Financing Economic Security in the United States 9780231882286

Examines the American relief and security programs as well as the sources and distribution of relief funds in the early

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New York : Morningside Heights COLUMBIA U N I V E R S I T Y PRESS 1939

Copyright 1939 COLUMBIA UNIVERSITY PRESS, NEW YORK Humphrey Milford, Amen House, London, E.C. 4, England, and B. I. Building, Nicol Road, Bombay, India; M A R U Z E N C O M P A N Y , L T D . , 6 Nihonbashi, Tori-Nichome, Tokyo, Japan



To I. R.










21 AND




































1. Expenditures for relief from public and private funds in 120 urban areas, 1929-35 25 2. Obligations incurred for emergency relief as reported to the Federal Emergency Relief Administration 34 3. Total costs of relief, public assistance, and Federal relief work programs 48 4. Special types of public assistance in states administering Federal funds under plans approved by the Social Security Board, by months, February, 1936-January, 1939 52 5. All public relief in the continental United States, by programs and by calendar years, 1933-38 56 CHARTS

I. Estimates of unemployment, January, December, 1938


II. Public and private assistance and earnings of persons employed on projects operated by the Works Progress Administration in 120 urban areas in the United States, January, 1929-December, 1938 24 III. Sources of public emergency relief funds, July, 1933-December, 1935 64



IV. Rank correlation between share of relief from state and local funds and tax assessments per inhabitant 66 V. Rank correlation between share of relief from state and local funds and Federal income tax per inhabitant 67 VI. Rank correlation between share of relief from state and local funds and intensity of relief 74






SECURITY and persistence of widespread economic insecurity in recent years present one of the most critical problems faced by modern society. Its existence may threaten social stability as well as perpetuate want and suffering. Hence its effects are not confined to those who are economically insecure, but are felt in all levels of society. T h e financial questions related to its treatment are crucial ones. Because of the protracted and extensive character of economic insecurity in the United States, the National Government has for the first time been forced to assume a share of the great financial burden involved. Recognition of the national character of the problem began in 1932 when Congress enacted the Emergency Relief and Construction Act, and culminated in 1935 in the enactment of the Social Security Act, which provided for heavy national taxation and the accumulation in the Federal Treasury of a forty-one-billion-dollar reserve fund for the support of the aged alone. Inevitably, certain fundamental questions arise: Can we afford such large expenditures? How much can we afford? From what sources should the funds be derived? How should they be distributed among the needy? What type of financial administration should be established for these funds? Basically, the answers to these questions depend on understanding the security problem and how it affects public and private finance. T H E GROWTH




A l t h o u g h unemployment, the main cause of economic insecurity, has long existed in industrialized countries, recent years have seen the development of a critical phase in its history. In the depths of the depression in the early thirties, probably from 14 to 17 million Americans, about one-third of the w o r k i n g population, were unemployed. Even in 1937, when business conditions had markedly improved, unemployment was still estimated at from seven to nine million. In the last months of 1937 a business recession began to add to the relief burden. 1 Associated with unemployment are a n u m b e r of other hazards to which the w o r k i n g population is subject: dependency in old age, sickness and accident disability, and the impoverishment of families after the death of the breadwinner. It has not always been recognized that these catastrophes are not sporadic. T h e y threaten all who are dependent u p o n wages for their livelihood. T h e y , like the catastrophic effects of unemployment, are ultimately due to the inadequacy of wages to cover costs of emergencies, an inadequacy which takes the form of intermittent and insufficient wages. Moreover, the proportion of " g a i n f u l l y employed" persons who receive wages and salaries rather than profits, interest, or other forms of income, and w h o are consequently in greater danger of unemployment, is increasing. 2 T h e spread of dependence 011 wages has 1 T h e r e are no accurate figures on unemployment in the United States. These are estimates made by the American Federation of Labor and the National Industrial Conference Board. T h e chart on p. 5 shows how unemployment increased from 1929 to the end of 1938, according to estimates of various agencies. 2 King, The National Income and Its Purchasing Power, National Bureau of Economic Research, Inc., 1930, pp. 48-5«.




been caused in part by the concentration of industry which has superseded small business units independently owned. T h e T w e n t i e t h Century Fund, in its study Big Business, has described the great growth in the concentration of operating units, of corporate wealth, and of corporate income. In 1933, for example, 594 corporations, with assets of $50,000,000 or more each, were producing 18.4 percent of the total national income. In their study of corporate concentration Berle and Means pointed out that from 1909 to 1928 the two hundred largest nonfinancial corporations increased their assets more than twice as fast as the smaller corporations. 3 T o the ordinary observer this expansion of big-business activity is reflected in commonplaces such as the growth of chain stores and in the combination of several different types of enterprise in one unit. M o r e and more, Americans are finding that they must hire themselves out for salaries or wages from big corporate units instead of operating their own separate enterprises. T h e second change which has helped to increase dependence on wages is the disappearance of the frontier. In the days when a workman could leave his j o b for the free lands of the West or could rely on ownership of land for at least part of his income, his wage j o b was not all-important for his security. W h e n the industrial and the agricultural opportunities afforded by the frontier vanished, the worker f o u n d his need for a wage j o b a desperate one. T h e labor outlets of free land and industrial expansion were simultaneously limited. D u r i n g this growth of wage dependence new sources of instability in the economic system were appearing. 3 Berle and Means, The Modern Macmillan, 1935, pp. 32-36.


and Private




T h e more complex capitalistic society became, the more delicate and sensitive were its structural parts. Recurrent breakdowns of the economic machine resulted. Every maladjustment of one part of the machine to another affects the wage earners, who are dependent on its smooth operation. There was a time when the responsibility for unemployment was very generally regarded as an individual matter. Most persons (except perhaps those who were unemployed) considered it the result of the worker's improvidence and unadaptability to industrial life. T h i s attitude was to be expected in view of the great prosperity enjoyed by a country as wealthy and individualistic as the United States. Meager and unreliable assistance doled out by a few states and municipalities to a restricted group was the result of this " l a g " of American thinking behind powerful economic changes. Hardly a question was raised as to the way the wage system was working. Labor economists wrote volumes on the plans of individual employers for "the stabilization of industry." Public employment insurance and public relief were believed to be unworkable and debasing. T h e existence of forty-eight separate states, each jealous of its own sovereignty, did not help the American people to arrive at any common policy or program when they were faced with the crisis of 1929. T h e depression, by dramatizing insecurity, finally changed American attitudes. With the failure of banks, the reduction of industrial production to one-fifth of its capacity in some industries, the collapse of security markets and the great reduction in foreign trade, even the middle class began to feel insecurity of a critical sort arising from economic instability. T h e old age pension movement, which had struggled along for years without




notable success, suddenly met widespread enthusiasm. T h e National Government undertook heavy and extensive expenditures for relief. Americans began to view w i t h interest European experience with social security measures. Since 1935 nation-wide old age insurance has been adopted; the forty-eight states and two territories have passed unemployment insurance laws; many states have added other forms of assistance to their responsibilities. N o one can doubt, in the light of the 1936 election results, that "social security" was welcomed even by those who do not expect direct benefits from it. 4 A l t h o u g h all wage earners run the risk of insecurity, the incidence of insecurity falls unequally, of course, u p o n different individuals and different localities. T o say that "an average of seven days" is lost each year because of sickness, for example, is unrealistic. T h a t statement "involves a fictitious assumption, namely that the loss of earnings on account of disability actually occurs among workers equally and in the average amount." 5 A worker cannot predict the extent of his disability, which may prove to be far in excess of or far less than the average. T h e realization of this inequality suggested the public use of the insurance principle, which would pool the risks of insecurity, as a means of protecting the individual against excessive burdens. D u r i n g the depression it became clear that whole communities may also differ in the extent to which they are burdened with insecurity. For example, in December, 1934, an average of 31 percent of the population of 4 In certain parts of the United States agitation for public relief during 1930-33 was so great as to threaten the Government itself. Social insurance was initiated in England and Germany partly because of the fear of social revolution, and the same fear undoubtedly stimulated some of the support for it in the United States. 6 Falk, Security against Sickness, p. 16.



ithe state of New Mexico was on relief, whereas the iState of Vermont had only 8 percent on relief during ithe same month. Certain agricultural states had much lower percentages on relief than the large industrial •states in the East. On the other hand, it was also appare n t that certain states had relatively less economic ability to meet their relief burdens than had wealthy states like New York and New Jersey. A system of grants-in-aid Jfrom the Federal Government was therefore introduced, mot only to supplement and stimulate local effort in the .'support of relief, but also to secure some equalization in ithe burden and to distribute funds according to need. T h e grant-in-aid principle, long employed both in the United States and in Great Britain to assist local governments in the building of roads and in educational pro;grams, was applied on a large scale to the relief problem. 'Thus the Federal Government and the local govern¡ments have adopted insurance to meet the inequalities cof the individualized burden of social insecurity, and j grants-in-aid to equalize the differences among localities. In dealing with the problems of economic security the lUnited States has passed through two stages of developm e n t and is now in the third stage. T h e first stage was i marked by ineffectual efforts and insufficient expenditures. In 1933 President Roosevelt called together in Washington the Committee on Economic Security to 1 formulate a national program and to suggest a co-ordiinated attack upon the problem as a whole. During the «deliberations of this committee the Nation was passing 1 through a second stage—one of relatively heavy emergency relief expenditures owing to Federal participation, but one in which agencies were insufficiently (co-ordinated. A third period began with the passage of ¡the Social Security Act, in August, 1935, and the subse-




quent efforts to bring together the various security measures of the Federal Government in one unified plan. T h e Social Security Act was only one phase of this attempt at co-ordination. T h e President's Committee on Inter-Departmental Relations and various studies undertaken by the Social Science Research Council, the Brookings Institution, and the Central Statistical Board attempted to point the way toward co-ordination of relief and insurance activities in a Federal department which might serve as a Department of Social Welfare. During 1938 and 1939 efforts were made to co-ordinate relief and public work in a "works agency." T h e debates of Congress over the Emergency Relief Appropriation Act of 1937 indicate that many Congressmen have favored some permanent co-ordination of Federal and state financial efforts. 6 For various reasons, which will be made clear farther on, these efforts have not yet produced a satisfactory plan. Governmental co-ordination, for whatever purposes desired, is difficult to achieve in a democratic governmental system in which vested interests, both of politicians and of business men, must be taken into account. T h e proper financial co-ordination of Federal, state, and local relief agencies, therefore, must come in the future. T H E E L E M E N T S OF T H E P R O B L E M

One way of clarifying the various elements in the problem of financing security is to survey the fields in which assistance has had to be given in recent years. Such a survey will also help to portray the many agencies and programs involved in the sudden new task, 6

See United States Senate, 75th Congress, 1st Session, Hearings fore the Committee on Appropriations, H. R . Resolution 361.




the causes and the nature of which have been briefly outlined. A few states and other local governments had recognized the existence of an old age dependency problem before the depression, but local efforts to meet it were ineffectual. The Social Security Act, however, in Title I, sets up a nation-wide program of old age assistance for the needy who have already reached the age of sixtyfive. The program is financed by Federal grants-in-aid to the states, which administer their own old age assistance laws on a "poor law" basis. T h e Federal Government attempts to raise the standards of old age assistance while making these grants and at the same time to avoid, if possible, excessive variations among the states with regard to the number of persons aided. Title II of the Act established a national old age insurance system for those now working who will need assistance in the future. T h e benefits are to be financed partly by a tax on wages of workers and partly by a tax on employers, levied in accordance with the wage payments each employer makes. Prior to the passage of the Social Security Act, unemployment was treated as part of the general relief problem and on an emergency basis. T h e Act embodies a permanent system for relief of unemployment as a separate category. Title III provides for Federal grantsin-aid to the states to finance administration of state employment-compensation laws. Title IX is closely related to it, since it levies a Federal tax on employers, again in accordance with the wage payments they make. The principal object of Title IX is to induce the states to pass their own unemployment-compensation laws. Instead of using the grant-in-aid method to achieve this object, the Federal Government devised a more com-




plicated method. T h e employers' Federal tax due under T i t l e I X may be offset up to 90 percent of its amount if the employer is contributing to an approved state fund out of which unemployment benefits will be paid. T h e remaining 10 percent of the Federal tax is retained, presumably for grants for administration, although it is not so assigned in the Act. For unemployment, therefore, the states will be responsible. T h e plans adopted are limited in scope, but they have started the nation on the road toward assumption by society of a burden which is social in origin. T h e remaining Titles of the Act cover other types of insecurity; the grant-in-aid system is again used to administer them. In T i t l e IV the Federal Government extends its financial support to states which provide aid to dependent children who have been impoverished by the death of the family breadwinner. In Title V grants are provided for a variety of welfare measures: maternal and child-health services, aid to crippled children, child-welfare services, and vocational rehabilitation. Title V I provides funds for expansion of public-health services. T h i s is as far as the Nation has yet gone toward recognizing the wage earner's burden of expenses for sickness. Title X , finally, provides Federal grants to states which give aid to the impoverished blind. T h e Social Security Act is thus seen to touch upon, though hardly to cover, a variety of elements of insecurity. 7 Many of the provisions appear to have only tradition, not reasoned planning, to recommend them. 7 These different types of aid, such as old age assistance, care of dependent children, maternal- and child-health aid, aid to crippled children, aid to veterans, and so forth, are generally referred to as categorical relief. T h e Social Security Act combines old age and unemployment insurance with various forms of catcgorical relief administered by the states.



Part of the program is limited to wage earners; part is to be applied to all who are destitute, no matter what their past work history. T o put it another way, part is on a contributory basis, with only the wage-earning class contributing; another part is free, but is applied only to those who are in severe need. In addition to these types of aid to the insecure, there are general and direct relief, work relief, and the various types of special program adopted to assist the needy under the F E R A and the W P A . By far the most important forms of economic security measure existing in the United States are direct relief and work relief. In addition there are the National Youth Administration, the Land Utilization Program, the Resettlement Administration, loans for rural rehabilitation and rural relief, and special programs including a number of additional minor activities brought into existence when the launching of the general relief program revealed the need for them. T h e Federal Government assisted the states in the financing of direct relief until the passage of the Emergency Relief Appropriation Act (Work Relief Act) approved on April 8, 1935. Relief in the form of commodities rather than cash had been popular, but by 1935 the states were tending to adopt cash relief. T h e latter method was in widespread use in a number of large cities, including Baltimore, Cleveland, Denver, Detroit, Los Angeles, New York, Philadelphia, Pittsburgh, and San Francisco.8 In general, work relief was characteristic of the New England states, although it was also employed in large cities throughout the country. With the passage of the Federal Work Relief Act the Na8Cf.

Joanna Colcord, Cash Relief,

p. 36 ff.




tional Government turned to this form of relief on a large scale. T h e financial burden of economic security, therefore, may now be said to arise from the following types of security measure: old age insurance, unemployment insurance, direct relief, work relief, categorical relief, and special relief activities. T o these there might have been added health insurance, if the A m e r i c a n people had been sufficiently concerned over the economic problems of illness. T o summarize, the burden of economic insecurity arises from inadequate and intermittent wages. T h e principal form it takes is unemployment. Inability to save causes a wage earner to reach his declining years with inadequate means of support, and this gives rise to old age insecurity; inadequate wages often result in sickness and a cost of medical care which individuals cannot meet and which becomes, consequently, a publichealth burden; premature death of wage earners gives rise to dependence on the part of children and mothers with the result that child-welfare burdens arise. A large part of the burden of insecurity is indirectly as well as directly attributable to the fact of unemployment. Direct relief, general relief, work relief, special projects, vocational rehabilitation, C C C , rural rehabilitation, all are attempts to provide appropriate solutions to problems arising directly from the effect of business depressions upon the wage earner and his purchasing power. THE PROBLEM DEFINED

W h e n one contemplates the different types of relief and security outlined above, the question arises: how much money should be spent for these purposes by the Government? W h a t is the financial burden which the



public may be expected to support? Obviously the State does not consider itself entirely responsible for the burden of economic insecurity, no matter how it is defined. Moreover, the capacity of a nation to bear the burden varies over time. T h e economic system is flexible and might produce 50 percent more wealth than it does today. In that event a totally different notion could be formulated as to the proper care, for example, of the aged and of children. N o definition of the financial burden of economic security is practicable which is not framed in terms of the present economic system and current trends in beliefs about the proper scope of State effort with regard to economic security. Under capitalism the cost of economic security will be only partly assumed by the State. T h e total burden cannot or will not be assumed in our economic system. T h e degree of economic security which will be provided depends upon the answer to the question: how much support of economic security can be justified under capitalism? T h e reason why the capitalistic State can afford to assume part of the load of economic security is that one may recognize its inefficiencies as a going concern without advocating its overthrow. As Abraham Epstein has pointed out, There are those who wish to see our present injustices perpetuated in order to precipitate the complete collapse of the present social organization and the introduction of production for use instead of profit. The writer does not, however, see eye to eye with them as to the imminence of the collapse. He is convinced that social revolution is distant. He is anxious to relieve, today, as much of the misery as can be alleviated without waiting. He firmly believes that considerable social progress can be achieved without social cata-




clysm and without condemning any social group to misery and degradation. 9 T h e s e words are typical of the beliefs of many advocates of social security in the United States. T h e y indicate that security payments are to be regarded as a means of remedying the weaknesses inherent in the existing order and that they are not to grow so large as to threaten the very foundations of that order. Such payments are justified first, therefore, on the ground that they offset inefficiencies of capitalism. A n o t h e r basic justification of expenditures for security is that they may be made without violating the fundamental principles of the capitalistic system. Perhaps it is not simplifying the matter too much to say that communism maintains the rule " f r o m each accordi n g to his ability, and to each according to his need." In contrast to communism, capitalism supports the rule "to each according to his ability and from each according to his ability." Under capitalism a man is supposed to secure in income what he adds to the net product of the economic system. Expenditures for economic security, then, can be justified in our economic system if they are made according to ability, not accordi n g to need. In other words, if the law assists people to do what, theoretically, they should do under capitalism, it can be justified. A n individual is expected to save money for his old age and dependents and for unemployment and similar contingencies. If an insurance law is passed which compels saving for this purpose and which derives the expenditures entirely from wages, it is founded on capitalistic principles. A n y security measures which spread wages so as to meet more effectively "Epstein, Insecurity,

pp. 19-20.


>7 social contingencies arising from the imperfections of capitalism are therefore on solid capitalistic grounds. Expenditures for economic security may also be justified in our economic system, even though they do not follow directly the principles of capitalism, provided "the ends justify the means." Departure from capitalistic principles may be advisable in order to save or to strengthen capitalism, and occasionally it is argued that a country must compromise with socialism in order to allay unrest arising out of the capitalistic system. No well-informed business man, for instance, would argue seriously against all relief expenditures. It is true that under capitalism there is no genuine justification for taking money out of the pockets of those who have earned it and giving it to dependents. But beginning about the middle of the nineteenth century strong capitalistic countries like Great Britain abandoned this attitude because they could not tolerate the complete degradation of dependents and unemployed. Thus under capitalism relief measures may be justified and adopted as a compromise to prevent excessive dissatisfaction with the existing economic system. However, when the need principle is advocated to such an extent that it goes further than merely allaying discontent or increasing purchasing power and really amounts to a partial adoption of socialism, it cannot be justified if the purpose is primarily to maintain the existing economic system. Under capitalism governments may be expected to emphasize the ability principle, rather than the need principle, in financing relief and social security. First, in practice the ability principle would be characterized by as small public expenditures as possible in order to avoid the impersonalization of the relief system. Second,




it would involve as much local responsibility as possible for the same reason. T h i r d , it would require the distribution of funds as nearly as possible according to the ability of the insecure to contribute to their own support. For example, it is consistent with contributory old age pensions and unemployment insurance 1 0 and with such devices as "block aid" in public drives for relief funds. 11 Fourth, the recipients of funds should be made to perform service useful to the State if they cannot contribute money to security funds (that is, work relief, CCC, and so forth). T h e ability principle is individualistic because it emphasizes individual responsibility through forced saving or forced work to pay for one's relief and through local responsibility in which the smallest possible community unit must pay for its own relief without assistance from other communities. A security program following the ability principle would provide a minimum of public relief, consisting mainly of work relief locally financed and contributory insurance or pensions paid for by the insured. 1 0 Although American unemployment insurance laws do not in general require contributions from the workers who are to receive the benefits, as does the old age pension system, it is interesting to observe that the legal argument which had to be employed to defend the tax on employers involved considerable emphasis on the responsibility of employers as a class for unemployment. T h e Court of Appeals, in establishing the constitutionality of the New York law, especially emphasized this point. Thus it is clear that there was considerable effort on the part of those defending the constitutionality of the law to prove to their own satisfaction that such a system would not deviate too much from the principle of fastening the responsibility on those closely related to the contingency. 1 1 This device, consisting in an effort by those in charge of relieffund drives in various cities to obtain money by urging the public to contribute enough to support the poor residing on their own blocks, had a sound psychological basis. People still hold a conviction that they should help their neighbors, founded on nothing more than the mere fact of proximity. They may have no direct economic or social connections whatever.



Practically, if carried out fully the need principle would mean (1) as large public (as contrasted with private) expenditures as possible, (2) as much national responsibility as possible, (3) distribution of funds as far as possible according to the need of the insecure, irrespective of their ability to support themselves, and (4) payment to those in need without regard to services which they may perform for the State while they are on relief. T h e need principle would result in a maximum of direct public relief financed by the national government and an insurance system financed to a large extent by the funds provided by the more secure and comfortable members of society. T h e need principle would subordinate the profitable functioning of the economic system to the provision of security. T h e ability principle would have greater concern for the effects of relief and insurance systems upon economic activity. Under the need principle, the needy would be considered entitled to security payments. Under the ability principle, security payments would not be regarded as a right arising automatically from need. T h e needy individual would be required to contribute money or labor in order to establish his right to receive aid. In most nations at the present time there is a struggle between the relief principle and the insurance principle, or between payment according to need and payment according to the worker's ability to pay. Even unemployment insurance does not operate in Simonpure fashion, because it, too, compromises with noncapitalistic principles. In Great Britain a combination of relief and insurance principles has characterized the unemployment benefit system. Among the various features of the British system which indicate this com-




promise are: (1) a wage limitation on those who can obtain benefits, involving the assumption that the insured group is in need when unemployed; (2) a short waiting period for all in order to provide more for the long-unemployed; (3) benefit for a long period not based directly on premiums paid or on individual premiums; (4) a benefit level resulting from need rather than from the amount of premiums; (5) a government contribution to avoid too heavy charges on those who are to receive the benefits. Thus the benefits under the English system have not borne a direct relationship to the contributions of employers and employees. They do not constitute solely a cost of production, and they bear no direct relationship to wage payments. The system departs radically from the insurance or ability principle, which is, in essence, to spread wages to meet future contingencies. In the United States we may expect some compromise in the future between the relief and the insurance principles in our system of unemployment insurance, although at present our insurance system adheres closely to the spread-wages idea. Under present-day capitalism, therefore, both relief and social insurance will reflect a compromise between the need and the ability principles, with greater emphasis upon the ability principle unless the need for social reform is keenly felt. How much shall we pay for economic security? Who shall pay, and how shall the money be distributed? These are questions which can only be answered in the light of the compromise. The exact nature of the compromise in the United States may be best understood after examination of the history of its formulation.








DURING the depression the Nation sought a compromise between capitalistic and socialistic principles, between ability to pay and need, as the basis of its system of relief and social security. It was assumed that public expenditures should not be so large that they would destroy capitalism and that they should be no larger than was required to meet the critical situation faced by the American economic system. On the other hand, some compromise was made with the principles of capitalism, since the ostensible basis of the distribution of relief was need. T h e battle between the need and the ability principles began with relief. Since the history of this struggle forms the basis of the subsequent compromise over insurance, it deserves careful examination. Were the choices made between capitalistic and socialistic principles in our relief program socially justifiable? Was the burden of the cost placed upon the individuals who receive the bulk of the relief expenditures, or were relief funds exacted from the wealthier classes and paid to those who needed them? Did the Federal Government require each state to bear its burden of relief on the principle of "ability to pay" even though it might be very poor, or did it establish a system of equalization between the different states? T o what extent did it emphasize local responsibility and local ability to pay, and to what extent did it stress equalization?




W e r e relief expenditures increased to such an extent that capitalism was endangered, or was the money spent in just the right amount so that revolution was fended off and capitalism was saved? C o u l d we have spent much more than we did? In this chapter the relief and social security programs will be reviewed to discover what light they throw on these questions. T h e N e w Deal made greater progress in the direction of relief than in any of its other programs of economic amelioration, with the possible exception of the agricultural program. A l t h o u g h relief expenditures could not be regarded as fully adequate at any time in the past seven years, they were greatly increased above previous levels, and an enormous amount of suffering was thereby avoided. Some maintain that such large expenditures cannot be supported indefinitely and that the depression expenditures were so large as to increase the dangers of inflation and to cause ultimate serious damage to the capitalist system. T h e size of the expenditures, therefore, bears a direct relationship to the principles u p o n which a national plan of social security expenditures may be based under capitalism. EXPENDITURES IN THE EARLY PERIOD OF THE 1 9 2 9 DEPRESSION

Information on the total expenditures for relief purposes in the early part of the recent depression is incomplete. Beginning about 1933 more adequate statistics were made available, but for the period prior to that year one must rely upon scattered data for various cities. Fragmentary statistical series indicate that there was an increase in urban relief expenditures after 1910 and that the trend had taken a sharp upward turn even be-




fore 1929. During the depression of 1921-22 relief expenditures had greatly expanded, and they failed to fall to pre-existent levels despite the reappearance of prosperity. T h e rate of expansion of public and private relief exceeded the rate of population growth and the rate of growth of all governmental expenditures. 2 T h e magnitude of the relief problem and the concurrently large public expenditures for its alleviation during the last few years have tended to obscure the fact that public participation did not represent an abrupt change from earlier policy. For a number of years before 1929 public expenditures had assumed significant proportions. Nevertheless, throughout the first three years of the depression intensive efforts were made to stimulate private charity. Funds were elicited through money-raising campaigns known as "drives" and through community-chest activities. Before the 1929 depression private charity had been the main recourse of the unemployed wage earner. T h e number of families receiving charitable assistance rose from 40,000 in the winter of 1928-29 to 70,000 in 192930 and to 185,000 in the winter of 1930-31. Instead of the usual $1,000,000 a month, more than $10,000,000 per month was needed. 3 T h e weight of the relief load soon prostrated the private charities, and even at the beginning of the depression it is estimated that they were carrying only one-fourth of the entire burden. 4 1 Geddes, Trends in Relief Expenditures, 1910-1935. This tains an excellent analysis of relief expenditure data both after 1933. 2 Ibid., p. 1 1 . 8 The New Deal, p. 4. This may understate somewhat the of private relief funds, since information about these funds depression is incomplete. 4 Colcord, Cash Relief, p. 17.

study conbefore and

proportion during the

o o


s i

I (O u s i . « Sn P6 i—i oBí —> p-O 2 < « o oí D ' 3

3, 1934). 9 Betters, Federal Aid to Municipalities, National Municipal Review, April, 1934, p. 174.




and Milwaukee—financial prostration was prevented by Federal funds. Although only three hundred millions were allotted to relief, the Emergency Relief and Construction Act permitted the Reconstruction Finance Corporation to make loans totaling one and a half billions to states and localities for the construction of public works. Through this provision it was hoped not only to cooperate with the local governments but also to induce them to undertake public works projects which would draw workers from the relief population. Although the Federal Government was now to assume some financial responsibility for relief, it was expected that local governments would be stimulated by Federal aid to continue to support the greater part of the burden. But few Reconstruction Finance Corporation loans were made, since it was required that the projects should be self-liquidating, and since the interest rates were high. 10 Municipalities, burdened already with heavy relief expenditures and suffering from reduced revenues, were unwilling to take on further obligations. Moreover, the inability of the states and localities to devise an adequate number of projects for the use of which fees or tolls could be charged effectively limited the operation of the act. THE FEDERAL EMERGENCY RELIEF


The Emergency Relief and Construction Act thus furthered a policy of granting relief funds on a loan basis and for self-liquidating work projects in the hope of stimulating local effort. As a result of the failure of 10 Loans were eventually allowed if they were secured by taxation or any other reasonable source of funds. According to the amendments, loans were deemed to be self-liquidating if the construction costs could be returned by any means, including taxation, within twenty years.



local governments to respond, there was not a sufficiently rapid extension of funds to meet the relief problem, and the Federal Government felt compelled to assume greater responsibility. In consequence, the Federal Emergency Relief Act was passed in 1933, and a Relief Administrator took office on May 22 of that year. In contrast to the previous act, the Federal Emergency Relief Act of 1933 made available $500,000,000, all of which might be granted without repayment and without the proviso that the expenditures must be made for self-liquidating projects. The funds were to be obtained from the Reconstruction Finance Corporation and were to be made available upon certification by the Relief Administrator. Reconstruction Finance Corporation notes, bonds, and debentures were to be increased by $500,000,000 in order to obtain the necessary funds. T h e Relief Act of 1933 not only introduced outright grants but also initiated the policy of "matching" relief funds. By subsection B of Section 4 of the act, onehalf of the funds was to be granted on a matching basis. One Federal dollar was to be granted for every two dollars of state and local funds. Subsection C of Section 4 provided that the remaining half of the funds was to constitute a discretionary fund to be granted to states which were in special need and whose financial resources were exhausted. 11 Through this act the Federal 11 T h e act states in Subsection C: " T h e balance of the amounts made available by this Act, except the amount required for administrative expenses under Section 3, should be used for grants to be made whenever, from an application presented by a state, the administrator finds that the combined moneys which can be made available within the state from all sources, supplemented by any moneys available under Sub-section B of this section will fall below the estimated needs within the state for the purpose specified in Sub-section A of this section. . ."




Government resorted to a financial practice with a long tradition in the United States, the use of grants-in-aid. T h i s practice, based on the Morrill acts, had its origin in legislation for the support of agricultural colleges, the building of roads, and the improvement of public health. Under the Morrill Act of 1862 each state could be granted 30,000 acres of land and additional amounts in accordance with the number of Representatives and Senators in the state. These lands were to be sold to support one college in each state and to teach agricultural and mechanical arts. Subsequent acts growing out of this grant-in-aid policy introduced the "matching" feature which appeared in the Relief Act of 1933. Federal highway grants were placed on a matching basis by laws enacted in 1916 and 1921. 12 T h e Federal Emergency Relief Act of 1933 is significant not only because it greatly increased Federal participation in relief expenditures but also because it sought to stimulate state and local payments by means of the matching features. 13 Notwithstanding the failure of the loan feature of the Emergency Relief and Construction Act to induce local effort, the Federal Government continued to stimulate it through the inducement of the grant-matching system. In making Federal relief appropriations it was clearly the intention of Congress merely to supplement state and local payments, not to bear the major part of the financial burden of relief. T h e Federal Emergency Relief Act was regarded as a measure of "co-operation" between the Federal Government and state and local governments, 1 2 Cf. Buehler, Public Finance, p. 64; MacDonald, Federal Aid; Hinckley, State Grants-in-Aid. 1 5 See T a b l e a showing the increase in Federal participation from 1933 to 1935. As Federal assistance increased, state and local expenditures grew, partly in response to Federal stimulation.



and as such it was intended primarily to stimulate state and local expenditures and hence to increase total expenditures for relief. But the increased effort to induce state and local responsibility soon proved a failure. THE CIVIL WORKS ADMINISTRATION

It is apparent that in the early days of Roosevelt's first term of office the New Deal was not committed to Federal support of relief on a large scale. Nor was it then decided whether the relief provided should be in the form of direct relief or of emergency work. Only $500,000,000 had been appropriated for relief, whereas $1,500,000,000 had been provided for public works. T h e pressure of the unemployment problem became increasingly great during the fall and winter of 1933 and 1934. State and local governments were not supplying funds sufficient to carry the greater part of the burden. T h e large sums which the Public Works Administration had been expected to spend on work projects were not flowing rapidly enough to provide adequate emergency employment or to carry out the pump-priming purchasing-power-expansion objectives of the New Deal. Faced with the necessity of carrying the major part of the relief load, the Federal Government was temporarily unwilling to go farther in the direction of direct relief (popularly known as the "dole"). Instead, the Civil Works Administration was created with funds transferred from the P W A . T h e new agency was to undertake work projects which could be easily and promptly organized and which would be capable of employing large numbers of relief clients, regardless of their previous work experience. T h e C W A formed, therefore, a work-relief interlude between the passage of the Federal Emergency Relief Act




of 1933 and the subsequent acts which provided additional Federal funds for direct relief. It reflected unwillingness on the part of the public to increase the size of the "dole" if Federal participation had to play a major role. It assumed fiscal importance only from about November, 1933, until April, 1934. As many as four million people were employed by the C W A at the peak of its operations in January, 1934. 14 The C W A thus had a short life. It very quickly drew upon itself the accusation of political corruption. It was moreover asserted that C W A employees would exercise an unfortunate influence on national politics and on the labor market and that the high wages paid them would reduce the supply of labor for private employers. Charges of wastefulness were made, and direct relief was demanded on the ground that it would be less expensive as a method of support. T h e C W A served to convert the country temporarily to direct relief as the best method of meeting the relief problem and to the necessity of large-scale Federal relief expenditures. With the abandonment of CWA, however, some of the work program was continued in the Emergency Work Relief of the F E R A . In order to continue the large expenditures of the F E R A and C W A during 1934, an act of Congress was passed on February 15, 1934, apportioning $950,000,000 to carry out the purposes of the Federal Emergency Relief Act of 1933. Of this total appropriation $500,000,000 was allocated to the F E R A and $450,000,000 to the CWA. At that time, the F E R A stated: With the passage of the Act of February 15, 1934, a total 14

Under the CWA jobs were allotted to each state, 75 percent on the basis of general population and 25 percent on the basis of relief population. Cf. Williams, Federal Aid for Relief, p. 118.



of $2,150,000,000 has been made available by the Federal Government for the relief of unemployed persons. Of this amount, $850,000,000 was made available for the Civil Works Program, and $1,300,000,000 for the purposes of aiding states and localities to meet the cost of unemployment relief.15 On March 31, 1934, the Civil Works Administration program was officially terminated. The total C W A funds expended amounted to $938,g6o,ooo. 16 Having temporarily accepted direct relief as the most desirable form, the Federal Government continued the large contributions which had been initiated under the CWA. On June 19, 1934, the Emergency Appropriation Act for 1935 was approved, with an appropriation of $899,675,000. As in the case of the act of February 15, the funds were provided directly by the Treasury, and grants were to be made at the discretion of the F E R A rather than according to the matching system. During this period relief funds were frequently augmented by transfer of money to the F E R A from the Public Works Administration and other Federal agencies.17 The participation of the Federal Emergency Relief Administration in the support of general relief after the decline in Federal aid for this purpose during the C W A era, the ensuing increase in Federal general relief and the taper15 T h e F E R A Monthly Report, February 1934, p. 2. Thus, not only was the CWA the major Federal experiment with work relief prior to the WPA but it also greatly stimulated Federal expenditures for relief. In the three months when it was fiscally most important, it spent about two-fifths of the entire Federal relief funds appropriated up to Feb. 15, 1934. T h e act of Feb. 15 was also the first to secure relief funds from the Treasury rather than from the RFC. Of greater importance is the fact that the Act abandoned the method of matching grants which was described above, and introduced purely discretionary grants. 18 Ibid. 17 For the allocations and transfers and the procedures by which the Federal Emergency Relief Administration secured its funds, see an article by Arthur E. Burns entitled "Federal Financing of Emergency Relief," in the F E R A Monthly Report, February, 1936.




ing off as work relief began again to assume a leading role is shown in Table 2. TABLE 2 O B L I G A T I O N S I N C U R R E D FOR E M E R G E N C Y R E L I E F as reported to the Federal Emergency Relief Administration " PERCENT OF TOTAL OBLIGATIONS PROVIDED FROM YEAR

'933 First quarter Second quarter T h i r d quarter F o u r t h quarter Total, 1933 '934 First quarter Second quarter T h i r d quarter F o u r t h quarter Total, 1934 '935 First quarter Second quarter T h i r d quarter Fourth quarter Total, 1935 Total, 3 years


Federal Funds

State Funds

Local Funds


9 6 10 I 15 I 23 2

32.0 24-9 22.1 20.6

•4 3


33 11 8 9 12

9 4 5






65 62 56 60

0 8 2 6

48 4 73 2 74 9 77 5 72 I

77 8


6 3

154 16.6 134

76 2 75 6 62 6 74-4

9 11 11 21 12


12.6 12.5 133 16.3 133


12 8




• From the Federal Emergency Relief Administration, Monthly Reports, 1933-35.

In passing it may be noted that increases in the amount of relief expenditures and in the varieties of relief assistance granted to the states by the Federal Government greatly stimulated the collection of relief data. Prior to 1932 the main sources of information were



the local charities, the Children's Bureau, and the Russell Sage Foundation, which had been receiving reports of relief expenditures made by public and private agencies. With the passage of the various relief acts the Federal Government was able to stimulate the collection of information, and a foundation was laid for uniform relief statistics covering wide areas. After the passage of the Social Security Act in 1935 and the development of a nation-wide program of public assistance it became possible to compile statistics for all forms of relief, since Federal aid could be used to stimulate statistical reporting in the various fields. Adequate data on expenditures should be, in fact, one of the main requisites for obtaining Federal aid, since they constitute the basis for efficient central supervision. 18 THE WORK RELIEF ACT

On April 8, 1935, the Emergency Relief Appropriation Act of 1935 (popularly known as the "Work Relief Act") was approved. It appropriated $4,990,000,000 to provide work relief and to increase employment for useful purposes. Its passage marked another decided change in Federal relief policies. Direct relief was abandoned altogether in favor of work relief. It was believed that the latter constituted a preferable basis of unemployment assistance because it improved the worker's mental outlook, preserved his skill and employability, and served as a means of adding to the national income through useful public works. It also avoided the wide18 MacDonald, Federal Aid, pp. 26, 34. T h e Adams Act of 1906 "required from each experimental station a detailed statement of receipts and disbursements of federal money on schedules prescribed by the Secretary of Agriculture. Should any state lose or misapply the federal funds or fail to replace them or should it neglect any of the other obligations imposed upon it by the Act, its further allotment might be withheld pending an adjustment satisfactory to the federal government."




spread criticism of payments made to the unemployed without compensatory effort on their part. It was founded upon the assumption that the unemployed population could be divided into employables and unemployables and that the size of the Federal burden and the Federal relief responsibility could be greatly reduced by excluding unemployables from Federal support. T h e government thus, unintentionally or not, chose the ability principle at this time. In effect it adopted the philosophy that the unemployed should work for their relief benefits and thus receive relief according to their earning capacity rather than solely according to need as had been the case under the direct relief system. It assumed that the Federal Government had no responsibility for assisting the unemployable population, many of whom had been employable in the early stages of the depression. Since relief was beginning to assume a permanent character, the public insisted that heavy Federal expenditures should be curtailed. If men were employable to the extent of "paying" for relief through their own labor the Federal Government might fairly supply the opportunity for this kind of labor, but a protracted Federal "dole" was thought undesirable. T h e need principle was held to be strictly applicable only in an emergency such as existed in 1934. Henceforth, as business evidenced recovery, it was believed that the Federal Government should withdraw from the relief field as far as possible and should adopt the ability principle in the administration of such relief as was continued. 19 1 9 It is true, of course, that between 1933 and 1935, a considerable portion of the relief funds had been spent for work relief or wage assistance. Geddes estimates that only 36 percent of total public relief and wage assistance consisted of direct emergency relief. But the Federal relief administration was in sympathy with direct relief at this time and sought to give it major emphasis. See Geddes, op. cit., p. 61.



T h e Work Relief Act allocated sums of money to specified relief purposes. For example, $800,000,000 was to be spent for projects related to highways, roads, and streets, and the elimination of grade crossings; $500,000,000 for rural rehabilitation, relief in stricken areas, water conservation, trans-mountain water diversion, and reclamation; $100,000,000 for rural electrification; $450000,000 for the Civilian Conservation Corps; $900,000,000 as loans or grants or both for projects developed by the states, territories, possessions, and the subdivisions and agencies thereof, municipalities, and the District of Columbia; and, finally, $350,000,000 for sanitation and the prevention of soil erosion, stream pollution, and so forth. In other words, Congress sought to determine, be it ever so generally, the purposes for which relief funds could be spent, thereby reducing to some extent the discretion which the Relief Administration had hitherto exercised in determining the character of the expenditures. More significant, however, is the fact that the reduction of this discretionary power decreased the Federal Government's incentive to distribute funds according to need and made it more difficult for the ordinary observer to discover whether the distribution had been made according to need. T h e nature of the project, as well as individual need, always had to be taken into account. With this shift of emphasis from the distribution of the funds to the nature of the project, the Federal Government also assumed greater control over the actual spending of the money. Under the F E R A the money had been granted to state relief agencies, which had then determined how it should be distributed and expended within the local subdivisions of the state. T h e Federal Government had exercised a supervisory func-




tion, but had not actually administered the expenditures for relief. Under the Work Relief Act it became the main initiating, supervising, and controlling agency. In summary, it may be said that the whole plan to divide the relief population into employables and unemployables was, first, an attempt to avoid a Federal "dole" system and, second, a means of reducing Federal financial responsibility by remanding part of it to the states. T h e latter purpose is clearly brought out in one of the then Relief Administrator's statements in the hearing on the First Deficiency Appropriation Bill of 1936. Mr. Hopkins said: . . if we had to continue to give grants to the states, we would have been asking for as large an appropriation as is involved in the President's message. W e would have been asking for a billion and a half to two billion dollars." 20 He continued with the statement that ". . . at present, the states and localities are providing more than half again as much for unemployment relief as was secured out of state and local funds in the year 1932. Ever since I have been here the amount of dollars from state and local funds has increased in the United States." T h e decision to transfer to the states the responsibility for half the relief funds really amounted to a reduction in the expenditures for emergency relief, or the "dole," since state and local expenditures were not increased sufficiently to compensate for Federal reductions. 21 It can be main20 Mr. Hopkins was at this time arguing that Congress need not appropriate as much as this. He was attempting to answer a question con cerning the amount by which the Federal burden had 1 been lightened by turning direct relief expenditure back to the states. 2 1 In connection with this implied criticism it must b e remembered that the Hoover Administration adhered to the principle of local and individual responsibility to such an extent that the Federal government made no effort to meet the problem beyond "co-ordination" of state and local activities. See Williams, Federal Aid for Relief, pp. ao-s8.



tained, of course, that the establishment of the W P A resulted from the frictions inevitable in a system of Federal-state co-operation like the F E R A . But it is probable that questions of philosophy and finance played the most important roles in the change. 22 T H E SOCIAL S E C U R I T Y A C T

On August 14, 1935, the Social Security Act was signed, following the decision to curtail relief expenditures and to establish the ability principle in the remaining part of the relief program. T h e act marked the beginning of a comprehensive plan of Federal-state cooperation and signified recognition of certain elements in the security problem as relatively permanent in character. T h e Work Relief Act had made a distinction between employables and unemployables, the first group to be the care of the Federal Government, the second, of the state and local governments. Through the Social Security Act it was hoped to rely upon unemployment insurance and old age annuities to such an extent that the Federal Government would eventually be freed from the burden of maintaining the employable members of the relief population except in brief emergency periods. It is true, of course, that under the Social Security Act provision was made for grants-in-aid to the aged, the blind, and to dependent children, but the major purpose of the act was to set up a means for individual saving by deductions from pay rolls to meet the two main contingencies facing wage earners: old age and unemployment. T h e Social Security Act grew out of the deliberations of the President's Committee for Social Security, a group called to Washington from many parts of the 22 Ibid., pp. 229-39.




country. Many of the expert personnel of the Committee had urged that the Social Security program emphasize the grant-in-aid principle. T h e y believed that the distribution of insurance benefits should be made, to a considerable degree, according to need. More explicitly, the funds for unemployment insurance should be provided in part from contributions and in part by Federal taxation, preferably progressive taxation, which in turn should be granted to the states to assist them in paying the benefits of the unemployment insurance schemes. T o some extent, therefore, social insurance would constitute a form of income equalization by taking money in progressive taxation, from those who have it, to assist the unemployed. T h e experts urged that the funds for old age payments should be collected in such a way that annual collections would be equal to annual payments so that a large reserve fund would not be necessary. T h e r e was, finally, strong sentiment in favor of the pooling of unemployment reserves in a single fund instead of the adoption of individual plant reserves and "merit rating" (according to which tax rates are reduced for concerns which maintain steady employment). T h e President and Congress did not, however, follow the recommendations of the experts in all respects. Although they did not insist upon "merit rating," they accepted a reserve-fund scheme for old age benefits and reduced the grant-in-aid element to a minimum, applying it only to the public assistance features of the act, that is, to old age assistance, aid to dependent children, the blind, and a few numerically unimportant groups. T h e Roosevelt Administration tended, therefore, to perpetuate the ability principle in the Social Security Act, since it reverted to an emphasis upon what it regarded as insurance features and the concept of indi-



vidual responsibility. Benefits were to be paid according to the amount of money contributed by the beneficiary. Payments were to be received as a right, not in relation to need. This was particularly characteristic of the old age insurance program, which was professedly based on sound actuarial calculations. The social security taxes, levied in proportion to the first $3,000 of income, were to be large enough to pay the insurance, which was also related to income. What a man paid in he would eventually get back, irrespective of his need. T h e amount of his wages—his economic ability, not his need —determined his receipts. The payments to be received under the act might be so low as to fall far short of need. Many of the aged might receive only ten dollars a month, or less than the relief level in many localities. Unemployment insurance benefits amount to "half the full-time weekly wages," and "full-time weekly wages" (especially as calculated under most of the state acts) are very low for large parts of the working population. The minimum benefit introduced in some state laws is only a meager concession to need, since it is the same for everyone no matter how need varies with the size of the family. The period for which benefits may be received is short relative to the length of unemployment prevailing in the United States in recent years. The duration of benefits has been further reduced by the introduction of a "savings" principle which permits total benefits receivable by an individual to be not more than a stated fraction of his own earnings in the past, irrespective of the length of unemployment and the resultant need. In private insurance this would be analogous to providing that the amount paid out should depend on the number of premiums paid in. Waiting periods before any benefits are receivable are unusually long,




being determined by administrative considerations rather than by social factors, yet the slowness with which the complicated insurance machinery operates unintentionally increases them. Large numbers of workers who may need insurance are not covered by the laws. 23 Furthermore, the failure to adopt a national pooled fund means that employees in states having comparatively little unemployment are more adequately protected than those in states where unemployment is greater and where funds are likely to be quickly depleted. T h e causes of business fluctuations are not necessarily confined within the boundaries of the states which happen to experience unemployment, but may stem from other areas. Since state lines cut artificially across the economic life of the country, there is much to be said for a mutual assistance program among the states. If a common national fund had been used, the states with little unemployment could have contributed, through taxation, to the relief of states where unemployment is heavy. But this would have followed the principle of distribution of funds among states according to need. Instead, each state was to meet its unemployment problem in accordance with its own ability. If the funds proved inadequate, it could not rely on the assistance of any other state to meet its needs. Equalization was not the basis of the program. Administrative responsibility under the act is divided among several Federal agencies, the most important duties resting with the Social Security Board. In addition to the Social Security Board, the Treasury, the Department of Labor, and the Bureau of Vocational Rehabilitation are involved. T h e Treasury Department is 2 3 Agricultural labor, domestic service in private homes, employees of nonprofit-making agencies, and employees of establishments employing less than eight workers are excluded in various state laws.



concerned because of its responsibilities in connection with the reserve funds and the payment of pay-roll taxes. The Labor Department has long been the chief Federal agency concerned with child welfare and is interested in the general welfare of labor. Consequently some of the features of the act were assigned to this department. The number of separate agencies involved has contributed to the difficulties of administering the act according to a clear-cut consistent policy. Far more important than this separation of administrative responsibility among several Federal agencies is the fact that forty-eight states and two territories are involved as well as the Federal Government. It was argued that as far as unemployment insurance was concerned the Federal Government could not constitutionally tax the people and make the payments of benefits directly. It was therefore decided that the real purpose of the act could be best concealed from the legal mind if a general tax were levied on pay rolls, subject to credits in favor of employers in the states which adopted unemployment insurance and levied taxes of their own. In states which did not adopt plans, employers were not to receive any credit for the taxes they had paid to the Federal Government. 24 It must be emphasized that the complications of the American unemployment compensation provisions under the Social Security Act arose from the attempt to maintain states' rights and from a reliance upon state police power. T h e provisions were the outgrowth of the rising tide of opposition to continued Federal participation in the relief of unemployment and insecurity. They were, perhaps unconsciously, based upon the be24 This "offsetting" arrangement had a precedent in the case of inheritance taxes levied by the Federal Government, where it had been regarded as constitutional.




lief that state responsibility would somehow prove less expensive and that the funds would be distributed more nearly in accordance with the contributions made. T h e Federal Government may stimulate the states to pass laws for insurance purposes, but in the absence of such laws it may not establish a national system where the states have failed to set up provisions. Unfortunately, the participation of forty-eight states in the unemployment insurance system adds greatly to the complications of administration and more than any one factor may contribute to inefficiency in the administration of American social security measures. Not only is the Social Security Act based upon states' rights, establishing an involved system of Federal-state relationships, but it also relies upon the contributory rather than the tax method of securing funds. Unemployment insurance and old age benefits may be derived from pay-roll taxes, to be sure: the former usually from a tax on employers alone, the latter from a tax on employers and employees. But there is much to be said for the opinion that these payments are not essentially taxes, except in so far as the states do not comply with the act by setting up unemployment insurance systems. 25 In the latter case, they may resemble Federal excise taxes, which can be applied to the general purposes of the Federal Government. These "taxes" are more nearly deductions from the pay rolls for benefit purposes, comparable to the deductions sometimes made by large corporations for similar purposes. A tax is essentially the collection of money which will be paid 25 Seligman's concept of taxation, which is employed here, seems theoretically sounder than current usage, which would classify pay-roll taxes simply as taxes. See Seligman, Essays in Taxation (10th ed.), pp. 4-5, and Groves, Financing Government, p. 376.



back without much reference to the amount which any individual has paid. Taxation does not involve a quid pro quo. A charge of this nature is in fact usually known as a "government price" in the language of public finance. Ordinarily a tax is to some degree a collection according to ability, for services which are provided according to need. If one pays school taxes and yet has no children attending school, he cannot demand a refund from the state. If the Federal Government had financed a large part of unemployment and old age benefits through the grant-in-aid system and had taxed generally to secure the funds, the funds would not be paid out in close proportion to the amount any individual had paid. For example, a wealthy man might find his income tax increased to secure funds for old age assistance, but would not receive more than any other citizen if he became destitute or if he needed old age assistance. T h e fact that the Social Security Act did not establish a grant-in-aid system which would have furthered distribution of funds for the indigent according to need was in keeping with the trend already evident in Federal relief legislation. In insurance even more than in relief the government turned to the capitalistic principle of payment according to ability, notwithstanding certain evidences of compromise. T O T A L EXPENDITURES FOR RELIEF AND SOCIAL SECURITY

It is apparent from the preceding brief historical outline that the Federal Government participated heavily in the financial support of relief beginning with the last six months of 1933. It had, however, sought to reduce its relief expenditures in 1935 by discontinuing




responsibility for all relief except for the employable population. Nevertheless, expenses could not be reduced because of the persistence of heavy demands for relief throughout the country and the increased cost of work relief after 1935. T h e unemployed still numbered between nine and twelve million during 1936,28 and the total number of cases receiving general relief and W P A wage assistance was around four million during most of that year.27 Although Federal funds devoted to relief 28 declined after the first half of 1936, they did not drop even to the 1935 level. After the Work Relief and Social Security acts began to operate in 1936, Federal expenditures were therefore actually greater than they had been in 1935, owing to the continued severity of the relief problem. In October, 1938, the W P A was providing work for 3,253,000 unemployed persons, the largest number in its entire history. For the fiscal years ending 1936. 1937- 193 8 ' a n d *939 approximately $1.3; $1.8, $1.5, and $2.3 billions were spent by the W P A . A total of $4,096,000,000 had been obligated in the continental United States for emergency relief expenditures under the F E R A from 1933 to 1935, of which the Federal Government was responsible for $2,905,701,296, or 70.9 percent. 29 During this period the Works Progress Administration spent $273,911,000 and the Civilian 28 For 1938 estimates were between ten and fourteen million. For A p r i l , 1939, the National Industrial Conference Board estimated unemployment at 10,177,000. 27 T h e Social Security Board has estimated that the total number of households receiving relief was 4,800,000 in July, 1936. From this point on, the number of relief households increased until it reached 5,600,000 in March, 1937. T h e total number of persons receiving relief were 18,000,000 at this time. See Social Security Bulletin, April, 1938, p. 25. 28 General relief, work relief, C C C , categorical relief, and farmer's rehabilitation loans. 29 T h i s figure excludes wage assistance under the C W A .






C o n s e r v a t i o n C o r p s $ 1 , 1 0 2 , 2 7 2 , 0 0 0 i n a d d i t i o n to the F E R A funds.30 I n 1 9 3 6 S o c i a l S e c u r i t y e x p e n d i t u r e s b e g a n to enter the picture. B y J a n u a r y , 1 9 3 9 , fifty-one states a n d territories h a d p l a n s f o r o l d a g e assistance a p p r o v e d b y the Social







p r o v e d plans f o r a i d i n g the b l i n d , a n d forty-two, plans for a i d i n g d e p e n d e n t c h i l d r e n . 8 1 Although



rose in



w e r e p r i m a r i l y d e v o t e d to w o r k relief, e x c e p t for Social S e c u r i t y grants-in-aid. T o t a l e x p e n d i t u r e s f o r general relief d e c l i n e d r a p i d l y . T h e result of this d e c l i n e was a r e d u c t i o n i n p e r c a p i t a e x p e n d i t u r e s f o r this f o r m of relief, since the n u m b e r of persons o n general


r e m a i n e d large. A l t h o u g h the n u m b e r of cases r e c e i v i n g general aid a v e r a g e d a b o u t 7 4 percent of the n u m b e r of 30 Anne Geddes classifies these expenditures as emergency relief, wage assistance, and categorical relief. She states that "total obligations incurred for emergency relief, including direct relief, work relief, and some specialized aid administered by the Federal Emergency Relief agencies, amounted to approximately $3,513,000,000. Wage assistance, or earnings of employees of the Civilian Conservation Corps, the Civil Works Administration and Civil Works Service, the Works Progress Administration, and other Works Program agencies amounted to $1,605,000,000. Expenditure for three categories of dependents—the aged, the blind, and dependent children—are estimated roughly at $257,000,000." See Geddes, Trends in Relief Expenditures, 1910-1935, pp. 60-62. 81 Statistical summaries of the number of recipients and amount of obligations appear in Table 4. From the inception of the system through March, 1939, more than $1,177,000,000 of Federal, State, and local funds were spent on the various programs of public assistance in the states which had plans approved by the Social Security Board. Unemployment compensation was paid in all but two states (Illinois and Montana) to about 3,800,000 temporarily unemployed persons during the period of January, 1938, to April, 1939. Although the recipients of unemployment compensation were in some cases former relief clients, overlapping in this respect between relief and insurance was not substantial. Data on public assistance are compiled by the Division of Public Assistance Research, Bureau of Research and Statistics, of the Social Security Board. They are reproduced here with the permission of Ewan Clague, director of the Bureau of Research and Statistics.


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939Haig, R. M., and C. Shoup, The Sales Tax in the American States. New York, Columbia University Press, 1934. Hansen, A., "The Flow of Purchasing Power," in The Columbia University Commission on Economic Reconstruction, Economic Reconstruction. New York, Columbia University Press, 1934. Hayek, F. A., Prices and Production. London, Routledge, »935Heer, Clarence, "Trends in Taxation and Public Finance," in Recent Social Trends, 2 vols. New York, Macmillan, 1930, II, 1370. Hinckley, R. J., State Grants-in-Aid. Ithaca, N. Y., Cornell University, 1934. Kendrick, M. S., "Incidence and Effects of Taxation," American Economic Review, X X V I I (Dec., 1937), 725-34.



Keynes, J . M., General Theory of Employment, Interest and Money. London, Macmillan, 1936. King, W. I., T h e National Income and Its Purchasing Power. New York, National Bureau of Economic Research, Inc., 1930. Leven, M., H. G . Moulton, and C. Warburton, America's Capacity to Consume. Washington, D. C., Brookings Institution, 1934. Lubel, S., and W. Everett, " T h e Breakdown of Relief," The Nation, C X L V I I (August 20, 1938), 171-74. Lutz, H. L., Public Finance. New York. Appleton, 1924. McCormick, M. Riggs, "Federal Emergency Relief Administration Grants," Federal Emergency Relief Administration Monthly Report, Dec., 1935, pp. 1-33. Macdonald, A. F., Federal Aid. New York, Crowell, 1928. Maverick, Maury, "Don't Sell Out Prosperity," The Nation, C X L I V (May 15, 1937), 557-58. Mulford, H. P., T h e Incidence of the Payroll T a x , Washington, D. C., Social Security Board, 1936. National Industrial Conference Board, T h e Cost of Government in the United States 1934-1936. New York, National Industrial Conference Board, Inc., 1937. T a x Burdens and Exemptions. New York, National Industrial Conference Board, Inc., 1923. Research Report 64. National Survey of School Finance, State Support for Public Education. Washington, D. C., U. S. Government Printing Office. Newcomer, Mabel, An Index of Tax-Paying Ability of State and Local Governments. New York, Teachers College, Columbia University, 1935. Central and Local Finance in Germany and England. New York, Columbia University Press, 1937. Pigou, A. C., Industrial Fluctuations. 2d edition. London, Macmillan, 1929. Robinson, J o a n , Introduction to the Theory of Employment. London, Macmillan, 1938. Scherman, Harry, " O u r Taxes and Britain's," The New Republic, L X X X X V I (Aug. 24, 1938), 75-76. Seligman, E. R . A., Essays in Taxation. 10th edition. New York, Macmillan, 1927.



Seven Harvard and T u f t s Economists, A n Economic Program for American Democracy. New York, Vanguard, •938Shoup, C., R . Blough, and M. Newcomer, Facing the T a x Problem. New York, Twentieth Century Fund Committee on Taxation, 1937. Silverherz, J . D., T h e Assessment of Real Property in the United States. Albany, J . B. Lyon, 1936. Social Security Bulletin, Jan.—Dec., 1937, April, 1938, Feb., 1939, and March, 1939. Strayer, G. D., and R . M. Haig, Financing Education in the State of New York. New York, Macmillan, 1923. Studenski, Paul, " T h e Federal Budget: Can It Be Balanced?" The People's Money, II (Feb., 1936), 117-19. Taussig, F. W., Principles of Economics. New York, Macmillan, 1 9 1 1 . T a x Policy League, How Shall Business Be Taxed? New York, T a x Policy League, Inc., 1937. T r u l l , E., Resources and Debts of the Forty-eight States. New York, Dun and Bradstreet, 1937. U. S. Congress, House of Representatives, 74th Congress, 2d Session, Hearings before the Sub-Committee of the Committee on Appropriations in Charge of Deficiency Appropriations, 1936. Washington, D. C., U. S. Government Printing Office, 1936. U. S. Congress, House of Representatives, 76th Congress, ist Session, Social Security Act Amendments of 1939, Report No. 728. Washington, D. C., U. S. Government Printing Office, 1939. U. S. Congress, Senate, 74th Congress, ist and 2d Sessions, Document 56. Washington, D. C., U. S. Government Printing Office, 1936. U. S. Congress, Senate, 74th Congress, 2d Session, First Deficiency Appropriation Bill for 1936, Hearings on H. R . 12624. Washington, D. C., U. S. Government Printing Office, 1936. U. S. Congress, Senate, 74th Congress, 2d Session, First Deficiency Appropriation Bill Report for 1936. Washington, D. C., U. S. Government Printing Office, 1936.



U. S. Congress, Senate, 75th Congress, 3d Session, Hearings before the Special Committee to Investigate Unemployment and Relief. Washington, D. C., U. S. Government Printing Office, 1938. U. S. Congress, Senate, 75th Congress, ist Session, Hearings before the Committee on Appropriations, H. R . Resolution 361. Washington, D. C., U. S. Government Printing Office, 1938. U. S. Congress, Senate, 76th Congress, ist Session, Hearings before the Special Committee to Investigate Unemployment and Relief. Washington, D. C., U. S. Government Printing Office, 1939. U. S. Department of Commerce, Survey of Current Business, July, 1936. U. S. Department of Education, Biennial Survey of Education, 1932. U. S. Federal Emergency Relief Administration, Monthly Reports, July, 1933-Dec., 1935. U. S. Treasury Department, Annual Report of the Secretary of the Treasury. Washington, D. C., U. S. Government Printing Office, 1935. U. S. Treasury Department, Collections from Selected StateImposed Taxes, 1930-1938. Ware, C., and G. C. Means, T h e Modern Economy in Action. New York, Harcourt, Brace, 1936. Williams, E. A., Federal Aid for Relief. New York, Columbia University Press, 1939. Willis, H. P., and J . Chapman, T h e Banking Situation. New York, Columbia University Press, 1934. Wilson, E. C., "Unemployment Insurance and the Stability of Wages in Great Britain," International Labour Review, X X X (Dec., 1934), 767-96. Withers, William, "American Federal Finance," in Paul Studenski, Taxation and Public Policy. New York, R . R . Smith, 1936. — Retirement of National Debts. New York, Columbia University Press, 1932. — "Taxation under the New Deal," Journal of Commerce, C L X X V I I (July i i , 1938), 8.



Wueller, Paul, T h e Fiscal Capacity of States, Washington, D. C., Social Security Board, 1937. Yoder, Dale, " T h e Economic Implications of Unemployment Insurance," Quarterly Journal of Economics, X L V (Aug., 1931), 622-39.

INDEX A b i l i t y principle, 13, 16, 120, 143, 144, 160, 173, 176; British system departs from, 20; characteristics, 17, îg; choice of government, 36; compromise between need principle and, s i , 60, 144, 154, 163, 164, 180; emphasized by Congress, 163; government turned to, 45; no technical reason for emphasis upon, 155; perpetuated in Social Security Act, 40, 44; under capitalism, 20 Ability to pay, attempts to estimate state and local, 168; measurement of, 150-55; tax a collection according to, 45 Accounting, uniform, 168 Act of February 15, 1934, 32, 33 Adams Act of 1906, 35« Aged, see O l d age Agencies, private: expenditures in rural and town areas, 26 Agencies, public: balance wheels for business cycles, 107; forced to assume burden of relief, 27; insufficiently co-ordinated, 9, 10; reorganized, 182 Agricultural labor, 42«, 179 Agriculture, Secretary of, 35« Aid, see Relief Akron, Federal aid, 27 Alabama, relief obligations, 65, 71 American Association for Social Security, 182 American Federation of Labor, 4n Annuities, old age, see Insurance, old age Arkansas, relief obligations, 65 Baltimore, cash relief, 13 Banks, checking accounts expanded, 112; difficulty confront-

ing, 113; effect of Government borrowing on assets of, 111; employees of national, 187; increase in deposits, 136; investment of assets in the public debt, 112; per capita resources as measure of state economic capacity, 66 Barbour, W. Warren, 183 Beer taxes, 83 Berle, A. A., study of corporate concentration, 6 Betters, P. V., quoted, 27 Big Business (Twentieth Century Fund), 6 Blind, aid to, 12, 39, 47, 155, 156 Block aid, 18 Bonds, government, see Borrowing Borrowing, Public and the management of security funds, 120, 131-38, 170; as source of relief funds, 83, 120, 166; augment loanable funds, 112; burden of unemployment shifted through, 82; effect upon business, 131; effect upon Federal debt, 132; influence upon distribution of income, 81; reduction in purchasing power may be avoided by, 136; state bonds, 83; taxexempt bonds, 97; unbalanced budget leads to, 111 Britain, see England; Great Britain Brookings Institution, 10, 65 Budget, inflationary effect of unbalanced, 135; need not be balanced in depression times, 107, 108; spending program accompanied by unbalanced, 111 Buehler, A. G., quoted, 121 Building projects, W P A , 184

INDEX Business, cycles, 107, 108 (see also Depressions); danger of inflation to, 137 (see also Inflation); effect of progressive taxes upon, 130, 1 3 1 ; effects of relief and social security upon, 104, 106-38, 1 39> '65. 167; enters banking field, 1 1 3 ; growth in concentration of operating units, 6; recovery, 137, 165, 183; relies upon spending, 108; taxes, 80, 137 Business recession, 4; characteristics, 107; decline of private relief, 26n; factors in bringing about, 130; reduced standards of persons on relief, 55 Buying power, see Purchasing power Byrnes, James F., 180, 184 Byrnes bill, 182, 183 Byrnes Committee, 180; recommendations, 181 California, relief obligations, 72 Capacity to pay, 86-105 (see ability to pay) Capital values deflated less vigorously than wages, 120 Capitalism, compromise between relief and ability principles under, 20; compromise between socialistic and capitalistic principles, 21, 86, 164; economic system finds it difficult to function under, 1 1 0 f.; effects of governmental control upon, n o ; expenditures devoted to unemployment may assist, 165; not driven to wall by tax system, 98, 101; support of security under, 15 Carmody, John, 18371 Central Statistical Board, 10 Chain stores, 6 Charities, local, 35; private, 23, 26 Chicago aided by Federal funds, *7 Children, aid to dependent and crippled, 12, 39, 47, 155, 156;

child-welfare services, 12, 14, 156; health service, 155, 156 Children's Bureau, 35 Churches, tax-exempt property, 96 Civil Works Administration, 3135, 46n, 72TJ Civilian Conservation Corps, 14, 18, 183; appropriation for, 37; expenditures (i933'35). 4® fClague, Ewan, 4771 Clark, John Maurice, 97; quoted, 1 '5 Classes, see Lower, Middle, Wealthy, classes Cleveland, cash relief, 13; Federal aid, 27 Clothing, lack of provision for, 146 Collective bargaining, 1 1 5 Colleges, tax-exempt property, 96 Colorado, income tax as measure of ability to pay, 69 Commerce, Bureau of Foreign and Domestic: estimate of national income paid out, loon, 101 Commercial banks, demand deposits of government expanded, 112 Committee on Economic Security, 9 Committee on Ways and Means, .87 Committee to consider unemployment relief, 180 (Byrnes Committee), Byrnes Committee, 180 Commodities, relief in form of, 13, ygn; taxes on, 121, 127 Communism, principle of, 16 Communities, unequally burdened with insecurity, 8 Community-chest activities, 23 Concentration of industry, 6 Congress, conservative tendencies in House, 180; liberal bloc, 165; powers re taxes and expenditures, 162 Connecticut, relief, 63, 71, 75 Conservatives, administrative improvement by, 180

INDEX Constitution, Federal: court interpretations, in regard to security measures, 96 Consumer demand needed, 129 Consumer-purchasing-power stimulation to recovery, 137 Consumers, taxes shifted to, 120 ft. Contributory principle, see Ability principle Corporate concentration, 6 Corporation income taxes, percent of revenue contributed by, 82 Corporation organization tax, rate, 91 Costs, economic: reduction of, as road to recovery, 1 1 1 Court of Appeals, i8n Crippled, aid to, 12; see also Children Customs duties, 80 Cyclical movement of business, 107, 108 Debt, public, as repository of social security funds, 132; debt retirement in U. S., 136; increased by security reserve, 134; inflationary effect, 135; may be increased in depression times, 107; pay-roll taxes to retire, 133; prospect of labor group owning, 158; rise in bank holdings of, 112 Deficiency appropriations cut, 183 Deflation, during periods of prosperity advocated, 107; of costs held way out of depression, 110 Delaware, per capita income, 65; relief obligations, 63 Democracy and individualism conflict, 143 Denver, cash relief, 13 Depression, attitudes changed by, 7; causes, 165; decline in British taxes, 99; expenditures in early period, 22-27; increase in relief expenditures, decline in cost of social services, 149; no reason for suffering during, 103; re-


duction of wages, 114; reveals need of overhauling fiscal system, 97; spending tends to prevent, 108; tax delinquency, 92; tendency toward excessive saving, 1 1 4 ; unemployment in, see Unemployment Detroit, cash relief, 13; Federal aid, 27 Direct relief, 13, 14, 3 1 , 32, 36, 55, 61; abandoned, 33; emergency expenditures, 9, 470; emphasis upon, 155; large part of relief program should consist of, 142; possible to revert to, 179; should play important part in Federal relief program, 172; see also Dole; Federal Emergency Relief Administration Disability, see Illness District of Columbia, 37 Dole, creating dependent class, 7gn; reduction in expenditures for, 38; see also Relief, direct Domestic labor, 179 Domestic service, 4271 Doughton bill, 1 3 m , 186 Douglas, P. H „ 182 Drives, 18, 23 Drought, effect, 76, 77 Dun and Bradstreet, 93 Earnings, attempt to relate benefits to, 161 Economic ability, measures of, 151 Economic effects of relief and security finance, 104, 106-38; three points of view, 109 Economic factors, measured by per capita tax-paying capacity, 173; which index of ability must take account of, 150 Economic security, see Social security Economic system, effect of reduction of internal demand, 119; flexible and capable of producing more wealth, 15; new sources of instability, 6



E d u c a t i o n , concepts of need emp l o y e d i n field o f , 147; costs per capita, 143; decline in costs d u r i n g depression, 149; measure of ability to pay for, 15071 E d u c a t i o n , Office of, 183 Efficiency principle, 147, 148 Electrification, rural, 37 E m e r g e n c y relief, see D i r e c t relief; D o l e E m e r g e n c y Relief a n d Construction Act, 3, 27-28, 73n; f a i l u r e of loan f e a t u r e to i n d u c e local effort, 30 Emergency Relief Appropriation A c t of 1935 ( W o r k R e l i e f Act), 10' '3> 33. 35. 46; allocation of e x p e n d i t u r e s , 37; distinction between e m p l o y a b l e s a n d u n e m ployables, 38, 39 Emergency W o r k R e l i e f , see under Federal E m e r g e n c y R e l i e f Administration Employables, distinction b e t w e e n u n e m p l o y a b l e s and, 38, 39 Employees, see W o r k e r s Employers, ability to shift taxes to employees, 124; responsibility as a class for u n e m p l o y m e n t , 18n; taxes paid by, considered a lab o r cost, 123; taxes levied u p o n , 11, 122 E m p l o y m e n t , payroll taxes s h i f t e d b y increasing part-time, 122; relief privilege of r e t u r n i n g to, 167 Employment-compensation laws, financing a d m i n i s t r a t i o n of, 11 E n g l a n d , benefits a n d w a g e rates, 115; business recovery, 105, 137; result of relief p a y m e n t , 118; social insurance affected b y fear of revolution, 8n; u n e m p l o y ment benefit system, 19; w a g e differentials, 161; see also G r e a t Britain Epstein, A b r a h a m , 15, 130







150 Excise taxes, 44, 120; regressive in incidence, 121; shifting of, 122 Federal Emergency Relief A d m i n istration, 13, 28, 31, 139, 140, >55. '56; A c t of February 15, 1934, passed to carry o u t purposes of, 32; distribution principles, 72, 173; emergency relief expenditures (i933"35). 46; Emergency W o r k Relief continued p r o g r a m of C W A , 32; Federal financing under, 157; funds m a d e available by, 29; grant experience, 174; grants to state relief agencies u n d e r , 37; lessons of, 87; m a t c h i n g feature, 30; p r o g r a m too liberal for public o p i n i o n , 78; reasons for failu r e of need principle under, 6085; shift from, to W P A , 60; transfer of m o n e y to, f r o m Federal agencies, 33; types of sentiment w i t h regard to, 183 Federal G o v e r n m e n t , see U n i t e d States G o v e r n m e n t Federal H i g h w a y Act, syn Federal Reserve Board, action of, as check to inflation, 135; index of industrial production, 90 Federal Reserve System h a m p e r e d by scarcity of Federal securities, 133 Federal 18371



Federal Security Agency, 182, 183 Federal T h e a t e r Projects, 184 Federal Works Administrator, i8 3 rj Federal W o r k s A g e n c y , 182, 183 Financial p r o g r a m for economic security, 164-89; distribution of funds, 171-77; size of e x p e n d i tures, 164-70 F i n a n c i n g security, public policy in, 3-20

INDEX First Deficiency Appropriation Bill of J9)6, 38 Fiscal problems, indices used to estimate fiscal ability, 153; necessary to consider as a unit, 177; need of data to estimate state and local ability, 168, i6g, 173; need of overhauling system, 97; statistics of fiscal capacity inadequate, 168, 179 Florida, income tax as measure of ability to pay, 69; relief obligations, 65, 71, 72 Formula for distribution, 171, 176 France, tax collections, 99 ff.; tax levels during depression, 92 Frontiers, disappearance of, 6 Funds, confusion of public with private, 159 Furloughs for W P A clients, 184


into social legislation, 140; grants-in-aid principle employed, 9; tax collections, 92, 99 ff.; tendency to view fiscal problems as a whole, 178; unemployment benefit system, 19; use of formula as basis of relief distribution, 176; way to return economic system to balanced state, 118; see also England Haig, R . M., 147, 150 Health insurance, 14 Highways, expenditures for, 37; Federal grants placed on matching basis, 30; repayment of relief loans from allotments, 27 Hinckley, R . J., quoted, 177, 178 Hobson, John, 129 H o l d i n g companies, personal, 94,

95 Gasoline taxes, 80, 81, 83 Gayer, A. D., quoted, 112 Geddes, Anne, 4771 Georgia, relief obligations, 65, 71 Germany, business recovery, 105; social insurance affected by fear of revolution, 8n; social legislation, gradual induction into, 140; stimulation of business, 137; tax collections, 99 ff. Government, se United States Government Government securities, tax exempt, 96 Grade crossings, elimination of, 37 Grants-in-aid, advantages of, 170; characteristics, 178; features in Social Security Act, 12, 39, 47. 156; finance program of old age assistance, 11; indices of factors involved, 173; origin, 30; problem, 177-80; subject to criticisms, 178; to education, 148, 15m; to equalize differences in relief burden among localities, 9, 143: variable, 179 Great Britain, compromise with socialism, 17; gradual induction

H o m e building, attempt to stimulate, 108 H o m e industry revived in England, 119 Hoover Administration, adherence to principle of local and individual responsibility for relief, 38 Hopkins, Harry, 73, 76; quoted, 38, 60, 79»j, 141; belief in local responsibilty, 145; policy to induce states to meet own relief problems, 61 Hospitals, tax-exempt property, 96 Hours of work, W P A , 184 Housing, 108, 141 Illinois, relief conditions, 55, 72 Illness, economic problems of, give rise to health insurance, 14; loss of earnings through, 8 Income, equalization, 40; influenced by government borrowing, 81; maladjustments in production and distribution of, 137; national, paid out, 101; need for economic control to remove maladjustments in, 119; per



Income: (Continued) capita, as measure of state economic capacity, 66 Incomes, upper, relief funds could have been derived from, 156 Income-tax law, legal loopholes, 94 Income taxes, 80, 81, 83; as measure of ability to pay, 66, 69, 91; business net, 89, 91; decline in state individual, 91; evasions, 95; per cent of revenue contributed by, 82; personal rates and exemptions, 91; purchasing power, not destroyed by, 166; social insurance revenue source, 170; support of relief and social security derived from, 120; see also Progressive T a x a t i o n Indiana, income tax as measure of ability to pay, 69; relief, 55, 63, 7i Individualism and democracy conflict, 143 Individual responsibility advocated, 77 Industries, semi-luxury, 119 Industry, expansion limited to, 6; private jobs in, not as secure as relief, 167; spread of dependence on wages caused by concentration of, 6 Inflation, as result of tax shifting, 125; danger of, 22, 136; effect upon lower middle classes and upon wealth, 81; elements of, in social security program, 135; progressive taxes do not cause, 166 Inheritance tax, 43«, 88, 91 Institutions, nonprofit-making: tax-exempt property, 96 Insurance, sec Health insurance; Old age insurance; Social insurance; Social security; Unemployment insurance; Workmen's compensation

Insurance principle, pools risks of insecurity, 8; see also Ability principle Interest rates, effect of borrowing on, 111; factor in economic change, 111; relief and insurance payments may alter, 106 Investment, and saving, 111-14; basis of recovery, 137; economic difficulties arise from insufficient, 129; lack of long-time, 108; need for stimulating private, 129, 139, 165 Iowa, income tax as measure of ability to pay, 69; rank in tax assessment and local relief, 68; relief obligations, 63, 71 Italy, stimulation of business, 137 Kansas, relief obligations, 69, 72 Keynes, J. M., 108, 129 Labor, Department of, 42; concerned with child and labor welfare, 43 Labor, marginal productivity of, 123; outlets limited, 6; prospect of owning public debt, 158; risk of insecurity, 8; tax burdens, 80, 81, 120 ff.; see also Workers Labor, Secretary of, funds allotted by, 155, 156 Labor unions, see Unions Laissez-faire doctrine, 109, 110, 111, 114, 143 Land, free: limited, 6 Land Utilization Program, 13 Liberal bloc in Congress, 165 Liberals, administrative improvement by, 180 Libraries, cost decline during depression, 149 Liquor tax, 81, 83; evasions, 95 Loans, application for, in financial terms, 73; private, 111; to states and localities, 27, 28 Local Government Act of 1929, 178

INDEX Local governments, adopt insurance and grants-in-aid, 9; basic principle in state grants to, 150; chief source of income, 80; desire to shift financial responsibility to, 183; failure to respond to Federal efforts to meet relief problem, 29; F E R A grant-matching system, 30; financial capacity, 62; loans to, 27, 37; responsible for relief standards, 77, 145; sentiment for local responsibility, 77; tax delinquency, 92; taxpaying ability, 1 5 m Los Angeles, cash relief, 13 Louisiana, income tax as measure of ability to pay, 69; relief obligations, 65, 6g, 71, 72 Lower-income groups, financial burden shifted to, 82, 120, 122, 128, 133 Lower middle class, tax burdens, 80, 81 McNutt, Paul V., 18371 Maine, attitude toward Federal aid and control, 75; income tax as measure of ability to pay, 69; rank in tax assessment and local relief, 68; relief obligations, 63 Marginal productivity theory, 123 Massachusetts, relief, 63, 71, 75 Matching system of grants-in-aid, 29. 3°. '55- >56. 179 Maternal and child-health services, 12; funds, 155 Maverick, Maury, quoted, 168 Means, G. C., study of corporate concentration, 6 Mechanization of industry, 123, 124 Merit rating, 40, i8g Michigan, income tax as measure of ability to pay, 69; relief, 55, 7» Middle class, economic insecurity in depression, 7; effect of government borrowing upon, 82; tax burdens, 80, 81


Middle-western states, relief obligations, 71 Mill, J. S., 88n Milwaukee, Federal aid, 28 Minneapolis, Federal aid, 27 Mississippi, relief obligations, 65, 71; relief payments per family, •45 Model Tax Plan of a Committee of the National Tax Association, 88 Monopoly, result of semi-monopolistic conditions, 116, 120 Morrill acts, 30 Mothers, dependent, 14; maternal and child health, 155 Motor vehicle taxes, 80 Municipalities, see Local governments Myers, Howard B., i68n National bank employees, 187 National Government, see United States Government National Industrial Conference Board, 471, 134; estimate of unemployment, 46n; estimate of tax-exempt property, 96; estimates of tax collections, 89, 99, 100, 101 National Park Service, Buildings branch, 183 National T a x Association, Committee of the: model tax system, 88, 91 National Youth Administration, 13. 183 Nebraska, relief obligations, 69 Need, estimates of, for relief, 165; incentive to distribute funds according to, decreased, 37; measurement of, 143-50; statistical obstacles to measurement of, 148; taxes for public services provided according to, 45 Need principle, 13, 16, 17, 40, 141, 176; applicable only in emergency, 36; British system departs from, 20; characteristics, 19;



Need principle: (Continued) compromise between ability principle and, 21, 60, 144, 154, 163, 164, 180; effect of adoption of WPA and Social Security Act upon, 79; pressure of industrial states against, 78; probable causes of deviation, 74-79; reasons for failure of under FERA, 60-85; under capitalism, 20; work relief complicates use of, 172 Nevada, inadequate tax system, 76; income tax as measure of ability to pay, 69; relief obligations, 69, 72 Newcomer, Mabel, index to taxpaying ability for states, 89, 154, '73 New Deal, see Roosevelt Administration New England states, care of poor, 75; relief ranking, 71, 72, 174; work relief characteristics of, 13 New Hampshire, attitude toward Federal aid and control, 75; income tax as measure of ability to pay, 69; rank in tax assessment and local relief, 68; relief obligations, 63, 65, 71 New Jersey, inadequate tax system, 76; income tax as measure of ability to pay, 69; political significance, 76; relief obligations, 63, 69, 71, 72 New Mexico, relief, 9, 65, 69, 72 New York City, cash relief, 13; no provision for clothing in home relief budget, 146; relief payments per family, 145 New York State, educational costs per capita, 143; political significance, 76; relief standards could be increased, 166; taxpaying ability, 88 Nonprofit-making agencies, employees in, 427J Nonprogressive taxes, 120

North Carolina, income tax as measure of ability to pay, 69; relief obligations, 63, 69, 71, 72 North Dakota, political significance, 76 Office of Education, 183 Ohio, income tax as measure of ability to pay, 69; relief, 55, 69, 72 Old age, assistance for, 39, 47, 155; insecurity in, 14; pensions (see Old age insurance); Social Security Program, 311 (see also Social Security Act); taxes, 130 Old age insurance, 7, 14, 41, 155, 185; ability principle consistent with, 18; Doughton bill, 186; effect of assessment method on, 158; financing benefits, 11; how trust funds for, must be invested, 132; increase in amounts necessary, 169, 170; larger benefits possible, 179; nationally administered contributing system, 160; nation-wide, adopted, 8; operates mainly on ability principle, 157; reserve fund, 157; Social Security Act, 39-45 Old Age Reserve Account, 128; effect on deflationary and regressive tendencies of pay-roll taxes, 133 Pay-as-you-go plan, 132, 179; higher benefits with same taxes, 158 Pay-roll taxes, 43, 169, 170; deflationary effects, 135; exceed benefits paid out, 130; increase in prices from, 125; may affect Federal budget, 106; part in unemployment insurance system, 162; shifting of taxes through, 122; support of relief and social security derived from, 120; to retire public debt, 132; ways of shipping, 122 Pennsylvania, relief obligations, 72

INDEX Pension system, see O l d age insurance Personal holding companies, 94, 95 Philadelphia, cash relief, 13 Pigon, A. C., quoted, 126 Pittsburgh, cash relief, 13 Plant-reserve system, 40, 160, 162 Police, state, 43 Politics, effort to reduce role of, in relief, 183; influence upon security expenditures, 86, 173; significance of for relief in industrial states, 78 President's Committee for Social Security, 39 President's Committee on InterDepartmental Relations, 10 Price movements, factor in economic change, 111 Prices, adjustment between flexible and inflexible, 117; need for economic control, 119: relationship of costs of production to, 120; relief and insurance payments may alter, 106 Private employment, effect of relief and insurance upon, 115, 117; not as secure as relief, 167 Production, difficult to utilize to fullest capacity, 130 Production costs, relationship to prices, 120 Profits, depression attributed to excessive, 110 Programs involved in financing security, 10, 21-59, 164-89 Progressive taxation, 79n, 84, 88, 131, 139, 166, 167, 169, 170 Property tax, avoidance of, 94; burdens lower middle class, 80; evasions, 95; represents tax ability of local government, 1 5 m Property value as measure of economic capacity of states, 66 Public Assistance Research, Division of, 4771 Public control, forms of, 110 Public health, 14


Public health services, 12, 183; cost decline d u r i n g depression, 149 Public opinion, re F E R A program, 78; re local responsibility, 77; need of tax education, 169; weight in determining government security policies, 86 Public Roads, Bureau of, 183 Public works, efforts to co-ordinate with relief in a works agency, 10; expenditures and relief hold promise of recovery, 138; loans for construction of, 28; more should have been spent on, 109; projects to draw workers from relief population, 28 Public Works Administration, 13, 33, 183, 184, 185; funds inadequate, 31 Purchasing power, created by progressive taxes, 139; effects of reducing, 130; income tax does not destroy, 166; mobilization of, may be necessary, 109; reduced, 127, 133; reduction in, avoided by borrowing, 136; stimulation to recovery, 137 Radicalism, alleged, in W P A , 185 Radicals, control of relief system by, 183 Real-estate tax, 89, 91 Recession, see Business recession Reclamation, 37 Reconstruction Finance Corporation, 27, 29; Emergency Relief Division: passed upon loans and grants, 27 Regressive taxation, 7971, 82, 84, 122, 131, 133, 166 Relief, administration, 78, 141, 145, 179, 184, 185; agencies (see Agencies); agitation for, 8n; amount of Federal support could be increased, 139, 144, 164, 166, 169, 170, 179; capacity to pay for, 86-105; cash, 13; categorical, i2n, 14; collection of data stimulated, 34; commodi-



Relief: (Continued) ties, 13, 79n; co-ordination with other activities in Federal agency, 10; data, 174, 175, 176; distribution of funds for, 13963; economic effects of financing, 104, 106-38, 165, 167; expenditures, 9, 22-27, 45-58; 168 f.; expenditures hold promise of recovery, 138; failure of states to co-operate, 63; formula for making grants, 73, 171; matching basis of relief grants, 29, 30, 155, 156, 179; necessity for large-scale Federal expenditures, 32; on contributory or need basis, 13, 16 (see also Ability principle; Need principle); on loan basis, 27, 28; on national scale, 143; per capita expenditures among states, 144; population as basis of fund distribution, 72, 73; private, 23, 26, 27; recipients should perform service useful to State, 18; relative levels of wages and, 167; shifting character of problem, 141; should be less pleasant than work, 146; sources and distribution of funds, 60-85; special activities, 13, 14; spheres of Federal and local governments, 27; states and local support advocated, 82; trends which serve as norm of expenditures, 149; see also Direct relief; Dole; Work relief Relief Act of 1933, see Federal Emergency Relief Act Relief Act of 1939, 142 Relief Administrator, 29, 37, 78 Relief grants-in-aid, see Grants-inaid Relief principle, see Need principle Relief programs, fiscal research essential, 168; inflationary. 148; improvement of taxation re-

quired to launch, 167; review, 2'-59 Relief standards, 145; average for different regions, 166; choice between subsistence and decency standards, 147; efforts to depress, 146; equalization in, between northern and southern states, 169 Reorganization Act of 1939, 182 Research and Statistics, Bureau of, 47 n Reserve fund, estimate of increase in, 186; possible to abandon, 179; public debt increased by, 134; system, 132, 158 Resettlement Administration, 13 Resettlement grants, 26 Retirement systems, 158 Revenue Act, of 1934. 94; of 1940, 185" Revenues, shifting of taxes through, 122 R h o d e Island, income tax as measure of ability to pay, 69; rank in tax assessment and local relief, 68; relief obligations, 63, 65, 71; urgent relief problem, 75 Roads, expenditures for, 37 Roosevelt, Franklin Delano, 31, 184; attitude toward labor owning public debt, 158; called Committee on Economic Security, 9; emphasis on contributory system, i2on; liberal proposals rejected, 180 Roosevelt Administration, attempts to stop Federal tax leakage, 94; objectives for P W A , 31; progress in direction of relief, 22; tended to perpetuate ability, 40; to favor flexibility of relief administration and administrative responsibility, 141, 142 Rural electrification, 37 Rural rehabilitation and relief, 13. 14, 26, 37 Russell Sage Foundation, 35

INDEX St. Louis, Federal aid, «7 Sales, retail: as measure of state economic capacity, 66 Sales taxes, 80, 83; evasions, 95; mainly borne by labor, 127; proportion of Federal revenues derived from, 82; regressive, 104, 121; support of relief and social security derived from, 120 San Francisco, cash relief, 13 Sanitation, 37 Saving, and investment, 111-14; deflationary effects, 131; for wage earners almost impossible, 129; individual, should not b e encouraged, 129; policy which leaves higher incomes intact promotes, 128; relief and insurance payments may alter, 106 Savings, family, as measure of state economic capacity, 66; increase in bank deposits, 136 Savings principle, 41 School taxation, as measure of local ability, 1 5 m Seamen, 187 Securities, tax-exempt, 96 Security, see Social security Security agencies, 10; reorganized, 182 Security reserve, see Reserve fund Seligman, E. R. A., concept of taxation, 44 Severance tax, rates, 91 Shoup, C., quoted, 134 Sickness, causes public-health burden, 14; loss of earnings through, 8 Smith, Adam, 88 Social insurance, affected by fear of social revolution, 8n; contributory method increases burden on insecure, 157; co-ordination of activities in Federal departments, 10; form of income equalization, 40; possible to include domestic and agricultural labor, 179; seamen and


national bank employees included, 187 Socialism, compromise between capitalism and, 21, 86, 164; need to compromise with, 17 Social Science Research Council, 10 Social security, basic justification of expenditures for, 16; borrowing (see Borrowing); capacity to pay for, 86-105; clarification of policies a pressing need, 188; debt owed to fund and the regular debt, 135; distribution of funds, 139-63, 171-77; economic effects of financing, 104, 106-38, 139, 165, 167; efforts to co-ordinate measures, 10, 188; election results show desired, 8; financed by the insecure, 79 f., 120, 122; financial programs, 10, 21-59, 164-89; problem analyzed, 4-10; public policy in financing, 3-20; total expenditures for, 45-58 Social Security Act, 3, 9, 10, 26, 35, 39-45, 46, 60, 125, 130, 132, 162. 169, 179; administrative responsibility, 42; amendments, 131, 186; based upon states' rights, 44; Doughton amendments, 180; effect upon budget, 136; effect upon need principle, 79; established system of Federal-state co-operation, 39, 44; Federal financing under, 155, 157; investment provisions, 132, 134; program of old age assistance, 11; Wisconsin influential in deliberations over, 160 Social Security Board, 26, 42, 47, 183; estimation of persons on relief, 46«; groupings of slates according to ability to pay, 174 Social Security legislation, 171, 179, 180-89 Social security taxes, 3, 41, 120-31, 170 Social services, cost decline during depression, 149; support of, 152



Social Welfare, Department of: efforts to co-ordinate relief and insurance activities in a, 10 Society, assumption of unemployment burden, 12 Soil erosion, prevention of, 37 South Carolina, education costs, 143; per capita income, 65; relief obligations, 63, 71 South Dakota, inadequate tax system, 76; income tax as measure of ability to pay, 6g; political significance, 76; relief obligations, 69, 72 Southern states, relief, 71, 72, 76, 165, 174 Spending, public: as means of controlling business cycles, 108; not adequately tried, 114 States, allotment of funds for public health, 156; control over spending, 37; economic capacity, 62, 66, 67; Federal grants for maternal and child health, 155; Federal-state co-operation, 39, 44, 63; F E R A program, 29, 30, 61; grants-in-aid to (see Grantsin-aid); grants to localities, 150; jobs allotted to, under C W A , 32n; loans to, 27; new types of taxation adopted, 83; ownership of means of production, 111 ; relative wealth and income, 65; reliance upon police power, 43; relief obligations, 38, 54, 55; scope of effort with regard to security, 15; sources of income, 80; tax capacity, 8g, 91, 92; unemployment obligations, 12, 42, 44. »59 States, agricultural: relief problem, 9 States, groups of: contributions by, 71; natural groupings of, '74 States, industrial: part in defeat of need principle, 78; political significance, 76; relief problem, 9- 72. 75

States' rights, 43, 83; Social Security Act based on, 44; means by which wealthy avoid high taxes, 83 Statistics, relief, compilation of, 35, 154; need for, 168, 179 Strayer, G . D., 147, 150 Stream pollution, 37 Streets, expenditures for, 37 Studenski, Paul, 174 Subsidies, Federal, see Grants-inaid Taussig, F. W., 126 T a x a t i o n , administration of, 96; American, compared with those of other countries, 98-105; avoidance and evasion, 94-96, 97; belief that reserve plan will reduce, 158; delinquency, 92-94; exemption, 96-98; far-reaching effects, 106; form, not extent, injurious to business, 137; ideal systems, 88 ff., 97, 154; increase necessary, 167, 170; measures of ability to pay, 68, 70, 73, 87-92, • 50, 151, 154, 169; offsetting arrangement, 43«; regarded as a labor cost, 123; share justifiably devoted to relief, 149; shifting of, 82, 120 ff., 157; systems in need of revision, 88, 97, 104, 169; unused tax capacity, 97, 98, 101, >°3. >39- >44. '64. 166, 170, 179; see also under special taxes, Excise tax; Income tax, etc. Tennessee, relief obligations, 71 Territories, loans or grants for, 37 Texas, income tax as measure of ability to pay, 69 Theater Arts Projects, 184 Tobacco taxes, 81 Toledo, Federal aid, 27 Towns, private assistance in, 26 Townsend movement, 185 T r a d e unions, see Unions Trans-mountain water diversion, 37

INDEX Treasury Department, 4s; concerned with reserve funds and pay-roll taxes, 43; Procurement Division, Public Buildings branch, 183; reserve fund financing, 134 T r u s t funds, 94 T w e n t i e t h Century Fund, Big Business, 6 Undistributed profits tax, elimination of, 185 Unemployables, distinction between employables and, 38, 39; exclusion from Federal support, 36; government responsibility for, discontinued, 45 f.; payments cut under state support, 58 Unemployment, 4, 46; employer responsibility for, i8n; estimates of (1929-38), chart, 5; individual responsibility for, 7; opposition to Federal participation in relief of, 43; permanent system for relief, 11; relief grants, 155 Unemployment benefit system, British, 19 Unemployment compensation, see Workmen's compensation Unemployment-compensation laws, effort to induce states to pass, 11 Unemployment insurance, 14, 79; ability principle consistent with, 18, 157; a cause of wage rigidity, 115; administration systems, 159 ff.; attempt to relate benefits to earnings, 161; benefits not paid on time, 188; compromise with noncapitalistic principles, 19; how trust funds for, must be invested, 132; increase in size of benefits possible, 179, 188; increase necessary, 169; laws, 8, i8n; national pooled fund for, 42, 170, 179; Social Security Act, 39-45 (see also Social Security Act); state participation in sys-


tem, 44; waiting period, 20, 41; see also Social insurance; Social security Unemployment reserves, sentiment in favor of pooling, 40 Unions, interest in W.P.A., 188; may shift part of taxes back to employer, 123; value of unemployment insurance to, 116 United Kingdom, tax collections, 92, 99 ff.; see also Great Britain United States Employment Service, 183 United States Government, aid to states and municipalities, 27; control over spending, 37; Federal-state co-operation, 39, 44, 63; forced to assume share of financing security, 3; grants-inaid principle applied to relief problem, 9; national unemployment insurance system may not be established by, 44; public policy in financing security, 3-20; relief expenditures, 8, 54; relief expenditures under W P A and F E R A , 46; relief-fund distribution, 140; tax collections compared with those of other countries, 99 ff.; tax-exempt securities, 96; taxes not too heavy, 97, 98, 101, 103 United States Housing Authority, 183 Updegraff, 148 Upper-income groups, see Wealthy classes Vermont, attitude toward Federal aid and control, 75; incomc tax as measure of ability to pay, 69; percent of population on relief, 9; rank in tax assessment and local relief, 69; relief obligations, 63, 71 Virginia, income tax as measure of ability to pay, 69 Vocational rehabilitation, 12, «4, 156



Vocational Rehabilitation, Bureau of, 42 W a g e costs, factor in economic change, 111 Wage earners, see Workers Wage limitation. Great Britain, 20 Wages, deflated more rigorously than capital values, 120; depression attributed to inadequate, 110; differences in different regions, 161 n; distribution of, in various income levels, 118; effects of security upon, 114-20; growing rigidity of, 115; high rates beneficial to recovery, 116; inadequate and intermittent, 14; inadequate to cover costs of emergencies, 4; pay-roll taxes shifted by reducing, 122; rates for W P A workers, 55; relative levels of relief and, 167; relief and insurance payments may alter, 106; relief conflict intensified by low levels, 146; spread of dependence on, 4 Wagner-Peyser Act, 160 Wagner-Steagall housing bill, amendments, 141 Waiting period, 41; in Great Britain, 20 Washington, state, income tax as measure of ability to pay, 69 Water, conservation, 37 Wealthy classes, avoidance of taxes, 95; effect of grants-in-aid on, 170; gain through rising prices, 82; "states rights" a means of tax avoidance, 83 Welfare grants, ability principle emphasized in, 156 Western states, drought, 76 White-collar projects, 184 Williams, E. A., quoted, 61 Wilson, E. C., view of wage rigidity, 115; quoted, 116 W i n e taxes, 83 Wisconsin, plant-reserve system, 160, 162; political significance.

76; unemployment compensation, 122, 160 Witte, E. E., 1 3 m ; quoted, 158 W o o d r u m , Clifton A., 183 W o o d r u m bill, 7 i n , 183, 184 Workers, ability to pay (see Ability principle); agricultural, not protected by state laws, 42n; Federal employees exempt from income tax, 96; from state taxes, 97; hazards subject to, 4; inability to save, 14; in establishments employing less than eight, 42n; in nonprofit-making agencies, 4271; state employees exempt from Federal direct taxes, 97; taxes shifted to, 120 ff.; see also Labor Workmen's compensation, 11, 122, 126 Work relief, 13, 14, 18; complicates use of need principle, 172; preferred basis of unemployment assistance, 35 Work Relief Act, see Emergency Relief Appropriation Act Works agency, efforts to co-ordinate relief and public work in, 10 Works Progress Administration, 26; attempt to impose restraints upon, 142; cause of establishment, 39; Division of Social Research, 1670; effect upon need principle, 79; reduction in funds, 182; result of curtailment of employment, 54; shift from F E R A to, 60; state groupings by Finance Division, 174; wage rates, 55; worker's skill and selfrespect preserved, 79; work pro vided and money spent by (1936-39), 46 Works projects, self-liquidating, 28 Wyoming, inadequate tax system, 76; income tax as measure of ability to pay, 69; relief obligations, 65, 69, 72