Pensions, Politics, and the Elderly: Historic Social Movements and Their Lessons for Our Aging Society

Published by EH.NET (August 2001)

Daniel J. B. Mitchell, Pensions, Politics, and the Elderly: Historic Social

Movements and Their Lessons for Our Aging Society. Armonk, NY: M.E. Sharpe,

2000. viii + 205 pp. $64.95 (hardback), ISBN: 0-7656-0518-X.

Reviewed for EH.NET by Robert Whaples, Department of Economics, Wake Forest

University.

Social Security is the quintessential case of an institution whose history

matters. Changing the structure of this agency has proven difficult and will

undoubtedly remain difficult because, back in the 1930s, it was designed so

that it would be nearly impossible for future generations to dismantle. Social

Security was established so that workers would feel entitled to the benefits

they were promised, because of the earmarked taxes they had paid. As Franklin

Roosevelt succinctly put it “With those taxes in there, no damn politician can

ever scrap my social security program” (p. 151). And if this wasn’t enough, the

decision to move Social Security to a pay-as-you-go system made it even more

difficult to undo, since the program had spent its revenues on yesterday’s

promises, but hadn’t collected the funds for today’s.

Recently, however, there has been a chorus of cries to overhaul Social Security

— cries which are likely to grow louder as the baby boom generation retires.

What will the future bring? What forms will the pressures to alter Social

Security take? In Pensions, Politics, and the Elderly, Daniel Mitchell

offers “cautionary tales from the past,” aimed at helping to prepare for the

future. Mitchell, who is not a historian but a professor of Human Resources

Management at UCLA’s Anderson Graduate School, aims to mine history for nuggets

of wisdom, but it is also clear that this foray into the past was undertaken

because Mitchell finds these events and personalities immensely entertaining.

He is an engaging writer. Has anyone else written a page-turner about pension

history?

Mitchell starts in California, the nation’s retirement capital in the 1920s

and 30s, which in 1929 became the first state to require local governments to

grant pensions to the elderly. The deteriorating economic conditions of the

Great Depression and the concentration of frustrated elderly voters in Southern

California were the fuel for an array of political movements pushing for

increased pensions. The most exotic of these was probably the Ham and Eggs

movement. Ham and Eggs was led by an odd cast of characters. Robert Noble,

originator of the Ham and Eggs California Pension Plan, was a Los Angeles radio

commentator, who was later imprisoned for pro-Nazi sedition during World War

II. The movement was taken over by two brothers, Willis (who had been

convicted in a hair tonic scam) and Lawrence Allen, who acquired a high-wattage

radio station just south of the Mexican border. One of their chief advisors

and spokespeople was Gertrude Coogan, a conspiracy theorist who wrote on

economic matters and held a master’s degree from Northwestern University. The

Ham and Eggers collected enough signatures to put their plan on the California

ballot as Proposition 25 in November 1938. Under the plan, based on an idea of

Irving Fisher, anyone qualified to vote in California and aged fifty or older

without a job would receive $30 of “warrants” every week. Each $1 warrant would

require a two-cent tax paid weekly to keep the note valid until redeemed. The

warrants would be legal tender for payment of state taxes. The idea was that to

avoid paying the weekly tax on the money, people would spend it immediately,

thus boosting the economy. Thirty dollars a week was a pretty big sum at the

time. Mitchell calculates that if only half those Californians over fifty

decided not to work, the amount of warrant money given them would have easily

exceeded one-fifth of the state’s gross product — and this assumes that

California would not turn into a magnet for the elderly poor. Banks and

businesses announced that they would not accept the proposed stamp scrip, but

the Ham and Eggers found a coalition partner by allying with organized labor

on another ballot initiative. In the end, 45 percent of voters backed the plan

and Mitchell concludes that “had it not been for the outrageous conduct of its

proponents, Ham and Eggs would have passed” (p. 43). In 1939 a similar ballot

proposal garnered only about one-third of the vote. Through it all, the Allen

brothers and their intimates prospered financially as donations to the cause

rolled in.

After reviewing a host of other Depression-era social movements that offered

unorthodox economic proposals (including Upton Sinclair’s EPIC, Huey Long’s

Share-Our-Wealth Clubs, and Alberta’s Social Credit movement), Mitchell turns

to the Townsendite movement. Francis Townsend, a retired physician from Long

Beach, California built a national following offering a plan that may have

influenced the shape of Social Security. Townsend’s plan called for a pension

of $200 per month for those sixty and over — an outrageous amount considering

that per capita income averaged about $570 per year. The pension would

have been funded by a two-percent transaction tax and any serious analyst knew

that the numbers just didn’t add up. Mitchell calculates that the plan would

have involved the transfer of about forty percent of GDP to less than

one-tenth of the population. Such a plan could not appeal to the broad

electorate, but many in the elderly population sent donations to Townsend to

fund his organization — whose finances were eventually the subject of a

Congressional investigation. Townsend’s plan made Social Security look moderate

and his movement continued after the passage of Social Security in 1935.

Mitchell concludes, as others have, that Townsend’s movement helped push

Congress toward making Social Security more “generous” and shifting it toward

a pay-as-you-go basis.

Mitchell draws two straightforward and important lessons from these movements.

First, political entrepreneurs don’t always have to “win” to be profitable.

Second, political movements don’t have to succeed in enacting their own

proposals to influence policy. He concludes that we should be on the lookout

for similar movements in the future as the baby boomers retire. I suspect that

things won’t be quite so wild, however, since our electorate is now much

better educated (and presumably less likely to be hoodwinked by untenable

plans) than it was in the 1930s and because the developments of the 1930s were

largely fueled by severe economic woes — woes that are unlikely to revisit

us. (However, I have always been an optimist.) In any case, although Mitchell’s

book contains no archival research or original historical findings, he has

succeeded in using the past to illuminate the future and has written an

enormously readable book.

Robert Whaples is editor of EH.NET’s Online Encyclopedia of Economic and

Business History.