Published on: November 23, 2016
For many Americans, Social Security is the final defense against total poverty when they can no longer work because of old age or disability. But, how did Social Security get its start, and why?
Going Back to Before Social Security
While Social Security was officially signed into law in 1935, the history of change that led up to the creation of the program go much further back.
Although it’s hard for many modern Americans to imagine, living conditions used to be very different from what they are now. People used to live a more agrarian lifestyle—most people took care of their sustenance and basic needs by working the land—not by working for a salary or wage. As long as you could grow food and keep your home intact, you could provide for yourself.
Also, family groupings used to include not just parents and children, but grandparents and other extended family members. When one family member became too old or infirm to work, the rest would help support them.
However, with modernization and the movement of population from agrarian-focused lifestyles to wage-earning lifestyles working in urban city centers, susceptibility to poverty increased. Many workers were living paycheck to paycheck without a pension plan. When an industrial worker became disabled or too old to keep working, they didn’t have the safety net of residual income or extended family resources to support them.
Even when plans were available, not all of them were successful. And, workers had to rely on the company still existing when the time came to collect the pension—which wasn’t always guaranteed.
Some states did try to create pension plans for the elderly unemployed, but there was no uniform standard of qualification. This made qualifying for benefits difficult for many.
So, when disastrous economic events such as the Great Depression struck, millions of Americans were left destitute—without any recourse to fall back on.
It was clear that there was a pressing need for some form of insurance against poverty for Americans.
Precursors to Social Security
Believe or not, Social Security wasn’t the first program that sought to alleviate the ills of retired or disabled American workers. Before the Federal-level program came to be, there were many attempts by states and political activists to address the issue of poverty among everyday Americans.
The Social Security Administration’s (SSA’s) website features detailed information about a number of these programs and movements, such as:
- The “Share Our Wealth” program of Louisiana;
- The “Townsend Old Age Revolving Pension Plan” of California;
- The controversial “Ham and Eggs” scrip payment plan; and
- The “Bigelow Plan” of Ohio.
Just to name a few of the plans that preceded the establishment of Social Security (as well as a few plans that sought to replace Social Security after its inception).
The viability and philosophy of each plan varied greatly from one plan to the next.
For example, some plans would call for a universal stipend to be paid to all unemployed persons of a state without addressing where that money would come from (the “Ham and Eggs” plan). Other plans called for a massive redistribution of wealth from the rich to the poor (the “Share Our Wealth” program).
Some plans, such as the Townsend Plan, managed to survive well after the implementation of Social Security, and many states to this day have supplemental income plans that citizens can qualify for alongside Social Security.
Creating a Way for Americans to Insure Against Loss of Income from Disability and Retirement
In 1935, after years of dealing with the Great Depression and many states and political activist groups working to find ways to reduce the danger and impact of loss of employment to their fellow Americans, the Social Security Act was finally signed into law.
What really separated Social Security from the other programs of the time—aside from being a Federal initiative instead of a State one—was that it was not a welfare initiative or a radical departure from the capitalist model to a socialist one.
People earned Social Security through their work history by paying a portion of their income as a Social Security tax. This money would then be set aside to help pay the Social Security income benefits of retirees as they hit the retirement age.
The concept of social insurance had already been tested in various European countries at this point. As noted in the SSA article, “by the time America adopted social insurance in 1935, there were 34 nations already operating some form of social insurance program.” So, as a concept, it benefitted from previous experimentation.
Well before assuming the office of President, Theodore Roosevelt championed the creation of a social insurance program, stating that “it is abnormal for any industry to throw back upon the community the human wreckage due to its wear and tear, and the hazards of sickness, accident, invalidism, involuntary unemployment, and old age should be provided for through insurance.”
This philosophy may help to explain why Social Security’s services would later expand from retirement benefits to include disability coverage and medical benefits—the wear & tear, hazards of sickness, and invalidism Roosevelt referenced in his speech to the Progressive Party in 1912.
In short, Social Security began as a way to protect American workers from being left totally destitute upon reaching retirement—to continue to have a means for providing for themselves in their old age when more traditional support mechanisms such as family, charity, held assets, and work pensions would fall through.
Over the years, a lot would change, but one thing remains the same: Social Security is one of the best protections American workers have against poverty in old age.