Germany was the first industrial nation in Europe to adopt a general program of social security that extended beyond military veterans. In the 1880s Chancellor Otto von Bismarck instituted a plan of compulsory sickness and old age insurance to protect most wage earners and their dependents. Over the next thirty years, other European and Latin American countries created similar plans with various features to benefit different categories of workers.
In the United States the federal government first provided insurance only to veterans who had been disabled in war. During the late eighteenth and early nineteenth centuries the U.S. federal government provided pensions to veterans disabled in the American Revolution. In 1820 the federal government established a pension for needy or disabled veterans of the War of 1812. After the Civil War, the U.S. government broadened the category of veterans eligible for governmental assistance, paying pensions not only to needy and disabled veterans but also to most veterans age 65 or older.
However, Congress did not take any significant legislative action to create an old-age pension for the rest of America’s workforce until the early twentieth century. Until that time, retired, unemployed, and chronically ill workers were left to manage by resorting to their personal savings, relying on private chari-ties, or forming beneficial associations that provided a modicum of sickness, old-age, and funeral insurance to workers who joined the association.
Yet membership in these associations was never widespread. Nor were such associations designed to address the catastrophic effects of the Great Depression. Triggered in part by the stock market crash of 1929, the Great Depression was ravaging the U.S. economy by 1932, when businesses reported losses of approximately $6 billion, wages suffered declines of close to 60 percent, and 13 million workers headed for the unemployment lines. A year later another million Americans lost their jobs, and the unemployment rate hit 25 percent for the entire economy and 38 percent outside farm-related industries. By 1934 nearly every state was home to at least a few communities comprised of penniless and hungry families living in squalor, including many families with members who were senior citizens.
Congress tried to ameliorate some of these conditions by enacting the Social Security Act of 1935, which was part of the economic-stimulus and socialreforms package of President Franklin D. Roosevelt’s New Deal. The act provided for the payment of monthly benefits to qualified wage earners who were at least 65 years old or the payment of a lump-sum death benefit to the estate of a wage earner who died before reaching age 65. In 1939 Congress added dependent spouses, widows, widowers, and parents of wage earners to the class of beneficiaries entitled to Social Security benefits upon the retirement or death of a working family member.
Social Security originally protected only workers in industry and commerce. Other classes of workers were excluded as beneficiaries after Congress concluded that it would be too expensive and inconvenient to collect their contributions. For example, household workers, farmers, and workers in family businesses were excluded as Social Security beneficiaries because Congress believed that these three classes of workers were unlikely to maintain adequate employment records. By the 1950s Congress had reversed its position, extending Social Security protection to most self-employed individuals, most state and local government workers, members of the armed forces, and members of the clergy. Federal employees, who had their own retirement and benefit system, were given Social Security coverage in 1983.