Mormonism and the rise and fall of mutual aid

This post is part of a blog series about Mormonism, but I thought the part about the history of mutual aid in the US was interesting:

After peaking in the late 1800s, fraternal societies and other informal providers of mutual aid began to face new competitive pressures from the booming commercial insurance industry. The rapid diffusion of actuarial science in the century prior revealed enormous profit opportunities for insurers that knew how to properly price risk, and pool said risks across a large population.

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In the U.S. context, the competitive instability of the commercial insurance market was mirrored by the cyclical instability induced by modern credit markets, implicating many of the largest insurers in the perennial boom- and bust- cycles of the 19th century. Following the Panic of 1819, many U.S. states imposed stringent regulations on joint-stock insurance companies to reduce their leverage and ensure they had the reserves necessary to pay-out policyholders.

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The increased startup costs of chartering a new insurance company drove the subsequent growth in mutual insurance. On the supply side, mutual insurers faced lower capital requirements, both by law and by the nature of their ownership structure. And on the demand side, the dividend payments offered to policyholders and the ability to use life insurance policies as vehicle for precautionary savings were extremely attractive to the burgeoning American middle class. In fact, prior to the growth in national banking, life insurance companies represented some of the country's largest financial institutions.

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Flush with capital, many of the largest insurers became entangled with investment banking and financial speculation. The financial crisis panic of 1873 triggered a severe economic depression in Europe and North America that then rendered many U.S. life insurers insolvent.

The insurers that survived the 1873 crash all had one thing in common: they sold tontines. Tontines were investment funds that doubled as a pension scheme, allowing subscribers to pool the risk of outliving their savings. In essence, the capital raised by a tontine was invested in projects to earn a rate of return. Each subscriber was then entitled to an annuity payment that increased in size as subscribers passed away. This deferred payout structure allowed insurance companies to hoard cash, protecting them from financial shocks, but also helping to fund a great deal of political graft. By 1905, two-thirds of life insurance policies held in the U.S. were in the form of tontines. With rumors swirling that subscriber funds were being misused, the New York State Legislature launched the Armstrong Commission to investigate insurance companies based in New York. The corruption the Commission uncovered was vast, leading to legislation that restricted the sale and structure of tontines, rendering them effectively illegal. Similar statutes were quickly adopted by numerous other states.

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[W]ith the start of the Great Depression in 1929, poverty among the elderly grew dramatically and millions of working age adults were thrust into unemployment. The need for a more stable source of economic security had by that point become self-evident, leading some thirty states to institute public pension schemes, culminating in the Social Security Act of 1935. The Act created a national, compulsory pension program in the form of Old Age Social Security, as well as the federal-state unemployment insurance system.

Between the rise of commercial insurance, the regulations provoked by its competitive instability, and the crises confronting mutual insurers, the emergence of modern social insurance represented a welcome reprieve. And yet with each step the insurance function of traditional mutual aid societies became increasingly anachronistic, rendering many into little more than glorified social clubs.

What about the Mormons?

While the New Deal catalyzed Mormonism’s longer-term political alignment with American conservatism, LDS leaders at the time were primarily focused on their own self-preservation. They thus took a pragmatic rather than ideological approach to the reforms of the era, creating some substitutes to New Deal programs, but also some supplements. Put differently, while opposing the New Deal in law, the LDS Church embraced the New Deal in spirit [...] using the Church to mediate and supplement those programs they would or could not replicate on their own.

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The LDS community in Utah took full advantage of the WPA and CCC work-relief programs, helping to build new and improved infrastructure across the state’s many rural communities. But rather than stop there, the Church believed it was incumbent to create a work-relief program of their own.