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Social Security at 75: Rooted in the Wisconsin Idea

August 11, 2010 By John Allen

This 2006 article is excerpted from On Wisconsin magazine and provides a window into the creation of Social Security, which marks its 75th anniversary on Saturday, Aug. 14.

Social Security isn’t just the federal government’s most important domestic program; it’s also the most far-reaching result of the Wisconsin Idea, a unique product of the UW’s economic doctrine, the state’s progressive politics, and a professor named Edwin Witte.

John Commons

John Commons, the legend of the UW economics department, sits in his office in Sterling Hall. Commons was one of the great forces of the Wisconsin Idea, designing legislation on labor and industrial regulation during the state’s Progressive era.

Photo: courtesy UW Archives

When Edwin Witte came to the UW from his native Watertown, Wis., the university was dominated by the leaders of the Progressive movement. Though most weren’t socialists, they were generally convinced that capitalism was broken, and that only scientifically applied government intervention could fix it. John Commons, one of the leading economic theorists of his day and an evangelist for active government, dominated the UW’s economics department and drove this principle into his students, including Witte.

A faculty fixture from 1904 until 1933, Commons was a proponent of a school of thought called institutional economics, which in his eyes aimed to redress the inequities of the free market. Institutionalism, he wrote, emphasizes “management over equilibrium, or control instead of laissez faire,” and encourages the regulation of economic matters. His teaching blended in history, sociology, and psychology to place economics within the vast context of human social development.

One of the early proponents of the Wisconsin Idea, Commons promoted an economic doctrine that stressed fairness over the creation of wealth — a popular philosophy during Wisconsin’s Progressive era. His writings infused many of the state’s labor and industrial laws in the early 20th century, and he virtually wrote Wisconsin’s workmen’s compensation law, the first such program in the country. It was largely in tribute to Commons that Theodore Roosevelt, when he was running for president on the Progressive Party ticket in 1912, said, “All through the Union, we need to learn the Wisconsin lesson of scientific popular self-help, and of patient care in radical legislation.”

Edwin Witte’s vast files and thorough research habits helped create the Wisconsin Legislative Reference Library.

Photo: courtesy UW Archives

Commons was Witte’s mentor through graduate school and afterward. He helped land Witte a position as chief of the Wisconsin Legislative Reference Library from 1922 until 1933, enabling them to continue pursuing Commons’s progressive agenda. The reference library was more than a research office — it was also where most of Wisconsin’s laws were drafted. While Witte was becoming an expert at writing bills, he also read deeply about the social insurance plans that were gaining popularity in Germany and Britain, writing articles about them for academic and political journals. And when the Depression hit Wisconsin, he designed an unemployment insurance plan for the state — another national first.

Unemployment insurance would not, Witte knew, directly launch Wisconsin into economic health. But he expected it would address the underlying causes of the Depression. It would, he hoped, “promote recovery by helping to allay the frightful sense of insecurity which is one of the greatest obstacles standing in our way.” He believed that if people felt more secure, they would be willing to buy more, invest more, launch more businesses — if they had some sort of safety net, they would engage in the potentially risky ventures that make the economy go.

Witte’s line of reasoning found wide appeal, particularly at the White House. When, in the summer of 1934, President Franklin Roosevelt decided to give America an economic safety net, his administration chose to do so through a government-sponsored insurance program. Edwin Witte was the only economist in the country who had experience turning such a plan into working law.

Witte wanted his social insurance program to save the capitalist system, not undermine it. He hoped to preserve the sense of liberty and dynamism of market economics — and believed that a minimum sense of security would encourage people to have more confidence in the market.

But when Roosevelt needed him, Witte was no longer in government. Commons had retired in 1933, and Witte returned to the UW to take up his professorship. Witte wasn’t a particularly prominent academic then. His list of publications was relatively short — up to that time, he’d written only one book, “The Government in Labor Disputes,” an expansion of his doctoral dissertation published in 1932.

“I’ve never been much interested in economic theory,” he once confessed to Commons. Instead, he preferred “to have a part in solving practical problems and shaping political developments.”

That was the attitude the Roosevelt administration was looking for. It didn’t need academic credentials — it needed action.

The summer of 1934 wasn’t a good time to be in Roosevelt’s administration. He had been in power for 15 months, but though his Democratic Party held both houses of Congress and had passed much of his New Deal legislative program, the Depression showed no signs of ending. More than a quarter of the country’s working population was unemployed and more than half of the nation’s elderly didn’t have enough money to support themselves. With midterm elections approaching, Roosevelt faced a potential rebellion within his own party as the public demanded that government do more to protect them from poverty.

To counter the rising calls for action, Roosevelt created a Committee for Economic Security — by which he meant “security against the hazards and vicissitudes of life … especially those which relate to unemployment and old age” — chaired by his second assistant secretary of labor, Arthur Altmeyer ’14, MA’20, PhD’31.

Altmeyer was another Commons disciple, and he’d worked with Witte in Wisconsin state government and as an unpaid lecturer in the UW’s economics department. On July 24, 1934, he offered Witte the job of executive director of the Committee for Economic Security — essentially, the committee’s head technician, its highest ranking nonpolitical employee.

Witte immediately accepted, and though he wrote later that he “had no previous indication of being considered for this position,” he must have had some inkling, for he left Madison on July 25. He didn’t even wait to get formal permission to take a leave from the university. Two days later, he wrote to Glenn Frank, then the UW president, to apologize for not taking “the time to see you before I left for Washington. As you were gracious enough to say, however, the working out of a national program for social insurance is such an important work that it would not do for me to turn down the opportunity to be associated with it.”

Witte was given a staff of actuaries, statisticians, financial managers, and sociologists to study the problems of creating a nationwide insurance program that would cover tens of millions — and ultimately hundreds of millions — of citizens. For the next five months, they spent their days examining those problems: how to unify the various old-age and unemployment programs that some states had set up, how to phase in a payroll tax without the expense serving to worsen unemployment, and what to do about all those Americans who were already retired or would reach retirement without making adequate contributions to the new insurance program. Each night, he met with his executive overseers from 8:30 to 11:30 to decide which aspects of his staff’s work to include in the law.

The committee’s work generated considerable excitement, and in the 1934 midterm elections, Roosevelt saw his majorities in the House and Senate increase. But Witte worried that the public was misinterpreting the nature of his effort. “The present popularity of unemployment insurance is, to a considerable extent, due to the prevailing notion that it is a substitute for relief,” he wrote. “This is a very erroneous assumption.”

Confusing social insurance with relief would, he feared, undermine the psychological effect of the program. Insurance was a respectable, middle-class institution that people could rely upon without shame when they fell into difficult straits. Relief, however, was for the poor, and particularly the incurably poor. As one of his staffers put it, relief has “a disastrous psychological effect … which in turn breeds more dependence. The quality of self-respect which perhaps more than any other helps to build and maintain a sturdy community has an important dollars-and-cents value to society.”

Witte also wanted people to believe old-age insurance was respectable so that they would take advantage of it, retire, and open up job mobility. The program was designed, his staff wrote, “with the definite purpose of encouraging retirement at the age of sixty-five. It is recommended that retirement be compulsory at the age of seventy in order to increase the opportunities of younger workers.”

Witte and his staff slaved away for five months, and when their labor was complete, they had generated more than two thousand pages of neatly typed memos and studies. From these, Witte and Altmeyer put together the draft of the legislation that would become the Social Security Act and presented it to Roosevelt on January 15, 1935. Witte hoped he could then return to Madison, but he was required to testify at the Congressional hearings on the bill, which lasted well into February, and then to defend it from political attacks.

The bill met opposition from both conservative and liberal elements. UW president Glenn Frank, who had felt that creating the social insurance program was so important, changed his mind when he saw the bill. He chaired the Republican policy committee, which circulated a pamphlet declaring that the plan’s “promised Utopia is … one more whited sepulcher” for America’s business community. Its taxes, they said, would cripple any recovery and lead to deeper unemployment. Any attempt to construct a social safety net ought to wait until after the economy recovered.

Others were more severe. Industrialist Henry Ford publicly scoffed at the idea of social security. “No government can guarantee security,” he said. “It can only tax production, distribution, and service and gradually crush the poor to pay taxes.”

But Witte felt that conservative attacks on the program presented less danger than those from the left. “The strongest opposition we have comes from groups that think that our proposals are too moderate and too pro-employer,” he wrote. “Business men, in my opinion, make a very serious mistake in opposing the President’s program. In doing so, they merely invite more extreme measures.”

And there were many more extreme measures. A group of clergy wrote an open letter to the president in 1935, demanding socialism and declaring that “there can be no permanent recovery as long as the nation depends on palliative legislation inside the capitalistic system.”

Witte wanted his social insurance program to save the capitalist system, not undermine it. He hoped to preserve the sense of liberty and dynamism of market economics — and believed that a minimum sense of security would encourage people to have more confidence in the market. “It is only when people are not undernourished, enjoy good health, and have hope for bettering their lot, or at least for being spared the direst consequences of want, that they put forth their best efforts or are capable of doing so,” he said.

In the end, Congress passed the Social Security Act with overwhelming support: the vote ran 371 to 33 in the House, 77 to 6 in the Senate, making Witte’s plan law in August 1935, just 13 months after he’d left Madison for Washington.

Witte called his work on the bill “the most rewarding experience of my life,” but he was eager to get back to teaching. When various federal employees wrote him asking for an opportunity to join the new Social Security Administration, he told them that he was leaving government and had turned down any opportunity to take a leadership role in the implementation of the program. “I have made up my mind that I could not accept,” he wrote to one applicant, “as I have had all the administrative experience that I want.”

It didn’t work out that way. Witte returned to government work many times during the remainder of his career, serving as an adviser to the Social Security Administration during the program’s launch and as chairman of the War Labor Relations Board in Detroit during World War II.

But he also taught extensively, advising some 56 doctoral candidates through their dissertations and filling the ranks of American economists with institutionalists in his and Commons’s tradition. Social Security didn’t encourage him to retire at 65. Rather, he stayed on the faculty until 1957, when he turned seventy and Wisconsin law required him to retire.

The Social Security program that Witte designed quickly grew in popularity. As early as 1937, before the program had paid a single cent in retirement benefits, Arthur Altmeyer could claim that “both labor and employers have come to accept the Federal old-age insurance plan as something permanent, as something apart from administrative change.” Though the Social Security Act has been amended seventeen times in its seventy years, each piece of legislation has been designed to extend or strengthen the program.

As they were drafting the original bill, Witte and his actuaries calculated the program’s revenues and expenses for 45 years, until 1980. They predicted, with relative accuracy, the lengthening of the American life span and the growth of the elderly segment of the population, from 5.4 percent (or around 7 million) in 1935 to 11.3 percent (or more than 20 million) in 1980.

But they failed to predict the effect of the post-World War II baby boom — or, more importantly, the baby bust that followed. Because of the drop in fertility rates that began in the late 1950s, young workers make up a smaller portion of the population than they once did, and retired people make up a larger and larger portion. In 1945, just before the baby boom began, there were nearly 42 workers paying into Social Security for each retiree taking benefits out. In 2005, this ratio had dropped to 3.3 to 1, and by 2030, it will fall to 2.2 to 1. This deficit of workers is what threatens Social Security’s — and the economy’s — future.