Power in America print/mobile How Corporate Moderates Created the Social Security Act (...And Then Tried to Undermine It Later) by G. William Domhoff 1936 poster by the Social Security Board

(click to enlarge) The story of the Social Security Act of 1935 is an enjoyable one to tell -- and hopefully to read, despite all the details -- because it is so counterintuitive to what all of us believe. Who'd have thought that leaders from some of the biggest corporations of the 1930s -- companies such as Standard Oil of New Jersey (now known as ExxonMobil) and General Electric -- were strong supporters of the Social Security Act? Or guessed that several of the key experts who worked on the details of the act were employed by the richest person in the United States at the time, John D. Rockefeller, Jr.? Furthermore, most Americans assume that big business has always opposed Social Security. They assume this because the most outspoken businessmen of the time, the leaders in the National Association of Manufacturers and the U.S. Chamber of Commerce, railed against it when it was considered by Congress, and have been hostile toward it ever since. Furthermore, the most ultra of the ultraconservatives, often men with very large fortunes, have done everything they can to undermine the act since it first passed -- and they're still at it in 2013, their hopes renewed by the Tea Party advocates in Congress (even though most Tea Party supporters outside of Congress want to maintain Social Security). The story is also an enjoyable one to write about because the kind of moderate conservatives that helped create the Social Security Act (mostly I will call them "corporate moderates") have tried to cut it back since the 1980s -- and they have partially succeeded. But they won't be satisfied until it is but a ghost of the robust program it became during the early 1970s with the support of Republican President Richard M. Nixon and many other Republicans of that era, a breed of Republican now known sneeringly by far-right Republicans as mere "RINOs" (Republicans In Name Only). So there's also a political angle to the conventional wisdom of the twenty-first century. Members of the liberal-labor alliance are happy to claim credit for the creation of the program they now defend so vigorously, ignoring the fact that the liberals of the 1930s thought the program was too centrist and meager. Modern-day members of the corporate-conservative alliance, on the other hand, who don't like Social Security, are equally glad to blame liberals for Social Security. Finally, there's also an academic angle to my pleasure in preparing this document. The story I piece together from new archival sources casts strong doubts on the claims made about the Social Security Act made by members of the dominant theoretical school when it comes to studying power in the United States -- the historical institutionalists. But in this document I argue that they are wrong in claiming that the business leaders who supported Social Security were minor characters, and that Social Security was really fashioned by independent experts and liberal lawmakers. Eventually, they will have to refute or come to terms with the evidence that is presented in this document, some of which they haven't seen before. But the argument probably will have to be resolved by more disinterested social scientists and historians, present or future. In talking about the Social Security Act, I will be focused on the two biggest pieces of it -- old-age insurance (which is what is now meant by "Social Security" or "pensions" in everyday parlance) and unemployment insurance (which is usually called "unemployment benefits"). But I first want to make clear that there were other parts to the overall Social Security Act that were important in many people's lives. However, those parts weren't as controversial, at least in the 1930s, and they haven't been the focus of the arguments about the origins of the Social Security Act among social scientists and historians. For example, there was a provision called "old-age assistance," which provided "means-tested" benefits for the elderly, that is, payments to low-income elderly people who had not worked long enough for enough money to be part of the original "insurance" program. Although old-age assistance was essential to many elderly people, it is only important from a theoretical perspective because the proponents of old-age insurance always saw it as a potential threat to their own program. They saw it that way because ultraconservatives insisted that old-age assistance was all that was necessary. From the moderate conservative and liberal point of view, an ultraconservative victory on this issue, which was raised again during the 1950s, would have stigmatized funds for the elderly as "welfare," which might have led to a reluctance to raise benefits to keep pace with inflation (Altman 2005). Then, too, there was a title in the Social Security Act advocated by liberal women activists. It provided benefits for unmarried mothers, which was not controversial at the time because the single mothers were most often white widows, and there were relatively small numbers of them. But as the program grew and was reshaped after World War II, it was soon stigmatized as welfare for allegedly "undeserving" women (Gordon 1994b; Mink 1995; Poole 2006, Chapter 5). Although the amounts of money involved were trivial in terms of the overall federal budget, and the individual payments were meager, the program was constantly attacked by ultraconservatives as a generous handout to allegedly lazy people of color. Ultraconservatives really believe such things, which made the program a constant burr under their saddle, but they were also able to use their distaste for the program as one part of a successful effort to win over just enough white middle-income white-collar and blue-collar workers to put Republicans back in the White House for most of the years between 1968 and 2008. After 40 years of effort, the ultraconservatives succeeded in drastically cutting the "welfare" program in 1996. They then renamed it "The Personal Responsibility and Work Opportunity Act" in order to reinforce the idea that those on welfare had supposedly lost moral fiber and needed to look harder for work opportunities. This "reform" was the outcome of President Bill Clinton's 1992 campaign promise to "end welfare as we know it," but his plan (harsh enough in itself) was made more stringent by the Republicans' insistence that his provisions for child care and health insurance for those on welfare had to be eliminated (Quadagno and Rohlinger 2009). The act put time limits on the number of years a person could receive welfare, added a work component, and reduced assistance for immigrants, due to the strong Republican belief that many immigrants came to the United States with the hope of receiving welfare assistance. The new law seemed to work in its first few years because there were more low-income jobs during the stock-market bubble of the late 1990s, but the changes left many people with only food stamps during the downturns of the twenty-first century (DeParle 2012). As this introduction suggests, the issues surrounding just about anything to do with the Social Security Act of 1935 remain contentious. Ultraconservatives -- and especially the Libertarians among them, who positively deny that government should have any role in just about anything except fires and crimes -- are out to abolish old-age pensions, unemployment insurance, and other forms of government assistance. Most of them would eliminate minimal old-age assistance for the elderly poor as well, returning that function to churches and local charities. And while liberals and ultraconservatives fight over the preservation of the Social Security Act, academics do battle over its origins and its implications for their rival theories. When did interest in social insurance programs begin? The first academic bone of contention is over when the first glimmers of a government social insurance program appeared. Was it in the nineteenth century or the early twentieth century? Are the precedents to be found in government programs or in corporate programs? According to the historical institutionalists, and most other academicians as well on this issue, there are many precedents for old-age pensions that can be found in the nineteenth century in the government pensions for some types of government employees. Moreover, veterans of the Civil War received pensions that were gradually expanded over the years and came to include their widows and children. Such pensions lasted into the early twentieth century, so it is said by historical institutionalists that they provide paths, precedents, and social learning to guide the government officials that are given credit by historical institutionalists for creating and implementing the Social Security Act (Skocpol 1992). As for unemployment insurance, it first gained attention in the first decade of the twentieth century and received extended discussion in the 1920s, in part based on the experience of European countries with various forms of social insurance. Although veterans' pensions and the European experience may have had a general influence in legitimating the idea of social insurance, I don't think they had much if any direct impact. I have written a critique of the historical institutionalists' misguided claims on this issue as part of another document on this website, so I will not repeat those arguments here (see the Civil War Pensions section in "The Death of State Autonomy Theory"). Instead, I will focus on a detailed account of the fact that the specific principles embodied in the old-age and unemployment provisions of the Social Security Act came from corporate experience with private insurance plans. I will also emphasize that the experts from a nonprofit, nonpartisan network of foundations, think tanks, and policy-discussion group, which I call the" policy-planning network," built on this corporate experience in designing the key parts of the act. Since the issues of old-age pensions and unemployment benefits often arose at the same time, I will be discussing both at the same time, which may make the early parts of the document seem a little jumpy, so readers need to be alert for sudden changes from one issue to the other. In the case of old-age pensions, corporate leaders first thought about providing private corporate pensions, not government pensions, in the 1870s. From that time forward, they always saw pensions as having two main purposes, which varied in their importance from era to era, depending on circumstances. First, old-age pensions were most often seen as a way to replace superannuated workers with more productive younger workers, as demonstrated by a program put in place in 1875 by American Express, whose employees had to move heavy freight on and off railroad cars back then, as well as transport securities and currency. Second, a huge strike and much property destruction by railroad workers in 1877 led some railroad owners to think of old-age pensions for loyal employees as a potential way to quell labor unrest, at the least by creating new openings for younger workers. However, in terms of dealing with labor unrest, it's also the case that they saw death benefits, accident insurance, and unemployment compensation as potentially more important than old-age pensions (Graebner 1980; Sass 1997). Either way, by 1900 the Pennsylvania Railroad, the third-largest railroad in the country at the time, had a full-fledged pension plan for all employees at age 70, and a few others had smaller programs. In the case of unemployment insurance, the first push, primarily on a state-by-state basis, was based on what were considered to be sound business principles that would appeal to moderate conservatives. It came from a small group of experts, most of them university professors, who formed the American Association for Labor Legislation (AALL) in 1906 to promote "uniform progressive state and local labor laws and, where possible, national labor legislation" (Eakins 1966, p. 59). Due to the fact that several of the founders were included in the National Civic Federation (NCF), a policy-discussion group formed by moderates in the corporate community in the early twentieth century, the experts in the AALL came to believe that some corporate moderates might be sympathetic to unemployment insurance, as well as some of the other labor law reforms that reformers and progressives in economics, political science, and sociology had been working for since the 1880s (with little success, be it noted). In other words, we see right here the way in which corporate leaders and policy experts have discussed issues and worked together in the United States since the early twentieth century. It is also noteworthy that this is also the time when the corporate community came into existence in roughly its present form due to (1) the rapid adoption of the corporate form by industrialists (to fend off critics, dampen competition, and make their investments safer) and (2) a huge merger movement that created the kind of giant industrial corporations that still exist over a century later (Bunting 1987; Roy 1997). The founders of the AALL began their efforts by doing careful research, writing model legislation, and encouraging discussion of labor issues in the journal they created, the American Labor Legislation Review. They also served as a clearinghouse that answered questions from all levels of government across the country and did educational outreach work with professionals, government officials, and party leaders through speeches, conferences, books, press releases, and legislative testimony. It was a small expert group that in no way reached the general public. The AALL had several overlaps in leadership and financing with the NCF, but it also included reformers and even a few socialists who were not invited to take part in NCF deliberations. In addition, progressive women reformers from the settlement house movement, the National Consumers' League, and the Women's Trade Union League served on its advisory board. It was financed by a small number of wealthy individuals, including some of the political economists and women activists, who came from well-to-do family backgrounds (Domhoff 1970, pp. 172-173). John R. Commons The key figure in the AALL, economist John R. Commons, was not from a wealthy background. Instead, he came from humble circumstances and involved himself in a variety of reform efforts in the 1890s while teaching at various colleges. However, he took a job running the New York office of the newly formed (and just mentioned) NCF in 1902. He also did research and involved himself in mediating labor disputes for the NCF. He became a firm believer in collective bargaining between corporations and unions, an idea championed by the NCF. Based on his experience dealing with businessmen, he also became convinced that the secret to reform was appealing to the profit motive. He left the NCF to take a job in the economics department at the University of Wisconsin in 1905, with half of his salary paid by two members of the NCF, but he always said that his years with the NCF were among the most important in his life (Commons 1934, p. 133). Although he was by then in Wisconsin, Commons served as the secretary of the New York-based AALL from 1907 to 1909. He was succeeded as secretary by one of his Wisconsin students, John B. Andrews, who directed the organization and most of its activities from that point until his death in 1943, when the organization became inactive and disbanded soon thereafter. Many of Commons' other students, it should be stressed here, worked on projects for the AALL over the next several decades, and eventually for the government committees that formulated the Social Security Act as well. In doing so, they followed by Commons' lead by building their reform measures on business principles. They also gradually decided to concentrate on the state level because of the many defeats the AALL suffered at the federal level between 1906 and 1925 (Moss 1996). By the late 1920s, the AALL was focused even more on the state level because of its fear that the Supreme Court, based on several of its earlier rulings, would rule federal labor legislation unconstitutional. This is important to mention because it brought the AALL into arguments with the corporate moderates that eventually had the biggest impact on shaping the Social Security Act in the 1930s. Louis Brandeis The AALL also had the support of one of the most brilliant and persuasive minds of the early twentieth century, Louis Brandeis, a corporate lawyer turned reformer. In addition, Brandeis was appointed to the Supreme Court in 1916 and became a powerful behind-the-scenes player in Washington in the 1930s. Born into wealth in 1856 and a graduate of Harvard Law School, Brandeis worked as a conventional corporate lawyer from 1879 until the late 1890s, when he became a critic of the "curse of bigness" and the legal counsel for the National Consumers' League, where his sisters-in-law, Josephine and Pauline Goldmark, were top leaders (Baltzell 1964, pp. 188-192; Gordon 1994b, pp. 83-84). He also joined the AALL's Advisory Council and in 1911 wrote draft legislation for unemployment insurance that contained an incentive feature meant to induce employers to minimize unemployment; the proposed bill lowered the required premiums for businesses if they had low lay-off records. During its nearly 40 years of existence the AALL worked on a wide variety of labor legislation that ranged from old-age pensions to unemployment insurance to accident insurance to health insurance, with varying degrees of success. It had a strong impact on the health of workers through the legislation it helped write to combat industrial diseases, while failing on unemployment insurance (Domhoff 1970, pp. 174-175; Pierce 1953, pp. 27-34). However, there is one labor issue it did not include on its agenda, support for unions, which is a major reason why it could attract the financial support and participation of some corporate moderates as well as include reformers and socialists in its discussions. It is also noteworthy that the AALL's legislative approach did not attract much support from the American Federation of Labor (AFL) until the New Deal era because of the AFL's general wariness toward government, which its leaders assumed to be controlled by corporate interests (Skocpol 1992, pp. 208-209). Put another way, there was no "liberal-labor alliance" in the United States until the 1930s, which is much later than the ones that formed in several European countries (Mann 1993). Although the AALL did not have much success in most of its campaigns because of resistance from the corporate community, it did attract support on one key insurance issue, workmen's compensation, and that became the seed, by a circuitous and indirect route, for the Social Security Act. Workmen's comp may seem far from old-age pensions, but in fact it was conflict over workman's comp that started giant private insurance companies thinking about old-age insurance. Workmen's comp, not old-age pensions or unemployment insurance, was the big issue of the early twentieth century because industrial accidents were a major personal tragedy for tens of thousands of workers and a costly and disruptive problem for American industry. The result was worker discontent and numerous individual liability lawsuits in which juries found against the companies and awarded expensive settlements to injured workers. As corporations lost more and more lawsuits, they became open to new alternatives. In an effort to provide accident insurance for workers in a way that would be acceptable to employers, the AALL developed a plan that was structured to induce companies to reduce their rate of accidents in exchange for lower insurance payments. It began its campaign in 1906 by sending its model legislation to business executives, labor leaders, academic experts, and government officials, and by discussing it with NCF leaders. Just a year later, the members of the NCF decided to support the AALL initiative as a way to reduce uncertainty and expenses. Some corporate chieftains also argued that workmen's compensation might help reduce agitation for unions as well, because the high accident rate was such a contentious issue (Weinstein 1968, Chapter 2). Note, yes, that the ideas came from experts, but also that the experts built on business principles, and that the corporate moderates were receptive, which was the winning combination on most policy issues in the twentieth century. By 1910 most members of the ultraconservative National Association of Manufacturers (NAM), which represented the other main political tendency within the corporate community, also favored workmen's compensation as a legal right. That's an amazing turn of events in itself, but they still differed from the corporate moderates because they were not willing to pay taxes for a plan administered by state governments. They therefore urged private insurance companies to develop commercial plans, which led to a trip to England by insurance company experts and NAM representatives to study European precedents (Klein 2003; Sass 1997). The result was a rival proposal for legally enforceable mandates that would stipulate that companies had to provide their employees with private accident compensation insurance. This approach also came to be preferred by many members of the National Civic Federation, because it expressed their own inclination toward as little government involvement in their affairs as possible. As this example suggests, the corporate moderates will sometimes take the ultraconservative route when they think it will work. The original reaction by Samuel Gompers and other AFL leaders to the AALL's model legislation had been to oppose any form of social insurance that involved government because of their belief that the domination of government by business would lead to unsatisfactory programs. Instead, labor leaders preferred to continue to take their chances in individual court cases. By 1908, however, they had been persuaded by their corporate counterparts in the NCF to support insurance on this specific issue. But then they reacted negatively to the NAM push for the involvement of private insurance companies, as did many reformers and all members of the rising and highly visible Socialist Party of the pre-World War I era. The result was two rival camps that were pushing for two different approaches to government-mandated accident insurance programs. The AALL, NCF, and NAM were on one side and organized labor, liberal reformers, and the Socialist Party were on the other side. It was edging toward being something like "class conflict." When the AALL/NCF/NAM campaign for legislation began in 1910 and 1911, the battles primarily centered around the disagreement over government versus commercial insurance, although there were also arguments concerning compensation rates, breadth of coverage, and other particularistic but vital issues that are not relevant here. In the end, corporate executives usually held firm for private insurance and conceded higher payout rates in exchange, which were generally above 50% of a week's pay. It was a compromise that organized labor and their liberal and Socialist Party allies only reluctantly accepted. By 1920, only six states, all in the South, lacked workmen's compensation laws (Fishback and Kantor 2000; Weinstein 1968). That's a fairly fast pace as American legislation goes, and it looks to me like a success story for the corporate-financed policy-planning network. It's also an example of how the policy groups help the moderate conservatives and ultraconservatives in the corporate community grope to compromises. Over and beyond the immediate beneficial impacts of this legislation for the tens of thousands of workers injured each year, the battle over accident insurance had two long-lasting effects that influenced debates about social insurance during the New Deal. First, success on workmen's compensation reinforced AALL members in their belief that the use of sound business principles and the right incentives might convince corporations to drop their opposition to unemployment compensation. As a result, the AALL tried to kindle interest in Brandeis's company-specific unemployment insurance plan, which was structured to encourage companies to minimize layoffs for their workers through better anticipation of market fluctuations and more careful planning of production schedules. (Under this plan, recall, lower layoff rates would lead to lower payments into the unemployment insurance fund.) And once again, legislation would be passed by individual states. Later experience revealed there was no chance that individual companies could have any effect on a major systemic problem such as unemployment. For that reason, the AALL emphasis on company layoff rates, individual company accounts, and state-level legislation became flashpoints of conflict when other experts within the policy-planning network came to believe that a federal system with uniform tax rates was necessary. But what has to be underscored here is that the long policy battle on unemployment insurance that is discussed later in this document is between rival business-oriented plans, which at bottom is an argument about how much government involvement could be forced upon the well-organized ultraconservatives in the corporate community and the Southern Democrats (who were the representatives of the plantation owners in that era and during the New Deal as well). Historical institutionalists sniff at this insight, but in fact these battles do not have any implications about the degree of business power during the New Deal. More importantly, and now we have finally arrived at the starting point for the old-age insurance provisions of the Social Security Act, the outcome of the legislative conflicts over workmen's comp convinced private insurance companies that they might be able to underwrite other forms of group social insurance, starting with group life insurance programs for corporations, and maybe old-age pensions as well. Two of the three largest insurance companies, Equitable Life and Metropolitan Life, which shared many directors in common with major banks and corporations, began making the analyses necessary to offer such packages to corporations as a way to head off government insurance programs. Both companies also came to believe they could do a better job with private pensions than individual corporations, but only if contributions were made by both the companies and their employees (Klein 2003; Sass 1997). (Plans that mandate contributions by both the company and its employees are called "contributory" plans, a term that will reappear throughout this document.) The gradual move toward actuarial soundness for private old-age pensions received a boost in 1918 from the president of the Carnegie Foundation for the Advancement of Teaching, which was founded to provide pensions for professors by Andrew Carnegie, one of the richest of the steel barons of that era. The plan was put on a solid footing by creating the Teachers Insurance and Annuity Association, a life insurance company, which then fashioned the first fully insured pension system (it is now part of a giant company called TIAA-CREF) (Sass 1997, p. 65). At this point the experience of the private insurance companies and the Carnegie Foundation for the Advancement of Teaching also began to have an influence on pension programs for government officials. This is best seen in the pension program designed for federal civil service employees in 1920 by a fledgling think tank of that day, the Institute of Government Relations, which was one of the forerunners of The Brookings Institution (Graebner 1980, pp. 77, 87; Saunders 1966, p. 25). In other words, by 1920 large corporations and organizations in the policy-planning network were shaping government insurance programs based on their own principles and experience. Contrary to the historical institutionalists, any lingering influence from past government pension plans had been swept aside by this point. Although group insurance plans engaged the interest of corporate leaders during the 1920s, it's important to avoid any misunderstandings by stressing that group insurance plans provided coverage for only a tiny percent of the elderly at the time. Most people bought old-age insurance from actuarially unsound plans sponsored by fraternal organizations, ethnic lodges, or trade unions, but by the end of the 1920s almost all of those plans had failed. As a consequence of these failures, there was a gradual movement towards support for state-level government pensions by organizations such as the Fraternal Order of Eagles and some local and state union federations, using plans drawn up for them by the AALL. A more liberal reform-oriented group, the American Association for Old Age Security, joined them in these efforts in the mid-1920s. It advocated comprehensive social insurance at the state level paid for by general taxes, and thereby directly challenged the AALL approach (Loetta 1975). The incipient battle between the two reformist groups aside, as many as 25 states passed legislation allowing for old-age pensions in the late 1920s and early 1930s, usually without any state funding and at the option of individual counties. As a result, few people received a state pension and the benefits were meager if they did so. As for any plans for unemployment insurance, which continued to be based on the AALL's emphasis on encouraging employers to prevent unemployment with an incentive-based insurance plan, they went nowhere in the 1920s (Nelson 1969, Chapter 6). Most unions ignored plans for government unemployment insurance and tended to favor the company-oriented incentive plans offered by the AALL and corporate moderates. One of the few exceptions involved the pragmatic leftists in the clothing industry, the Amalgamated Clothing Workers, within which the ethnic solidarity of the immigrant workers -- primarily Italian and Jewish Americans -- combined with their socialist ideology to push for programs to which companies and workers both contributed (Nelson 1969, Chapter 6). And, as we shall soon see, an expert hired by the Amalgamated Clothing Workers to help with this plan was soon hired away by John D. Rockefeller, Jr., to work on corporate social insurance plans. Despite the grassroots and leftist efforts, the major developments of the 1920s, the ones that impacted the Social Security Act, were being made by the individual corporations that had pension plans of their own, as well as by the insurance companies that made their group programs more sound and less expensive by having both employers and employees contribute. By 1923, for example, Metropolitan Life was confident that it had a group pension plan that was better than anything any one corporation could offer on an equally sound basis. One of its main spokespersons therefore eagerly presented the new plan to the corporate executives that his company invited to a special conference. However, even though he presented evidence that most corporate plans were unsound, the biggest corporations of the era were not prepared to abandon their own plans. They liked to run their own show, and some of them still believed their pension plans were helpful in controlling their workforces and limiting strikes. (As a result, corporate plans sometimes had clauses saying a pension could be lost if the individual participated in a strike.) The corporate leaders present at the conference also liked the fact that they did not legally have to pay benefits if they decided not to do so. When an executive from Otis Elevator frankly told the Metropolitan Life speaker that the circumstances of each corporation varied too greatly to go along with what the insurance companies had to offer, the insurance representative argued back. His reply led to a sharp rebuke by none other than the top industrial relations executive at Standard Oil of New Jersey, Clarence Hicks, who figures prominently in this document. Hicks put an end to the discussion with these frank words: "It is impossible and impracticable. For 20 years the [Standard Oil] company has been experimenting on plans. I do not know why it becomes suitable at this time to stop experimenting. If we had done this a week ago, we would not have had the benefit of what we did today" (Sass 1997, p. 72) When Hicks concluded his remarks, the executive from Otis Elevator made a motion to end the meeting and offer Metropolitan Life a "hearty thanks," which led to immediate adjournment (Sass 1997, p. 72). So it is not like these corporate executives are far seeing and immediately sensible in a big-picture sense. They like to hold on to their baronial power as long as their corporate fiefdoms make that possible. In this case, it took the crisis of the Great Depression to expand their horizons, as will soon become apparent. But in fact the individual company plans did not help with control of the workforce and they were not actuarially sound. Shortly after the Metropolitan Life conference, for example, a meat packing company went bankrupt, sold its assets, and left its 400 retirees with 14 months of benefits (Sass 1997, p. 57). So it was not long before the Metropolitan Life plan became more attractive to smaller companies, especially when it packaged group old-age pensions with life, health, or disability insurance. New kid on the block: Industrial Relations Counselors, Inc. It was at about this time that an entirely new organization entered the picture, one that was destined to have far more impact on the Social Security Act than anyone ever would have imagined at the time, or than any historian or social scientist has since comprehended. That's a strong statement, I realize, but I am going to back it up with at least month-by-month detail when it gets down to the crunch time on all this, in 1934 and 1935. Furthermore, my claim looks worse before it looks better because this new organization was founded and funded by the richest man of his day, John D. Rockefeller, Jr., the son of the founder of the Standard Oil companies that were among the largest ten companies in the country at the time. Then, too, Walter Teagle, the president of the biggest Rockefeller oil company, Standard Oil of New Jersey, played a key role in coordinating the personal employees of Rockefeller, Jr., during the legislative battles over Social Security. The organization in question was called Industrial Relations Counselors, Inc. (IRC for short), and it was created to combat unions and diminish labor-management conflict through in-plant discussion and grievance-presentation groups called Employee Representation Plans. John D. Rockefeller, Jr. In another document on this site, "The Rise and Fall of Unions in the U.S.," I have told the detailed story of why and how the IRC emerged from Rockefeller, Jr.'s attempts to deal with violent and deadly strikes between 1914 and 1917 at two of his companies; this link will take you straight to the section detailing the full extent of Rockefeller's economic and philanthropic power in that era. (Hereafter, Rockefeller, Jr., will be called simply "Rockefeller" because his father was long retired by then and died in 1937 at age 97). Suffice it to say here that the IRC began as an informal consulting service and was expanded and incorporated in 1926. The trustees for the IRC at the time of its formal incorporation -- three corporate leaders, two Rockefeller employees, and the president of Dartmouth College -- provide a good sense of how well the Rockefeller group was integrated into the corporate community, the policy-planning network, and the political parties. One of the most noted corporate executives of the era, Owen D. Young, was the chairman of General Electric and a Democrat; he sat on the boards of General Motors, RCA, NBC, and the National Bureau of Economic Research, which was a think tank heavily financed by the Rockefeller foundations. Another IRC director from the corporate community, Cyrus McCormick, Jr., was the chairman of International Harvester, a director of National City Bank of New York, and a trustee of Princeton University, as well as being Rockefeller's brother-in-law. Like Young, McCormick was a Democrat, and in addition had been a strong backer of Woodrow Wilson's presidential candidacy in 1912. The third business member on the board, Henry Dennison, president of the Dennison Manufacturing Company in Boston, was a highly visible corporate moderate and a co-founder of a new foundation, the Twentieth Century Fund, in 1919 (now it's called the Century Fund and is still going strong). The two Rockefeller employees, Arthur Woods, a Republican and friend of Herbert Hoover, and Raymond Fosdick, a Democrat and acquaintance of Franklin D. Roosevelt, served as directors of corporations, foundations, and think tanks for Rockefeller. Woods was a vice president at Colorado Fuel and Iron, a director of Bankers Trust and Consolidation Coal, and a trustee of three Rockefeller philanthropies: the General Education Board, the Rockefeller Foundation, and the Laura Spelman Rockefeller Memorial Fund (which became the Spelman Fund a few years later). Fosdick, one of Rockefeller's lawyers since 1912, sat on the boards of Consolidation Coal, Davis Coal, and Western Maryland Railroad, and was a trustee of the Institute of Public Administration (soon to be a key part in The Brookings Institution), the Rockefeller Foundation, the General Education Board, the Laura Spelman Rockefeller Memorial Fund, and the Rockefeller Institute for Medical Research. Fosdick was also one of Rockefeller's two or three closest advisors on industrial relations and social insurance. As for the sixth and final IRC trustee, Ernest Hopkins, the president of Dartmouth College, he also served as a trustee for the Laura Spelman Rockefeller Memorial Fund at the time. Over and beyond the applied work by the IRC employees, Rockefeller and his aides started industrial relations institutes at major universities in order to develop the expertise needed to bring about harmonious labor relations. The first grant supported a new Department of Industrial Relations within the Wharton School of Business at the University of Pennsylvania, chaired by Joseph Willits. Shortly thereafter, Willits became involved in the work of the Social Science Research Council, which received 93% of its funding from Rockefeller philanthropies in the decade after its creation in 1923 (Bulmer and Bulmer 1981; Domhoff 1996, p. 60; Karl 1974). He then served on many committees related to Rockefeller projects, had a hand in fashioning the administrative structure of the Social Security Board, and in 1939 became director of the Rockefeller Foundation's Division of Social Sciences (Fisher 1993, pp. 54-55, 121, 183). The Rockefeller group's second academic initiative involved the formation of an Industrial Relations Section in the Department of Economics at Princeton, starting with direct overtures from Rockefeller and Fosdick (Fosdick was a graduate of Princeton, John D. Rockefeller 3rd was then a student there). This project was developed under the guidance of Hicks from his industrial relations post at Standard Oil of New Jersey. Shortly thereafter, industrial relations institutes were created at several other universities, including MIT, the University of Michigan, and Stanford, and in the late 1930s another one was developed at the California Institute of Technology (Gitelman 1984, p. 24). This brief overview of IRC's leadership, and the quick glance at the companies, foundations, and think tanks that Rockefeller supported, almost brings us to where we need to be. It was at this point that the IRC began to pay serious attention to company-level old-age pension and unemployment compensation plans to see if they needed to be reorganized or otherwise improved upon. But first, another key piece of the Rockefeller network for industrial relations has to be added to the picture. Adding it now sets us up for its eventual incorporation into the New Deal as a committee of a government advisory council. The Special Conference Committee As part of his effort to create better, and non-union, relations between corporations and their employees, Rockefeller and the top executives at Standard Oil of New Jersey created an informal and off-the-record meeting group in 1919 for the presidents (today they would be called "CEOs") of the largest corporations of that era and their industrial relations vice-presidents. Called the Special Conference Committee, its purpose was to keep these key executives in touch with each other on major labor relations and social insurance issues, and to push the idea of Rockefeller's Employee Representation Plan whenever possible. In addition to Standard Oil of New Jersey, by 1926 the group included nine of the largest industrial companies in the country and one bank: U.S. Steel, General Motors, General Electric, AT&T, DuPont, Bethlehem Steel, International Harvester, U.S. Rubber, Goodyear, Westinghouse, and Irving Trust (AT&T was added in 1925) (e.g., Gordon 1994a, pp. 152-155; Scheinberg 1986, pp. 152-158). The vice-presidents for industrial relations met several times a year and the presidents joined them for one meeting a year. Hicks of Standard Oil of New Jersey was the chair from its inception until he retired in 1936. Edward S. Cowdrick, a former journalist, who became a personal Rockefeller employee after he wrote a favorable article on the Employee Representation Plan, served as its secretary from 1922 until his death in 1951. Although the group was unknown at the time, its correspondence and other records were subpoenaed and published in the Congressional Record by a Senate committee investigating corporate violence against union organizers in the late 1930s, so we know it is not the figment of someone's imagination (Auerbach 1966; Senate 1939). (It turned out that several companies in the Special Conference Committee were stockpiling dynamite and other weapons in the mid-1930s, and all but one or two of them were part of the failed attempt, coordinated by Cowdrick, to defeat the National Labor Relations Act in 1935.) Finally, we are now set to hone in on the real origins of the Social Security Act. Meanwhile, back at the IRC The new emphasis on social insurance at the IRC was signaled by the employment of two very well trained independent experts on these issues, Murray Latimer and Bryce Stewart, who ended up at the center of the legislative drafting for the Social Security Act in 1934. Latimer, a 25-old instructor in finance at the Harvard Business School at the time he was hired in 1926, was born and educated in Clinton, Mississippi, where his father had an automobile dealership. (Latimer received an M.B.A. at Harvard in 1923 before joining the faculty.) During his years at the IRC, Latimer helped to establish new pension plans at Standard Oil of New Jersey as well as three other Rockefeller oil companies and an independent steel company, American Rolling Mill. His 1932 book for IRC on Industrial Pension Systems in the United States and Canada was well known and respected at the time, and is still frequently cited in historical accounts (Klein 2003; Orloff 1993; Sass 1997). Latimer also did a study of union pension plans for the AFL in 1928-1929, shortly before the stock market crash, concluding that "the experiments are far from having reached a sound basis and that unless drastic financial reorganization is made they are almost certain to end in failure in the relatively near future" (Klein 2003, pp. 56-57). Stewart, 44 years old when he joined the IRC staff in 1927, was a Canadian with many years of experience working with employment and labor issues. A graduate of Queens University in Kingston, Ontario, he earned a Ph.D. at Columbia University and worked as a researcher, chief statistician, and editor for the Canadian Department of Labor, and then as an organizer and director of the Employment Service of Canada (Kelly 1987). Most interesting of all in terms of my emphasis on the relative openness of moderate conservatives in the corporate community on unemployment and pension issues, Stewart is the person I was referring to earlier as an employee of the Amalgamated Clothing Workers in Chicago. He came back to the United States in 1922 to develop and administer an employment exchange for the union, which was later supplemented by an unemployment insurance fund. Created at the insistence of Sidney Hillman, the Amalgamated's leader and a major figure during the 1930s, the union's employment exchange and its insurance fund were jointly financed by labor and management, but controlled by the union. Stewart (1925) wrote an article for the International Labor Review about this "American experiment." After leaving the union to join the IRC staff, he became its director of research in 1930. He held that position until his retirement in 1952, except for a return to Canada as deputy minister of labor during World War II. Like Latimer, he was well known in the early 1930s for his publications on social insurance (Stewart 1928; Stewart 1930). These are not mystery people that are unknown to the historical institutionalists, but their personal employment by Rockefeller (he financed the IRC out of his own pocket) is considered a piffle by them. In fact, historical institutionalists discount most of the information I have or am about to present, although they may have some second thoughts based on my new archival information. Based on a chapter I wrote on the origins of the Social Security Act in 1996, which contained some of the information in this document, they say that information on the connections between corporate moderates and policy experts ignores differences between corporate executives and policy experts, and also overlooks the "multiple affiliations" and "complex career histories" of the independent policy experts: "Domhoff's research implies that all policy designers with past or present ties to corporate-funded research groups accurately reflect the sentiments of big business, ignoring the multiple affiliations and complex career histories of many of these experts, as well as the overwhelming number of New Deal figures, especially in top positions, who had no such ties" (Hacker and Pierson 2002, p. 308). Besides, they continue, to the degree that the corporate moderates had any involvement in the Social Security Act, their stance was merely a "strategic accommodation, driven by fear of less attractive alternatives," by which they mean "the Townsend movement," a legislative pressure group formed in the summer of 1934 that I will discuss later in this document as being too late and too hapless to really matter (Hacker and Pierson 2002, pp. 298, 307-308). For now, readers can keep this historical institutionalist critique in mind as they look at the rest of the document, and decide what they think for themselves. Returning to the specifics on Latimer and Stewart, and their subsequent network of affiliations, they were often joined in their efforts by economist J. Douglas Brown, the director of the Rockefeller-financed Industrial Relations Section of the Department of Economics at Princeton. Since he, too, figures in the origins of the Social Security Act, a few words about him are in order. The son of an industrial executive in Somerville, New Jersey, Brown received his B.A. and Ph.D. at Princeton and taught for a year in the industrial relations program at the Wharton School at the University of Pennsylvania. He then returned to Princeton as a professor. Brown also worked closely with Hicks, the industrial relations executive at Standard Oil of New Jersey, and later helped him write his autobiography (Hicks 1941). In addition, Brown hosted an annual industrial relations conference at Princeton in conjunction with Hicks and the IRC staff. One of his other tasks was to talk with corporate executives around the country and make periodic reports to Hicks and John D. Rockefeller, III, who was overseeing the IRC for his father at the time. For example, Hicks wrote the following letter to Rockefeller to alert him to a forthcoming scouting report from Brown, who was also going to tell Hicks about the work agenda for the Industrial Relations Section at Princeton during the next year: "During this past summer Mr. J. Douglas Brown, who has charge of the Industrial Relations Section at Princeton, has been making a trip as far west as California, interviewing representatives of a large number of corporations and getting in personal touch with the industrial relations situation in various sections of the country. Tomorrow, Friday, he is coming to take luncheon with me to review his trip and to discuss the work of the Industrial Relations Section for the coming year." (Hicks 1930) A pamphlet written for the American Management Association in 1928 by Cowdrick, the former journalist personally employed by Rockefeller, best exemplifies the pre-depression thinking about company pensions within the Rockefeller-financed industrial relations network. Furthermore, the pamphlet reflects the thinking of other corporate moderates as well, as shown shortly. According to Cowdrick's detailed analysis, which contains discussions of the moral, economic, and technical issues involved in industrial pensions, a pension is part of a good personnel program. Especially in the case of corporations that have been around for many years, a pension is "a means, at once humane and approved by public opinion, of purging its active payroll of men who, by reason of age or disability, have become liabilities rather than assets" (Cowdrick 1928, p. 10). Pensions also provide the "opportunity to promote their younger subordinates." Cowdrick concluded with the prediction that industrial pensions will be "increasingly valuable to employers" (Cowdrick 1928, pp. 11, 21). Frances Perkins Cowdrick's summary aside for the time being, and returning to the IRC, it undertook its first consulting for a government agency in 1928 when Frances Perkins, recently appointed by Governor Franklin D. Roosevelt as New York's industrial commissioner, established an Advisory Committee on Employment Problems "to effect some improvement in the State Employment Service" (Perkins 1930). Very striking in terms of my emphasis on the importance of the corporate-funded network of foundations, think tanks, and policy-discussion groups, the legislation enabling the demonstration project called for private funding. So Perkins wrote to a man named Beardsley Ruml, who was the director of the Spelman Fund, which was by then a relatively small policy-oriented foundation because most of the Laura Spelman Rockefeller Memorial Fund had been folded into the Rockefeller Foundation as its Social Sciences Division. She asked him "if the Spelman Fund of New York would grant an annual appropriation of $25,000 for a period of three to five years," which was one-third of the estimated annual expenses (Perkins 1930). Her letter indicated that another foundation was also willing to help out. At about the same time, Perkins appointed the director of the IRC, Arthur H. Young, as the chair of her advisory committee. His report to Perkins recommended that demonstration projects be developed to test the effectiveness of public employment centers. The recommendation led to a demonstration project in Rochester in 1931 based on a grant of $75,000 over a three-year period by another one of the Rockefeller philanthropies. Stewart was put in charge of the project as chair of the Committee on Demonstration, through which he came to know Perkins. The Rochester project also brought Stewart into contact with a transplanted Southerner, Marion Folsom, the assistant treasurer of Eastman Kodak, who had taken a leadership role since the early 1920s in experimenting with forms of unemployment insurance, with the approval and support of the company president. (Since Folsom became involved in the passage of the Social Security Act, let's add that he was born and raised in southeastern Georgia, where his father was a merchant and a trustee of Southern Georgia College, then educated at the University of Georgia and the Harvard Business School, and then hired by the treasury department at Eastman Kodak in 1915. After serving as a captain in World War I, he returned to Eastman Kodak and was soon promoted to assistant treasurer (Jacoby 1993; Jacoby 1997, pp. 206-220).) Stewart also worked for a three-person federal government study group on unemployment in 1931, which included Senator Robert Wagner of New York, the leader of the urban liberals in the Senate, as one of its members (Huthmacher 1968, p. 83). Clearly, then, the IRC and the Spelman Fund had developed close connections well before the 1932 presidential elections with other corporate moderates and the two liberals -- Senator Wagner and Secretary of Labor Perkins -- that would play a lead role in shaping the New Deal on social insurance issues. Although corporate moderates and IRC employees had a strong interest in old-age pensions and unemployment compensation plans, they had zero desire at this point to move toward government old-age pensions, a point demonstrated in a report by the National Industrial Conference Board in 1931. Based on work by IRC employees and a survey of a large number of industrial executives, Elements of Industrial Pension Plans concluded that pension plans were becoming more important in the minds of industrialists and urged that the plans be made actuarially sound, in part through having employees contribute to them. No longer was there any mention of the usefulness of these plans in controlling employees. Now the emphasis was on staving off government plans by demonstrating that industry can "take care of its worn-out workers through pension plans resting on voluntary initiative and cooperation" (NICB 1931, p. vi). Showing even more clearly how much the corporate leaders wanted to avoid government pensions, the report stated: "In proportion as such plans are established and become successful there is thus effected a reduction in the number of dependent aged that must be taken care of by society or the state. The extension throughout the field of industry of pension plans adequate in their provisions, equitably administered, and soundly financed will do much toward removing any real need or excuse for resort to the dubious expedient of state pensions." (NICB 1931. P. vi) At the same time that the insurance companies and IRC were shoring up company pension plans, IRC employees also became involved in the growing problem of unemployment. Although most members of the Rockefeller group had accepted the cautious and optimistic approach to dealing with the depression that Hoover insisted upon -- indeed, Teagle, the aforementioned president of Standard Oil of New Jersey, served as chair of Hoover's Share-the-Work Program -- they nonetheless began to take new initiatives. Very quickly, the Rockefeller Foundation, which was chaired by Rockefeller, came to the fore as the center of Rockefeller efforts to help combat the growing depression. Its first step in this new direction was the creation of an Economic Stabilization Program in early 1930, a framework that was used to fund a variety of initiatives over the next three years. The second step was to tell the Social Science Research Council (hereafter SSRC) that there would be no further grants for general academic research. Times were tough and money was tight, so from then on only socially useful applied research would be supported. The SSRC would consist primarily of policy-oriented committees made up primarily of experts and business executives (Fisher 1993). Shortly thereafter, in February, the SSRC created a Committee on Unemployment. Arthur Woods, the personal Rockefeller employee who was also a friend of President Hoover, chaired the new committee. His vice chair was Willits from the Wharton School and the SRCC (Fisher 1993, p. 122). Stewart of IRC was a member, as were two other men who figure later in the creation of the Social Security Act: William Leiserson, a Wisconsin-trained economist, well known labor mediator, and a professor at Antioch College; and Morris Leeds, a corporate moderate, the president of Leeds & Northrup (a manufacturer of precision instruments in Philadelphia), a director of the AALL, and a member of the SSRC's Committee on Industry and Trade. By October 1930, Hoover was becoming less certain that prosperity was just around the corner, so he appointed a President's Emergency Committee on Employment, drawing heavily on the think tanks in the policy-planning network, including The Brookings Institution, the National Bureau of Economic Research, and the SSRC. In spite of his concerns, Hoover was at the same time fearful that such a committee might contribute to an atmosphere of pessimism and call for greater involvement by the federal government in creating employment. He therefore stressed the temporary nature of the committee and limited its options to voluntary efforts at the state and local level. He chose his friend Woods as the chair, who then dovetailed the work of the emergency committee with that of the SSRC committee he also chaired (Fisher 1993, p. 122). Once again, that is, a think tank (the SSRC in this case) and the government were joined at the hip. Along with Woods, there were ten business leaders and eight experts from the policy-planning network on the 33-person presidential committee, including Ruml, Willits, Stewart, and Brown from the network of Rockefeller-supported experts. In addition, the Rockefeller Foundation gave the presidential committee $50,000 in 1930 and $75,000 in 1931 to help with its work. Ruml's Spelman Fund provided an additional $25,000 in 1931. The committee's experts drafted a proposed message to Congress for Hoover that presaged what the New Deal would eventually do, calling for "a public works program, including slum clearance, low-cost housing, and rural electrification" (Schlesinger 1957, p. 170). They recommended speeding up a large program of highway construction. They also advocated a national employment service, but there was no mention of unemployment insurance. These suggestions were resisted by Hoover, however. When Woods asked Hoover to start an emergency program in the near-starvation conditions of Appalachia, he was sent to the Red Cross, which refused to help because the problem was not due to a natural disaster such as a flood or drought. At that point the Rockefeller philanthropies provided money to charitable and community groups for the Appalachian relief effort (Bernstein 1960, p. 301). Woods later removed most hints of the considerable tensions between Hoover and his presidential committee from the historical account of the committee's efforts, leading to a long delay in the appearance of the book written about it. As one of Woods's aides later wrote to a key Rockefeller lawyer, "Colonel Woods was somewhat doubtful as to the wisdom of publishing the report in exactly the form as first prepared by Mr. Hayes, since it went into considerable detail as to certain differences of view which arose between the Committee and President Hoover" (Eden 1936). Willits of Wharton and the SSRC was assigned the task of making the manuscript revisions. I think these conflicts highlight the difference between anti-government ideological purists and the more pragmatic approach of the moderate conservatives within the corporate community. Despite the obvious failure of the emergency employment committee, it had longer-term research consequences, although they were not at first apparent. It did so through a supplemental Advisory Committee on Unemployment Statistics chaired by Willits, with Stewart as its technical adviser. The committee sent out questionnaires to businesses and government agencies all over the country; its main finding was the inadequacy of unemployment figures and the impossibility of determining the number of people needing direct relief (Hayes 1936, p. 29). This finding supported later SSRC efforts to develop better data-gathering capabilities under governmental auspices. The work by Hoover's emergency committee also led to research collaboration between the IRC and the Economic Stabilization Research Institute at the University of Minnesota on a pilot program on the usefulness of employment centers. The Rockefeller Foundation's Economic Stabilization Program awarded a two-year grant for $150,000 to carry out the research, which was supplemented by smaller grants from the Carnegie Corporation and the Spelman Fund. One of the outcomes of this collaboration was a book presenting a plan for unemployment insurance, written by Stewart in conjunction with three University of Minnesota employees. The first of these three co-authors, economist Alvin Hansen, who later had a staff role in the formulation of the Social Security Act, was soon to be appointed a professor at Harvard, where he became persuaded of the correctness of Keynesian theory in 1937. The second, Merrill Murray, trained in economics at Wisconsin and previously employed by the Wisconsin Industrial Commission, was in charge of the actual field study and took part in an unsuccessful campaign to pass an unemployment insurance bill in the state. Four years later he joined with Stewart in writing a draft of the unemployment insurance provisions of the Social Security Act. The third co-author, Russell Stevenson, the dean of the School of Business Administration at the University of Minnesota, had no further role in the events recounted in this document. Although this multi-authored book is only of historical interest now, its preface has a noteworthy comment that highlights the way in which research carried out in the policy-planning network helps to bring about a new consensus. Hansen, Murray, and Stevenson report that they had come to doubt the usefulness of the AALL plan to create incentives that presumably would induce businessmen to reduce unemployment. Now they favored a national-level rather than a state-level plan, crediting Stewart for their change of view: "Many of the modifications in the original plan are the result of the research and thought brought to bear upon the subject by Bryce M. Stewart of the Industrial Relations Counselors, Inc., and his staff" (Hansen, Murray, Stevenson, and Stewart 1934, p. v). And yes, let's give the experts full credit on this one, even while remembering the source of their financial sustenance. Throughout 1931 the Rockefeller Foundation's Economic Stabilization Program made a series of grants to the IRC, drawing what had been a business-oriented consulting group further into the policy arena. The first grant, for $30,000, provided at Woods's request, paid for a study of unemployment insurance plans in Great Britain. The second, for $16,000, supported a study of the administration of employment offices, supplemented a year later with $7,500 to support the IRC's role in the demonstration projects on employment offices in Rochester and Minneapolis. Another $16,000 made possible a study of employment offices in Europe. Finally, the IRC received $10,000 to help it set up the New York State Employment Service, which brought it into collaboration with Perkins once again. In short, the IRC was on its way to developing unique expertise on the administration of employment offices and on unemployment insurance. Even with this increased support from the Rockefeller Foundation, the great bulk of IRC's funding continued to come directly from Rockefeller himself, who was still kept informed of its activities by John D. Rockefeller III, Hicks, and Fosdick, his trusted personal lawyer. It is thus significant that Fosdick wrote to Rockefeller as follows in 1933 in regard to the IRC's work on social insurance: "As to the value of the work of this organization I cannot speak too highly. In reviewing the current year's work, I would mention the completion of our series of reports on Unemployment Insurance, which are everywhere acclaimed as authoritative and timely, and the publication of the report on Industrial Pension Systems." (Fosdick 1933) Fosdick also notes that the quality and visibility of the work of the IRC "has led to engagement of our staff by the Wisconsin Industrial Commission and the Minnesota Employment Stabilization Research Institute to assist in shaping and administering legislation." But he does not neglect what IRC was doing to stabilize pension funds in several different companies, by switching over to contributory plans. Several of these companies were oil and pipeline companies owned by Rockefeller, "There is much concern over the problem of funding of pensions plans just now, and in the last two years we have directly aided the New York Transit Co., National Transit Co., Buckeye, Northern, Indiana, Cumberland, Eureka, Southern and South West Pennsylvania Pipe Line Companies, Standard Oil Company of Ohio, Solar Refining Co., Ohio Oil Co. and other clients in revising and refunding their plans on a sound basis, in nearly all cases securing adoption of a plan providing for assumption of part cost by the employees, and other desirable and conservative provisions that have aggregated several millions of dollars in savings to those companies as well as affording greater security to the employees. This work has required intimate consideration of the financial status of the companies and on several occasions has permitted us to make suggestions of general management and economic value which I believe Mr. Debevoise [Rockefeller's lawyer for business matters and a close friend] or Mr. Cutler [a personal Rockefeller employee who was a director of Metropolitan Life] could attest." (Fosdick 1933) Fosdick's mention of concern about pensions reflected a new reality that now faced corporations: by 1932 the ongoing depression was starting to take its toll on even the best of the company plans. More workers were reaching retirement age and retirees were living longer at a time when corporate profits had been flat or declining for three straight years. In addition, low interest rates meant that the investments by corporate pension funds were not generating the cash flow that was needed to pay current monthly obligations. As economic historian Steven Sass (1997, p. 88) concludes, "The Great Depression of the 1930s sent a massive shock wave through the nation's fragile private pension system." This was especially the case for the railroads, which had an older workforce than many industries on top of unsound pension plans. Even the switch to contributory plans over the previous three years had not been enough to save the railroad pension plans. But it was not just corporate plans that were in trouble: the handful of small pension plans controlled by the AFL and other unions also began to suffer, as Latimer had predicted they would even before the depression began. As the depression deepened and Roosevelt took office in March, 1933, the Rockefeller Foundation created a Special Trustee Committee to administer emergency funds of up to $1 million in an expeditious manner (to keep things in perspective, that's $17.4 million in 2013 dollars). The committee consisted of Rockefeller, Fosdick, and Walter Stewart, an investment banker (no relation to Bryce Stewart), who served as a trustee of the Rockefeller Foundation. In addition, Woods and other advisers were sometimes present for the committee's deliberations. The largest of ten projects for that year was $100,000 for work by the SSRC's Committee on Governmental Statistics and Information Services, which followed up on concerns expressed by Willits, Stewart, and others about the dismal state of government statistics. This project, the largest undertaken by the SSRC to that date, led to the creation of a new Central Statistics Board for the federal government, the first small exercise in state building on social insurance at the national level by the policy-planning network (Fisher 1993, pp. 128-129). Then, too, the foundation gave $5,000 to the SSRC's Committee on Unemployment for a study of unemployment reserves by Bryce Stewart. Corporate moderates join the New Deal While the Rockefeller Foundation was funding projects concerned with unemployment benefits and other forms of and social insurance, Roosevelt's Southern-born Secretary of Commerce, Daniel Roper, a former lobbyist for corporations with extensive contacts throughout the corporate world, was creating a new governmental advisory agency in the early spring of 1933. Originally called the Business Advisory and Planning Council of the Department of Commerce, its name was soon shortened to the Business Advisory Council (hereafter usually called the "BAC"). Although the BAC was a government advisory group, originally focused on issues of concern to the Department of Commerce, the corporate community itself selected its members. Through consultation with the leading policy groups and trade associations, the corporate leaders who set it up made a deliberate attempt to enlist a wide range of highly visible national and regional business executives (McQuaid 1976; McQuaid 1982). At the outset it had 41 members, representing a cross-section of business and financial executives. Based on my research in biographical reference sources, 18 of the 60 largest banks, railroads, utilities, and manufacturing corporations of the day were linked to the BAC through the multiple corporate directorships held by some BAC members. There were also numerous regional businessmen from across the country. Gerard Swope, the president of General Electric, long one of the largest and most respect corporations in the country, was named chairman of the new council. Teagle of Standard Oil was selected as chairman of its Industrial Relations Committee, which means that the Rockefeller industrial relations perspective would at least be part of the deliberations on labor issues. In fact, one of Teagle's first decisions was to appoint all the members of the Special Conference Committee to the Industrial Relations Committee, thereby making that private group into a governmental body. Rockefeller's personal employee, Edward Cowdrick, the aforementioned secretary of the Special Conference Committee, was made secretary of the new BAC committee. Reflecting the seamless overlap of the corporate community and government in the early New Deal, Cowdrick wrote as follows to an AT&T executive. The memo deserves to be quoted because it reveals one of the ways the corporate leaders discussed their involvement in government advisory groups, as well as a decision to avoid any mention of the Special Conference Committee, even though the government advisory meetings were part of Special Conference Committee meetings. The members were told they would be there as individuals, not as representatives of their companies or as members of the Special Conference Committee: "Each member is invited as an individual, not as a representative of his company, and the name of the Special Conference Committee will not be used. The work of the new committee will supplement and broaden -- not supplant -- that of the Special Conference Committee. Probably special meetings will not be needed since the necessary guidelines for the Industrial Relations Committee's work can be given at our regular sessions." (Senate 1939, p. 16800) Not surprisingly, perhaps, the first task of the new Industrial Relations Committee was to prepare a report endorsing Rockefeller's Employee Representation Plan and criticizing unions (Scheinberg 1986, p. 163). Shortly thereafter, when Teagle spent much of the summer of 1933 in Washington helping to set up the administrative apparatus for the National Recovery Administration, which was charged with setting minimum prices, minimum wages, and maximum production levels in a very wide range of business sectors, he brought Hicks with him to help him keep abreast of what was unfolding. The IRC joins the New Deal, too Members of the IRC contributed their first direct official service to the New Deal in 1933 when Stewart became chair of a committee to advise Secretary of Labor Perkins on selecting the members for her Advisory Committee to the Department of Labor. He also served as a member of the Advisory Council of the United States Employment Service and chaired its Committee on Research (Stewart 1933). At the same time, Latimer provided the Department of Commerce with estimates on the amount of pension income that was being paid out in the country. He became a member of the Advisory Committee of the Department of Labor, where he spent part of his summer months assisting "in the revision of the employment and payroll indexes and in making studies which would lead ultimately to the revision of the price indexes" (Latimer 1933). As this mundane statistical work was grinding along, a grassroots efforts by the railroad workers in craft unions, which had been building since 1929, began to pick up momentum. It did so in good part because the railroads owners announced they would be making 10% cuts in both salaries and pensions. In a context in which at least 84% of railroad workers had been covered by pension plans since the early 1920s, and with young workers backing the older workers so they could move into the senior jobs, the rank-and-file organized on their own because of the lack of interest in government pensions on the part of their union leaders (Klein 2003; Latimer and Hawkins 1938; Sass 1997). In 1931 and 1932, the railroad workers' independent actions -- organized as the Railways Employees National Pension Association, which was outside the confines of their union leadership -- generated major support among workers in the face of the impending pension crisis in the railroad industry. At the least, it was enough to convince Senator Henry D. Hatfield, a one-term Republican Senator from West Virginia, to introduce legislation in 1932 that ended up having a big impact on corporate thinking about government pensions. A physician who was a staunch supporter of unions and a former governor of his home state, Hatfield had a special sympathy for railroad workers because he had worked for 18 years as a surgeon for the Norfolk and Western Railroad. Significantly, the legislation he introduced, written for the most part by the Railways Employees National Pension Association, called for contributions by workers and employers as well as an option for early retirement and generous benefits. This legislation grabbed the attention of the railroad union leaders. "As pension agitation mounted," concludes sociologist Jill Quadagno (1988, p. 73), "labor leaders began to recognize that their indifference to the pension issue was alienating them from the rank and file, and in the same year they succeeded in inducing Senator Robert Wagner to introduce an alternative proposal." The liberal Hatfield version and the more cautious Wagner version were eventually reconciled, so Congress passed the Wagner-Hatfield bill in 1933 despite strong opposition from railroad executives, (see also Graebner 1980, pp. 171-176; Huthmacher 1968, p. 177). Although the federal coordinator of transportation advised Roosevelt to sign the legislation because "it is in line with sound social policy," he added that he would have preferred to wait in order to improve it (Latham 1959, p. 160). One of the problems he worried about was the actuarial soundness of the plan. This concern caused him to bring Stewart, Latimer, and Brown to Washington in late 1933 as members of an Employment Advisory Council that would design the new social insurance system for railroad workers, and here the plot thickens even more, and the noose grows tighter around the historical institutionalists' empirical account. As Brown tells the story: "The group of us that went down [to Washington] on that centered very much on Industrial Relations Counselors, in New York.... So Latimer and I began working on the old-age protection of railroad workers. We put Hawkins [a student of Brown's] to work on the dismissal compensation. Bryce Stewart worked on the unemployment insurance." (Brown 1965, p. 6) Latimer, Stewart, and Brown lacked the information needed for the actuarial studies on which to base a sound program, and they did not have an army of clerks at their disposal to develop the information. They therefore applied for a $300,000 grant from the recently established Civilian Works Administration and then hired laid off railroad clerks that had dealt with the relevant employment records for their respective companies. As a result, 1,500 people ended up collecting records on 400,000 employees and 110,000 pensioners. The threesome also hired a staff of 500 in New York to analyze the data (Brown 1965, pp. 8-9; Latimer and Hawkins 1938, p. 111). The result was a new set of records within the space of a few months, which proves how rapidly government capacity can be created when there is the desire to create it. This may seem to be a small point, but think of it. Historical institutionalists constantly say that it's a big problem when a state lacks "capacity," and that the American state used to lack capacity. Then look at how fast capacity can be created, and ask why there was so little capacity in the first place. Could it be that the corporate community -- and the plantation owners in the South, who will come into the Social Security picture very soon -- did not want the American government to have much capacity? Latimer, Stewart, and Brown then crafted a plan that was satisfactory to all concerned even though the benefit levels were lower than those originally proposed. Everyone supported it because the study discovered that the original actuarial assumptions were unsound (Latimer and Hawkins 1938, pp. 123-127). Employers were pleased because they were relieved of the cost of private pensions and their tax rates were lower. Railroad workers accepted the plan because the pensions were satisfactory -- in fact, much higher than those later established for the Social Security Act -- and there were disability and survivor benefits as well (Latimer and Hawkins 1938, p. 274). In the end the Railroad Retirement Act was a victory for all those who were willing to allow the government to play a role in providing social insurance. Because of this work, Latimer was appointed chairman of the three-person Railroad Retirement Board in the summer of 1934. Strikingly, the railroad workers' success did not lead to similar efforts by other workers, which Quadagno (1988, p. 74) attributes to the division of American workers along craft lines. This lack of involvement by other unions supports my contention, stated explicitly later in this document, that pressures from organized labor in general had very little to do with the development of the Social Security Act over the next two years. However, the lessons from this successful effort were not lost on Latimer, Stewart, and Brown. They began to understand the possibilities for using the group insurance policies developed by the private insurance companies, with whom they were always in close contact, as a model for government insurance plans. They realized they could package old-age pensions and unemployment compensation in a way that would be compatible with the major concerns of corporate leaders. They also realized that such plans would be far less expensive for corporations than having their own programs, some of which were on increasingly shaky grounds in any case. From this point forward they worked to convince corporate executives, fellow experts, liberal reformers, and social workers of the soundness of their ideas. Their efforts are a textbook example of how experts function in the United States, which contradicts the historical institutionalists' emphasis on independent experts as well as anything could, while at the same time showing there is originality and complexity built into their role. The large amount of time being spent in government service by IRC employees led to another series of grants from the Rockefeller Foundation to the IRC beginning in January 1934. The first grant request, entitled "Grant from Rockefeller Foundation to Cover Expense of Cooperation with Government Agencies," captures much of the argument for the growing importance of the IRC in the policy making process. The grant request, written by Young, also relates to the issue closest to the hearts of historical institutional theorists, "state-building," as in creating new agencies and departments by the supposedly autonomous state officials. It begins by noting "increasing inroads have been made on our time by such agencies as the New York State Advisory Council on Employment Problems, the Labor Statistics Committee of the American Statistical Association and the Social Science Research Council" (Young 1933, p. 1). The proposal then outlines the many governmental and SSRC tasks undertaken by Stewart and Latimer, including work on the railroad retirement program, and in addition reports that another employee had been serving full time as the assistant director of the United States Employment Service for the previous six months. Young then listed his own government involvements "as a member of the Federal Advisory Council of the United States Employment Service, as a member of the Executive Committee, and chairman of the Committee on Veterans' Placement Service and, since June as a special representative of the United States Department of Labor, actively assisting the Director of the United States Employment Service in the organization and administration of the National Reemployment Service" (Young 1933, p. 2). All of this service, the grant proposal continues, was voluntary, and it had been costing IRC money in both salary expenses and lost opportunities to do paid consulting work for businesses. The proposal concludes with a request for "an emergency appropriation of twenty-five thousand dollars," which was granted by the foundation shortly thereafter (Young 1933, p. 3). Similar supplemental grants were approved for $10,000 in June 1935 and $6,000 in February 1936. Even when Latimer began to be paid by the government, he stayed on the IRC payroll and turned over his government salary to the organization, which is one reason why the Rockefeller Foundation grants for 1935 and 1936 could be smaller (Latimer 1934). This series of grants has theoretical implications that open large holes in the historical institutionalist's theoretical hull. In effect, the Rockefeller Foundation became part of the government by paying the salaries of men who were de facto state employees. The foundation thereby provided the capacity to build new processes and agencies into the government through the expertise of a private consulting firm, Industrial Relations Counselors, Inc. Contrary to historical institutionalists, the American federal government did not build its own capacity, and those who administered it were not independent of the corporate community and its closely affiliated policy-planning network. In fact, I'd call it "state-building by the corporate community." But so far the evidence only opens gaping holes in their theory. The rest of the document sinks the whole theoretical edifice when it comes to their favorite topic, Social Security. By November 1933, the experts in the policy planning network, who had been working on social insurance for nearly four years by this point, felt confident enough with what they had accomplished to bring it to the attention of experts just outside their circles. They did so through a small conference in Washington under the auspices of the SSRC. Meredith Givens, an economist trained by Commons at the University of Wisconsin, who had been a member of the research staff at the National Bureau of Economic Research since 1928, made the arrangements. Givens also became the executive secretary to the SSRC's Committee on Industry and Trade in 1929 and was the main force behind the successful effort to create the aforementioned Central Statistics Board within the government. In addition, he served as a staff member for the SSRC's Committee on Unemployment Insurance, often working with Stewart. His example, like those of Alvin Hansen and Merrill Murray in the case of the IRC/University of Minnesota collaboration, suggests that the line between the John R. Commons and IRC camps was not a hard and fast one. Twenty-two people attended this conference, representing a wide range of social service organizations as well as government agencies related to social insurance and social provisioning. Fourteen of the twenty-two had served on an SSRC committee or were connected to the policy-planning network in some other way. Several were affiliated with the local-level policy-planning network created in good part by Rockefeller philanthropies and housed by the Public Administration Clearing House at the University of Chicago (Roberts 1994). The most prominent representative of the social service organizations was Edith Abbott, one of the most famous women reformers of the Progressive Era and since 1921 the dean of the School of Social Service Administration at the University of Chicago. The social welfare representatives also included the director of the Public Administration Clearing House and leaders from the Institute of Public Administration and the American Association of Social Workers. Harry Hopkins Perhaps the most important government official present was Harry Hopkins, the head of the Federal Emergency Relief Administration (Cohen 2009, Chapters 8 and 9). Arthur Altmeyer, Perkins's main assistant on social insurance issues, was second only to Hopkins. Altmeyer, who is yet another former Commons student, had been the executive secretary of the Wisconsin Industrial Commission for many years before joining the New Deal. Also present were John Dickinson, the Assistant Secretary of Commerce, who helped draft the National Industrial Recovery Act just a few months before; Morris Leeds, the president of Leeds & Northrup; Isador Lubin, a former Brookings Institution employee who had been appointed by Perkins as the Commissioner of Labor Statistics; and Mary Anderson, the director of the Women's Bureau in the Department of Labor, which had jurisdiction over the "mother's pensions" that would become known as "welfare payments" when they were enfolded into the new Social Security Act. (Anderson, who grew up in the working class, became involved in social reform through the outreach efforts during the Progressive Era of Jane Addams and Hull House (Anderson and Winslow 1951, p. 32).) There were also several experts present who worked closely with government agencies, starting with Brown, the director of the Industrial Relations Section at Princeton, who had worked on the railroad retirement plan. Frank Bane, head of the American Public Welfare Association, who had played a key role in a November, 1932 conference in Chicago that established the principles for the new federal relief program, attended as an advisor to Hopkins (Brown 1940). The starting point for the discussions at the SSRC conference was a document prepared by Stewart listing the nature of the studies needed to understand several problems that had to be resolved to design a comprehensive social insurance program. It set the stage by noting that his earlier work focused strictly on issues of unemployment and relief had soon led him to the realization that these issues were linked to many other questions. For example, they related to the ability to return to the work force due to old age or physical or mental disabilities, as well as to the relation of government unemployment insurance to recently established government employment centers to aid job seekers and to programs for vocational training. He added that it also would be necessary to explore the need for minimum wages to guard against any tendency by employers to reduce wage rates to help pay their unemployment insurance taxes. In the case of old-age pensions, the draft plan embodied three basic principles that the corporate moderates insisted upon based on several years of experience with private pension plans, especially in conjunction with the efforts of the major life insurance companies (Klein 2003). First, the level of benefits must be tied to salary level, thus preserving and reinforcing the values established in the labor market. Second, unlike the case in many countries, there would be no government contributions from general tax revenues, if at all possible. Instead, there would be a separate tax for old-age pensions, which would help to limit the size of benefits. Third, there had to be both employer and employee contributions to the system, which would limit the tax payments by the corporations. Although the attendees were unanimous in encouraging the SSRC to move forward in refining its proposal, the liberals and reformers of that era, many of them social workers, did not give their approval without expressing their disagreements with what they called "the insurance crowd," which meant experts such as Latimer and Stewart. This difference flared up most prominently over the issue of funding old-age pensions when Abbott stated her preference for "one welfare statute" that would be paid for out of general tax revenues and "available to all without stigmatizing qualifications" (see Gordon 1994b, p. 261 for Abbott's general views; see Witte 1963, pp. 15-16, for the fact of disagreement). Moreover, liberals and social workers did not like the idea of employee contributions to unemployment compensation because they agreed with labor leaders that unemployment was a failure of the economic system that should be paid for by its primary beneficiaries, the owners, perhaps with the help of general tax contributions. These differences of opinion suggest that Stewart and other insurance-oriented experts in the policy-planning network were not liberals in the eyes of the liberals of that era. The same group of people then met for a second SSRC conference in early April, 1934, to consider a second version of Stewart's proposal, this one co-authored with Givens. However, they did so under very different circumstances because Senator Wagner had introduced a new state-oriented unemployment insurance bill on February 5. He did so on behalf of the AALL reformers, who were being provided with ideas, advice and encouragement from behind the scenes by Supreme Court Justice Louis Brandeis. Brandeis conveyed his policy ideas through a number of different people, the most important of whom was his daughter, Elizabeth Brandeis, who became a professor of economics at the University of Wisconsin in the late 1920s after studying with Commons. He also conferred with her husband, Paul Raushenbush, also an economist at Wisconsin, who was in charge of administering the state's unemployment insurance law passed in 1932, which included the AALL's incentive policy. Both Elizabeth Brandeis and Paul Raushenbush were leaders in the AALL and championed its basic principles. Louis Brandeis also had an extensive network of legal and political contacts, especially among lawyers who had clerked for him or former Justice Oliver Wendell Holmes (e.g., Carter 1934, pp. 315-316). His most important confidant was Felix Frankfurter, a professor at Harvard Law School and an informal advisor to Roosevelt since working with him during World War I; Frankfurter was renowned for sending his students to both corporate law firms and the New Deal (Irons 1982). One of those students, Thomas Corcoran, worked very closely with Roosevelt and served as a direct communication link between Brandeis and Roosevelt. In short, the AALL was not simply a group of academic experts by the time of the New Deal, but a part of the prestigious Brandeis/Frankfurter network rooted in the stature and resources of the Supreme Court, Harvard Law School, the University of Wisconsin, and the state government in Wisconsin, along with the financial help of a handful of well-to-do donors and corporate moderates. In addition to the incentive provisions, the legislation introduced by Wagner included a new feature suggested by Brandeis that would apply strong pressure on states to create unemployment insurance plans. Called the "tax offset plan," it imposed a federal tax on employers to pay for federal unemployment insurance, but it would not be collected if they paid an equivalent tax to their state government. This was of course an incentive for state-oriented employers and elected officials to urge passage of an unemployment insurance plan in their states (Nelson 1969, p. 199). Reformers to the left of the AALL, such as those involved in the American Association for Old Age Security, which had just changed its name to the American Association for Social Security, vowed to defeat the AALL/Wagner bill because it was so cautious. They also feared it would undercut their efforts toward more liberal programs in several states, which they thought had a good chance of legislative success. At the same time, most business groups were equally opposed to the AALL/Wagner bill for their own reasons. Nonetheless, Perkins urged Roosevelt to push for this legislation and held a conference on February 14-15 to drum up support for it. However, Roosevelt soon made clear in the midst of all the strong disagreement that he wanted a contributory unemployment compensation plan as part of a larger social insurance plan that included old-age pensions (Nelson 1969). Within this context, Roosevelt invited Gerard Swope, the president of General Electric, to the White House on March 8. (Swope was in Washington for a meeting of the Business Advisory Council). They then had a long discussion of social insurance that may have had considerable impact on Roosevelt. During their discussion Swope argued that it was feasible to have government social insurance for everyone. It would begin at birth with a government life insurance policy, and would require small payments from the parents until their children were grown. At age 20 both the individual and the employer would contribute (Loth 1958, p. 234). Swope also outlined plans for unemployment and old-age insurance that had been shown to be workable through the experience of private corporate plans, stressing the need for employee contributions. Although Swope thought that one-third of the cost from employees and two-thirds from employers would be sufficient, Roosevelt thought that the split should be fifty-fifty. According to Swope in extensive interviews with his biographer, Roosevelt expressed enthusiasm for these ideas and asked for a detailed memo outlining a plan, which Swope sent him two weeks later (Loth 1958, p. 235). His plans later were seen as too ambitious by Roosevelt's other advisors, but at the least the visit from Swope may have led Roosevelt to anticipate support for a comprehensive social insurance program from the corporate moderates on the BAC. If so, this fits with political scientist Peter Swenson's (2002, Chapters 9-10) expectations theory of why the Roosevelt Administration moved ahead with social insurance legislation despite the possible opposition of ultraconservatives in the corporate community. According to this view, political leaders often put forth plans that they have reason to believe will be accepted by groups that are initially hesitant or skeptical. In the context of the legislative disagreements swirling around in Congress on social insurance, the SSRC-sponsored group met again in early April and gave its general approval to the evolving plan that had emerged from the IRC/Rockefeller Foundation/SSRC efforts over the past several years. Stewart and Givens then revised their report to take into account concerns expressed at the meeting and to emphasize their support for a unified plan of the kind Roosevelt also was talking about. As they explained in a report to the SSRC, which has some elements of the proverbial smoking gun: "In a draft report, revised following the April conference, the unified character of the task of planned protection was developed, and the several phases of relief and social insurance were considered in terms of (a) the problems of planning, administration, and coordination, (b) the present state of knowledge in each field, and (c) further work specifically required for the proper integration of each major segment into a unified program" (Stewart and Givens 1934b, p. 1). Stewart and Givens sent Perkins and Hopkins copies of their conference report in an effort to reinforce the idea that general, not piecemeal, legislation was necessary. From their point of view, their efforts were successful in influencing the creation of the Cabinet-level Committee on Economic Security, as explained in the same SSRC report of November 16 that was just quoted. I find the following paragraph to be strong evidence that the experts within the policy-planning network were working closely with Perkins and Hopkins to shape the government's agenda: "At the request of officials of the Department of Labor [I read that as Altmeyer and Perkins] and the Federal Emergency Relief Administration [I read that as Bane and Hopkins], these materials were made informally available in the formulation of plans for a government inquiry. A draft plan for such an inquiry, developed upon the basis of the exploratory study, was placed in the hands of a Cabinet committee, and these plans have eventuated in the establishment by Executive Order, June 29, 1934, of the Committee on Economic Security. Thus the original project became merged in a major planning venture at the Administration." (Stewart and Givens 1934b, p. 1) Is Stewart just puffing himself up in the SSRC files when he says the SSRC plans he worked on "have eventuated in the establishment" of the Committee on Economic Security and that "the original project became merged in a major planning venture at the Administration?" I don't think so. Once the Roosevelt initiative was announced, Stewart and Givens anticipated (on the basis of the liberal social workers' dissents at the two SSRC conferences and the strength of conservatives in Congress) that there might be aspects of the final legislation that would not be acceptable to corporate moderates. They therefore revised their earlier proposal for immediate research funds from the SSRC to make it a call for a large SSRC study that would begin after the shape of the final legislation became clear. They argued it was very unlikely that any new legislation would be thoroughly satisfactory, which meant that future SSRC studies would be important in influencing inevitable revisions in the program (Stewart and Givens 1934a, p. 1). Thus, members of the policy-planning network were already preparing for likely amendments -- and for shaping the administration of the Social Security Act -- well before the plan was finalized and sent to Congress in early 1935 (cf. Fisher 1993). As this brief history demonstrates, experts from the policy-planning network, and especially those in and around the IRC and SSRC, were actively involved in developing plans for social insurance right up until the momen