CHAPTER XI

THE PURPOSE AND NATURE OF PENSIONS

A pension may be defined as a regular allowance or payment made in consideration of past services. Pensions were granted first by kings and other royalties to persons who distinguished themselves in art, literature, and science, as well as to feudal retainers for military or political services. It was also customary to grant pensions to prominent jurists, university professors, and well-known clergymen, who had rendered distinguished public service. The grant of a royal pension to an individual was usually taken as a token of gratitude for valuable contributions made to the credit or benefit of the crown, the country, or the public. In more democratic nations the government still pensions soldiers and war veterans in recognition of their devoted service in the defence and protection of their country.

The more recent demands for the establishment of old age pensions, as a social policy, applicable to all citizens, is merely the natural extension of this principle to the veterans of industry, to men and women who by brain and brawn have made vital and essential contributions to the social welfare. To extend this protection in old age to the working classes is merely to recognize the changes wrought in our industrial system which make the welfare, comfort and happiness of all the people depend largely upon the labour of those who work for wages.

The smug business man who takes his train in New York after theatre hours at night, goes to sleep in his pullman-car and upon awakening finds himself in Pittsburgh or Boston ready to transact his business there, doubtless never thinks of the thousands of manual workers who toiled to make these achievements possible. Neither does the self-sufficient citizen think of these workers when he steadily speeds along at forty miles per hour on a well-paved highway in his comfortable limousine, or at any other time when he accepts all the modern comforts and conveniences as a matter of course due to him. Even those, who, like Carlyle, still hark back and sing praises of the eighteenth century, do not fail to take advantage of the comforts of the nineteenth and twentieth centuries, such as the railways, telephone, telegraph, and even the talking machine. Despite their condemnations of modern conveniences, they never go back to the stage-coach when they go from New York to Pittsburgh or any other city. Whatever the evils and faults of the modern industrial order—and its evils are legion—it cannot be denied that on the whole it has worked to the ultimate good of most concerned. Only the old and superannuated wage-earners derive little benefit from industrial development. The immediate effect upon them is their replacement by machinery and their inability to find other employment. For it is known to all that aged persons are not wanted in modern industry. With the introduction of newer processes of production, the experience of the old workers counts for little, and they are generally eliminated from industry and are thus deprived of the only means by which they can secure a livelihood. To grant pensions to such workers, during the days when modern industrial development permits them no longer to provide for themselves, would be merely a recognition of their services and a compensation for their losses, even as we compensate property owners for disturbance to property when it is taken from them for the general good.

In the preceding chapters the inadequacy of the existing provisions against old age have been recited, together with the difficulties which the old face in attempting to obtain security, under the conditions of modern life. It is obvious that the lack of old-age provisions demoralizes the individual and is harmful to society as a whole. Society’s loss, as a result of this insecurity, is inestimable. Furthermore, from whatever angle it may be examined, it is evident that the problem of economic support of the aged is with us, and whether met in one form or another, society ultimately bears the burden. An old-age insurance or pension system would unquestionably raise the general standard of living, as it would eliminate to a great extent the dread and fear of old age which now affects adversely the productivity and efficiency of a great many individuals. That the granting of alms, either private or public, is not only insufficient and unsatisfactory, but exercises a degrading effect upon the recipients and is repugnant to the self-respecting person, and can therefore not at all be considered a constructive policy, seems evident from the preceding discussions. As aptly expressed by a Committee of the National Association of Manufacturers in a special report upon this subject:

“While the social activities of the state are marked by humane legislation in many forms, for the betterment of the individual, its system of poor relief is antiquated. Poor relief makes no distinction between the worthy and the unworthy; the social stigma, the depravation of the citizenship and often the publication in the town report of the name of the recipient and the amount doled out to him, make the system onerous and the opprobrious epithet of ‘pauper’ is the price the citizen pays for help.”

That there is a problem of old age which is largely the creation of modern machine industry, is now recognized by all. Practically all civilized governments now consider this an important national problem which must be dealt with without delay. Its solution is generally sought in a broad constructive social policy rather than in the haphazard charitable and individual methods of relief. There are few industrially developed nations at present that have not yet adopted a definite course of social action in remedying the problems faced in old age. Of all English-speaking peoples, the United States is most backward in this respect, despite its high industrial development.

In dealing with this problem European governments have generally followed one or two of the following methods of caring for their aged. A number of countries also adopted plans which involve a combination of features of each scheme. The methods generally followed may be classified under the following headings: (1) A system of voluntary insurance. (2) Compulsory-contributory insurance. (3) Gratuitous or straight pensions by the Government. While the writer has formed decided opinions upon the merits of each of these schemes, it is the intention to present here an unbiased analysis of the arguments in favour and against each of these systems. The adoption of any one of them depends a great deal upon the social and economic conditions of the particular State, or Country, and an impartial discussion of each system is essential.

I. VOLUNTARY INSURANCE

Voluntary insurance against old age may be classified into several types. (A) Private voluntary insurance. (B) Voluntary insurance under Public Administration. (C) Voluntary subsidized Insurance.

(A) Private Voluntary Insurance.—Under this head may be included: (1) The old age mutual insurance as provided by trade unions and fraternal organizations, (2) insurance against old age by industrial corporations and (3) insurance with private companies. All of these forms are business propositions pure and simple. They involve no State action other than supervision. The extent of old age insurance by means of the above agencies, is very limited.

(B) Voluntary Insurance Under Public Administration.—With this form of insurance there is no state subsidy, but the government sells annuities and insurance at cheap rates. In addition to governmental guarantees, the State in most instances bears the expense of administration. This is the underlying principle in the State Savings Bank System in force in Massachusetts and Canada and to a minor extent in respect to insurance in Wisconsin. The aims of this insurance is to facilitate savings against old age and to make it attractive and accessible to wage-earners. The amount of insurance is limited and opportunities are offered employers of labour to co-operate with their employés either by making contributions towards the payment of the premium or by collecting it. The advantage of this form of state savings over private insurance lies in the cheapening of the premiums by the elimination of profit and the cost of administration.

(C) Voluntary Subsidized Insurance.—The object here is to put a premium on savings for old age. The State, in this case, subsidizes individual thrift by means of a State contribution. These systems were practised for some time in France, Belgium, Italy, and Spain and still exist in some of these countries. They are devised with the special purpose of serving the wage-workers. The amounts of the subsidies vary in each country. The latter are not given to the insured but deposited to his or her account and go to swell the amount of the pension purchased.

The three preceding forms of voluntary insurance are the evolutionary outgrowth of one another. The chief reason urged in favour of voluntary insurance is that it encourages thrift and maintains the self-respect of its beneficiaries. It is pointed out however by all experts that in practice after many decades of effort it has failed to accomplish its purpose. Even generous subsidies do not seem to attract more than a small part of the wage-earners, and in most countries these systems have been partly or entirely superseded by other methods. Reference has already been made to the Massachusetts experiment where after twelve years existence of the savings system only about three hundred persons took advantage of this form of insurance. Even subsidized insurance, according to the experiences of the different countries, has at no time or in any land accomplished its purpose. The working people obviously either cannot or do not avail themselves of such insurance. Neither is this fact surprising in view of our previous analysis of the actual conditions of wage-workers. Dr. Rubinow, after an exhaustive discussion of the voluntary scheme in the several European countries concludes:

“1. That even a heavily subsidized system of voluntary old age insurance attracts only a small proportion of the working class, presumably of the better paid strata.

“2. That even of those who begin accounts, a large and growing proportion fails to continue to make the necessary contributions with any regularity.

“3. That usually only the minimum is contributed which is necessary to acquire the subsidies.

“4. That the workingmen are forced to reduce their old age pensions in order to safeguard the interest of their families, and

“5. That the pensions actually acquired are pitifully small.”[226]

II. COMPULSORY-CONTRIBUTORY INSURANCE

The contributory form of insurance came about as a logical result of the failure of the voluntary systems. The great mass of wage-workers being either unwilling or unable to insure themselves against old age, European governments sought to overcome this by making it obligatory for certain classes of wage-workers—whose yearly income did not exceed a certain amount—to insure themselves against old age. The government continued making it attractive by subsidizing the insurance. Germany was the first country in Europe to establish compulsory insurance for working people. A system patterned after the German one was adopted by France in 1810. Systems embodying the compulsory principles were also established in Austro-Hungary, Chile, France, Greece, Iceland, Italy, Luxemburg, Netherlands, Portugal, Roumania, Russia, Spain, Sweden, and Switzerland.

Under the compulsory form of insurance all wage-workers earning below a certain income are compelled to insure. Salaried workers above a set amount are not obligated to insure but may, in common with other classes, take out voluntary insurance. Participation in the plan begins at an early age. Contributions are generally made both by the employer and employé in equal parts. The state’s contribution consists of bearing the expenses of administration. In addition, the latter also makes a direct contribution to the pension after it has matured. In Germany the contributions of the workers are graded in accordance with their income, while in France it is uniform for all adult males, females and minors. The employés’ contributions are collected by the employer who is allowed to discount them from the wages of his workers. The age when one becomes entitled to a pension is set at 60 years of age in France, and 70 years, until 1817, in Germany. Before a person, however, can receive a pension he must have made a minimum number of contributions; this in Germany is 1,200 weeks, and in France thirty annual contributions. To protect also those who cannot make the required number of contributions, provisions are made in both countries reducing the required period of contributions by 40 weeks for each year of age over 40 in Germany and 30 in France, when the law went into effect. The amount of the pension allowed under these plans is very small, rarely exceeding $60 a year previous to the war—an allowance which obviously could not go very far. No country which has introduced compulsory insurance has at any time attempted to raise more than fifty per cent. of the necessary funds from the insured persons. In Germany the contributions from the insured persons amounted to about 40 per cent. of the total disbursements, while in other countries it amounts to about 30 per cent. of the funds disbursed.

The advantages of the system of compulsory-contributory insurance are as follows: (1) Its possibility of universality. By means of compulsion, insurance not only can be extended to all classes that need most the protection against old age, but can also be made most effective.

(2) Compulsory insurance removes any suggestion of charity. Under this system the worker gets his pension a matter of right even when he is not poor. “It is not a dead-level system. It preserves a normal relation between the standards of life before and after the age of pension and also preserves a just relationship between services rendered and the rewards granted, for it is usually based upon the length of contributions, which is the length of activity.”[227] (3) It encourages thrift even though not of a voluntary nature. (4) The need of old age pensions is largely a result of the industrial problem and ought to be borne by industry. “It is economically just, in so far as it exacts a contribution from the industry, for superannuation is not less a factor of modern industrial life than is the rate of accidents or of sickness. If it be just that each industry should contribute to the cost of accident compensation in proportion to the number of accidents occurring, rather than that the entire cost be forced back upon the national treasury, it would seem to be equally just that an industry which uses up men by 45 or 55 years may be made to contribute to the cost of old-age support in a greater degree than another industry or occupation in which men can preserve their productive life until 65. Looking upon it in another way, the justice of the claim may be admitted, that a contribution on the part of the industry to old-age insurance is but a deferred wage ... if, under modern industrial conditions, it could be expected that the wage-workers themselves would be able to raise the standard of wages to the necessary level so as to include the cost of old-age support, and that they would use this additional increment for that purpose, no compulsory system would be necessary. But the compulsory system is necessary just because these two conditions are found to be impossible.”[228] (5) It does not burden taxation directly. (6) Compulsory insurance is also urged because of the fact that more countries have adopted this plan than any other, and because it has proved successful in several countries where it has been in effect for some years.

The objections to the compulsory principle of insurance are: (1) It cannot be made universal, as it omits many who may need such protection no less than wage-earners. It is evident that it can only be made to apply to persons who are in regular employment. It is next to impossible to collect contributions from persons who are irregularly employed, from agricultural labourers, from those who are their own employers, from women who work at home not for wages, from small merchants, and so forth. (2) Even through compulsion it is difficult to reach the poorest classes of workers who are most in need of old-age support. These people simply cannot save enough to contribute to pension funds. Thrift among workers who do not receive a living wage is a delusion, and even if possible, is uneconomic and unsocial. (3) Compulsory insurance, it is contended, lessens the quality of self-help and reliance in the individual. Said the Chairman of the Massachusetts Commission: “If this is the country of wealth it is also the country of individualistic ideals and achievements. It was founded to secure individual liberty of thought and action with opportunities for working out one’s own salvation. This is its peculiar destiny and its special mission, and its greatest contribution to humanity will be in terms of character rather than wealth. Not for any reason of sentiment, but because our national progress under the individualistic ideal has been such as to demonstrate its wisdom and soundness, do I believe we should take no steps calculated to take us away from this path of development.”[229]

(4) Where the compulsory system is established the sums contributed by the insured are practically insignificant. Not only does the state make a direct subsidy to the insured, but it also bears the expenses, which because of the inherent complexities of conducting the administrative machinery and the recording of facts for a long period of years with reference to contributions, is enormously expensive. It has, therefore, also been advanced that there is practically no difference between the state paying pensions outright, and collecting the contributions by the compulsory principle. (5) Compulsory insurance, it is argued by some, is class legislation, as it places the wage-earning classes under a special régime. It necessitates the creation of a vast bureaucratic system. “It would be nothing but taxation, and being exacted from unwilling subjects, would carry with it none of the good influences of voluntary thrift.”[230] (6) Old Age is not a problem of industry alone, for people grow old despite all human efforts. (7) The amount of the pension under the compulsory-contributory system is small and the age set is too high. The pensions as paid in European countries are, as is commonly expressed, “too little to exist on and too much to die on.” (8) Compulsory contributions, furthermore, are inelastic and cannot be adjusted to the particular needs of the various industries and localities. (8) The proponents of American individualism also declare that it is un-American, distasteful and contrary to the American spirit. The compulsory principle, it is claimed, is intolerable and would not be accepted by the American citizens. Mr. Arthur M. Huddell, a dissenting member of the Massachusetts Commission states the case as follows:

“To my mind, compulsory insurance is un-American, and cannot be considered in any way as a solution of this question. The wages of the workman will not permit any compulsory assessments for insurance. There is a vast difference between this and compulsory sanitary laws, compulsory education and compulsory quarantine laws. A poor man can comply with any of the above laws without an expenditure of money or in any way reducing his wages, which he could not do with a compulsory insurance law, as that would be equivalent to a reduction in wages. There is not sufficient margin between the living expenses and the wages of the workman to permit that reduction in his wages.”[231]

(10) The compulsory principle is also believed to be unconstitutional, as it obligates certain groups to set aside a certain percentage of their earnings to provide for old age.

III. STRAIGHT OR NON-CONTRIBUTORY PENSIONS

Just as the compulsory insurance principle was largely an outgrowth of the failure of voluntary insurance the establishment of straight pension systems may also be said to have come about principally because of the complexities involved in and the limited effectiveness of the compulsory insurance principle. While straight or gratuitous pensions are comprehensive and immediately effective, compulsory insurance forms require a long term of years before they can become operative and capable of coping with the immediate problems. State pensions were first inaugurated in order to secure an immediate means of relieving the pressing problem of the aged poor. This form of outdoor relief is a marked improvement over the indoor relief previously followed which involves the destruction of the _amour propre_ and independence of the recipients. A straight pension is an economic remedy for an economic ill readily adapted to the needs created by the modern industrial development. Under this system neither the employer nor the employé make direct contributions. The funds are paid out from the general treasury. Systems of gratuitous pensions have been adopted in Alaska, Australia, Denmark, France, Great Britain, New South Wales, New Zealand, and Uruguay.

State pensions are usually granted to all persons who have complied with the requirements of the particular law. The specifications usually provide that a person before receiving a pension must have attained a certain age; that he must have been a citizen with a long period of residence; that he must not have an income from any source above the specified amount. Sometimes it is also required that he must have fulfilled a certain period of service. In addition to these, most countries require also certain moral and character qualifications. In many countries pensions are denied on account of family desertion, neglect of minor children, drunkenness, or prison sentence. It is generally specified that pensions are given to the “deserving poor.” The first of these gratuitous systems was established in Denmark in 1881. Due to the influence of Lloyd George, a straight old-age pension system was adopted by Great Britain in 1808. In 1815, the Territory of Alaska and the State of Arizona had enacted similar systems, the latter of which was declared unconstitutional by the Supreme Court of that State before it became operative. Although the principles involved are the same in all countries, the requirements and qualifications are widely varied in the several countries operating these systems of pensioning the aged.

The non-contributory form of old-age relief is one of the most popular and most widely discussed plans. The particular points in favour of this scheme as over the voluntary and compulsory systems may be outlined as follows:

(1) Its simplicity. Straight pensions are given only under definite and well defined conditions; the amounts are fixed and little administrative expense is required.

(2) Straight state pensions are just, as it is the duty of the state to take care of its aged poor. This obligation of the state, was recognized by the latter long ago in its distribution of poor relief. Pensions in old age, while following the same principle, remove the stigma and degradation of the present system of poor relief. It is pointed out that the state at present attempts to relieve most classes of suffering, except old age. Pensions, are, therefore, simply an extension of the duties of the state aimed to remove the suffering and terror associated with old age. “It is compulsory now upon our citizens to make a living, but if they wish to become criminals, the state will support them. But the man who wants to remain a law-abiding citizen and try to support his family is compelled to provide for old age, when the facts are that he is unable at the present time to secure many of the comforts of life. Every law-abiding citizen has rendered to his country some service, which entitles him to look forward to a pension given in return; and as at present the premium placed upon crime and poverty is un-American, something should be done to provide for the law-abiding, self-supporting citizen.”[232]

(3) Governmental pensions while nominally non-contributory, have in reality been contributed by all in the taxes paid. Mr. Lloyd George states this as follows:

“As long as you have taxes upon commodities which are consumed practically by every family in the country, there is no such thing as a non-contributory scheme.... Again, the worker who has contributed by his strength and his skill to the increase of the national wealth, has made his contributions to the fund from which his pension is to come when he is no longer able to work.”[233]

It is thus evident that those who have given a considerable part of their lives in useful service have already made those contributions to the state and are entitled to freedom dread and anxiety over their needs during their declining years, as well as from the disgraceful brand of pauperism.

(4) Non-contributory pensions by the state would stimulate people to greater loyalty, ambition, independence and hopefulness; and would give the individual a stake in his country, thus increasing his patriotism and his interest in government and national affairs. James T. Buckley, a dissenting member of the Massachusetts Commission, argues that:

“Assurance through a pension, contributory or otherwise, that one’s last days would be spent in peace and comfort, with no fear of poverty and want, would have a strengthening influence upon the individual, enabling him to go to his daily task with a calm and contented mind, and would tend to increase ‘the sense of personal responsibility and independence.’”[234]

“A pension in old age,” declared also John Metcalfe, “would be no small gain and certainly a most conservative measure to give the expression ‘my country’ some little material meaning, even if that tangible something was but the security that after 65 years of individual struggling with the tasks of life, the state provided a small pension for every man and woman in the land. It would be no small gain if this measure led the men and women to look out on life with more hope and on national and commercial affairs as something which affected them personally, and in which they should take a deep interest.”[235]

(5) A pension to be secured in old age would encourage thrift and savings. As the pension alone is rarely sufficient to cover all the needs, the wage-earners would make an effort to lay aside whatever possible, so that their savings together with the annuity would assure them of a minimum of comfort. The fact that they can never save sufficiently to provide for old age is, perhaps, the greatest deterrent factor which prevents people who could afford to do so from saving the little they can. When there is assurance, however, that one’s last days would be spent in peace and some comfort with no fear of want and the poorhouse, it would have an encouraging influence tending to cause most persons to make some provision for the future. Says Mr. Metcalfe:

“The principle which underlies the habit of saving, in my opinion, is exactly the same as that which induces a hen to lay its egg where there is at least one egg already—what I will call the principle of the nest egg—and that just as you induce a hen to lay its egg where you have placed one egg you would induce the artisan and labourer to begin to put something by from his earnings by providing him with a certain small sum in the shape of a pension for old age.”[236]

Indeed, the savings accumulations of the countries which have adopted this system of pensions such as Denmark, Great Britain, New Zealand, etc., seem to bear out this contention.

(6) Pensions in old age would keep families intact. They would increase filial affection and respect for parents. What we respect and venerate in the aged is not old age as such, but the superiority in judgment, experience and independence of means. And one of the principle reasons why the aged in modern society, especially as found among the lower paid wage-earning classes, are less esteemed, is, doubtless, because the aged wage-earner instead of having steadily improved his position is compelled to steadily give way to younger men. Unable to earn a living wage, in his regular employment, he is compelled to do the work that needs little mental and physical labour. This generally means accepting employment of a menial nature. In this work he naturally loses his own self-respect, and once that is lost, the loss of respect for him on the part of his fellowmen and even of his own relations follows soon. A pension in old age would not only protect his independence and respect, but also would very often make him a welcome addition to the family of the son or daughter, where without it he would be a burden.

(7) A non-contributory pension system is unquestionably the most feasible plan to be suggested at the present time for the United States. The Massachusetts experiment has shown how futile and inadequate voluntary insurance systems are in this country. As most of our social legislation was first originated in the States and only later on followed by national legislation, a system of compulsory insurance by the individual States would, under our conditions of free labour migration and mobility, necessitate an expenditure upon the accounting and recording of statistics, an essential to the compulsory-contributory principles, which would make it almost prohibitive from consideration.

ARGUMENTS AGAINST NON-CONTRIBUTORY PENSIONS

The Massachusetts Commission on Old Age Pensions, Annuities and Insurance, brought the chief arguments against a non-contributory pension plan for the United States in its report of 1810. The Commission concluded that: “The adoption of any scheme of non-contributory pensions in Massachusetts, or in any other American state, seems inadvisable and impracticable.” The reasons given against this plan by the Commission and other critics are as follows:

(1) The heavy expense involved in such a plan. The Commission estimated that for Massachusetts to pay a pension of $200 per year or four dollars per week for half the population 70 years of age and over, would cost that State not less than $10,000,000 per year. The cost would, of course, be greatly increased if the pensionable age is set at 65.

While this is true it must be remembered that a great deal of this cost is already being paid by the citizens at present through the different charitable and philanthropic agencies, as well as public poor relief. To a considerable extent, therefore, the cost of the pension would be met by savings on the present expenditures of public and private philanthropy.

Indeed, according to Prof. Woodbury,[237] the proportion of paupers over 70 years of age in England fell from 23 per cent. of the population of this age in 1805 to 18.6 per cent. in 1810, one year after pensions began to be paid. After the 1811 amendment, which entitled persons receiving poor relief to pensions, the number of those 70 years of age and over who were given outdoor relief in England decreased from 138,323 persons in January, 1810, to only 8,563 in January, 1813, a decrease of 84.6 per cent. The number of indoor paupers also showed a decrease of 18.8 per cent. from 1806 to 1812. The cost of outdoor relief in 1810 dropped from 11¼ to 7½ pence per head of population. In New Zealand, also, the expense per capita of the population on poor relief fell 10.5 per cent. from 1888 to 1801 as a result of a grant of 11,000 pensions. Moreover, as is advanced by a dissenting member of the Massachusetts Commission, the argument of heavy expense:

“is fallacious, for the ultimate expense of any given project is the same, whether that cost be levied directly upon those who are to benefit by the scheme, as in the proposed contributory scheme, or indirectly upon the same beneficiaries through the medium of the State tax.”[238] Again Dr. Rubinow justifies the increased cost on the ground that: “when an institution is to be established, first its necessity, its usefulness, or harmfulness must be considered, and only then the question of ways and means comes into the foreground.”[239]

(2) Straight pensions, it is contended, is class legislation, as they tax the rich for the benefit of the poor. “There is no real ground for the assertion that because an industrious man has failed to earn a sufficiency, he has a right to be rewarded for his industry out of the proceeds of a tax levied upon his neighbours, to whom he has rendered no service, or none which has not been paid for in wages.”[240]

(3) Gratuitous governmental pensions, some argue, would destroy the habit of thrift, as it would lessen the sense of personal responsibility and independence. The ultimate test of a pension system, it is contended, is not the degree of comfort and security bestowed upon the aged poor but its effect upon the character and self-dependence of the workers. A pension to all, it is claimed, puts no premium upon thrift and would only demoralize the class it is intended to help. This case is stated by a leading opponent of social insurance in this country as follows:

“It (gratuitous pensions) will undermine and tend to destroy the self-respecting character of our people as citizens of a democracy where economic independence achieved by individual efforts, self-sacrifice and self-denial, is, after all, the only aim worth while. However much we may be inclined to permit ourselves to be deceived by specious arguments of guesswork philanthropy into believing the gift is to help the recipient and not to hinder, such gifts, with rare exceptions, are opposed to principles of character-building and of a character-maintenance throughout all the years which constitute the span of human life.... Hold out the prospect that such effort is not necessary, that earnings may be squandered for a thousand and one needless purposes, that restraint upon family expenditures is not required, and the most powerful incentive which makes for character and growth in a democracy is taken away.”[241]

President A. T. Hadley, of Yale University, also stated:

“We need measures which shall increase individual responsibility rather than diminish it; measures which shall give us more self-reliance and less reliance on society as a whole. We cannot afford to countenance a system of morals or law which justifies the individual in looking to the community rather than to himself for support in age or infirmity.”[242]

The moral level upon which the above arguments are based is obvious. These critics who display so much apprehension of undermining the much talked of habit of thrift with which every working man is supposed to be endowed, ignore the fact that the great majority of the people who reach old age and who qualify for pensions in the countries having pension systems, is in itself sufficient evidence that there was either no habit of thrift to be destroyed, or that the conditions of the wages were so low that savings were impossible, as was conclusively shown in a previous chapter. Where was the thrift habit of the 58.8 per cent. of the aged 70 and over who in 1812, when pensions began to be paid out, qualified for pensions in England and Wales; the 68.4 per cent. who qualified in Ireland; the 34 per cent. in rich Australia and New Zealand; the estimated 16 to 26 per cent. in prosperous Germany; the 35 per cent. in thrifty Denmark, and the 50 per cent. of the aged who qualified for pensions in the land of the most thrifty of peoples, France? It is preposterous to contend that the habit of thrift can be destroyed by a pension, which at best, is hardly sufficient to keep body and soul together—paid at the remote and uncertain possibility of attaining old age. On the contrary, it would doubtless prove an incentive to saving, as the pension allowance meeting only the bare necessities would enable a person with a little savings to spend his declining days in comfort. The Wisconsin Industrial Commission, in its report of 1815, points out that non-contributory pensions do not discourage savings and cites the example of Denmark, which was the first to establish such a system, and where after twenty years of experience the number of applicants for old-age pensions shows a tendency to decrease rather than the contrary, so that it cannot be said habits of thrift have declined.

“I have found in Denmark that the people who had most right to speak with authority on the subject maintain that the law has not acted in a way detrimental to thrift. The Inspector General of the Sick Relief Funds holds that they are more thrifty.” (Miss Seller’s evidence before Aged Pensioners Committee, 1803, p 5).[243] “Whether we take Germany, Australia or Denmark, the answer is the same. Thrift, instead of vanishing before old age pensions, has actually increased. There has been more money placed in the German Savings Banks since 1881.”[244]

The Australian Royal Commission, in its report of 1807, concluded that “The question as to whether thrift is discouraged by old age pensions has been inquired into by your Commissioners, and they have arrived at the conclusion that the fact of a necessitous person being entitled to a pension of 10s. a week at the age of 65 years will not have any appreciable influence on saving habits at an earlier age.”

Mr. Miles M. Dawson, is quoted as saying: “I think there has been an error about pensions checking the savings. In any country where it has been adopted, in Denmark, Great Britain, New Zealand, etc., the amount of savings has been continually enlarging.[245]

In an article in the Survey[246] Dr. Rubinow very skilfully inquires:

“What other explanation can there be for this over-emphasis of the virtue of thrift, unless it be the old ascetic principle that there is virtue in practicing self-denial, in getting along without things which we need? Humanity’s progress is based upon efforts to get things which man wants. Has all human progress been immoral?

“Whose morals suffer therefrom? Even the unworthy old man or woman over 70 is a weak, dependent, often decrepit, and helpless person whose immorality represents no danger to society, and who cannot be permitted to starve or freeze on the streets, if we are to protect our own moral nature from destruction. And as far as the young men and women are concerned, their conformance or non-conformance to the recognized moral precepts will scarcely be influenced by the chance of getting an old-age pension at seventy. Whether it be the hope of rewards, or the fear of punishment that must be relied upon to raise the moral level, either seems too remote and problematic. When the fear of eternal damnation fails, the hope of five shillings per week in the dim and uncertain future can scarcely succeed any better....

“Why do we continue to worry so much about the morals of the working class, disregarding the fact that if freedom from anxiety as to the future must be demoralizing there is a perceptible element in society outside of the working classes free from such worries?

“Why can we not recognize the fact that the wage-worker does not, will not, cannot be guided in his existence by the fear of what will happen to him after seventy, if he lives so long? We shall fail to make headway in our social insurance efforts until we are able to recognize these obvious inevitable facts.

“And if it be true that the morals of the working class need reform as much as the economic conditions of its existence, by all means let us think of some more effective pedagogical method than the threat of contingent punishment postponed until a day when moral regeneration is both impossible and useless.”

(4) Non-contributory pensions would lower wages. This argument is based upon the following assumptions: (a) Because of the direct competition of the pensioned employé. (b) The prospect of a pension in future years would lead workers to accept lower wages than they would otherwise be disposed to demand. This, it is claimed, is the case in some of the industries where pensions are now established. (c) It would encourage undesirable immigration, as it would invite immigrants from outside the state, and thus depress the wage rates by over-crowding the labour market. The fallacy of the first of these objections has already been pointed out in another place, where it was shown that the number of people still able to do work at the age when pensions are given is very insignificant. These men at 65 and 70 years of age are hardly a factor in the labour market. Moreover, this argument, if true, would apply equally as well to any form of savings or even to contributions from children. It is evident that a man with no income whatsoever is a more dangerous competitor in the labour market than the man with some means of support. The second argument is obviously far fetched. It requires considerable imagination to conceive the idea that the prospect of a very meagre assistance in their old age would alone be sufficient to make wage-earners work for lower wages. It is known to all students and government experts that the wage rates paid, at the present time, do not take into consideration any savings and bear no relation to necessary unemployment due to invalidity and old age. While there is some truth in the contention that in the industries having regular pension systems the wage rates of certain classes of workers—especially those past their middle age—may be lower than in other industries not having such systems, it is because there is an incentive to work in the one particular industry over the others which have no such benefits. A state or nation-wide pension system would in the very nature of such a plan eliminate this objection. As to the third contention of encouraging immigration it is not borne out by the facts in the countries where such systems are in operation. Long terms of residence within the state are required everywhere, and immigration, as is well-known, is not popular with men past middle age. That a small pension given when reaching old age would hardly be a sufficient inducement to young immigrants, is self-evident.

(5) Straight pensions, concluded the Massachusetts Commission, would have a disintegrating effect upon the family. “A non-contributory pension system would take away, in part, the filial obligation for the support of aged parents, which is a main bond of family solidarity. It would strike at one of the forces that have created the self-supporting, self-respecting American family. The impairment of family solidarity is one of the most serious consequences to be apprehended from an experiment with non-contributory pensions.”[247]

Mr. A. M. Huddell, in presenting a dissenting opinion upon this point states:

“The facts that are before us as to the influence of pensions on the American family have either been entirely overlooked or misconstrued by the majority of the commissioners. We have before us the pensions of the veterans of the Civil War, their widows and orphans, and I fail to find the evidence that warrants any statement to the effect that this pension by the United States Government has disintegrated the family, or lessened ‘the filial obligations’ for the support of the aged parents; or has in any way impaired the family solidarity. On the contrary, the pensions to the veterans of the Civil War have built up the American family, and the filial obligations of the family have been strengthened and its solidarity maintained. An old person living with a married son or daughter that is striving to bring up a family and provide for them as an American family should be provided for, and give to the children a proper education, can find a place for the old veteran or his widow who receives a pension from the Government in the family, because they do not take away from the family any of the necessities of life, or stop in any way the education of the children. At the same time, the independence of the veteran or his widow is maintained, because they have enough to pay for their needs at that period of life.... With this pension the old veteran and his widow are made comfortable in their old age by living with their children, their friends, or in homes where they are paying their own way, and have a feeling of independence that old people should have. They know they are not taking away from the family any of the necessaries of life, or hampering the education of the children through any expense of their own support. Any extra expense in the workman’s family directly affects the education of the child, compelling him to leave school and seek employment to help maintain the family.”[248]

The same argument is also answered by Mr. L. W. Squier as follows:

“Fortunately or unfortunately, according to the standpoint of religion and economics from which one views the matter, we Americans have not that conception of the family as the unit of society, as the Oriental in all his religious and economic training. In China and Japan it is rare to find any individual in want about sixty years of age, who has not some relative, no matter how remote, whose ethics and religion command him to make a place in his home for the indigent one, and provide for him as if he were a member of his own immediate family. Almshouses, private indoor or outdoor relief, for the old, are hardly known in these Oriental lands, where high ethical regard for the aged is instilled in the individual’s common mind from infancy. Unfortunately, however, in this country no such esteem for the aged prevails except among his near relatives and especially in agricultural communities. In our manufacturing centres especially, the helpless, destitute grandfather or grandmother is regarded as a distinct burden to the household, the carrying of which oftentimes forces the children out of school and into the streets, factories, or shops, in order to provide for the added increment to the household expenses which the taking on of an aged relative, no matter how near he may be to the immediate family, entails.”[249]

Dr. Rubinow answers it this way:

“There is a good, old-fashioned atavistic nobility of sentiment about this argument which will greatly please all good men and women except those who have to be supported by their children, and those who have to support their parents and also their own families on a wage-earner’s budget. Scientifically the argument is certainly original, because it assumes the basis of the family to be the support of the older generation by the younger, while it has always been fairly well agreed upon by all students of society that the shoe was on the other foot, and that the care of the children by the parents was the proper function of family. It further seems to assume that we love our burdens, and that when parents cease being burdens the children cease loving them.

“It assumes that the standing of a superannuated parent in a family is in an inverse proportion to the amount he is able to contribute to the family budget. It is an appeal to an ideal of patriarchal family which has been dead for a century in every industrial country, and which really never had any strong hold upon American life. Of course, its inapplicability to the aged single man or the aged spinster aunt will be evident. For it certainly cannot be claimed that the support of all spinster aunts is also a fundamental principle of American family solidarity. Then again even married people may not have any children, or may have lost them. One must remember that New England was practicing race suicide long before the term ever became popular. As a matter of fact, the very data gathered by the Commission shows that of the inmates of almshouses and benevolent homes over twenty-five per cent. were single and of those receiving outdoor relief fifteen per cent.

“Furthermore, these data also show how these almshouses and homes do break down the solidarity of the American family. Of their inmates forty-two per cent. had adult children living at time of entrance, of the several thousand pensioners receiving outdoor relief, sixty per cent. had adult children at the time of investigation, and fifty-nine per cent. other near relatives. It is really surprising that the Commission did not recommend discontinuance of aid, both institutional and outdoor, because of the demoralizing effect upon said children and relatives.

“However, the same table which conveys the information just quoted shows that while there were children in some 60 per cent., in only 22 per cent. were they able to render aid; that this proportion was only some 10 per cent. in case of the inmates of homes, and about 50 per cent. in case of persons receiving outdoor relief. Moreover, it appears from another table that some 40 per cent. were receiving aid from children or relatives, as outdoor relief is seldom bountiful.”[250]

From the investigations of the Pennsylvania Commission on Old Age Pensions it was disclosed that in the case of inmates of both almshouse and benevolent institutions over sixty-five and a half per cent. had no children living. Of the aged applicants for relief, about forty per cent. had no children, and among the general aged population, although the percentage of those having no children at all was little more than 10 per cent., only 24 per cent. of the aged were actually supported by children, while 43 per cent. had no other sources of income.

(6) Straight pensions are objected to also because they resemble charity much more than a system of insurance in which the worker makes a contribution. This, however, depends largely upon public opinion. Considered in the light of deferred real wages instead of poor relief, the receipt of a pension would not involve any degrading effect.

Professor Coman, an opponent of the straight pension system, stated[251] that in her investigation of the Danish old age pension system every Dane interrogated—from tax-payer to administrator—as to whether the pension was merely a new form of poor relief answered “No.” In Great Britain also it is declared old age pensions are not looked upon as poor relief but as an annuity due them from the government.

(7) Non-contributory pensions by the state, argues the Massachusetts Commission, will result in “mischievous political effects. It would open the door to political favouritism of various sorts.” William H. Lackey contends that “Such a question would infallibly pass into the competitions of party warfare. It would become in most constituencies one of the most prominent of electioneering tests. Rival candidates would be competing for the vote of a wage-earning electorate who had a direct pecuniary interest in increasing or extending pensions and in realizing the conditions on which they are given. Can it be doubted that in many cases their first objective would be to outbid another, and that national and party politics would soon be forced into a demoralizing race of extravagance?”[252] These apprehensions of the Massachusetts Commission and Mr. Lackey have so far, however, not been realized in the countries that have established such systems. Even critics of these schemes have so far made no contentions that party politics has deteriorated or been affected considerably by the pension plans.

(8) The constitutionality of a non-contributory scheme is also questioned by the Massachusetts Commission. Strangely enough, however, it admits that firemen, policemen and teachers who “are not only rendering peculiarly hazardous meritorious services to society, but also have deprived themselves of the full opportunity of earning the largest returns for their services in a competitive way ... have some claim upon the State for special consideration in the matter of public support in old age. This claim, however, cannot exist in the case of persons employed in the ordinary competitive callings.” The fallacious reasoning of the Commission at this point is self-evident. Surely, those who toil in the bowels of the earth mining coal for the industries of the nation, those who bring the milk to the babies in the city, and those who provide us with food, clothing, shelter, and other necessities are just as essential to the public welfare as the classes enumerated by the Commission!

The basis of the Massachusetts Commission’s opposition to the non-contributory system is summed up in its concluding paragraph as follows:

“A non-contributory pension system is simply a counsel of despair. If such a scheme be defensible or excusable in this country, then the whole economic and social system is a failure. The adoption of such a policy would be a confession of its breakdown. To contend that it is necessary to take this course is to assume that members of the working class either cannot earn enough, or cannot save enough, to take care of themselves in old age. If that be true, then American democracy is in a state of decay which no system of public doles could possibly arrest, but would rather hasten.”[253]

While the premises of the Commission are evidently true, as was shown conclusively in the earlier chapters of this book, it does not necessarily follow that its conclusions are logical. Woe to the patient whose physician upon diagnosing his illness throws up his hands in despair and rather than operate or admit the origin of the illness permits him to die, because he had discovered that the cause is a real one and not an imaginary one!

IV. THE CASE FOR AND AGAINST UNIVERSAL PENSIONS

In any discussion of the merits of the compulsory-contributory or non-contributory pension systems, the question whether it should apply universally or only to a partial extent is always to be taken into consideration. As compared with the present policy of poor relief, a universal pension plan means a complete reversal of this method. It is based no longer upon the theory of relief of destitution only. It aims to extend pensions without any conditions to all, or almost all, the aged above a certain age. The funds are to be drawn from the common purse. This would necessarily involve a steady increase in both the number of persons and cost and would, as stated by Sir Charles Booth, mean that “The policy of doing so is the opposite of that adopted in savage states, where the old, when incapable, are knocked on the head.” No such complete system, however, is as yet in operation anywhere. The principle of partial insurance or pensions is, as was pointed out before, established now in many countries. Pensions as established now by foreign countries are given only to men and women belonging to certain wage groups or to persons having fulfilled certain specified requirements.

The universal principle is advanced principally because, it is argued, if pensions were offered to all aged persons, it would remove entirely the savour of dependency or pauperism. Charles Booth, the foremost advocate of universal pensions in Great Britain, presented the case for such a system as follows:

“The idea in the minds of those who think that poverty and desert should be the conditions of relief, tend rather to an elaboration of the Poor Law, which by classifying those who ask its aid and varying the awards, shall make them as often a mark of merit as a stigma of disgrace. I must confess that this, to me, appears an impossible ideal. I can imagine no court of inquiry that could be trusted. I believe that the selected poor who receive pensions or were provided for in almshouses, to which only their poverty and their good conduct entitled them, would still be considered and consider themselves paupers, by whatever name they might be called. If to obtain a certificate of merit involved a searching inquiry into the past life of each applicant, it would, I believe, be strongly resented and most of all by the most worthy. Even the simplest form such an inquiry could take, limiting itself to proof of thrift, would be unsatisfactory, as the best proof of thrift would always lie in having no need to apply.

Mr. Booth further argues:

“Indoor relief lacks humanity and outdoor encourages improvidence. We are therefore justified in seeking some better plan. Pensions at 65 are suggested, to be acquired voluntarily with state aid. But to be effectual, the system must be universal, or the improvident would still trust to the rates (outdoor relief), and their treatment unceasingly oscillate between foolish kindness and unpopular severity. If the system is to be universal, it must be compulsory; and if compulsory, its cost, however collected, is taxation. Moreover, to be satisfactory, the system must apply to the old of our own time. We shall not tax ourselves for a benefit only to be realized after 40 years have passed. But if this system is to be universal, and to apply to our own old people, the forms of insurance become absurd. Why ear-mark the payments and accumulate funds at all? It is not insurance we require but the endowment of old age.”[254]

In another connection he states:

“Benefits which all may enjoy carry with them no slur. Educational endowments as enjoyed by the rich, free elementary education as bestowed upon the poorer classes, the facilities offered by free libraries etc., are cases in point. Pensions open to all and paid for out of taxation would have nothing, either morally or economically, in common with pauperism.”[255]

And again: “No other plan of selection is possible except at sacrifice of independence. To select the poor is to pauperize, to select the deserving is to patronize. To do either is to humiliate.”[256]

In favour of the universal plan is also urged its simplicity and cheapness of administration. This system requires no complicated or troublesome conditions of eligibility, nor does it entail many details.

Many of the objections to the universal plan have already been stated in the discussions of the compulsory and non-contributory systems. What has been brought against the former systems may be applied equally well, and even more justly to the universal scheme. Additional objections may be summed up as follows:

(1) Its increased cost. A universal scheme is obviously the most costly of all pension systems, and, to give a pension to all people—well-to-do and wealthy who do not need them—is a waste of money.

(2) There are also objections against the giving of pensions indiscriminately to undeserving persons such as criminals or paupers. “The inclusion of criminals and paupers within the pensionable population is indefensible on any ground of individual desert or public policy. Such persons clearly have no claim to a pension, whatsoever may be true of the deserving and respectable aged poor. Moreover, the policy of pensioning the industrious and thriftless, the sober and the intemperate, the deserving and the undeserving, indiscriminately, would be in the highest degree pauperizing and demoralizing. It would put a premium upon thriftlessness and dependency.”[257]

(3) Any such state-wide scheme has no finality to it. Once embarked upon this venture, there would always be the agitation and temptation to reduce the age of pensioning and increase the pension amounts.

(4) Under a universal scheme there would be even less means of preventing fraud and imposition. This, it is pointed out, is continually taking place in army pensions.

(5) The pensioner may dissipate his income on the day when it is paid. The pension would benefit little those who are too old or infirm to live alone and must reside in institutions.

(6) No country has as yet embarked upon such a broad pension plan.