The Leviathan's Crown Jewel
The Beginning of Social Security

by Gregory Bresiger

Introduction: A revolution was made 65 years ago that radically changed our country. After remarkably little public and Congressional debate, Franklin Delano Roosevelt signed the Social Security Act into law on August 14, 1935. FDR knew that the welfare state wouldn't end with Social Security. Many of his disappointed allies had wanted much more. But FDR assured them this was just the beginning.¹

FDR said, on signing the bill into law, that Social Security "represents a cornerstone in a structure which is being built but is by no means complete."² The federal government through programs such as Social Security would create its own business cycle, it would "flatten out the peaks and valleys of deflation and inflation,"³ Roosevelt promised. Social Security was representative of national planning schemes – some of which had been tried during World War I – and which became popular again with intellectuals. Many of them believed that the government could wage war on poverty; that, by using the techniques of wartime planning so popular with progressives during World War I, the government could generate and control the business cycle.⁴

Social Security was a Keynesian device to ensure that buying power would remain strong in times of high unemployment. By Keynesian, I mean a kind of thinking that pre-dated Keynes by centuries, which held that injecting inflation into a weak economy would work miracles. Keynes, in the 1920s, 30s and 40s, was merely one member of this inflationist school. But his thought was influential in America in the 1930s. One of the founding fathers of Social Security has said that the contribution of Keynes was not appreciated.⁵ Keynes' philosophy helped justify a massive welfare state.

The original Social Security package, for instance, was a lot more than so-called old age insurance. The program initially contained 10 programs and included 11 titles. Besides, pensions, the federal government was initiating vocational rehabilitation, unemployment insurance, aid to dependent children and public health programs, among others. Myriad additional programs would follow over the years because of the initial triumph of Social Security. It would help bring about a signal change in American culture and government: The federal government would take on many new powers and radically change our economy.⁶

But, most important of all, Social Security changed our culture in ways the authors of the original Social Security Act may or may not have realized: It would, among other things, also discourage savings, expand the state's reach into the family, redistribute income in ways no one imagined (quite often from the working poor and the lower middle-class to the upper middle-class because the latter group tended to have more political clout as exercised through organizations such as the AARP) and create a huge unprecedented peacetime bureaucracy, a bureaucracy that frequently pushed for more expansion under the guise of serving the people.⁷

The program also had a much more profound effect on American life: It invented the concept of a passive retirement in which individuals would stop working, stop making more then a few dollars a year, or what a Social Security advocate called "pin money⁸. To make more than pin money would mean Social Security penalties, an idea added to the original bill by the labor unions.

Social Security advocates implicitly convinced tens of millions of Americans that their golden years meant "taking it easy," withdrawing from the most challenging parts of their lives. That would free up millions of jobs, an important consideration in the midst of the Great Depression, an economic calamity in which FDR's policies failed even after six years of huge spending.⁹ By 1940, an FDR historian would implicitly concede that the New Deal had failed to restore a strong economy. "The America over which Roosevelt presided in 1940 was in its eleventh year of depression. No decline in American history had been so deep, so lasting, so far reaching."¹⁰ Clearly, America's recovery from the Great Depression did not begin until the buildup for World War II and the war itself. That's when FDR discovered his affinity for a military Keynesianism.¹¹

In a series of articles this year, LewRockwell.com looks at the many changes triggered by Social Security. The changes triggered debates over basic social and economic issues such as personal responsibility vs. the general welfare, and who defines the nature of retirement, the individual or the government, as well as who should control the retirement assets of millions of people.

"Why, then was America so far behind? The first reason was out cherished ideal of rugged individualism.¹²

Part I:
FDR and the Birth of Social Security
Destroying Rugged Individuality

Social Security has become the crown jewel of a welfare state, which is why its defenders are today so ardent in fighting any move to privatize any part of it. The welfare state will always be safe as long as Social Security survives. Social Security has continued to expand in good times and bad, under Democrats and Republicans, even though a few of the latter actually claimed that they would bring Social Security under control. Those who thought they would tame this huge program lost time and again. These politicians who once criticized Social Security, usually ended up praising it¹³ or kept their criticisms to themselves.¹⁴ And this was FDR's goal in designing the program: Insuring that no succeeding group of politicians could ever undo his work.¹⁵

Today those who would privatize or even reform Social Security¹⁶ face a formidable task, a task as difficult as dismantling the military-industrial complex or selling off Amtrak. That's because decrepit government bureaucracies – as opposed to rotten private bureaucracies – have the power to tax and to preserve their existence. And the first rule of any bureaucracy is survival at any cost. The second rule is always try to expand.

The welfare state took much longer to take hold in the United States than in Europe, where socialism had a better name and a longer tradition.

By the early 1930s, Germany had a Social Security program for nearly a half century. Britain had a government pension scheme since before the World War I, when the Liberal/Labour government of Herbert Henry Asquith in 1911¹⁷ laid the foundations of a welfare state that would be later carried out by the Labor and Conservative parties over the next two generations. Germany under Bismarck had passed a Social Security plan as part of an alliance with Social Democrats. Bismarck was ready for socialism¹⁸. Dozens of European countries had put Social Security schemes by the outbreak of World War I.

But in America, there was a tradition of "rugged individualism" that resisted most forms of collectivism. Even labor leaders like Samuel Gompers,¹⁹ who had called for many other government initiatives, opposed a mandatory social insurance program, a concept that stressed an insurance that was not for profit, but was run for the benefit of society. But Gompers was wary of that idea. To him, it smacked of German socialism. "Compulsory social insurance," he complained, "is in essence undemocratic."²⁰ Foreshadowing the objections of those who would later complain that the government would mismanage the assets of a program, Gompers wanted workers to depend on themselves, private institutions, their unions – anything but the government.

The opposition to social insurance was owing to an American individualist tradition whose adherents held that individuals, families and community groups should take care of people in old age, not the government. And, most importantly, it was a voluntaryist tradition that resisted compulsory government programs.²¹

FDR, who was credited as the first major American politician to support a social security system, nevertheless had campaigned in 1932 in favor of limited government. He bitterly criticized Herbert Hoover's huge deficits. On the campaign trial he promised to roll back, not expand, the size of the federal government. "For three long years I have been going up and down this country preaching that government – federal government, state and local – costs too much. I shall not stop that preaching."²²

FDR gave not the slightest indication that was he committed to a massive expansion of the power of the federal government. Later, as we will see, FDR would say that circumstances had changed. His supporters would argue that the Great Depression, and the more radical social insurance proposals of men like Huey Long, Upton Sinclair and Frances Townsend,²³ had led him to back this "moderate" program called Social Security.

Yet even before he took office, FDR was quietly committed to a social insurance program²⁴ as part of a program of counter-cyclical measures he believed would cure the problems of the business cycle. These initiatives were failures if one is to measure by unemployment numbers and traditional economic indices²⁵. They did not restore prosperity, FDR was told by advisers six years into the New Deal.²⁶

Social Security was a key part of his revolutionary corporativist economic policies. It was a revolution that shifted the responsibility for income maintenance from the private to the public sector, from the family to the state and from voluntary organizations to public bureaucracies. And it was a revolution carried out by elite groups of welfare workers, Social Democrats and other who believed European socialism could be imported to the United States on a step-by-step basis.²⁷ They believed in a "new liberalism." Classical liberalism would die in the United States in the 1930s through programs such as Social Security just as it had died in Britain some four decades before. A new liberalism celebrated the expanded powers of the federal government. The old American individualist tradition was distrustful of distant central governments and the bureaucracies they spawned.

"Americans assumed that their country was unique in assigning to private voluntary institutions a wide range of responsibilities which in other nations were relegated to governments or elite groups," writes one historian of Social Security.²⁸

Almost everyone, FDR critics as well as admirers, agree that Social Security was a wastershed event in our history. FDR said of the legislation that, if it was the only bill passed in the 1935-36 congressional session, Congress would have accomplished a lot.²⁹ Why was it so important to those such as FDR who scorned the individualist tradition? Social Security was the centerpiece of a revolution that one historian has said meant that "big government, modern government" was here to stay.³⁰

When Social Security survived – and, in its earlier years, it was a dicey question if it would or not, requiring the most effective political skills that FDR and his allies could summon – Americans implicitly accepted the most essential part of a new social policy. Washington, not individuals, would now have huge powers over the individual citizen's retirement planning, unemployment insurance and welfare payments. When FDR signed the Social Security Act, the United States, for the first time in her history, would have "a significant, permanent social welfare bureaucracy."³¹

FDR assured his social democratic allies that the Social Security was just the beginning of an expanded role for the federal government. But it wasn't until toward the end of his life, in the Economic Bill of Rights speech that so "thrilled" his social democratic supporters³², that he was ready to publicly walk away from the campaign promises of 1932 and the American individualist tradition.

Some four years after its creation, the structure of this landmark program was expanding. Some 12,000 employees would be working in the Social Security administration, which would become bigger and bigger . Once in place, there were calls for sister bureaucracies. American Socialists were disappointed that more people were not included in the 1935 act (such as servants and farm workers); that disability insurance wasn't initially covered, that health insurance had not been included. But many of those leftist critics, who had at the time claimed that it was too little, later would concede that Social Security's establishment, no matter how modest, opened the door for the government to do many other things.³³. All the measures left out of the original bill would be included within 30 years.

That is why even many of those socialists who scorned FDR, who said that he was a bumbling savior of capitalism, could still summon up some grudging praise for FDR. Socialism would be quietly achieved over generations as part of a mixed economy that seemed, on the surface, to be a traditional laissez-faire American economy.

Social Security, whether it was called social insurance or government pensions, was the first vital step on the road to the welfare state. How it finally happened in the United States, after decades of frustrating unsuccessful efforts by social democrats and professional bureaucrats, is a fascinating story. FDR went around Congress, which was too unpredictable and whose review process might not have given him what he wanted. FDR found his own experts that he knew would give him what he wanted, then would unveil a Social Security proposal that he expected to be adopted whole. Congress, generally intimidated by the experts, went along with few objections.

This process, this masterful strategy of building a welfare state in a nation with a historic commitment to individualism, will be discussed in the next report.

Notes

1. Although the Social Security system initially covered a relatively small part of the working force, FDR assured his allies it was just the beginning: "I see no reason why everybody in the United States should not be covered," FDR privately told Francis Perkins. "Cradle to the grave – from the cradle to the grave they ought to be in a social insurance system." See Arthur Schlesinger, Jr.'s The Coming of the New Deal, p308, (Houghton Mifflin Company, Boston, 1959)
2. See Policymaking for Social Security, Martha Derthick, p5, (Villard Books, New York, 1991)
3. The Public Papers and Addresses of Franklin D. Roosevelt, Samuel Rosenman, editor, IV, page 324-325.
4. Some socialists said FDR was going in the direction of planning and economic nationalism. Said Stuart Chase: "National Planning and economic nationalism must go together or not all. President Roosevelt has accepted the general philosophy of planning." He added that the nation could confidently move toward autarchy. Also see George Soule's comments in Walter Lippmann's The Good Society, p 91, (Grosset & Dunlap, New York, 1936). "It is nonsense to say that there is any physical impossibility of doing for peace purposes the sort of thing we did for war purposes."
5. Madam Secretary: Frances Perkins, by George Martin, p346, (Houghton Mifflin, Boston, 1976)
6. Looking part at the achievements of FDR, Doris Kearns Goodwin writes: "No longer would government be viewed as merely a bystander and an occasional referee, intervening only in times of crisis. Instead, the government would assume responsibility for continued growth and fairness in the distribution of wealth." No Ordinary Time; Franklin and Eleanor Roosevelt: The Home Front in World War II, p 625, (Simon & Shuster, New York, 1994)
7. The best example is one of the founding fathers of Social Security, Wilbur Cohen. With the Republicans back in power in 1953, the supposedly non-partisan Cohen quietly "wrote speeches and supplied information" for the Democrats. Says a friendly biographer: "It was not the first time that the non-partisan Social Security administration shaded into partisan politics." See Mr. Social Security: The Life of Wilbur Cohen, by Edward Berkowitz, p41, (University Press of Kansas, Laurence, 1995)
8. Barbara Armstrong, executive director of the Committee on Economic Security (CES), which wrote the Social Security plan said that retirement would mean "that you've stopped working for pay." See The History of Retirement: The Meaning and Functioning of an American Institution, 1885-1978, by William Graebner, p185, (Yale University Press, New Haven, Conn., 1980)
9. By 1938, in the midst of a brutal recession, it was clear to many of FDR's advisers that the New Deal was failing. One of his political advisers, vice president John Nance Garner said that "I don't think the Boss has any definite programs to meet the business. I don't think much of the spending program. You can't keep spending forever. Some day you have to meet the bills." See Jim Farley's Story. The Roosevelt Years. P138, (McGraw Hill, New York, 1948). Roosevelt also complained when Secretary of Commerce Dan Roper told him that the economy was slipping into recession. "Dan, you've got to stop issuing these Hooverish statements all the time." Ibid, p101.
10. The historian is Doris Kearns Goodwin. And clearly the implication of her writing was that FDR had failed just as Hoover had to reverse the depression. See No Ordinary Time, p42, (Simon & Shuster, New York, 1994)
11. Roosevelt was "deliberately planning to use a great armament program as a means of spending money to create employment," the journalist John T. Flynn wrote in 1939. See Prophets on the Right, by Ronald Radosh, p207, (Simon & Shuster, New York, 1975). Also, Thomas Greer, in his What Roosevelt Thought; The Social and Political Ideas of Franklin Roosevelt quotes him in 1937 as saying Americans don't want to solve unemployment problems by huge armament program, yet Greer concedes that FDR resorted to a such an arms buildup. (East Lansing, Mich., Michigan State University Press, 1958) p 74.
12. Social Security in America by William Lloyd Mitchell, p6, (Robert B. Luce, Washington, D.C., 1964)
13. For instance Ronald Reagan, who had been a great critic of Social Security, would say, toward the end of his presidential years, that "Social Security has proven to be one of the most successful and popular [federal] programs." See Social Security After 50: Sucesses and Failures. Edward Berkowitz, editor, (Greenwood Press, New York, 1987).
14. Any presidential candidate who proposed to tamper with Social Security was "a candidate for a frontal lobotomy," said Jack Kemp during the 1988 campaign. From Social Insecurity, by Dorcas Hardy, p16, (Villard Books, New York, 1991)
15. "With those taxes in there, no damn politician can ever scrap my social security program," FDR said. See Schlesinger, p 309.
16. The problem of privatizers is what are they to do with the huge unfunded liabilities of this system. It would cost billions, maybe trillions of dollars just for the transition costs to a private system. Meantime, according to economist Milton Friedman and observers such as Marshall Carter and William Shipman, the unfunded liabilities of the system are about $7 trillion. For more see my "Insecure Promise" in the November 1999 issue of Financial Planning magazine. Also, a former Social Security official likes to brag that the program is so entrenched that it would be also impossible to destroy. "Where does an 800-pound gorilla sit? Answer: anywhere it wants to. And where does the most popular government program sit? You got it." From Andy Landis's Social Security, the Inside Story, p3, (Crisp Publications, Menlo Park, California, 1997).
17. See The Strange Death of Liberal England 1910-1914, by George Dangerfield, pp7-30, (Capricorn Books, New York, 1961.
18. See Bismarck by Alan Palmer, pp 206-207 and p250.
    (Charles Scribner's Sons, New York, 1976)
19. See 12.
20. See The Crisis in Social Security. Economic and Political Origins by Carolyn Weaver, p28. (Duke University Press, Durham, North Carolina, 1982).
21. "Voluntaryism, the right of citizens to define and pursue their goals, resulted in limited government and maximum liberty." See The Struggle for Social Security, 1900-1935, by Roy Lubove, p5 (University of Pittsburgh Press, 1986).
22. See The Roosevelt Myth" by John T. Flynn, p37, (Devon-Adair Company, New York, 1961)
23. Social Security. The First Half Century. Gerald Nash, editor, pp 35-36, (University of New Mexico Press, Albuquerque, 1988)
24. Social Security in the United States, by Paul Douglas, p 15, (McGraw Hill, New York, 1936).
25. After some five years of the New Deal, another recession began in 1937. Two historians have written that "The resulting downturn began in August 1937 and continued through the winter and spring of 1938. It was nothing short of catastrophic." See FDR's Fireside Chats, Russell D. Buhite and David W. Levy, editors, p111 (Penguin Books, New York, 1992)
26. FDR conceded there were problems in talks with Farley but blamed a conspiracy against him: "I know that the present situation is the result of a concerted effort by big business and concentrated wealth to drive the market down and just to create a situation unfavorable to me." See Jim Farley's Story, p101.
27. "The vast expansion of public assistance functions and expenditures beginning in the 1930s was superimposed upon a long tradition of disdain totally incongruous with the political and economic power assumed by the public welfare sector." See The Professional Altruist: The Emergence of Social Work as a Career, 1880-1930, p54, (New York, Atheneum, 1969)
28. See The Struggle for Social Security, p5.
29. FDR understood that Social Security's passage represented radical change: "If the Senate and the House of Representatives in this long and arduous session had nothing more than pass this Bill, the session would have been regarded as historic for all time." See The New Deal: A Documentary History. William E. Leuchtenburg, p 80, (Harper and Row, New York, 1968)
30. Frances Perkins said "modern government" was here to stay when she saw the 1944 GOP platform, which accepted many of the welfare state initiative of FDR. The Republicans were in the process of becoming "a me too party." See Frances Perkins: a Member of the Cabinet." by Bill Severin, p223, (Hawthorn Books, New York, 1976).
31. Goodwin, p 625.
32. One of the CES' advisory board had contained a recommendation that health insurance should be included in the original Social Security package, but FDR cut that part out. See Madam Secretary, pp 347-348.
33. One Democrat who noticed the transformation was FDR's fellow Democrat Al Smith. By the mid 1930s he was complaining that the "Brain Trusters caught the Socialists swimming and ran away with their clothes." See Al Smith, Hero of the Cities, by Matthew and Hannah Josephson, p459, (Houghton Mifflin Company, Boston, 1969). That's a good comparison given that the American Socialist Party of 1928 had called for a mandatory government pension system.

February 7, 2000

Gregory Bresiger is a business writer and editor living in New York. He works for Financial Planning and Traders magazines among others.