A letter to the editor in my hometown newspaper yesterday morning caught my attention.
The letter:
Time for updating
In 1870, Otto Von Bismarck, chancellor of Germany, in a shrewd political move, decried that every German citizen age 65 or older would receive a lifelong pension. Longevity then was about age 55. Thus we have the origins of our eligibility for Social Security, Medicare, etc.Seems we need some adjustments, given the present life expectancy of age 78 in the United States.
While I believe that the date when Bismarck “decreed” the pension plan is inaccurate and while I have seen different ages and longevity figures, I do not think that many of us would argue that our present system needs “some adjustments.”
Even the President implied so much in his State of the Union address last night:
To put us on solid ground, we should also find a bipartisan solution to strengthen Social Security for future generations. We must do it without putting at risk current retirees, the most vulnerable, or people with disabilities; without slashing benefits for future generations; and without subjecting Americans’ guaranteed retirement income to the whims of the stock market.
Although I am in favor of our social security system, this piece is not necessarily about the merits or deficiencies —and there are many of both— of our Social Security system. Plenty can be found written on those issues by people who are much savvier than I am. The purpose is merely to share some of the historical and “mythical” background on our system and perhaps to solicit constructive comments and corrections .
When discussing social programs, invariably Chancellor Otto Eduard Leopold von Bismarck’s establishment of numerous social programs in the new Germany—including accident insurance, health insurance, disability insurance and, yes, an “Old Age Pension Program”—are relevant.
And indeed, while Von Bismarck’s Old Age Pension program has been called everything from a Ponzi scheme to the best thing since sliced bread, it is often referred to—rightly or wrongly—as “the world’s first modern pay-as-you-go social security system,” and as the model for our present U.S. Social Security system.
According to one Social Security Administration (SSA) web site:
Germany became the first nation in the world to adopt a state-sponsored old-age social insurance program in 1889, designed by Germany’s Chancellor, Otto von Bismarck. The idea was first put forward, at Bismarck’s behest, in 1881 by Germany’s Emperor, William the First, in a ground-breaking letter to the German Parliament. William wrote: “. . . those who are disabled from work by age and invalidity have a well-grounded claim to care from the state.”
By the way, it may seem ironic—especially to those who consider Social Security, Medicare, Medicaid, etc. to be socialist, nanny-state programs—to see some historians refer to von Bismarck’s health insurance and pension programs as an attempt to “prevent the spread of socialism.” Other historians praise von Bismarck not only as the political leader who was responsible for the unification of the German states into a nation-state, but also as having created a new Germany with a “progressive social policy.”
At another SSA web site that discusses the “traditional sources of economic security,” the authors reach back to the ancient Greeks and their methods of providing for “economic security” through the stockpiling of amphorae of olive oil to provide for themselves in times of need and proceed through other informal and formal systems of economic security. Falling in the latter category: the guilds of the Middle Ages, the English friendly societies and “Poor Laws” and the early U.S. fraternal organizations.
But, according to the SSA, one of the first persons to propose a scheme for retirement security “that is recognizable as a forerunner of modern social insurance” was Thomas Paine with his 1795 Agrarian Justice where he called for the creation of a system that would use an inheritance tax to create a fund that would pay young citizens to get them started in life and citizens age 50 and older to “guard against poverty in old-age.”
Then, our nation went through a series of precursors to Social Security including the Civil War Pension Program and its subsequent changes and improvements, state old-age or “welfare” pensions, company pension plans, and numerous proposals arising mainly from the despair of the Great Depression: the Townsend Plan, Upton Sinclair’s End Poverty in California, or EPIC plan, the Bigelow Plan, etc.
On August 14, 1935, President Roosevelt signed into law the Social Security Act which, in addition to several provisions for general welfare, established a social insurance program designed to pay retired workers age 65 or older a continuing income after retirement. Additional features, provisions and coverages would come later.
But back to Von Bismarck’s system, a system that was designed to provide a pension annuity for workers when they reached a certain age. Similar to our system, the program was financed by workers’ contributions (taxes) with the German government contributing a portion of the underwriting costs.
The letter writer claims that in Otto von Bismarck’s system, “every German citizen age 65 or older would receive a lifelong pension.” In fact, Germany initially set age 70 as the retirement age. It was not until 1916 (27 years later) that the age was lowered to 65.
The writer also mentions that “[l]ongevity then was about age 55.” Most sources set the life expectancy for the average Prussian in Bismarck’s time at 45 years.
According to some historians, the fact that the life expectancy of a Prussian was 45 helped von Bismarck’s old age pension plan as he could rely on “on a very large proportion of working age citizens to pay for the very few who lived to be 70.”
With Americans living significantly longer than in 1935, the closing part of the letter to the editor— “Seems we need some adjustments, given the present life expectancy of age 78 in the United States”—-certainly makes sense.
The author is a retired U.S. Air Force officer and a writer.