow servant rule), and/or; (3) the worker being partly responsible because of his own negligence (contributory negligence). For example, contributory negligence meant that the worker himself was somewhat to blame. Let's say he dropped a few tools and left them on the floor and that he later tripped over one of them, fell, and broke his leg. That was his own negligence. He should have put his tools on the shelf.
It was thought that this kind of activity was really quite a hopeless way of dealing with the problem of industrial accidents, and we had a great many of them. In many industries the death rates and injury rates were high. I cite the steel industry as an example. It was a dangerous industry in which to work and so were many others.
To deal with this kind of situation, a number of university professors--prominent among them was John R. Commons of Wisconsin--were preaching a doctrine that employers should, pursuant to State law, be liable for accidents in their plants regardless of fault or blame. Certain payments should be made-that a broken knee would pay so much, that a broken neck would result in such and such benefits, that upon the accidental death of a wage earner his widow would receive such and such payment, and so forth. The proposed law would contain a schedule of payments that would automatically be awarded provided the worker made only one proof, namely that he was injured on the job. This was accepted as a good principle. A number of States passed such laws-the earliest along about 1910. At the present time there is no State that doesn't have such a law, although Mississippi came in only within the last few years.
This was the first social insurance legislation we had in this country. It was strictly a State system, and it was based upon employer contributions. The law required employer contributions to raise a fund. Later he would be given rebates or he could get a cut in his taxes if he prevented accidents. This is one of the reasons that many firms and many industries went into accident prevention on a large scale. It was a social insurance system that produced results in terms of (1) reducing accidents while (2) treating injured workers and their families fairly.
Largely responsible for promoting this legislation was the American Association for Labor Legislation. John B. Andrews was Executive Director of the Association and his wife was Secretary. Both had been students of John R. Commons. They had a program designed to promote State legislation on accidents and injuries on the job.
Problem of Aged Poor Emerges
The second problem that arose back in those early days was the problem of the aged poor. In the 1900's most families were living on farms. My family was on a farm out in the State of Washington. My father had been a-homesteader in the early days. In this kind of a situation old people simply lived on the farm until they died. There was no retirement. There wasn't much of a problem of elderly people until they got around to their terminal illness. There were a few things they could do on the farm: feed the chickens, water the horses, drive in the cows at night, etc. Consequently, the modern old-age problem hadn't developed.
As we got industrialized, more and more people moved to the city, and families lived in rented apartments. If you had grandma and grandpa with you in the city, you needed another room and that meant more rent. We came to the point where elderly people became a problem. In our little county in the State of Washington, this was primarily a county problem. Counties took care of the aged poor whoever they were. We had a poorhouse in our county, and any aged person who didn't have a farm or a residence of any sort could go to the county poorhouse. It was a short distance from our home. Sometimes it would have a dozen or two dozen people in it. At other times there would be hardly anybody there, depending on the general situation. Mostly these were elderly men and women approaching death. They didn't go there unless they had to, and then only as a last resort. Needless to say, it was a "sore spot" on the landscape. I remember my mother tried to keep us kids from going over to the poorhouse. She thought that the associations were not the best for growing youngsters. The old men who were there nearly all smoked, and, needless to say, they swore a good deal and they had other traits that were not exactly desirable. That was the method of taking care of the aged needy in those days.
Pressure developed for doing more for elderly people and for a more respectable method of handling the problem. The answer came in the form of pensions from the State. It was a tremendous improvement when laws were passed providing that an elderly person could get $10 a month or $15 a month on the basis of need. It was entirely subject to a needs test. They tried to find out if there were any relatives who could contribute because there were laws specifying the kind of relatives that were responsible. Gifts from people in the neighborhood were also considered. The community then paid the rest in the form of a pension. That was considered a tremendous improvement. Again, progress was slow, and on a State-by-State basis. Many States had none of it. Much of the cost was actually financed by counties. A State would pass a law and then require that the counties should actually dig up the money and make the cash payments-sometimes with State financial assistance. These State pension laws were being passed after World War I in the early 1920's because we were becoming much more industrialized and the problem was becoming serious.
Unemployment Insurance Discussed--No Action
Unemployment insurance attracted some attention in those days, but it didn't get anywhere. The Socialist Party in 1912 put it into the party platform. The Socialist Party was quite strong at that time. It polled almost 1 million votes in 1912 and so it was a fairly significant minority party. In 1916 a Socialist Congressman was elected from New York. His name was Meyer London, and he introduced a bill in the Federal Congress in 1916 to provide for unemployment insurance. We were already in the wartime prosperity at that time and the bill didn't get anywhere. In the postwar depression of 1920-21 Professor Commons at the University of Wisconsin drafted a bill and presented it to the legislature (the economics professors at the University of Wisconsin in those days had a very close and effective working relationship with the government of the State of Wisconsin). It was a very simple bill, as I recall it. Professor Commons had the idea that if you could cut down the boom, you could prevent some of the resulting depression. So, whenever an employer hired a man, he was supposed to set aside a total of $100 to pay $10 a week for 10 weeks whenever he laid that man off. It was just as simple as that. Commons' idea was that this $100 risk would keep the employer from hiring too loosely a man that he couldn't take care of and when he did lay the man off, there would be $10 a week for 10 weeks while the unemployed person looked for a job.
This simple bill was introduced and it actually passed one House of the Wisconsin Legislature in 1921 when we had a sharp depression. We got into prosperity in 1922 and 1923, so the bill wasn't enacted. Because of the prosperity in the 1920's we lost interest and nothing happened to unemployment insurance until we got to The Big Depression.
The Coming of the Depression
What was the situation leading up to The Depression itself? Cotton went to $.05 a pound; wheat, as I recall it, went down to about $.50 a bushel; and corn went down to about $.30 a bushel. The terrific decline which began in 1929 wrecked the farmers. Many farmers who had borrowed money to buy farms, equipment etc., now found that the products they were producing wouldn't even pay for the cost of harvesting. This led to disaster. Industrial products also went down, but not as badly. The disaster came on steadily and became worse and worse for a period of about 4 years.
The stock market collapsed, and people ever since that time have always been a little leery about the stock markets but you can't imagine what it was like unless you were there and saw it going down and down and down. Literally billions of dollars worth of people's assets were wiped out as the stocks went down. People had borrowed money to buy them. As I recall, you could buy stocks by paying 10 percent down and borrowing the remaining 90 percent from the broker. The broker borrowed the money from a bank. If you put down $100 you would buy $1,000 worth of stock, or if you could dig up $1,000 you bought $10,000 worth. As soon as the stock began to fall, the broker asked for more money. Since you didn't have any more money-you had already put it all in-the broker sold yo-u. out to get his money back. This meant that there was almost no stopping the decline in the stock market as long as there were any people who owned stock which they had bought on a margin. This collapse occurred in the fall of 1929 and it ran on into the winter of 1930. The stock market had fallen very disastrously.
Then there was the question of what should be done, and this is where statistics came into the picture. There was a set of statistics gathered by the old U.S. Employment Service. The Employment Service had offices in various parts of the country. These offices were independent of the State employment offices, and there was no communication between the two. In fact, in some cases, there was competition between them. It was an incredible situation, but this is what existed. The U.S. Employment Service would periodically send out word to its employment office directors and ask them to call up a sampling of local employers and ask, "How is business in your community? How many people did you have on last month and how many do you have on now? What's the outlook?" If an employer was doing fairly well he might say, "I'm hiring five more people and things are looking up." If he wasn't doing well, he probably wouldn't say much of anything. He certainly wasn't going to tell a disaster story. At any rate, the result was a very biased report on the situation. These reports from the various parts of the country would be sent to the Secretary of Labor who in turn reported to the White House. Then the President would say, "Things are getting better now--just since the first of the month there has been a change--prosperity is just around the corner. And so the statisticians--not really the statisticians but people pretending to be statisticians--were the ones who misled the Secretary of Labor and the President of the U.S. by reporting how things were getting better when they were in fact getting worse.
In the meantime the old reliable Bureau of Labor Statistics was collecting information from thousands of employers throughout the country, in cooperation with some States which were collecting similar information. These reports would come in and were tabulated slowly. When the BLS figures finally came out, they would be different. They would show that things weren't better. Each month there would be this optimistic outlook coming from the Employment Service and then there would be the final BLS figures indicating that the Employment Service's reports were wrong. Yet at no time during that spring of 1930 did the Secretary of Labor and the President of the U.S. recognize the fact that they had this confusion. The contradictions led to claims that the President of the United States was issuing erroneous information. "Prosperity around the corner" became a standing joke. This situation came about because of the unwise reliance upon voluntary statistics coming from a reporting system which was no good. It led, however, to a demand for a study of the unemployment situation, and Congress ordered that there should be a study of unemployment in the Census of 1930.
The publication of the results a year or two later led to bitter public controversy. There was a statisticians' dispute as to who should be considered as unemployed. A worker is laid off with the instruction to report back in 4 weeks. Is he unemployed? A worker seeking a job is told that he can be put to work the first of the following month. Is he in the meantime, unemployed? One group wanted to call these cases "with a job but not, at work." The other school of thought wanted to call them unemployed.
When the Roosevelt Administration came into power in 1933, the first thing that happened in this area was that a committee of the American Statistical Association was called in to scrutinize all the statistics of the Federal Government. The fighting about statistics during 1931 and 1932 had led to a complete lack of confidence in statistics coming out of the Federal Government. That's when I was invited down from Philadelphia to serve as one of the members of the committee. About 60 economists from all over the country served for a year-and-a-half, going over the whole set of statistics of the Federal Government. We developed a statistical organization which still exists today, the Office of Statistical Standards of the Bureau of the Budget. It was designed to keep track of the statistics of the Federal Government and to see that they were kept on a coordinated basis, and were, qualitatively speaking, of high standard. We accomplished something, but it took an economic disaster to bring it about.
Efforts to Combat the Depression
The Government made about all the mistakes that could be imagined. These were mistakes we would not make now, but people didn't know any better at that time. The first thing that happened was the raising of the tariff. When the recession started, businessmen rushed down to Washington. They said, "Foreign goods are coming in so we must raise the tariff.'' The Congress responded and the tariff was raised to the highest level, I think, in the history of the country. This meant that many imports were shut off. It seemed that this would rescue American industry, but, of course, it didn't. It meant that our exports were shut off. All the industries that had been successful in selling goods abroad couldn't sell because the foreigners couldn't sell anything here. Particularly hard hit was agriculture.
In those days we were shipping abroad tremendous amounts of cotton, wheat, and. hogs (which had been fed on corn). We were a great exporting nation of agricultural products. Prices on agricultural products began to fall--to fall disastrously. In other words, the tariff made things worse, not better.
Another thing that was done was to try to keep wages up. Strong appeals were made to employers not to cut wages. Well, that was very fine. The employers didn't cut wages, but they laid off people and added to the unemployment problem.
An effort was made to promote construction. So buildings were started, but it was soon discovered that prosperity did not come back quickly and that the buildings turned out to be very high costing. If you have ever been in New York, you have probably seen the Al Smith Building (now know as the Empire State Building) on 34th Street. The great tower was available for occupancy in 1931--it was started in 1929. The original investors who put up the money lost everything they put into it before they even got a dollar's worth of rent. The effort to keep on building was a mistake.
In 1929 when the nation was prosperous, do you know how much income tax I was paying? One and one-half percent! So I filed my income tax return. This was in March 1929. The Congress was in session at that time and it passed a law providing for a rebate of taxes. In April I got back 1 percent out of the l.5 percent--two-thirds of my payment. I remember that one congressman said it was immoral for the Government to take more from the people than it really needed to keep going. He wasn't conceited about reducing the Government debt which at that time was $16 billion. Then in March of 1930 when many people were suffering a shortage of income, were unemployed, were earning less money, or were making very little profit, Congress raised taxes to balance the budget. Imagine the economics of a government which raised taxes in the midst of a depression and cut taxes in the time of prosperity.
In this same period, Congress passed a bankruptcy law. This made it possible to settle debts when the creditors agreed to accepts less money in the settlement of mortgage debts. The mortgages held by banks and insurance companies began shrinking and shrinking and shrinking. Under these circumstances, the banks began to fail, and as the banks began to fail, people began to take their money out. This was a vicious circle, and it got worse and worse, running on through 1931 to 1932. It ended when all the banks in the country were closed in March 1933.
Now a word about some of the welfare problems, because they get a little closer to our present work. I was in welfare at this time, serving in the Community Council in Philadelphia. I made studies of the unemployed. I wrote pamphlets about bread lines, about people without money for rent, and about what was happening to the rental of houses. In Philadelphia the landlord could go to a bailiff if you didn't pay your rent. Then the house or apartment would be vacated and could be rented to somebody else. Some landlords tried this, but after a little of this, they decided they had better not. Quite a few of the people in the neighborhood had no coal to burn. What they would do was to open a window or door and take the lumber from inside a vacant house for fuel. The landlord found it better to keep somebody in the house even though the people didn't pay rent. This pressure got very bad by 1932. The welfare agencies hired me to make a study about what was the best way to handle this difficult problem. When a landlord couldn't get any rent, he couldn't pay any taxes. So the City was bankrupt and couldn't raise any money. We didn't have any relief funds. We were going around in a vicious circle again down, down, and down! I recommended the paying if money for rent. Then we made a study of "lone" women. We had put the men in barracks in Philadelphia, but what to do with all the wandering women was another problem. So I wrote an article on "lone" women and what to do with them.
Existing Welfare Resources and Policies Unequal to Task
In this setting I must say a few words about welfare policies. It is amazing how stupid we were in the welfare field. The first thought we had was that people who were neighbors ought to help each other, and so the wonderful system called "block aids" was devised. All the welfare agencies and speakers were harassing the public about "block aid." You were to collect some money or do something to help the people in your own block. Now that certainly seemed like getting down to the grass roots. At any rate, it didn't dawn on the policy makers that this was a perfectly asinine system of welfare. In the blocks around Park Avenue, where there were often millionaires, nobody needed "block aid" and everybody was very well-satisfied with the system. But in Harlem where everybody needed block aids, there were no aids to be given. The result was that the poor were helping the poor, and the rich were helping the rich. This system, believe it or not, continued for nearly a year as the system of raising funds to take care of the needy.
Then the policy makers decided that we ought to have the whole community help. So each city took up the burden. Philadelphia was raising money city-wide, all by private gifts. We raised $4 million one year, over and beyond the regular community chest. To put people to work, we set up work programs. By April, we ran out of money. Then it was decided to call on the City government for help. It was hoped that the City of Philadelphia would do it. But the City of Philadelphia was nearly bankrupt. It had overspent in the 1920's and was busily engaged in economizing in the 1930's. The City wasn't getting much money in taxes anyhow. It didn't have any borrowing power, because it had borrowed all the money it could in the prosperous 1920's. So the City of Philadelphia didn't last long as a resource.
Then we went to the State. We went to Harrisburg where the legislature passed a $10 million appropriation. Harrisburg didn't have much money either. Pennsylvania was broke and it could not borrow because it didn't have the power to borrow. In addition, the whole relief system was a local system. I think there were about 1,600 Poor Boards in the State of Pennsylvania. Even little districts or little townships had their own Poor Boards. It was incredible!
Needless to say, people had to look to the Federal Government. The Federal Government's first approach was to loan some money. We had a Federal loaning system. The R.F.C. (Reconstruction Finance Corporation) would loan money to communities or to States. If the States couldn't borrow money on their own, and if they couldn't collect taxes, and if they couldn't balance their own budgets, how could they borrow any money and hope to pay it back? The result was that very few of them took to borrowing.
That was the situation which existed in the spring of 1933 when the new Administration came in. In other words, no effective system of economics had been devised to turn the business situation around and get prosperity. Nothing effective had been done in the welfare field, except one thing, namely, that private charity had been exhausted; local charity had been exhausted; State charity had been exhausted; and loans from the Federal Government were ineffective. There was nothing to do except to lay the problem on the doorstep of the new Federal Administration when it came in in March. No matter what Administration had come into power, it was faced with the fact that it had to wrestle with an unemployment load which at that time was approaching 13 million.
In this connection, the question has been raised "Was the Federal Government hiring any new people at this time?" No, in fact, the Federal Government made its employees participate in the general debacle. I was not in Government at that time. In the Federal Government itself they didn't cut salaries, but employees were required to take a month off without pay. So the budget was cut. They were still trying to balance the Federal budget. They tried it in 1930 by raising taxes and, then in 1931, they were cutting out expenditures of all kinds. The Economy Act of 1932 required that in fiscal year 1933 each employee was required to take a month of leave without pay, and that meant a cut of 8 1/3 percent in the Federal pay-roll. As I remember, that was applied across the board to all the Federal employees. While it wasn't a salary cut, it was certainly an earnings cut. The Government was economizing also.
(Editorial Note: The Legislative Branch Appropriation Act of 1933 contained provisions referred to as the Economy Act of 1932 (approved June 30, 1932) which provided for the furlough of Federal employees without compensation. For employees receiving compensation on an annual basis the furlough without pay was for 1 month of fiscal year 1933. For employees paid on a per them basis the furlough was one-half day per week or one-eleventh of the work week. This legislation also contained a wide range of provisions designed to reduced expenditures of the Federal Government. The furlough provisions were superseded by pay- reductions early in the Roosevelt Administration.)
President Herbert Hoover had been a member of a commission which in 1922 had recommended public works as a method of combating depression. We went into prosperity in 1923 and had a little recession in 1924, but nothing much happened for a considerable period of time. In the 1920's there was no need of it. But when 1930 came around, then all the "public-worksters" became vocal and said, "Now is the time for public works. We've got a lot of unemployment." The answer was, "No. We can't do it. We can't balance the budget this year if we have public works." So the Government, instead of starting on a philosophy of spending money to get out of the recession, went on the philosophy of cutting its own budget. It competed with the businessmen, and with the farmers, and with everybody else in contracting. So everybody contracted. All organizations in the economy contracted. Nobody expanded.
New Deal" Federal Emergency Measures
The first thing the new Administration had to do was reopen the banks that had been closed. (All banks were closed by new Administration immediately after coming into office.) I participated in meetings in Philadelphia with the Mayor and with the head of the Drexel Bank who was the head of our Unemployment Relief Board there. We discussed what we were going to do in Philadelphia. We talked about printing scrip. The City of Philadelphia actually considered the printing scrip which it would issue to people so they could use it until they got some money. There was no cash! Federal officials had meetings day and night and, of course, they sent out word, "Don't go to scrip. We'll get something going very shortly. We'll reopen the banks as quickly as we can and you people in the meantime hang on, and see what you can do." Well, in a few weeks, even less than 2 weeks, they were authorizing the opening of banks. They authorized cash to be distributed to employers to pay their workers. The reopening of the banks started up as quickly as possible and the necessity for local scrip was eliminated. I believe there were some towns that actually used it.
This experience led to some new legislation on banking. As far as the banks were concerned, the government did one thing that could have been done long before, namely, insuring bank deposits. One of the difficulties with the banking situation was that, if depositors made a run on the bank, and the bank didn't have enough cash--no bank ever has enough to pay all depositors--other banks were afraid to help. If they took their cash and gave it to the bank in trouble, a run might be made on them and then they wouldn't have any cash. And so it was like toppling over tenpins--each bank had to think of itself. While we had a Federal Reserve System and it was selecting good loans and paying out on good loans, it wouldn't take any bad paper. It wouldn't take a mortgage which looked like it was too big. The result was that the whole system collapsed. The first thing that was done was to pass a law providing for the insurance of bank deposits. This meant that funds were set aside, invested in U.S. Government bonds, to insure bank deposits.
We don't about bank failures now. Every once-in-awhile a bank does fail. There are some bad bankers and even all the agencies watching them can't prevent them from making mistakes and losing money. But, we don't have to worry about it. As soon as a bank closes now, if it is insured within the insurance group, then you are insured up to $15,000 and therefore your deposit is quite safe.
(Amount of insurance was originally $5,000 and later $10,000.) This wasn't true in the early 1930's. You had to worry about it. There was no help for you if your bank closed. Many, many people went into poverty and destitution who had had thousands of dollars in banks and lost it all. They never did get their money back.
Another thing that was done very early was to devalue the dollar. Gold had been worth about $20 an ounce and our monetary system was on the gold standard. The value of gold was raised to $35 an ounce. This meant that it took a smaller amount of gold-almost half as much--to "back" a dollar. Put in another way, we took a smaller amount of gold and called it a dollar. The two to three billion dollar gold reserve became five billion dollars automatically. Nothing happened particularly! It didn't do any harm because dollar prices remained about the same. Everybody was required to turn in his gold and the Government wouldn't redeem the paper money in gold anymore. So gold came under Government control and was used in foreign exchange.
In the welfare field, Harry Hopkins was put in charge, and the first thing the Federal Government did was very simple. It began paying out relief money to States and localities that asked for it. The Federal Government paid whatever amount was necessary. In some places the local people could put up 10 cents on the dollar, while in others they paid 50-70 percent of the relief costs. There was no rigid system of deciding how much money the Federal Government would put in. This was negotiated with each State. A gigantic welfare organization was set up to take care of the literally millions of destitute unemployed and their families.
It was also decided that there ought to be a work program. The W.P.A. (Works Progress Administration) was set up. The C.C.C. (Civilian Conservation Corps) was set up for youth. At this time, as you can imagine, youngsters had a rough time getting work. When the adult men couldn't get work, and with all of them looking for any work they could get, no one was hiring 16- or 17-year old boys. Youngsters couldn't get any work. They couldn't go to school because they couldn't earn money and their families couldn't pay the bills. The new program provided that these youngsters be sent out into the country to work in the forests, parks, public facilities, and were paid $60 a month plus food, lodging and clothing. As I remember it, three-fourths of that amount had to be sent back to the family. These were the youngsters from unemployed families and literally hundreds of thousands of kids were hired in that way throughout the recession period. The C.C.C. program was most successful. It worked quietly without any great difficulty and accomplished a tremendous amount of good.
The W.P.A. was set up because Hopkins came to a dead end in the granting of direct relief. Some cities and some States couldn't do much. Some States couldn't borrow, and some could. The States that could were asked to float bond issues to match the Federal relief grants. States like Wisconsin and Pennsylvania didn't have any borrowing authority. There was no way for such States to borrow and they couldn't raise taxes to get the money. But this system wasn't equitable as between States. To show self-reliance, Vermont, for example, which is not exactly a rich State, paid 77 percent of all of its relief payments. Only 23 percent came from the Federal Government. It was a self-reliant State which didn't call for much help.
On the other hand, in North Dakota, which was really depressed, more than half of the entire income of the people in the State was Federal relief money. The entire income from wages, profits, rents and other sources in North Dakota didn't amount to as much as the Federal relief money flowing in to the State to take care of the situation. That is how badly off some of the States were. There was no way of fixing a fair and general rule.
In this situation Harry Hopkins decided that the best way out was to take the welfare cases, the needy cases, the families, and all of the social work investigators and leave them in the hands of the States and localities. The Federal Government would promise a job to every able-bodied man. So the whole relief load was cut into two parts. I was all through that, because I was serving as a consultant to the W.P.A. (Works Progress Administration). I was opposed to it. I didn't think it was wise to cut the relief problem up into two parts. But it was felt that there should be work programs. Some of the States and counties couldn't operate work programs very well, but it made very good sense to argue: "Let's not pay a lot of money to these people on relief. We ought to have them working. They are losing their skills, so why don't we do something useful." The net result was that the Federal Government said, "We'll take care of the employable unemployed and the States and localities will have to finance the others by themselves." And that split is the cause of many of our relief difficulties today. What happened was that we never got around to taking care of all of the blind and the dependent children when we passed the Social Security Act. The other needy people like the sick, the alcoholics, or people in need of care for other reasons who could not qualify under ore of the three categories mentioned the aged needy, the blind, and the dependent children--were left entirely to the States. The result is that they have been neglected ever since, because there was no Federal money available for them.
For the employable unemployed, Harry Hopkins had to create enough jobs on a work program. That's why the Federal Government took an unemployment census in 1937. Forms were put in Post Offices and people were asked to fill them out if they were unemployed. It wasn't what you would call a strictly scientific method, but the idea was to get some notion of how many unemployed there were. Then, because the census would be out of date as soon as it was completed, a method of sampling families was developed to find out how many unemployed there were on a continuing basis. The Federal Government took a sample of families throughout the country, called on them, and found out how many members were employed, how many were out of work and looking for work, and how many weren't in the labor force at all, such as homemakers or students. That statistical method which was set up by the W.P.A., is the method used today to get the figures on employment and unemployment that are issued every month. The sample was operated by the W.P.A. until 1941. It was shifted to the Census Bureau at that time. It is still being operated by the Census Bureau but in 1959 the responsibility for the financing, the analysis, and the publication of data was shifted to the Bureau of Labor Statistics of the Department of Labor. So when you read the figures that 5.6 million people were out of work in the month of June, you were getting the results of a statistical system that was set up by the W.P.A. in the late 1930's in order to find out what the burden of unemployment was for the Federal work program. That was the work program under W.P.A., and it worked right up until the time of business prosperity in the war-time period. In other words, it operated up until 1941.
With respect to our private economy, the Government in 1933 tried to stimulate business by setting up the N.R.A. (National Recovery Administration). The N.R.A. tried to raise wages and encouraged the raising of prices. It worked for a while until the Supreme Court threw it out and then it disappeared from our midst.
The Federal Government tried to raise farm prices, too. It started the system which, to this day, supports prices for agriculture. An Agricultural Adjustment Administration was set up. It was designed to "shore-up" the prices of farm products, to assist the farmers to get better prices for their goods and to restore something like a livable price level for the farmers. That program got under way. It was modified to some extent by the Courts, but continued operating until the War. The system which we call "parity prices" was set up. It was a statistical system operated by the Department of Agriculture to see that the farmers got prices that were about equivalent to industrial prices--that is, the prices farmers got for their goods were supposed to be about equal to the prices they paid and if they were not, the Government would do something to shore-up the farm prices. Today the Parity Index, the comparison of the two, is about 80 percent. The farmer is getting about 80 cents and he's paying a dollar, but he is doing pretty well at that, because his productivity on the farm has increased to such an extent. But even though he only gets 80 cents the fact is that he can make money at that level in view of his low cost of production due to productivity increases.
Permanent Measures
After all these emergency measures, the Federal Government decided to get into something permanent. In 1934, President Roosevelt appointed a cabinet Committee on Economic Security. He put on it Harry Hopkins of F.E.R.A. (Federal Emergency Relief Administration); Frances Perkins of the Department of Labor; the Secretary of the Treasury, Henry Morgenthau; Henry Wallace of Agriculture; and Attorney General Cummings. The Technical Board on Economic Security was headed up by Arthur Altmeyer, known by all the people in social security as the "Father of Social Security." He had come from Wisconsin to be the Assistant Secretary of Labor to Frances Perkins. Ed Witte, who was Professor of Labor Economics at the University of Wisconsin, was hired as Executive Director--in charge of the staff. The Committee also had an Advisory Council consisting of businessmen, labor leaders, members of the public, and university people. They worked up a plan for a social security system.
That was where Wilbur Cohen got his start. Wilbur Cohen was a graduate student at the University of Wisconsin, who barely got out of school when he came down to work with Arthur Altmeyer and started out as a "statistical handmaiden" to the boss in 1934. He later joined the Social Security Board in 1936, and now, as you know, he is the Assistant Secretary of the Department of Health, Education, and Welfare. His whole professional career has been in social security. I was not in that first group myself. I was working with a committee on Government statistics at that time. I knew about the activities going on in the area of social security in the Committee on Economic Security.
I would like to refer briefly to some of the decisions the Committee made at that time because they have been with us ever since. One decision the Committee made was to face the question, "What'll we do with the needy right now?" Remember, the work program was a Federal responsibility. That had already been decided. The first thing decided was that some of the needy really ought to be taken care of with some Federal help. So they put a Title in the Social Security Act that would take care of the aged--the people getting the State pensions described earlier and the aged in the poorhouse, which still existed in some States. There were more and. more of them, people who were being retired earlier and people in their 60's who couldn't get work. The Federal Government decided to pick up the aged persons and support them with a 50-50 grant from the Federal Treasury. That was Title I of the Social Security Act. It was written as Title I because it was thought that a good many congressmen probably wouldn't read any further than Title I and would get tired before they got to Title II, III, or IV. But the congressman would learn that there was some money for his State in Title I coming out of the Federal Treasury. It wasn't a long-range system of taking care of our needy. It was the so-called political title.
Then the Committee had to tackle old-age insurance. The Committee members said, "We shouldn't have needy aged in the country. We ought to have an insurance system that will take care of them." The issue was raised, "Should this be done by the Federal Government or should it be a State system? What about encouraging the States to set up a system, since they were already paying old-age pensions on a needs basis?" After a considerable amount of study, the Committee came to a fundamental decision. It was decided that it was better to have no system at all than to have a State system of old-age insurance. The population of the United States is so mobile, it moves around so much between birth and death, that it would be hopeless to have a State system. So it was set up as a Federal system, and old-age and survivors insurance has existed on that basis ever since. It was a wise decision.
When the Committee came to unemployment insurance, it again asked the question, "Shall we have a Federal system or shall we have a State system?" The majority recommended a Federal system. They said unemployment is a national problem--you can't do it on a State-by-State basis. But the mobility argument didn't hold as strongly. It's true that people move from State to State, but unemployment insurance is a short-range matter. You pile up benefit rights over a year and then you are entitled to unemployment benefits for 3 or 4 or 5 or 6 months, over a period of a year. So that on the whole about 2 years is the maximum period of unemployment insurance rights. The majority of the Committee said, "There is not enough employee mobility between States to make it a serious problem." They argued that we could have a State system.
Some still favored a national system, despite the fact that Wisconsin had already passed a law. The State of Wisconsin enacted legislation in 1932. The law set up a voluntary unemployment insurance system. If 75 percent of the employees were covered by employers voluntarily joining into an unemployment insurance system in 2 years, a voluntary system would be set up and no State law would apply. The Wisconsin employers exhorted each other. They had mass meetings. But the voluntary system didn't go into effect because not enough employers signed up for voluntary unemployment insurance to prevent the compulsory system from going into effect in 1934. The fact that Wisconsin already had a State law was a powerful influence upon the Committee on Economic Security. So a State system was decided upon the system that you know about at the present time.
By 1939 the Social Security Board decided that this was wrong. It recommended a Federal system. You can find that recommendation in the 1939 annual report of the Social Security Board. In 3 years the Board had become disgusted with State systems. But nothing was ever done about the recommendation. There is now no possibility of doing anything more, except possibly setting up Federal standards. Canada, some years later, set up a national system. They did not try to set up a provincial system corresponding to our State system.
One last problem came up-health. What should we do about health? The Committee on Economic Security said it would deal with the health problem. It promised a later report, but no later report was ever filed by the Committee. Then in 1938 the Social Security Board itself sponsored a conference on health to see whether something should be done. This health conference did recommend that there be some health legislation. In addition, the Board regularly recommended that something be done in the areas of medical care and hospitalization. But the country got into the war shortly thereafter. In 1939 the war started. In 1941 the U.S. got into it, and nothing more was done about the health problem. It didn't arise again until the 1950's when the disability provisions were attached to the system of old-age and survivors insurance. We now have what the Europeans call "invalidity insurance"--that is, a disability insurance which doesn't provide medical care but provides funds to assist the person who is disabled or the family of the disabled person. Short-run disability or short-run sickness was picked up by a few States. They pay the sick person sick benefits just as they pay the unemployed person unemployment benefits.
All of this preparation had set up a system, but it had barely gotten underway in the last years of the 1930's when we were plunged into the war. A lot of the plans and a lot of the details, a lot of the problems, fundamentally disappeared. Many of the problems that we looked for completely up-ended themselves and turned around the other way. Unemployment insurance turned out to have more money than it could possibly work with. Worker contributions were established for unemployment insurance, because we were worried for fear that there wouldn't be enough money to pay benefits. Eleven States taxed the worker as well as the employer in order to raise money. But the 3 percent employer contribution yielded more money than was needed. The State funds got bigger and bigger. There were few unemployed during World War II. Retirement and survivors insurance didn't proceed as fast as anticipated. The whole nature of the problems shifted in a way that couldn't be foreseen in the 1930's. It is very fascinating to me to look back over that period and note the way in which our concerns over certain things at that time have proved to be groundless and why some of our foresight was absolutely correct. I will mention one that turned out to be correct. We were sure that it would take a long, long time before we ever got everybody covered under old-age and survivors insurance and that there would be need for old-age assistance for decades to come. This turned out to be correct. Here we are, 25 years later and we still have a couple of million people on old-age assistance in the States who are not fully covered or adequately protected by the old-age and survivors insurance system.
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, The 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.