THE NEW DEAL offered a cornucopia of new domestic ventures that changed the country, but the most far-reaching—and the one that made FDR most proud—was Social Security, which included not just old-age benefits but the first nationwide system of unemployment insurance. Social Security was the logical outgrowth of FDR’s efforts to rewrite the American social contract. Over time, it transformed our definition of what we owe each other as Americans. While vaguely conceived during the Hundred Days, the idea didn’t come to life until 1935. Even then, the bill barely made it into law.
The United States was late to the concept. The first modern social program was enacted in Germany in 1883 under Otto von Bismarck, who used national health care benefits to fend off more radical proposals. Other industrialized countries followed, but the United States clung to the idea that the elderly should be forced to fend for themselves or rely on private charity. Turn-of-the-century professors like economist John R. Commons of the University of Wisconsin, the “grandfather of Social Security,” began agitating for pension reform. In 1933, Abraham Epstein changed the name of his old-age lobbying group to “the American Association for Social Security,” the first time the phrase came into popular usage. By that time, half of the states offered tiny state pensions worth an average of 65 cents a day, but only about 3 percent of the elderly were covered. Louisiana, for instance, cut the pensions of elderly black men in half during the summer months in order to force them back into the fields to harvest cotton.
The Depression hit the elderly especially hard. Unemployment for those over age sixty-five seeking work was well above 50 percent—at a time when few had any other source of income. These were men and women who had worked to build the United States in the early part of the century and now had nothing to show for it. Even people employed by big companies with pension plans were usually out of luck; those pensions were long gone. Many elderly people gave what little food came their way to their grandchildren and joined soup lines.
As governor of New York, FDR, under prodding from Frances Perkins, first publicly advocated social insurance in 1930. But when he came to the presidency, FDR felt the country was not yet ready for such a big change. During the Hundred Days he decreed that first Perkins should begin an education campaign, inside the administration and out, and assemble experts to design a new system. Perkins took him at his word and brought the subject up at every other Cabinet meeting, about twenty-five times during 1933. That year, she made one hundred speeches across the country stressing social insurance as a way to assist the unemployed and soften future depressions.
As Perkins lit a fire within the administration, pressure was growing from without. In 1934, Francis E. Townsend, a retired dentist from Long Beach, California, found himself at age sixty-six unemployed and with no savings. So in a letter-to-the-
editor to his local newspaper, he hatched a superficially appealing plan that would pay $200 a month ($2,900 in 2005 dollars) to every citizen over sixty, with the requirement that all of the money be spent in thirty days. (The original money was supposed to come from a 2 percent sales tax.) The idea spread like a chain letter. Within a year, five thousand “Townsend Clubs” across the country represented between 2 and 5 million members—a powerful new elderly lobby poised to take Congress by storm.
Senator Huey Long’s “Share Our Wealth” plan was even more radical. In his book Every Man a King, Long proposed giving $2,000 a year (nearly $30,000 in 2005 dollars) to every family, plus a flat $5,000 to build and furnish a house, free college tuition, and pensions for the elderly. He proposed paying for it by confiscating all income over $1 million a year and all accumulated wealth over $5 million. By 1935, he had 7 million followers signed up. Long’s plan was never realistic, but Representative Ernest Lundeen of Minnesota almost won congressional approval of a proposal that allowed elected committees of workers (known elsewhere as “soviets”) to use the income tax to distribute unemployment benefits.
Even though FDR later imposed huge tax increases on the wealthy, he was appalled by these plans and alarmed by the political threat they posed to the New Deal.* “The Congress can’t stand the pressure of the Townsend Plan unless we have a real old-age insurance system,” he told Perkins. He would need to get out in front of these rival plans; but how?
His advisers were divided. Harry Hopkins advocated combining old-age benefits with new relief efforts. FDR said that smacked of “the dole,” which he was trying to avoid. What interested the president—and had since at least 1930—was not “charity” but “insurance.” Relief was meant to be curtailed when good times returned; insurance, which went back to medieval guilds, was supposed to be for life if one were eligible. He was insistent that the two concepts be kept separate. Justice Brandeis, working through intermediaries, was focused on implementation. He wanted all social reforms turned over to the states—which he called the “laboratories of democracy.” Nearing eighty, Brandeis still wielded great influence on the Court, but he kept telling the New Dealers who flocked to Washington to go home and work in their state capitals.
Holding up the left, Rexford Tugwell, whose line to FDR was fading, agitated not just for national unemployment insurance but for national health insurance. Opposition to this idea from medical societies was so strong that Roosevelt never seriously considered it. Dr. Harvey Cushing, a socially prominent Boston physician and the father of Jimmy Roosevelt’s wife, Betsey, lobbied him personally at the White House. FDR’s policy on health care would take the form of earmarking federal public works money to build more hospitals, though many such facilities refused to treat the poor.
All the while, vague ideas of “security” percolated. Even in its embryonic stage, everyone involved knew that the obstacles were formidable. First, the timing was terrible. Although aid to the disabled and to widowed mothers* would relieve immediate suffering, old-age pensions would do nothing to ease the Depression or help the elderly in the short term. The reserves would take a while to build up and no benefits would be paid until several years down the road. In fact, any such program might hurt the economy by taking money out of circulation.
When advised that social security taxes would be deflationary, FDR replied:
We can’t help that. We have to get it started or it will never start.
You want to make it simple—very simple. So simple that everybody will understand it. And what’s more, there is no reason why everybody in the United States should not be covered. I see no reason why every child, from the day he is born, shouldn’t be a member of the social security system. When he begins to grow up, he should know that he will have old-age benefits from the insurance system to which he has belonged all his life. If he is out of work, he gets a benefit. If he is sick or crippled, he gets a benefit…. From the cradle to the grave they ought to be in a social insurance system.
After Perkins began shaking her head, he said emphatically, “I don’t see why not—cradle to grave. I don’t see why not.”
But for all of Perkins’s efforts to depict him in her memoirs as a true believer, FDR did, in fact, see why not. Despite his noble vision, Roosevelt was unwilling to use the phrase “cradle to grave” in public or to push for a comprehensive remedy. He didn’t think the American political system could handle it.
In 1934, FDR appointed an interagency Committee on Economic Security (CES), with Perkins as chair, to study the problem. One big worry was that the U.S. Supreme Court would rule any national program unconstitutional. Article I of the Constitution allows Congress only those “legislative powers herein granted.” Unless interstate commerce is involved, all other powers are reserved for the states. Or so the Supreme Court was often ruling at the time. These concerns were eased when Perkins bumped into Justice Harlan F. Stone at a party and Stone whispered: “The taxing power of the Federal Government, my dear; the taxing power is sufficient for everything you want and need.” His point was that as long as Congress imposed a national tax for it, social insurance was interstate commerce and constitutionally permissible. Perkins swore FDR to secrecy on this advance opinion from the Court, but it allowed them to proceed with more confidence.
The other contentious question was whether Social Security should be a Washington-run program or a federal-state arrangement. The arguments grew so loud and complicated that during Christmas week of 1934, Perkins locked the committee inside her house at 8:00 p.m. and announced that phone service would be discontinued for the evening and no one could leave until the federal-state question had been resolved. At two in the morning, the committee finally settled on a patchwork federal-state system for unemployment insurance (a sop to Brandeis) and a strictly federal system for old-age insurance. But within days another fight broke out over whether everyone should get the same old-age benefit or have it related to how much the recipient earned during his or her working life. The committee decided on the latter, which upheld the principle that this was “contributory” insurance, not welfare. Meanwhile, several Cabinet members were concerned that because of an aging population, the system would start running a deficit in 1980, forty-five years in the future. The prospect of having to dip into general revenues to keep the system afloat led Treasury Secretary Morgenthau to oppose the whole idea as fiscally reckless. FDR agreed.
By this time, Perkins was growing a little frustrated with a president who could not quite make up his mind whether he wanted Social Security or not. For a time it looked as if the bill would contain only unemployment insurance. He endorsed old-age insurance in his June 1934 message to Congress, then retreated from it in the fall by telling a conference that “I do not know whether this is the time for any federal legislation on old-age security.” Barbara Nachtrieb Armstrong, the first female law professor in the United States, was on leave from Berkeley helping the CES. She was furious about FDR’s comment and decided to “fix…that little wagon” by getting the liberal press to make a stink. FDR, reassessing the politics, told Perkins to make sure reporters knew that he favored the idea after all. She rationalized it as one of the “minor conflicts of logic and feeling which so often beset him but kept him flexible and moving in a practical direction.”
By mid-1935, the president was determined to move forward. In May, he was enraged by the Supreme Court decision invalidating the NRA, which he derided as a “horse-and-buggy” interpretation of the interstate commerce clause of the Constitution. New Dealers in Congress then ended a period of drift and got busy with a summertime “second Hundred Days,” which led to legislation on labor, banking, big tax increases on the wealthy (including a new inheritance tax), and, finally, Social Security. Fed up with attacks from conservatives, FDR was now more comfortable asserting his liberalism.
But the details remained vexing. A big problem was what to do about older workers who would only pay into the system for a short time before retirement. For them, there was no alternative to dipping into general revenues. So the president’s initial message to Congress on old-age pensions stressed that Treasury funds would only be used to fund their retirement for a few years, which led to a long-standing conservative canard (resurrected in 2005) that FDR planned to phase out Social Security altogether once the Depression ended. In fact, he merely sought to phase out its transitional Treasury financing device.
To keep the system solvent, Morgenthau offered a painful compromise. He recommended excluding from old-age insurance all farm laborers, domestic servants, and anyone working in businesses with fewer than ten employees. This was in keeping with European social programs, though it was also convenient for the wealthy Morgenthaus, who ran both an estate and a farm, not to mention the Roosevelts. More important, excluding domestic servants and farm hands made the legislation more palatable among southerners who controlled the bill’s fate. Senator Harry Byrd of Virginia made New Dealers promise that Social Security would do nothing to upset “The Negro Question.”* “This was a blow,” Perkins admitted, “[but] there was nothing for me to do but accept, temporarily at least.” Her original goal had been reduced to a much more conservative Social Security plan, financed by a regressive tax, with no health insurance, an uneven form of unemployment insurance, and 9.4 million vulnerable elderly Americans excluded. At first, 40 percent of whites and 65 percent of blacks had no old-age coverage at all.
By now, FDR, like Morgenthau, was adamant that the program be funded over the long term by a special payroll tax on the earnings of workers, not from the income tax. He knew that it would be highly regressive, putting the same burden on poor workers as on rich ones, and that a payroll tax might retard recovery by removing billions in purchasing power from consumers, who would not receive benefits and recirculate the money for several years. (The first recipient of Social Security, Miss Ida May Fuller of rural Vermont, did not receive her first check, for $22.54, until January 1940.) But the president had good political reasons for structuring the system as he did. “We put those payroll contributions there to give the contributors a legal, moral and political right to collect their pensions and their unemployment benefits. With those taxes in there, no damn politician can ever scrap my social security program,” FDR said privately, in his most revealing comments on the subject. His insight was that once recipients thought they had paid into the system for a few years, they would consider it their money—even though the Supreme Court ruled twenty-five years later that as a legal matter, it wasn’t.
The whole thing was a bit of a semantic ruse. To appease the private sector, FDR sold the concept as “insurance,” which resonated more of private business than “social benefits” or other vaguely socialist definitions. The original payroll tax of 1 percent of earnings (split evenly between employer and employee) was dubbed a “contribution,” with the implication that, like a conventional contributory insurance plan, a worker got back his own money when he retired. In fact, the money went into a trust fund that would be used to pay retirees long before the “contributors” themselves retired—a direct subsidy from one generation to another. He even fuzzed up his message to Congress with a reference to the usefulness of supplemental private pensions. Seventy years later, this gave rise to a politically useful misimpression that FDR favored private accounts as part of Social Security. Nothing could be further from the truth. The bedrock of his plan was a word he used frequently: “guaranteed.”
But if FDR was playing language games again, they continued to be effective ones. Even after a huge Democratic victory in the 1934 midterm elections, he knew that passage of Social Security would be a struggle. Organized labor was lukewarm, with some federation leaders still adhering to the dictum of their 19th century founder, Samuel Gompers, that benefits for the workingman should come from collective bargaining, not the government. Although most urban bosses didn’t foresee it, FDR understood that Social Security would throw a wrench into their political machines, with Washington one day replacing the local ward heeler as a more reliable dispenser of grants to those in need. Most significant, much of the Democratic Party, and all of the GOP, was still fiscally conservative.
So, on the opening day of Congress in January 1935, when New Dealers Robert Wagner and David Lewis reintroduced their Social Security bills, Roosevelt, wary of overreaching, made a political decision to ignore them. Instead, he backed the versions introduced by the powerful southern chairmen of the Senate and House Finance committees, Senator Pat Harrison of Mississippi and Representative Robert L. Doughton of North Carolina (though the bill was still popularly called Wagner-Lewis). These were conservative men, leery of social programs. But both had seen their constituents devastated by the Depression.
Harrison came under pressure back home. The Jackson Daily News editorialized that “The average Mississippian can’t imagine himself chipping in to pay pensions for able-bodied Negroes to sit around in idleness on front galleries while cotton and corn crops are crying for workers.” Such commentary assured that farm hands and domestic servants would not be included.
As hearings got underway, elderly Senator Thomas P. Gore of Rhode Island raised the sarcastic objection that would underlay all of the criticism to come. “Isn’t this Socialism?”
Secretary Perkins replied, “Oh, no.” Then, addressing her as if she were a child, Gore asked, “Isn’t this a teeny-weeny bit of Socialism?”
The final vote in the House, 371–33, was misleading. All Republicans but one on the House Ways and Means Committee voted to delete old-age insurance from the bill. If Chairman Doughton had not brought along the southern Democrats, Social Security would not have made it out of committee.
In the Senate, Huey Long filibustered the bill for fifteen hours, discoursing on everything from Frederick the Great to fried oysters and entertaining spectators by answering questions on the Senate floor shouted down from the press gallery. Bennett Clark of Pennsylvania almost scuttled the whole deal when a cantankerous constituent who peddled retirement plans to corporations convinced him to exempt any company with a private pension plan. After the Clark amendment was narrowly defeated, a carefully tailored bill proceeded to final passage. It was a close call. Had the original Social Security been a touch more liberal, Republicans and conservative Democrats would have halted it. Were any more benefits withdrawn, New Deal liberals would have pulled the plug.
After FDR signed the bill in August 1935, Long—who still wanted his share-the-wealth plan—began a second filibuster, this one of the appropriation that was necessary to fund the new Social Security Administration. It looked as if Congress would adjourn for the year without setting up the new agency. FDR was desperate to avoid calling members back into special session, so he came up with the idea of simply borrowing the NRA officials laid off when that agency was liquidated after the Supreme Court declared it unconstitutional. That meant the first Social Security employees in 1935 were the same bureaucrats who had been supervising codes for cork makers and strip clubs.
Enrolling 26 million people into the new system was the largest logistical undertaking in American history, bigger by far than the draft for World War I. When it was clear that each person would need a Social Security identification number, administrators decided that the fourth and fifth numbers on each card would indicate the year of birth. This was quickly shot down because thousands of people during the Depression had misstated their age to keep their jobs and many women simply did not like disclosing their age. To run the whole thing, Roosevelt named John G. Winant, a former Republican governor of New Hampshire, as the first chairman of the Social Security Board. But if FDR thought this would convert most Republicans into supporters, he was mistaken. Herbert Hoover never even took a Social Security number.
When FDR ran for reelection in 1936, his Republican opponent, Alf Landon, called Social Security “a cruel hoax” and a “fraud on the working man.” The Republican National Committee convinced employers across the country to put fliers into pay envelopes warning their workers that, starting January 1, 1937, a “New Deal law” would take 1 percent of their paycheck. “You’re sentenced to a weekly pay reduction for all of your working life,” read one inflammatory flier. “You’ll have to serve the sentence unless you help reverse it Nov. 3, Election Day.”
Roosevelt carried every state except Maine and Vermont, and Landon later confessed that attacking Social Security was the worst mistake of his campaign. The fearmongering failed. Americans understood that this new system FDR brought them would do nothing to relieve the despair of today. But they had faith now, and some hope for better days. They voted for the future.
When he signed the bill, Roosevelt described Social Security as “the cornerstone” of his administration—something to build upon that was “by no means complete.” But he told associates in later years that even standing alone, it represented his greatest domestic achievement. Something fundamental had taken place. For the first time, a secure retirement was no longer reserved for people like FDR’s aristocratic neighbors in Hyde Park. The promise of the Declaration of Independence was coming into fuller view, as the men and women who toiled to make America could now pursue happiness in their later years—not if they invested wisely or got lucky in the stock market or retired when the country was flush, but as a birthright. In that sense, the insurance concept was not a ruse but a deeply meaningful public commitment. The American government was telling the American people that their fates were not at risk but backed by the full faith and credit of the United States. This was the “ownership society” in its truest, fullest meaning, and one not likely to be forsaken without a fight.
*Roosevelt was more sympathetic to the novelist Upton Sinclair’s End Poverty in California (EPIC) campaign for governor, which was mostly a more radical version of FDR’s own program. But Sinclair lost in November 1934 after being savaged by California industrialists.
*This eventually became Aid to Families with Dependent Children (AFDC), the foundation of the federal welfare system that lasted until 1996.
*As Ira Katznelson of Columbia University points out, Social Security, unemployment compensation, and the minimum wage were all established with occupational exemptions that discriminated against blacks.