The Development of Social Security in America

Article excerpt

This article examines the historical origins and legislative development of the U.S. Social Security program. Focusing on the contributory social insurance program introduced in title II of the Social Security Act of 1935, the article traces the major amendments to the original program and provides an up-to-date description of the major provisions of the system. The article concludes with a brief overview of the debate over the future of the program, and it provides a summary assessment of the impact and importance of Social Security as a central pillar of the U.S. social welfare system.

Conceptual Foundations and Historical Precedents

This section provides a high-level overview of the historical background and developments leading up to the establishment of the Social Security system in the United States.

The Origins of Social Insurance

Economic security is a universal human problem, encompassing the ways in which an individual or a family provides for some assurance of income when an individual is either too old or too disabled to work, when a family breadwinner dies, or when a worker faces involuntary unemployment (in more modern times).

All societies throughout human history have had to come to terms with this problem in some way. The various strategies for addressing this problem rely on a mix of individual and collective efforts. Some strategies are mostly individual (such as accruing savings and investments); others are more collective (such as relying on help from family, fraternal organizations and unions, religious groups, charities, and social welfare programs); and some strategies are a mix of both (such as the use of various forms of insurance to reduce economic risk).

The insurance principle is the strategy of minimizing an individual's economic risk by contributing to a fund from which benefits can be paid when an insured individual suffers a loss (such as a fire that destroys the home). This is private insurance. The modern practice of private insurance dates at least back to the seventeenth century with the founding in 1696 of Lloyds of London. In America, Benjamin Franklin founded one of the earliest insurance companies in 1752. Historically, private insurance was mainly a way that the prosperous protected their assets-principally real property. The idea of insuring against common economic "hazards and vicissitudes of life" (to use President Franklin Roosevelt's phrase) really only arose in the late nineteenth century in the form of social insurance.

Social insurance provides a method for addressing the problem of economic security in the context of modern industrial societies. The concept of social insurance is that individuals contribute to a central fund managed by governments, and this fund is then used to provide income to individuals when they become unable to support themselves through their own labors. Social insurance differs from private insurance in that governments employ elements of social policy beyond strict actuarial principles, with an emphasis on the social adequacy of benefits as well as concerns of strict equity for participants. Thus, in the U.S. Social Security system, for example, benefits are weighted such that those persons with lower past earnings receive a proportionately higher benefit than those with higher earnings; this is one way in which the system provides progressivity in its benefits. Such elements of social policy would generally not be permissible in private insurance plans.

The need for social insurance became manifest with the coming of the Industrial Revolution. Earlier forms of economic security reflected the nature of preindustrial societies. In preindustrial America, most people lived on the land (and could thus provide their own subsistence, if little else); they were self-employed as farmers, laborers, or craftsmen, and they lived in extended families that provided the main form of economic security for family members who could not work. …