Previous blog posts have chronicled the changes throughout the decades that have been made to Social Security since the creation of the program in 1935. Although Social Security was initially created as a retirement program it was expanded to provide benefits to the disabled and to survivors and looks quite a bit different than it did more than 80 years ago. Many of us take Social Security for granted. We know retirement benefits will be there for us down the road and most people know Social Security Disability Insurance (SSDI) and Supplemental Security Income (SSI) is there if we have been found medically unable to work, but what was it like prior to 1935 before Social Security existed?
The Stock Market Crash Of 1929
One of the main reasons Social Security was established in 1935 was in response to the stock market crash. Social Security’s published history explains what happened October 24, 1929.
When the New York Stock Exchange opened on the morning of October 24, 1929, nervous traders sensed something ominous in the trading patterns. By 11:00 a.m. the market had started to plunge. Shortly after noon a group of powerful bankers met secretly at J.P. Morgan & Co. next door to the Exchange and pledged to spend $240 million of their own funds to stabilize the market. This strategy worked for a few days, but the panic broke out again the following Tuesday, when the market crashed again, and nothing could be done to stop it.
Before three months had passed, the Stock Market lost 40% of its value; $26 billion of wealth disappeared. Great American corporations suffered huge financial losses. AT&T lost one-third of its value, General Electric lost half of its, and RCA’s stock fell by three-fourths within a matter of months. (It would take 25 years for the stock market to return to its pre-crash level following the 1929 crash.)
As America slipped into economic depression following the Crash of 1929, unemployment exceeded 25 percent; about 10,000 banks failed; the Gross National Product declined from $105 billion in 1929 to only $55 billion in 1932. Compared to pre-Depression levels, net new business investment was a minus $5.8 billion in 1932. Wages paid to workers declined from $50 billion in 1929 to only $30 billion in 1932.
Expansion Of Welfare
It would take another seven years after the stock market crash before Social Security was established, but there were other measures enacted to try and help the millions who had now fallen into poverty, and the most significant measure was the expansion of welfare.
Even before the Depression hit, the States had been forced to deal with the problems of economic security in a wage-based, industrial economy. Workers Compensation programs were established at the state level before Social Security, and there were state welfare programs for the elderly in place before Social Security. Prior to Social Security, the main strategy for providing economic security to the elderly, in the face of the demographic changes discussed above, was to provide various forms of old-age “pensions.” These were welfare programs, eligibility for which was based on proof of financial need. By 1934, most states had such “pension” plans. Even at the state level, however, these plans were inadequate. Some had restrictive eligibility criteria which resulted in many of the elderly being unable to qualify. The most generous plan paid a maximum of $1 per day. In the Congress, the consensus of conventional wisdom was for more old-age assistance like that available in the states.
Despite these efforts, the limited assistance provided did not solve the problem.
Finally Social Security
When President Franklin Roosevelt was elected in 1932 he began to look at his options for creating a program to protect economic security for Americans and he eventually settled on what we know as Social Security today. It was not done overnight as there was significant analyzing of all the different options that needed to take place, but before his first term was up, the Social Security Act was passed into law.
On June 8, 1934, President Franklin D. Roosevelt, in a message to the Congress, announced his intention to provide a program for Social Security. Subsequently, the President created by Executive Order the Committee on Economic Security, which was composed of five top cabinet-level officials. The committee was instructed to study the entire problem of economic insecurity and to make recommendations that would serve as the basis for legislative consideration by the Congress.
In early January 1935, the CES made its report to the President, and on January 17 the President introduced the report to both Houses of Congress for simultaneous consideration. Hearings were held in the House Ways & Means Committee and the Senate Finance Committee during January and February. Some provisions made it through the Committees in close votes, but the bill passed both houses overwhelmingly in the floor votes. After a Conference which lasted throughout July, the bill was finally passed and sent to President Roosevelt for his signature.
