On August 14, 1935, Franklin Delano Roosevelt signed the Social Security Act into law. Oddly, on the campaign trail, FDR promised to roll back, not expand, the size of the federal government: “For three long years I have been going up and down this country preaching that government— the federal government, state and local—costs too much. I shall not stop that preaching.”
The Democratic Party platform of 1932 called for a balanced budget, sound money, and a 25-percent reduction in federal spending.
Social Security was representative of national planning schemes popular with intellectuals after the crash of 1929. Many believed the government could wage war on poverty and, by using the techniques of wartime planning so popular with progressives during World War I, manage the business cycle.
At its core, Social Security was a Keynesian device meant to ensure that buying power would remain strong in times of high unemployment. Economist John Maynard Keynes would popularize the writings of the philosopher Bernard Mandeville, whose “Fable of the Bees” was considered an example of how deficit spending could restart an economy.
This philosophy held that, by using fiscal and monetary policies, a government could inject inflation into a weak economy—this became known as the inflationist school.
Social Security was a revolution that shifted the responsibility for income maintenance from the private to the public sector, from the family to the state, and from voluntary organizations to public bureaucracies. And it was a revolution carried out by elite groups of welfare workers, Social Democrats, and others who believed European democratic socialism could be imported to the United States.
They also believed in a “new liberalism” that was at odds with America’s traditional, classical liberal Jeffersonian philosophy.
The program created the institution of mass retirement. Social Security, along with other modern welfare state programs, encouraged the concept of golden years in which individuals would stop working. Some of the best and wisest people in our society would vegetate; they would do fewer things, and, most important, work less–some physicians call this “the theory of disengagement.”
The program was designed to foster senior inactivity by a clause that would allow recipients to earn only what one Social Security advocate called “pin money.” To make more than pin money would mean a penalty to anyone receiving Social Security. This idea was added to the original bill by the labor unions, which until the 1930s had been highly suspicious of welfare state measures such as social insurance. FDR and his allies readily agreed to the penalty notion, given that they had little expectation that the economy would fully recover; they believed work had to be rationed.
Social Security advocates convinced tens of millions of Americans that their golden years meant withdrawing from the most challenging part of their lives. This would free up millions of jobs, an important consideration in the midst of the Great Depression.
FDR’s recovery policies, which included Social Security as a counter-cyclical device, did not restore a prosperous economy, as an FDR historian conceded: “The America over which Roosevelt presided in 1940 was in its eleventh year of depression. No decline in American history had been so deep, so lasting, so far-reaching.”
Americans implicitly accepted the most essential part of a new social policy. Washington, not individuals, not state or local governments, would now have great power over individual citizens’ retirement planning, unemployment insurance, and welfare payments. When FDR signed the Social Security Act, the United States, for the first time in her history, would have “a significant, permanent social welfare bureaucracy.”
Social Security was so important to American Progressives, who scorned the individualist tradition because it was the centerpiece of a revolution that meant “big government, modern government” was here to stay.