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Social Security: A Brief History of Social Insurance

A Brief History of Social Insurance

By Abe Bortz, Ph.D., Historian for the SSA

Abe Bortz
Abe Bortz

Note: This entry is a portion of Special Study #1, a lecture Dr. Bortz, the first SSA Historian,developed as part of SSA’s internal training program. Up until the early 1970s new employees were trained at SSA headquarters in Baltimore before being sent to assume their new duties in offices around the country. As part of this training, Dr. Bortz presented a curriculum on the history of Social Security. This lecture, developed in the early 1970s, was the core of that curriculum. It features an extensive overview of social policy developments dating from pre-history up to the passage of the Social Security Act in 1935.

Social Insurance: Social insurance developments in Europe, though not widely known, did influence the thinking of persons concerned with social reform in this country. Of significance is: How in France, Germany and Great Britain, there was a patchwork development. This was true elsewhere in Europe, too. It applied to the compulsory or non-compulsory features; to differences in categories of workers eligible; to proportions paid by whom -employer, employee, and Government; to regulations which differed from country to country; to the amount of benefits and to their effects. It was true of sickness insurance, workmen’s compensation, old age pensions, in fact, social insurance, in general.

In Germany, Bismarck took advantage of the expanding mutual aid movement there (among trade unions – friendly societies, some few employers) and made acceptable the thesis that compulsion was inevitable, that State control of social insurance was indispensable and that State subsidies were desirable.

Germany enacted a compulsory sickness insurance law in 1883 (Workmen’s compensation in 1884), followed by Austria, with a compulsory sickness insurance law in 1888; Hungary in 1891; Great Britain and Russia did the same in 1911 (Great Britain’s workmen’s compensation had come in 1880; the Netherlands enacted a compulsory sickness insurance law in 1913;

France did not enact a compulsory sickness insurance law until 1930, yet in 1905, it had approved voluntary unemployment insurance.

In the case of Germany and its sickness insurance law, 2/3 of the contributions were from the employer and 1/3 from the employee.

In 1889, Germany enacted compulsory old age insurance -which included invalidity insurance. Here contributions were split between worker, employer and Government. Yet, to emphasize the patchwork development, Germany did not have unemployment insurance until 1927. Other countries that enacted old age insurance were Luxembourg and Austria in 1906, France in 1910, Rumania in 1912, and Sweden in 1913.

As already noted the compulsory method spread from Germany to countries under German cultural influence. While it met with success in these States, there was considerable resistance to the method of compulsion in the Latin countries of the continent and in Great Britain.

The two most important systems — the German and the French — were similar in their efforts to cover the working class population, to combine old age and invalidity insurance, and to subsidize premiums through employer contributions and a State supplement to each matured pension.

They differed in their method of computing premiums, the amount of pension and administrative arrangements.

Denmark, in 1891, was the first nation to institute a national old age pension system. In 1897, France adopted an optional system of State subsidies to departments or communes which provided pensions; (it was followed in 1910 by a compulsory act). England established its national pension system the same year, climaxing three decades of discussion and yet not until 1925 did it add a system of contributory old-age insurance.

By 1911 — despite constraints of voluntarism and the work cult England established an economic security system no less compulsory than the German. Following the return of the Liberal Party to power in 1906, Lloyd George and Winston Churchill became committed to social insurance as a means of advancing their political fortunes, while coping with the social problems of these times. True, they were unencumbered by the Federal and constitutional obstacles which existed in the United States.

As for unemployment insurance, Great Britain enacted such legislation in 1911. Incidentally, Winston Churchill also played a key role in the enactment of unemployment insurance. Between 1919 and 1927 Italy, Luxembourg, Austria, Australia, the Irish Free State, Bulgaria, Poland, Germany and several Swiss cantons followed suit.

All of this legislation and the experience gained from it were observed and studied by Americans interested in getting such laws enacted and systems established in this country.

I believe it can be said without too much fear of contradiction that the concept of social insurance in America had its real beginnings in the 20th century -in a wage centered, industrial economy. Social insurance was proposed as an alternative to the existing but inefficient system of economic assistance. Operating independently of the poor law, it would respond predictably and adequately, said its proponents, in the event of an individual’s exposure to the long and short term risks which interrupted income flow–accident, sickness and maternity, old age and invalidity, unemployment or death resulting in impoverished dependency. So the social insurance movement tried to transfer the function from the private to the public sector and provide a new definition of the role of Government in American life.

Why was social security so long in coming to the United States? Federalism does complicate the whole issue in the United States, yet, the Imperial Germany of Bismarck was also a Federal State and there it had not been much of a barrier to hurdle.

Political and social factors contributed to the lag in the United States. By the beginning of the 20th century, the concept of individualism had become so well entrenched that any social action seemed a threat to personal liberty. Voluntary effort was regarded as more appropriate and more in accordance with national character.

Social insurance proposals, therefore, were not considered simply in the light of the needs they served, but as an entering wedge in the process of extending State power that would ultimately curtail individual freedom.

Yet, as we know today when enacted, social security neither damaged the liberty of the citizen nor eliminated the voluntary aspects of community action. Instead, it provided a support that invigorated both.

But earlier in this century, social insurance had to contend with the idealization of voluntary institutions which are deeply rooted in the United States. Voluntary associations performed the function of mediating between the individual and mass society and Government.

Private charitable, philanthropic and mutual aid societies flourished in the context of voluntary association. They were often tied to sectarian and ethnic group aspirations and they helped mediate between the immigrant and the strange, often hostile, American environment. It led to the assumption by private groups, of responsibility for collective action which in other countries was delegated to Government or elite groups. It was in the broadest sense an alternative to politics and governmental action. It made it possible for groups of all kinds to exert an influence and seek their distinctive goals without resort to the coercive power of Government. Thus, it served a number of indispensable educational, social and moral ends.

Social insurance, it was argued, places an excessive burden on industry or the state, or both. It results in demoralization, lack of foresight, destruction of the habit of saving and even deliberate malingering. The latter is especially true for unemployment and sickness – for these may more easily be simulated than industrial accidents, old age or widowhood.

Besides, social insurance, it was argued, was an alien importation – if not a foreign conspiracy, from Germany and even had Marxian taint. In addition, it was a threat to industry established funds, trade union benefit funds and fraternal, mutual and commercial insurance, went the argument.

Social insurance advocates tried to point out that compulsory insurance was inevitable. Voluntary groups had been strong in Europe, yet there they, too, were forced to turn to compulsory insurance to help solve their problems.

Social insurance proponents interpreted the compulsory factor in social insurance in a technical, instrumental sense simply as a device to maximize coverage and cost distribution, a means to protect those who most needed but could least afford insurance. Critics, however, invested the term with moral attributes.

Another facet inhibiting the movement toward social security or social insurance came from our pioneering tradition– the unusual emphasis placed upon individual initiative and self-reliance — the unprecedented accumulation of surplus wealth. So long as the large reserves of surplus wealth could be canalized into social services, there existed neither the demand nor the inclination to develop the agencies of public welfare.

Moreover, the growth of centralized public welfare service was prevented by the existence of a high degree of local government autonomy and by the early suspicious attitude of social workers toward governmental relief and particularly outdoor relief, a position traceable in large part to the corruption of American politics and to the lack of opportunity for trained social workers to participate in and direct the Government services.

New organizations and leaders in the 1920’s, too, aided the movement for social justice. Among these were the Fraternal Order of Eagles, I.M. Rubinow and Abraham Epstein. The Eagles established many local committees, carried on legislative and publicity campaigns and exerted grass roots pressure and offered legislation that was introduced in Montana, Rhode Island, Ohio and elsewhere.

Isaac Max Rubinow was an outstanding if not THE outstanding American theoretician on social insurance. He was the author of several outstanding works in the field.

Abraham Epstein served as research director of the Pennsylvania Commission on Old Age Pensions for 1920 and except for 1922-1923, when he was employed by the Eagles, worked for the Pennsylvania Commission on Old Age until 1927. In that year with the demise of the Pennsylvania Commission, he organized the American Association for Old Age Security which broadened its program in 1933 and became the American Association for Social Security. (So far as we know, this is the FIRST TIME the term social security was really used in modern times.) Mr. Epstein, too, was the author of several important works in the field of social insurance.

We might note here an acceptable definition of the term “social security” might be this: a specific Governmental program designed to promote the economic and social well being of individual workers and their families through providing protection against specific hazards which would otherwise cause widespread destitution and misery.



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