Chapter 8 The Development of the U.S. Army Pension Plan Although both the army and the navy pension plans were initially estab- lished by the Continental Congress during the Revolution, neither plan was Wnancially viable in any long-run sense until Alexander Hamilton’s reforms in the 1790s. Even after these reforms, there remained an important differ- ence in the manner in which the two pension systems were Wnanced. The army pensions were organized on a pay-as-you-go basis from the general revenues of the Continental Congress and later the U.S. Treasury. In con- trast, both the original and reformed navy pension plans were funded by the monies resulting from the liquidation of prizes and contraband. This difference in pension funding between the services was apparent in the broader compensation of personnel in the two services both before and after the Revolution. Until the twentieth century, navy personnel were com- pensated with a salary and “rations” (nominally payments in kind), as well as the possibility of shares of funds derived from the liquidation the prizes captured by their ship. In contrast, army personnel were primarily compensated by wages. This difference and the economic history that ex- plains it, provides an interesting background for the development of pub- lic and private pensions in the United States and is consistent with modern economic theories of human resource management. This chapter reviews the history of U.S. army pensions and the ultimate merger of the army and navy plans at the end of the nineteenth century. Revolutionary War Pensions The act of August 1776, in which the Continental Congress reorganized the Revolutionary navy pensions, 1 also created a pension plan for the person- nel of the Continental army. The initial objective of the Revolutionary army pension plan was the same as that of the navy plan explained above. The aim was to provide a disability plan for soldiers injured as a result of their military service. According to the act, the actual amount of the disability 08Chap8.qxd 2/27/03 9:32 AM Page 122
Transcript
Chapter 8The Development of theU.S. Army Pension Plan
Although both the army and the navy pension plans were initially estab-lished by the Continental Congress during the Revolution, neither plan wasWnancially viable in any long-run sense until Alexander Hamilton’s reformsin the 1790s. Even after these reforms, there remained an important differ-ence in the manner in which the two pension systems were Wnanced. Thearmy pensions were organized on a pay-as-you-go basis from the generalrevenues of the Continental Congress and later the U.S. Treasury. In con-trast, both the original and reformed navy pension plans were funded bythe monies resulting from the liquidation of prizes and contraband. Thisdifference in pension funding between the services was apparent in thebroader compensation of personnel in the two services both before andafter the Revolution. Until the twentieth century, navy personnel were com-pensated with a salary and “rations” (nominally payments in kind), aswell as the possibility of shares of funds derived from the liquidation theprizes captured by their ship. In contrast, army personnel were primarilycompensated by wages. This difference and the economic history that ex-plains it, provides an interesting background for the development of pub-lic and private pensions in the United States and is consistent with moderneconomic theories of human resource management. This chapter reviewsthe history of U.S. army pensions and the ultimate merger of the army andnavy plans at the end of the nineteenth century.
Revolutionary War Pensions
The act of August 1776, in which the Continental Congress reorganized theRevolutionary navy pensions,1 also created a pension plan for the person-nel of the Continental army. The initial objective of the Revolutionary armypension plan was the same as that of the navy plan explained above. Theaim was to provide a disability plan for soldiers injured as a result of theirmilitary service. According to the act, the actual amount of the disability
08Chap8.qxd 2/27/03 9:32 AM Page 122
The Development of the U.S. Army Pension Plan 123
annuity varied with the degree of disability but was not to exceed half-pay for life or during the period of disability. Ultimately, these disabilitypensions were revised to meet a second objective, which was to provideretirement pensions for ofWcers of the Continental army. These retirementpensions were intended to provide an incentive for the ofWcers to remainon duty until the end of the Revolution. In contrast, the Continental Con-gress provided no retirement pensions for naval personnel and only onestate, Pennsylvania, offered such pensions to its own naval ofWcers.
The Pennsylvania assembly adopted a plan for its naval ofWcers much likethat offered ultimately by the Continental Congress to ofWcers of the Con-tinental Army. All ofWcers of the Pennsylvania navy who were commissionedin March 1779 and still on duty in March 1780 were promised half-pay forlife should they remain in the service until the cessation of hostilities.Pennsylvania also maintained a disability plan, and it was explicitly fundedwith one-third of the prize monies earned by its naval forces. Curiously, thisfunding scheme appears to have worked much like the current SocialSecurity system and the post-Civil War U.S. navy pension fund. While theprize monies were nominally credited to the fund, in practice they simplywent into the state’s general fund and liabilities were paid from generalfunds without any reference to the prize fund.
It is generally thought that a retirement plan was not provided for navalofWcers because their share of prizes they captured provided them withremuneration of a form and extent not readily available to army ofWcers. Ofcourse, as noted in Chapter 3, throughout history army ofWcers enjoyed thefruits of “prizes” captured by their troops. However, in most cases, thesewere not ofWcially sanctioned by national governments in the same manneras prizes taken at sea. Hence, to formally supplement the lifetime earningsof army ofWcers and perhaps at the time more importantly to keep them inthe Weld until independence from the British had been secured, theContinental Congress sought to complement wages and the disability planwith a retirement plan. While Congress eventually achieved this objectivefor army personnel, it was only after some serious renegotiating of theplan’s original characteristics that a satisfactory compromise was obtained.Ultimately, these pension promises were honored only after the federalgovernment was restructured by the Constitution. However, before that set-tlement, army pensions became a major political issue, particularly duringthe late stages of the Revolution.
The role of pensions as a form of deferred compensation became all tooevident to the civilian leaders of the Revolution when in 1780 a clique ofinXuential ofWcers began demanding some form of pension for the post-Revolution period. This issue became known as the “Newburgh Conspir-acy” after the town in New York where army leaders gathered to furtherpress their demands in 1783. These demands initially resulted from threefactors.2 First, by almost any reasonable standard, the material condition of
08Chap8.qxd 2/27/03 9:32 AM Page 123
the Continental army had been abysmal. Low wages, infrequent payments,and in some cases long arrearages had plagued army administration sincethe early days of the Revolution. As a result, dedicated ofWcers of any meanshad Wnanced the activities of their commands from their personal estates.Viewed in this light, the ofWcers were simply requesting payment for ser-vices rendered. Recognizing that the cash-Xow crisis faced by Congressrendered immediate redress impossible, they were willing to accept theirremuneration in the form of future payments.
Second, the most disgruntled ofWcers were Weld commanders who rec-ognized that, whatever speciWc form the future republic took, there wasprobably little hope of any role for a large, well-compensated professionalmilitary caste. Thus, their expectation was that they would be providedwith a postwar income as a token of the republic’s gratitude. Compoundingboth of these grievances was the fact that administrative ofWcers had con-tinued to receive regular pay while Weld ofWcers and their men had not. Inaddition, the ofWcers had a perception that their pre-war colleagues whohad not served in the army had prospered Wnancially during the war orwould do so afterward. Finally, nationalists in the Congress were eager toexploit the situation by recruiting the ofWcers to the nationalist cause whilesimultaneously wielding them as a threat against anti-nationalist opponents.The move toward nationalism was a natural one, since a strong nationalgovernment could logically be expected to be more likely to have theWnancial clout to honor the ofWcers’ pecuniary claim. An unmolliWed ofW-cer corps was the greatest threat to the hard-won liberty from the British.On both fronts, the nationalists were successful.
In order to keep the troops in the Weld during the crucial months lead-ing up to the Battle of Yorktown (1781), Congress authorized the paymentof a life annuity, equal to one-half base pay, to all ofWcers remaining in theservice for the duration of the Revolution. It was not long before Congressrealized that both its current cash-Xow situation and the present value of itsfuture tax revenues were insufWcient to meet this promise. While the publicWnances limped along between the victory at Yorktown and the Treaty ofParis, the rebellious ofWcers, led by Generals McDougall and Gates, couldnot be put off indeWnitely. In the spring of 1783, Congress converted the lifeannuities to a Wxed-term payment equal to full pay for Wve years. Even thesemore limited obligations were not fully paid to qualifying veterans and onlythe direct intervention of George Washington prevented a coup (Ferguson1961; Middlekauf 1982). Shortly after, the Treaty of Paris was signed inSeptember of 1783, the Continental Army was furloughed. It took anothereight years before the Constitution and Alexander Hamilton’s Wnancialreforms placed the new federal government in a position to honor its pen-sion obligations.
Complicating the history of these early federal military pensions is thefact that they were inextricably tied to those promised by individual
124 Chapter 8
08Chap8.qxd 2/27/03 9:32 AM Page 124
colonies and later states. Between the end of the Revolution and the WrstWashington administration, there was a great deal of disagreement betweenthe states and the federal government concerning the settlement of liabili-ties and debts accumulated during the war. In addition to the problemscaused by the state navies and militia,3 the settlement of state accounts wascomplicated by the fact that in 1780–81 the Continental Congress aban-doned the system of using colonial militias to supply the army with troops;rather, enlistments were formalized in the Continental army for three yearsor the duration of the war.
At the time of the aforementioned conversion of ofWcers’ pensions fromlife annuities to Wxed-term payments, ofWcers who had served in the stateranks were given the option of receiving (or at least applying for) their pen-sions from their state as opposed to the federal government. However, theWnancial condition of most states and other administrative problems con-cerning such applications caused the vast majority of ofWcers to Wle forthe federal pension. Eventually, enlisted personnel also were promised pen-sions and the federal government settled most of these claims. Most of thesepension claims were commuted in exchange for federal or state debt, andthis debt was ultimately consolidated in the new federal debt issues of the1790s. It should be noted that much of the original debt, including thatheld by the ofWcers of the Revolution, was liquidated in secondary markets,sometimes at a steep discount. More than a few former ofWcers were embit-tered by the republic’s handling of their pensions. Although most ofWcersof the state militias sought their pensions from the national government,some states, including North Carolina, South Carolina, and Georgia hon-ored pensions for at least some of those who served in their militias duringthe Revolution.
U.S. Army Pensions Before the Civil War
Unlike the navy pension plan, the army pension system was funded byannual appropriations from general revenues. Thus, decisions to expandcoverage or change beneWts were not related to the status of a pension funditself, but instead were made in response to changes in political and eco-nomic conditions that inXuenced Congress. Both disability and retirementpensions for U.S. army personnel dated from the Revolution and the earlyrepublic. However, these pensions were solely for the veterans of the Revo-lution. Thus at the time the Constitution was ratiWed, there was no U.S.army pension plan. Subsequently, during the early years of the republic,several army pension plans were established, discarded, and revised. Infact, there was both a “regular” army plan and a speciWc plan for veteransof each of the country’s wars, declared or otherwise. There were many,often minor, revisions to each of these plans. A comprehensive review ofall of the revisions to the army pension plan is beyond the scope of this
The Development of the U.S. Army Pension Plan 125
08Chap8.qxd 2/27/03 9:32 AM Page 125
volume; however, the remainder of this chapter contains a summary of theprimary provisions of each of the original versions of these army pensionplans and any key revisions.4
Originally, the Continental Congress gave eligible ofWcers of the Revo-lution the choice of accepting half-pay for life, a cash settlement worth Wveyears’ full pay, or 6-percent notes worth Wve years’ pay. In fact, Congressnever had the funds to pay either the principal or the interest on theseclaims fully. Robert Morris, serving as de facto Wnance minister of the newrepublic, attempted to organize the army accounts as he had the navyaccounts. In response, the national government issued interest-bearing“commutation certiWcates” in lieu of either cash or notes. Ultimately, $11million worth of such certiWcates were issued to ofWcers and men of theContinental army and the militias of the various states. This Wgure repre-sented roughly 40 percent of the entire debt of the country under theArticles of Confederation. It should be remembered that the states them-selves were attempting to honor another $3 to $5 million in pension debtto their soldiers (Ferguson 1961, 180). Estimates of the average amountsreceived suggest the following beneWt scale: $10,000 for generals; $1,500to $4,400 for other ofWcers depending on rank, and $200 to $300 for com-mon soldiers. It ultimately took the Wnancial reforms of Alexander Ham-ilton to Wnally put the funding of the Revolutionary War pensions on asound footing at least by the standards of the day.
In 1790, Congress, which now convened under the auspices of the Con-stitution, reorganized pension Wnances, issuing new interest-bearing certi-Wcates to replace the old claims. While this act resolved the long-standingconXict between former ofWcers and the federal government, it did nothingfor veterans, mostly enlisted personnel who had sold their certiWcates at adiscount years before. In 1818, however, Congress partially addressed thissituation by granting a pension to any veteran of the Revolution who hadserved at least nine months and who could prove indigence. RevolutionaryWar pensions were further broadened in 1828 when any soldier, regardlessof rank, who had served to the end of the Revolution was granted full payfor life retroactive to 1826. The law was amended in 1832 to include all vet-erans of the Revolution regardless of when they served. Hence 49 yearsafter the signing of the treaty that ended the war, every surviving veteran ofthe Revolutionary War received a pension equal to 100 percent of his basepay at the end of the war.
The Wrst pension plan for “regular” military personnel was passed inApril 1790 after the ratiWcation of the U.S. Constitution. It speciWed thatdisabled commissioned ofWcers were to receive a beneWt of not more thanone-half their base pay and enlisted personnel were to receive not morethan Wve dollars a month. Only the veterans of the Revolution were toreceive a pension that was paid in the form of deferred compensation—
126 Chapter 8
08Chap8.qxd 2/27/03 9:32 AM Page 126
that is, a retirement plan, using today’s term. The initial regular army planremained in place with only minor revisions until 1885. Initially, like theoriginal Revolutionary War plan and the subsequent navy plan, the regulararmy plan was a disability plan. Until the Civil War there was no formalretirement plan for army personnel; however, soldiers who were dischargedafter 1800 were given three months’ pay as severance. OfWcers were initiallyoffered the same severance package as enlisted personnel, but in 1802,ofWcers began receiving one month’s pay for each year of service over threeyears. Hence an ofWcer with 12 years of service earning, say, $40 a monthcould, theoretically, convert his severance into an annuity, which at 6 per-cent would pay $2.40 a month or less than $30 a year. This was substantiallyless than a prime farmhand could expect to earn and a pittance comparedto that of, say, a British ofWcer.
Prior to the onset of the War of 1812, Congress supplemented thesedisability and severance packages with a type of retirement pension. Anysoldier who enlisted for Wve years and who was honorably discharged wouldreceive, in addition to his three months’ severance, 160 acres of land fromthe so-called military reserve. If he was killed in action or died in the ser-vice, his heir(s) would receive the same beneWt. The reservation price ofpublic land at that time was $2.00 per acre ($1.64 for cash). So, the sever-ance package would have been worth roughly $350, which, annuitized at 6percent, would have yielded less than $2.00 a month in perpetuity. This wasan ungenerous settlement by almost any standard. Of course in a nation ofsmall farmers, 160 acres might have represented a good start for a youngcash-poor farmhand just out of the army. With the onset of the war, newrecruits were granted the same beneWts as regular army veterans. In 1816,the widows’ and orphans’ beneWt, in the form of a cash annuity of the typethat had been granted to survivors of navy personnel in 1813, was providedfor survivors of soldiers who were killed or died in the service.
The disability, severance, and survivors’ beneWts from the War of 1812were paid for the next 60 years. As noted above, in 1832 the RevolutionaryWar pensions for army veterans were converted to life annuities with no dis-ability or extenuating circumstances required. Indigency had been the mostprevalent of the extenuating circumstances required to receive a pensionbefore 1832. Similarly, poverty could still secure a pension for veterans ofthe War of 1812 until 1871, when all surviving veterans of the war who hadserved six months or more were granted life annuities regardless of need.Those serving two or more years received their full base pay up to that of acaptain while those serving from six months to two years had their payreduced proportionally until a veteran of at least six months received 25percent of base pay for life. Table 8.1 contains the history of the pensionpayments to veterans of the War of 1812 and their widows after the conver-sion of the disability pension to an old-age pension in 1871.
The Development of the U.S. Army Pension Plan 127
08Chap8.qxd 2/27/03 9:32 AM Page 127
128 Chapter 8
Tab
le 8
.1.P
ensi
oner
s of
the
War
of
1812
, Tot
al A
nnu
al P
ensi
on O
utla
ys, a
nd M
ean
Out
lay
per
Pen
sion
er, 1
871–
1916
Pens
ione
rsEx
pend
iture
sM
ean
annu
al o
utla
y
Year
Surv
ivor
sW
idow
sTo
tal
Surv
ivor
sW
idow
sTo
tal
Surv
ivor
sW
idow
sTo
tal
1871
—
—72
7$2
,555
.05
$511
.00
$3,0
66.0
5—
——
1872
17,1
003,
027
20,1
271,
977,
514.
8433
5,99
3.63
2,31
3,50
8.47
$115
.64
$111
.00
$114
.95
1873
18,2
665,
053
23,3
192,
078,
606.
9868
9,30
3.59
2,76
7,91
0.57
113.
8013
6.41
118.
7018
7417
,620
5,31
222
,932
1,58
8,83
2.95
616,
016.
402,
204,
849.
3590
.17
115.
9796
.15
1875
15,8
755,
163
21,0
381,
355,
599.
8653
3,00
0.21
1,88
8,60
0.07
85.3
910
3.23
89.7
718
7614
,206
4,98
719
,193
1,08
9,03
7.18
445,
772.
951,
534,
810.
1376
.66
89.3
979
.97
1877
12,8
024,
609
17,4
1193
4,65
7.82
361,
548.
911,
296,
206.
7373
.01
78.4
474
.45
1878
10,4
073,
725
14,1
3276
8,91
8.47
294,
572.
051,
063,
490.
5273
.88
79.0
875
.25
1879
11,6
2121
,194
32,8
151,
014,
525.
662,
192,
699.
543,
207,
225.
2087
.30
103.
4697
.74
1880
10,1
3824
,750
34,8
8879
0,71
0.39
2,65
8,05
8.14
3,44
8,76
8.53
77.9
910
7.40
98.8
518
818,
898
26,0
2934
,927
621,
612.
802,
381,
800.
953,
003,
413.
7569
.86
91.5
185
.99
1882
7,13
424
,661
31,7
9547
8,27
4.85
2,02
4,20
7.63
2,50
2,48
2.48
67.0
482
.08
78.7
118
834,
931
21,3
3626
,267
357,
334.
811,
882,
542.
412,
239,
877.
2272
.47
88.2
385
.27
1884
3,89
819
,512
23,4
1027
8,88
8.85
1,68
6,30
2.09
1,96
5,19
0.94
71.5
586
.42
83.9
5
1885
2,94
517
,212
20,1
5720
7,78
2.80
1,51
8,20
2.39
1,72
5,98
5.19
70.5
588
.21
85.6
318
861,
539
13,3
9714
,936
144,
389.
591,
458,
896.
441,
603,
286.
0393
.82
108.
9010
7.34
1887
1,06
911
,831
12,9
0010
5,83
7.01
1,76
5,58
2.36
1,87
1,41
9.37
99.0
114
9.23
145.
0718
8880
610
,787
11,5
9373
,659
.48
1,59
6,60
4.96
1,67
0,26
4.44
91.3
914
8.01
144.
0818
8960
39,
964
10,5
6752
,800
.27
1,39
7,48
7.09
1,45
0,28
7.36
87.5
614
0.25
137.
25
1890
413
8,61
09,
023
38,8
47.0
91,
263,
239.
371,
302,
086.
4694
.06
146.
7214
4.31
1891
284
7,59
07,
874
22,5
04.6
41,
040,
284.
411,
062,
789.
0579
.24
137.
0613
4.97
1892
165
6,65
16,
816
11,9
08.9
382
7,08
0.53
838,
989.
4672
.18
124.
3512
3.09
1893
865,
425
5,51
110
,494
.27
721,
060.
3273
1,55
4.59
122.
0313
2.91
132.
7418
9445
4,44
74,
492
5,31
2.20
645,
297.
4665
0,60
9.66
118.
0514
5.11
144.
84
08Chap8.qxd 2/27/03 9:32 AM Page 128
The Development of the U.S. Army Pension Plan 129
1895
213,
826
3,84
73,
583.
2754
1,92
3.48
545,
506.
7517
0.63
141.
6414
1.80
1896
143,
287
3,30
11,
972.
2745
6,84
7.61
458,
819.
8814
0.88
138.
9913
8.99
1897
72,
810
2,81
71,
440.
0038
8,29
1.95
389,
731.
9520
5.71
138.
1813
8.35
1898
32,
407
2,41
079
1.06
347,
070.
1534
7,86
1.21
263.
6914
4.19
144.
3418
991
1,99
81,
999
193.
3329
3,09
7.48
293,
290.
8119
3.33
146.
7014
6.72
1900
11,
742
1,74
396
.00
248,
912.
6724
9,00
8.67
96.0
014
2.89
142.
8619
011
1,52
71,
528
96.0
021
0,76
0.04
210,
856.
0496
.00
138.
0213
7.99
1902
11,
317
1,31
810
9.03
183,
540.
1318
3,64
9.16
109.
0313
9.36
139.
3419
031
1,11
51,
116
342.
9316
0,55
7.20
160,
900.
1334
2.93
144.
0014
4.18
1904
191
891
930
0.00
140,
276.
9414
0,57
6.94
300.
0015
2.81
152.
97
1905
—77
677
630
0.00
113,
716.
8111
4,01
6.81
—14
6.54
146.
9319
06—
660
660
4.80
101,
273.
4710
1,27
8.27
—15
3.44
153.
4519
07—
558
558
—83
,830
.00
83,8
30.0
0—
150.
2315
0.23
1908
—47
147
1—
68,7
66.0
068
,766
.00
—14
6.00
146.
0019
09—
395
395
—62
,731
.60
62,7
31.6
0—
158.
8115
8.81
1910
—33
833
8—
51,2
79.9
051
,279
.90
—15
1.72
151.
7219
11—
279
279
—44
,347
.45
44,3
47.4
5—
158.
9515
8.95
1912
—23
823
8—
37,8
19.2
037
,819
.20
—15
8.90
158.
9019
13—
199
199
—32
,171
.07
32,1
71.0
7—
161.
6616
1.66
1914
—17
017
0—
27,5
32.4
027
,532
.40
—16
1.96
161.
96
1915
—13
413
4—
22,3
48.9
022
,348
.90
—16
6.78
161.
9619
16—
115
115
—18
,848
.00
18,8
48.0
0—
163.
9016
3.90
Sour
ce: G
lass
on (
1918
, 113
), a
s co
mpi
led
from
the
rep
orts
of
the
Com
mis
sion
er o
f Pe
nsi
ons;
per
an
num
mea
n p
ensi
ons
calc
ulat
ed b
y th
e au
thor
s.G
lass
on’s
est
imat
es o
f ex
pend
itur
es f
or 1
872
for
surv
ivor
s an
d w
idow
s do
not
sum
to
his
rep
orte
d to
tal
of $
2,31
3,40
9.47
. W
e h
ave
used
Gla
sson
’ses
tim
ates
for
eac
h c
ateg
ory,
and
rep
ort
our
sum
as
the
tota
l sho
wn
abo
ve. T
he a
vera
ge t
otal
for
187
1 is
for
on
ly a
por
tion
of
the
year
and
is e
xclu
ded
asno
nre
pres
enta
tive
.
08Chap8.qxd 2/27/03 9:32 AM Page 129
After the War of 1812, the army dwindled in size. There were only 8,500ofWcers and men on active duty in 1845. Subsequent disputes with Mexicoeventually brought that state of affairs to an end. Shortly after Congressauthorized the president to recruit volunteers for the Mexican War, theregular army pension and severance beneWts were extended to volunteersjust as had been done for new recruits during the War of 1812. Althoughthe land grants continued, by the end of the war such warrants as couldbe converted into deeds were frequently sold in the market at steep dis-counts, often in the neighborhood of $0.75 an acre (Lebergott 1987). Atthese prices, the land component of a soldier’s severance package wouldhave been annuitized at less than $1 a month. In 1848, a new widows’ andorphans’ beneWt, half-pay for Wve years, was bestowed on survivors of Mexi-can War veterans. The period of the beneWt payment was subsequentlyextended. In 1858, the survivors beneWt was paid to widows for life or untilthey remarried, and orphans were covered until they reached age 16. Aswith the Revolution and the War of 1812, surviving veterans of the MexicanWar eventually received a retirement pension. In 1887, all honorably dis-charged veterans who had served 60 days or more and who had attained theage of 62 were eligible for a life annuity of $8.00 a month. This annuity wasalso available to all disabled or indigent veterans (regardless of age) andwidows who had not remarried. Table 8.2 contains the history of the pen-sion payments to veterans of the Mexican War and their widows after theconversion of the disability pension to an old-age pension in 1887.
Relatively speaking, the U.S. army was quite small during years of peacein the nineteenth century, usually in the neighborhood of 10,000 ofWcersand men. Because the army was not seen as a career by the majority of thosewho served, tens of thousands of men served in the army without partici-pating in one of the three antebellum conXicts that ultimately led to an old-age pension. Many of these veterans served during one of the Indian Warsof the era. Recognizing both the inherent inequity in this situation and theopportunity to obtain political support from veterans and their families,Congress eventually formally granted these veterans an old-age pension aswell. The $8.00 monthly annuity granted to Mexican War veterans or theirwidows in 1887 was extended to all veterans (and their widows who had notremarried) who had served in the Indian Wars between 1832 and 1842.This annuity, which was initially granted in 1892 was later extended to vet-erans of other Indian campaigns as well. Table 8.3 contains the history ofthe pension payments to veterans of the Indian Wars and their widows afterthe creation of an old-age pension in 1892.
This history of early army pensions shows that every army disabilitypension plan created before the Civil War ultimately was converted to aretirement pension for veterans who survived long enough. Of course, longenough could be a very long time, 50 or so years in many instances. A veteran
130 Chapter 8
08Chap8.qxd 2/27/03 9:32 AM Page 130
who went to war as a young man would have to survive at least to his mid-sixties or so to have received his retirement pension in most cases. Yet itshould be noted that this was roughly the age we have come to associatewith “normal” retirement. These pensions were not particularly lucrative bythe standards of retirement pensions in the twenty-Wrst century, but by thestandards of the day, they eventually came to represent a substantial Wnan-cial windfall for aged veterans. The monthly annuity of $8.00 would havebeen roughly one-third the monthly wage of an experienced farm laborerin the second half of the nineteenth century. Despite the eventual conver-sion of the antebellum army pensions to life annuities, there was no sys-tematic “regular” army retirement plan prior to the Civil War. In fact, it wasexigencies associated with the war that led to the Wrst army retirement plan
The Civil War and the Development ofModern Military Pensions
Of all the military pension plans in U.S. history, perhaps none has beenmore written about than the Civil War pensions. The attention paid to theCivil War pensions results both from the importance of the war itself as alandmark in American history and because in one way or another millionsof Americans were directly impacted by the basic pension plan. Inter-estingly, most scholarly attention has focused on the disability features ofthe Civil War plans; for the purposes of this volume the introduction ofretirement pensions during the war is much more salient. Before turning toretirement policies, an outline of the disability plan is warranted, since itwas from that plan that many of the old-age pension ultimately emerged(see Oliver 1917; Costa 1998).
When Fort Sumter was attacked in April 1861, there were roughly 16,000ofWcers and men in the U.S. army. Despite expectations that the troopswould be home by Christmas—the Christmas of 1861 not 1865—this Wgurewas about to grow dramatically. In July 1861, Congress authorized PresidentAbraham Lincoln to raise half a million volunteers and it enacted the WrstCivil War pension act. The act basically extended the same beneWts receivedby regular army personnel to the new enlistees. In addition, should a sol-dier die in uniform, his widow and legal heirs were promised $100 andany pay that was in arrears. These payments were expanded along withother services, such as medical, hospital, and housing beneWts. In 1890,Congress granted a pension to all surviving veterans who suffered from anydisability. In the same year, the Pension Bureau instructed examining physi-cians to grant a pension to all veterans over age 65 unless they were “unusu-ally vigorous.” By 1900, the average beneWt per recipient was $135. This wasa substantial sum at the time (Costa 1998). Table 8.4 contains a summaryof the number of “general law” or disability pensioners after the Civil War.
The Development of the U.S. Army Pension Plan 131
08Chap8.qxd 2/27/03 9:32 AM Page 131
132 Chapter 8
Tab
le 8
.2.P
ensi
oner
s of
the
Mex
ican
War
, Tot
al A
nnu
al P
ensi
on O
utla
ys, a
nd M
ean
Out
lay
per
Pen
sion
er, 1
887–
1916
Pens
ione
rsEx
pend
iture
sM
ean
annu
al o
utla
y
Year
Surv
ivor
sW
idow
sTo
tal
Surv
ivor
sW
idow
sTo
tal
Surv
ivor
sW
idow
sTo
tal
1887
7,50
389
58,
398
$53,
148.
68$2
,548
.08
$55,
696.
76—
——
1888
16,0
605,
104
21,1
641,
861,
756.
0758
3,05
6.28
2,44
4,81
2.35
$115
.93
$114
.24
$115
.52
1889
17,0
656,
206
23,2
711,
796,
899.
3069
3,57
2.45
2,49
0,47
1.75
105.
3011
1.76
107.
02
1890
17,1
586,
764
23,9
221,
728,
027.
5469
5,05
4.90
2,42
3,08
2.44
100.
7110
2.76
101.
2918
9116
,379
6,97
623
,355
1,62
2,11
4.75
695,
314.
522,
317,
429.
2799
.04
99.6
799
.23
1892
15,2
157,
282
22,4
971,
425,
258.
1868
6,73
3.57
2,11
1,99
1.75
93.6
794
.31
93.8
818
9314
,149
7,36
921
,518
1,39
6,39
2.38
736,
173.
412,
132,
565.
7998
.69
99.9
099
.11
1894
13,4
617,
686
21,1
471,
388,
707.
0780
3,34
5.91
2,19
2,05
2.98
103.
1710
4.52
103.
66
1895
12,5
867,
868
20,4
541,
433,
690.
8680
2,03
2.96
2,23
5,72
3.82
113.
9110
1.94
109.
3018
9611
,800
8,01
719
,817
1,36
8,68
5.95
814,
096.
142,
182,
782.
0911
5.99
101.
5511
0.15
1897
10,9
228,
072
18,9
941,
279,
188.
3181
8,56
3.78
2,09
7,75
2.09
117.
1210
1.41
110.
4418
9810
,012
8,14
318
,155
1,21
3,50
8.63
846,
560.
262,
060,
068.
8912
1.21
103.
9611
3.47
1899
9,20
48,
175
17,3
791,
107,
594.
6381
8,06
7.58
1,92
5,66
2.21
120.
3410
0.07
110.
80
1900
8,35
28,
151
16,5
031,
011,
503.
7480
4,30
8.31
1,81
5,81
2.05
121.
1698
.68
110.
0519
017,
568
8,10
915
,677
921,
052.
1879
4,32
0.27
1,71
5,37
2.45
121.
7097
.96
109.
4219
026,
828
8,01
714
,845
874,
942.
1378
5,20
8.75
1,66
0,15
0.88
128.
1497
.94
111.
8319
035,
964
7,91
013
,874
820,
449.
3580
1,52
2.99
1,62
1,97
2.34
137.
5710
1.33
116.
9119
045,
214
7,82
113
,035
885,
380.
4479
3,44
0.00
1,67
8,82
0.44
169.
8110
1.45
128.
79
08Chap8.qxd 2/27/03 9:32 AM Page 132
The Development of the U.S. Army Pension Plan 133
1905
4,54
07,
653
12,1
9373
9,82
3.41
780,
895.
111,
520,
718.
5216
2.96
102.
0412
4.72
1906
3,98
47,
488
11,4
7262
4,24
7.79
752,
148.
571,
376,
396.
3615
6.69
100.
4511
9.98
1907
3,48
57,
214
10,6
9959
0,83
9.61
747,
648.
731,
338,
488.
3416
9.54
103.
6412
5.10
1908
2,93
26,
914
9,84
675
3,78
2.02
725,
363.
511,
479,
145.
5325
7.09
104.
9115
0.23
1909
2,45
96,
633
9,09
262
0,65
9.98
995,
244.
991,
615,
904.
9725
2.40
150.
0417
7.73
1910
2,04
26,
359
8,40
152
1,38
5.79
942,
598.
861,
463,
984.
6525
5.33
148.
2317
4.26
1911
1,63
95,
982
7,62
142
8,22
1.22
894,
696.
891,
322,
918.
1126
1.27
149.
5617
3.59
1912
1,31
35,
553
6,86
634
1,75
6.88
826,
428.
731,
168,
185.
6126
0.29
148.
8317
0.14
1913
1,14
25,
123
6,26
541
1,41
6.35
773,
283.
551,
184,
699.
9036
0.26
150.
9418
9.10
1914
893
4,69
95,
592
354,
799.
7970
5,72
9.95
1,06
0,52
9.74
397.
3115
0.19
189.
65
1915
680
4,25
34,
933
277,
029.
2064
8,81
7.40
925,
846.
6040
7.40
152.
5618
7.68
1916
513
3,78
54,
298
213,
118.
7659
0,16
1.78
803,
280.
5441
5.44
155.
9218
6.90
Sour
ce: G
lass
on (
1918
, 119
), a
s co
mpi
led
from
the
rep
orts
of
the
Com
mis
sion
er o
f Pe
nsi
ons;
per
an
num
mea
n p
ensi
ons
calc
ulat
ed b
y th
e au
thor
s.T
he a
vera
ge t
otal
for
188
7 is
for
on
ly a
por
tion
of
the
year
and
is e
xclu
ded
as n
onre
pres
enta
tive
.
08Chap8.qxd 2/27/03 9:32 AM Page 133
134 Chapter 8
Tab
le 8
.3.P
ensi
oner
s of
the
Ind
ian
War
s, T
otal
An
nual
Pen
sion
Out
lays
, and
Mea
n O
utla
y pe
r Pe
nsi
oner
, 189
3–19
16
Pens
ione
rsEx
pend
iture
sM
ean
annu
al o
utla
y
Year
Surv
ivor
sW
idow
sTo
tal
Surv
ivor
sW
idow
sTo
tal
Surv
ivor
sW
idow
sTo
tal
1893
2,54
41,
338
3,88
2$1
58,0
76.2
6$
66,4
34.0
5$2
24,5
10.3
1—
——
1894
3,10
43,
284
6,38
837
7,88
3.57
456,
652.
2583
4,53
5.82
$121
.74
$139
.05
$130
.64
1895
3,01
23,
911
6,92
330
8,36
5.24
469,
161.
3977
7,52
6.63
102.
3811
9.96
112.
3118
962,
718
4,23
76,
955
268,
778.
3046
8,69
4.44
737,
472.
7498
.89
110.
6210
3.03
1897
2,37
34,
288
6,66
122
7,58
0.41
442,
082.
7666
9,66
3.17
95.9
010
3.10
100.
5318
982,
019
4,06
76,
086
189,
981.
3941
8,99
7.35
608,
978.
7494
.10
103.
0210
0.06
1899
1,65
63,
899
5,55
516
5,32
7.01
403,
871.
7456
9,19
8.75
99.8
410
3.58
102.
47
1900
1,37
03,
739
5,10
913
8,14
2.82
379,
035.
0751
7,17
7.89
100.
8310
1.37
101.
2319
011,
086
3,47
94,
565
111,
973.
9135
1,01
6.59
462,
990.
5010
3.11
100.
9010
1.42
1902
903
3,32
04,
223
87,9
68.8
932
4,18
3.09
412,
151.
9897
.42
97.6
597
.60
1903
1,56
53,
169
4,73
411
1,76
5.28
308,
442.
7442
0,20
8.02
71.4
297
.33
88.7
619
042,
367
3,51
95,
886
349,
549.
3539
6,93
3.03
746,
482.
3814
7.68
112.
8012
6.82
1905
2,26
93,
461
5,73
027
0,73
7.93
385,
633.
6765
6,37
1.60
119.
3211
1.42
114.
5519
062,
173
3,36
75,
540
251,
664.
8437
1,21
0.01
622,
874.
8511
5.81
110.
2511
2.43
1907
2,00
73,
201
5,20
822
0,46
7.88
341,
775.
9456
2,24
3.82
109.
8310
6.77
107.
9619
081,
820
3,01
84,
838
205,
289.
6332
8,03
4.20
533,
323.
8311
2.80
108.
6911
0.24
1909
1,74
42,
881
4,62
519
8,33
5.84
441,
562.
6063
9,89
8.44
113.
7215
3.27
138.
36
08Chap8.qxd 2/27/03 9:32 AM Page 134
The Development of the U.S. Army Pension Plan 135
1910
1,56
02,
822
4,38
218
4,29
4.60
437,
214.
9362
1,50
9.53
118.
1415
4.93
141.
8319
111,
387
2,62
94,
016
168,
688.
2440
6,39
8.28
575,
086.
5212
1.62
154.
5814
3.20
1912
1,21
02,
439
3,64
914
8,85
3.04
372,
550.
9552
1,40
3.99
123.
0215
2.75
142.
8919
131,
066
2,33
03,
396
176,
292.
7235
1,37
1.38
527,
664.
1016
5.38
150.
8015
5.38
1914
915
2,18
23,
097
225,
664.
8833
4,58
2.52
560,
247.
4024
6.63
153.
3418
0.90
1915
786
2,04
62,
832
199,
772.
9631
3,93
3.22
513,
706.
1825
4.16
153.
4418
1.39
1916
676
1,90
22,
578
173,
415.
4630
1,65
6.48
475,
071.
9425
6.53
158.
6018
4.28
Sour
ce: G
lass
on (
1918
, 115
), a
s co
mpi
led
from
the
rep
orts
of
the
Com
mis
sion
er o
f Pe
nsi
ons;
per
an
num
mea
n p
ensi
ons
calc
ulat
ed b
y th
e au
thor
s.T
he a
vera
ge t
otal
for
189
3 is
for
on
ly a
por
tion
of
the
year
and
is e
xclu
ded
as n
onre
pres
enta
tive
.
08Chap8.qxd 2/27/03 9:32 AM Page 135
136 Chapter 8
Tab
le 8
.4.G
ener
al L
aw P
ensi
oner
s at
Var
ious
Dat
es, 1
865–
1915
Gen
eral
law
Pen
sion
ers
Expe
nditu
res
Per
capi
ta e
xpen
ditu
res
Year
Inva
lids
Dep
ende
ntTo
tal
Inva
lids
Dep
ende
ntTo
tal
Inva
lids
Dep
ende
ntTo
tal
1865
35,8
8048
,989
84,8
69$
2,20
6,34
2.06
$ 6,
109,
730.
37$
8,31
6,07
2.43
——
—18
7087
,521
111,
165a
198,
686
9,13
7,36
2.43
18,6
43,4
43.3
827
,780
,805
.81
$104
.40
$167
.71
$139
.82
1875
107,
114
106,
669
213,
783
11,9
34,1
58.6
115
,860
,406
.95
27,7
94,5
65.5
611
1.42
148.
6913
0.01
1880
135,
272
80,6
4221
5,91
420
,876
,940
.64
12,7
20,4
76.7
233
,597
,417
.36
154.
3315
7.74
155.
6118
8524
4,20
180
,767
324,
968
47,8
45,0
06.9
315
,361
,993
.66
63,2
07,0
00.5
919
5.92
190.
2019
4.50
1891
419,
046
111,
128
530,
174
76,2
55,7
17.2
328
,316
,131
.09
104,
571,
848.
3218
1.97
254.
8119
7.24
1895
357,
223
102,
663
459,
886
59,3
82,2
12.0
117
,626
,721
.04
77,0
08,9
33.0
516
6.23
171.
6916
7.45
1900
310,
602
90,7
8839
1,39
055
,083
,515
.75
14,4
73,5
17.7
169
,557
,033
.46
177.
3415
9.42
177.
7219
0521
9,38
484
,482
303,
866
45,5
34,6
61.3
913
,489
,908
.88
59,0
24,5
70.2
720
7.56
159.
6819
4.25
1910
121,
581
74,6
2519
6,20
632
,951
,289
.41
11,7
05,8
14.9
144
,657
,104
.32
271.
0215
6.86
227.
6019
1545
,336
56,0
2010
1,35
616
,520
,301
.03
8,96
5,97
0.28
25,4
86,2
71.3
136
4.40
160.
0525
1.45
Sour
ce: G
lass
on (
1918
, p. 1
44),
wit
h c
alcu
lati
ons
by t
he a
utho
rs.
Year
s ar
e W
scal
yea
rs.
aIn
clud
es 2
,013
wid
ows
and
depe
nden
ts f
rom
ear
lier
war
s.
08Chap8.qxd 2/27/03 9:32 AM Page 136
In addition to the disability pensions that eventually became old-agebeneWts, the Civil War ushered in a new era of retirement pensions for U.S.army ofWcers and later enlisted men. At the onset of the war, Lincoln wasconfronted with a number of superannuated ofWcers in all branches ofthe service. In an effort to reduce the number of older ofWcers, in August1861 Congress passed the Wrst legislation creating a formal “retired list” forofWcers in all branches of the military service. From that date, ofWcers wereretired if deemed incapable of serving in the Weld by a retirement board, orupon application of the ofWcer after 40 years of service. This act limited thesize of the retirement list to 7 percent of the “active” list. This action keptofWcers in uniform during the war but subsequently proved troublesomefor War Department administrators. The limitations placed on the size ofthe retired list survived in one form or another until World War I. Therewere numerous revisions to these rules; many of which were quite minorbut a few were substantial. For example, when the 1861 act was amended in1870, the major changes included: (1) placing a numerical limit of 300 onthe retirement list (raised to 400 in 1875); (2) authorizing retirement at 30years at the president’s discretion; and (3) establishing retirement pay at 75percent of base pay at the time of retirement.
The restrictions on the size of the retirement list proved to be a perpet-ual management problem for the War Department throughout the postbel-lum era. Many ofWcers who should have been retired because of physical ormental inWrmities, the latter often associated with drink, were maintainedon the active list simply because there was no legal provision for doing any-thing else with them. This situation was ameliorated somewhat in 1882,when Congress imposed the Wrst compulsory retirement law affecting armypersonnel. Under this legislation, retirement became mandatory at age 64.Unfortunately and somewhat obtusely, no change was made to the previ-ously established limit on the number of ofWcers who could be carried onthe retired list. This untenable situation was rectiWed in the following year,when Congress established a second retired list for ofWcers who were com-pelled to retire due to age. There was no numerical limit placed on thissecond list; however, one could not move from one list to another. Thus, anofWcer retired early due to unWtness for Weld duty could not be transferredto the mandatory retirement list upon reaching age 64. As a result, the “lim-ited” retired list remained fully subscribed at 400. Thus, it remained thecase that many ofWcers who would have otherwise been retired early werekept on active duty until they reached the mandatory retirement age.
This situation was Wnally resolved de facto, if not de jure, in 1890.Legislation of that year mandated that ofWcers failing to physically qualifyfor promotion to the next rank were automatically relegated to a newlycreated “unlimited” retired list. In the following year, ofWcers on the old(limited) list were automatically transferred to the unlimited list uponreaching age 64. However, in response to the inXuential ofWcers’ lobby,
The Development of the U.S. Army Pension Plan 137
08Chap8.qxd 2/27/03 9:32 AM Page 137
138 Chapter 8
Congress reduced the size of the limited list to 350 ofWcers. Because of thelogjam of senior ofWcers, an ofWcer entering military service in his earlytwenties would typically expect to rise no higher than lieutenant colonelbefore reaching retirement age.
The ofWcer corps staunchly supported the legislative limitations on thenumber of ofWcers who could be retired for a lack of “Wtness.” There weretwo “observationally equivalent” explanations for constraints. The Wrst andmore charitable of the two is that by limiting the number of ofWcers whocould be retired, Congress also limited the ability of the retirement boardsto become embroiled in patronage politics. In any given year, the actualnumber of ofWcers to be retired was quite small, perhaps no more than tenor twenty. With a relatively small number of retirements, “capturing” theprocess in order to bend it toward the settling of old scores and making newfriends was hardly worth the time and effort it would take to do so. The sec-ond explanation is that the limitations were simply a form of rents Congressshared with senior military personnel. Through their many posts and con-tracts the army and navy were capable of showering visiting Congressmenwith all the appropriate honors, and Congressmen with acquaintances inbusinesses seeking military contracts were always eager to support theirmen in uniform. Maintaining the good will of the ofWcers was good businesslong before the term “military-industrial complex” was made a part of thelexicon by President Eisenhower in his farewell address.
It is important to note that these retirement acts only applied to ofWcers.With the exception of the pension acts dealing with veterans of theRevolution and the War of 1812, the army offered no general retirementplan to enlisted personnel before 1885. The 1885 act created the Wrst sys-tematic retirement plan for enlisted personnel in the U.S. army. It permit-ted retirement upon the completion of 30 years’ service at 75 percent ofbase pay. The plan was subsequently amended in 1890 and soldiers werepermitted to count wartime service as double time in the calculation ofyears of service.
Recall from the previous chapters that the navy created retirement plansfor its ofWcers and seamen before the army did so. SpeciWcally, the Wrst navyretirement plan for ofWcers antedated the Civil War, though the war inter-rupted the implementation of that plan, and in 1867 Congress establisheda retirement plan for seamen. The army and the navy had fundamentallydifferent pension plans dating from the onset of the Revolution. From theCivil War, however, there was a general movement toward making the armyand navy pension plans more uniform even though differences remainedwell into the twentieth century. For example, the act of 1885, which coveredenlisted army personnel, was extended to enlisted navy personnel in 1899.The main difference in treatment of the members of the two serviceswas that a seaman must have obtained the age of 50 to receive the retire-ment pension. This and other minor differences between the army and navy
08Chap8.qxd 2/27/03 9:32 AM Page 138
The Development of the U.S. Army Pension Plan 139
pension plans for noncommissioned ofWcers and other enlisted personnelwas changed in 1907. From that year on, all enlisted personnel in both ser-vices were entitled to retire voluntarily at 75 percent of their pay and otherallowances after 30 years of service.
With respect to the convergence of pension plans covering ofWcers, recallthat naval ofWcers were initially covered by the 1855 plan, the Wrst formalretirement plan for U.S. military personnel. The 1861 pension act super-seded that earlier legislation, and both the army and the navy were coveredby acts passed during the war. However, from the time of the navy’s 1867plan, the key details of the two systems diverged, and the process of makingthe regular army and navy pensions more alike was interrupted somewhatby the Spanish American War. In 1899, under pressure from then AssistantSecretary of the Navy Theodore Roosevelt, Congress altered the navy retire-ment system without changing the army’s system. Although not the kindof man to labor over the details of an annuity contract, Roosevelt actuallyhad an excellent general understanding of both the economics and the poli-tics of public-sector pensions, having begun his career in Washington as amember of President Cleveland’s Civil Service Commission. Furthermore,Roosevelt’s perpetual quest for reform, the urge to do something, led him toexamine all aspects of naval operations, including the retirement of navalpersonnel. To Roosevelt, this was a good method to rid himself of ofWcerswho did not share his reformist leanings.
Roosevelt proposed that all mid-level ofWcers (i.e., those in the grade oflieutenant, lieutenant commander, commander, and captain) become eligi-ble to apply for retirement regardless of their age or time in uniform.5
Applicants for retirement were to be listed according to seniority. The actthen speciWed a minimum number of vacancies in a Wscal year. These vacan-cies were essentially opportunities for promotion to a higher rank. Pro-motional prospects were based on a speciWc number of vacancies aboveeach rank; speciWcally these were: 13 vacancies above commander, 20 abovelieutenant commander, 29 above lieutenant, and 40 above lieutenant juniorgrade. If the actual number of vacancies was less than the minimumspeciWed in the act, then the President was authorized to retire enoughofWcers from the voluntary list to achieve the minimum number of vacan-cies. Should this process still not yield enough vacancies, then the Secretaryof the Navy was authorized to convene a retirement board of Wve rear admi-rals. This board was charged with reviewing all active-duty line ofWcers andretiring enough of them to obtain the minimum number of vacancies.However, the maximum number of ofWcers so retired each year was not toexceed Wve captains, four commanders, four lieutenant commanders, ortwo lieutenants.
These so-called “plucking boards,” which were responsible for identify-ing those unWt to continue on active duty, were by all accounts quite unpop-ular among the ofWcer corps. Still, despite subjecting ofWcers to the vagaries
08Chap8.qxd 2/27/03 9:32 AM Page 139
of an early retirement, there were two features that ameliorated the impactof the act. OfWcers could avoid the ignominy of forced retirement by vol-unteering to retire, and there was a ceiling on the number who could be soretired. In addition, all ofWcers retired under this plan were to receive 75percent of the sea pay of the next rank above that which they held at thetime of retirement. This last feature was amended in 1912 and ofWcers sim-ply received three-fourths of the pay of the rank in which they retired.During expansion of the navy leading up to America’s participation in theWorld War I, the plan was further amended in 1915 so that the Presidentwas authorized, with the advice and consent of the Senate, to reinstate anyofWcer involuntarily retired under the 1899 act.
As the byzantine act of 1899 suggests, the navy continued to struggle withits superannuated ofWcers. In 1908, Congress Wnally granted naval ofWcersthe right to retire voluntarily at 75 percent of active-duty pay upon the com-pletion of 30 years of service. In 1916, navy pension rules were againaltered, and this time a basic principle—up or out (with a pension)—wasestablished, a principle that continues to this day. The pension legislationof 1916 was part of the appropriations bill for the 1917 Wscal year. As suchit could not be opposed without placing the expeditious Wnancial prepara-tions for war in jeopardy. There were four basic components that differen-tiated the new navy pension plan from earlier ones. First, promotion to theranks of rear admiral, captain, and commander were based on the recom-mendations of a promotion board. Prior to that time, promotions werebased solely on seniority.6
Second, the ofWcers on the active list were to be distributed among theranks according to percentages that were not to exceed certain limits; thus,there was a limit placed on the number of ofWcers who could be promotedto a certain rank. Third, age limits were placed on ofWcers in each grade.OfWcers who obtained a certain age in a certain rank were retired with theirpay equal to 2.5 percent multiplied by the number of year in service, withthe maximum not to exceed 75 percent of their Wnal active-duty pay. Forexample, a commander who reached age 50 and who had not been selectedfor promotion to captain, would be placed on the retired list. If he hadserved 25 years, then he would receive 62.5 percent of his base pay uponretirement. Finally, the act also imposed the same mandatory retirementprovision on naval personnel as the 1882 act (amended in 1890) imposedon army personnel, with age 64 being established as the universal age ofretirement in the armed forces of the United States. The number of veter-ans covered by these “regular” pensions is shown in Table 8.6.
As for the army by the time war broke out between the United States andSpain, the army disability pensions discussed above were so well adminis-tered and considered to be so generous that Congress did not create a spe-cial pension plan for the veterans of the Spanish American War. Table 8.5contains the information covering the eventual pensioners from that conXict.
140 Chapter 8
08Chap8.qxd 2/27/03 9:32 AM Page 140
The Development of the U.S. Army Pension Plan 141
Tab
le 8
.5.R
egul
ar E
stab
lish
men
t Pe
nsi
ons
Sinc
e 19
04, A
nnu
ally
Th
roug
h 1
916
Pens
ione
rs o
n th
e ro
llEx
pend
iture
sPe
r ca
pita
exp
endi
ture
s
Year
Inva
lids
Dep
ende
ntTo
tal
Inva
lids
Dep
ende
ntTo
tal
Inva
lids
Dep
ende
ntTo
tal
1904
9,50
13,
231
12,7
32$1
,610
,413
.84
$677
,511
.15
$2,2
87,9
24.9
9$1
69.5
0$2
09.6
9$1
79.7
019
0510
,030
3,40
313
,433
1,72
3,01
7.24
696,
568.
492,
419,
585.
7317
1.79
204.
6918
0.12
1906
10,6
483,
544
14,1
921,
813,
181.
6170
8,62
0.49
2,52
1,80
2.10
170.
2819
9.95
177.
6919
0711
,076
3,61
514
,691
1,89
7,96
3.48
737,
068.
372,
635,
031.
8517
1.36
203.
8917
9.36
1908
11,7
863,
722
15,5
082,
016,
853.
3874
9,74
9.83
2,76
6,60
3.21
171.
1220
1.44
178.
4019
0912
,426
3,87
016
,296
2,10
1,79
7.19
774,
282.
952,
876,
080.
1416
9.15
200.
0717
6.49
1910
13,1
804,
041
17,2
212,
187,
267.
0581
3,72
3.07
3,00
0,99
0.12
165.
9520
1.37
174.
2619
1113
,757
4,17
917
,936
2,35
8,73
1.34
839,
102.
853,
197,
834.
1917
1.46
200.
7917
8.29
1912
14,3
734,
340
18,7
132,
433,
074.
2087
5,30
1.11
3,30
8,37
5.31
169.
2820
1.68
176.
8019
1314
,561
4,39
718
,958
2,56
0,37
9.27
886,
762.
613,
447,
141.
8817
5.84
201.
6718
1.83
1914
14,9
29a
4,41
219
,341
2,58
1,19
0.51
893,
957.
183,
475,
147.
6917
2.90
202.
6217
9.68
1915
15,2
424,
488
19,7
302,
631,
955.
2290
3,93
6.34
3,53
5,89
1.56
172.
6820
1.41
179.
2119
1615
,553
4,54
920
,102
2,71
1,94
6.09
913,
964.
153,
625,
910.
2417
4.37
200.
9218
0.38
Sour
ce: G
lass
on (
1918
, 146
), a
s co
mpi
led
by t
he C
omm
issi
oner
of
Pen
sion
s; p
er c
apit
a ca
lcul
atio
ns
by t
he a
utho
rs.
Year
s ar
e W
scal
yea
rs.
aA
djus
tmen
t h
as b
een
mad
e in
the
num
ber
of in
valid
s in
ord
er t
o m
atch
the
tot
al.
08Chap8.qxd 2/27/03 9:32 AM Page 141
142 Chapter 8
Tab
le 8
.6.W
ar w
ith
Spa
in a
nd P
hill
ipin
e In
surr
ecti
on P
ensi
ons
Sinc
e 18
99, A
nnu
ally
Th
roug
h 1
916
Pens
ione
rs o
n th
e ro
llEx
pend
iture
sPe
r ca
pita
exp
endi
ture
s
Year
Inva
lids
Dep
ende
ntTo
tal
Inva
lids
Dep
ende
ntTo
tal
Inva
lids
Dep
ende
ntTo
tal
1899
123
176
299
$9,4
30.5
1$1
9,17
6.30
$28,
606.
81—
——
1900
882
873
1,75
515
6,80
7.94
176,
097.
3133
2,90
5.25
$177
.79
$201
.72
$189
.69
1901
3,55
52,
049
5,60
468
2,02
0.24
493,
205.
521,
175,
225.
7619
1.85
240.
7120
9.71
1902
6,61
12,
854
9,46
51,
175,
178.
6156
3,26
7.67
1,73
8,44
6.28
177.
7619
7.36
183.
6719
039,
200
3,66
212
,862
1,53
2,64
8.77
671,
435.
442,
204,
084.
2116
6.59
183.
3517
1.36
1904
12,4
404,
389
16,8
292,
237,
024.
5786
9,90
7.21
3,10
6,93
1.78
179.
8319
8.20
184.
6219
0515
,711
4,78
020
,491
2,55
1,26
7.21
858,
731.
333,
409,
998.
5416
2.39
179.
6516
6.41
1906
17,6
464,
975
22,6
212,
603,
721.
8783
8,43
4.66
3,44
2,15
6.53
147.
5516
8.53
152.
1719
0719
,031
5,04
624
,077
2,62
8,61
9.17
842,
538.
103,
471,
157.
2713
8.12
166.
9714
4.17
1908
20,5
485,
117
25,6
652,
804,
849.
6684
9,27
3.32
3,65
4,12
2.98
136.
5016
5.97
142.
3819
0921
,967
5,12
827
,095
2,97
0,80
0.84
849,
368.
963,
820,
169.
8013
5.24
165.
6314
0.99
1910
22,7
835,
106
27,8
892,
970,
601.
9283
7,31
7.99
3,80
7,91
9.91
130.
3916
3.99
136.
5419
1123
,383
5,10
728
,490
3,11
0,90
0.63
840,
350.
623,
951,
251.
2513
3.04
164.
5513
8.69
1912
23,8
415,
009
28,8
503,
130,
991.
2284
0,09
4.83
3,97
1,08
6.05
131.
3316
7.72
137.
6519
1324
,157
4,85
829
,015
3,24
0,84
4.86
830,
323.
564,
071,
168.
4213
4.16
170.
9214
0.31
1914
24,2
504,
660
28,9
103,
132,
372.
5377
5,13
7.00
3,90
7,50
9.53
129.
1716
6.34
135.
1619
1524
,370
4,54
228
,912
3,10
5,80
7.74
745,
893.
733,
851,
701.
4712
7.44
164.
2213
3.22
1916
24,1
014,
371
28,4
723,
076,
733.
8872
3,49
1.83
3,80
0,22
5.71
127.
6616
5.52
133.
47
Sour
ce: G
lass
on (
1918
, 145
), a
s co
mpi
led
by t
he C
omm
issi
oner
of
Pen
sion
s; p
er c
apit
a ca
lclu
lati
ons
by t
he a
utho
rs.
Year
s ar
e W
scal
yea
rs.
08Chap8.qxd 2/27/03 9:32 AM Page 142
With respect to retirement plans, the pension act of 1882, with its sub-sequent revisions, remained the basic army plan until after World War I.After the war, the army followed the navy in moving to a system wherebyofWcers who were no longer in line for future promotions were automati-cally retired with no regard to extenuating circumstances. The Wrst step inthis direction came in 1919, when Congress allowed the War Department toplace ofWcers retired early due to the inability to perform their duties onthe “unlimited” list as opposed to the 350-man “limited” list. This Wnallybroke the bottleneck in army promotions that had plagued army adminis-trators since the Civil War.
In the following year, Congress created an army retirement plan notunlike that adopted in 1916 by the navy. As part of their evaluations bytheir superiors, all ofWcers were placed in either Class A or Class B. Thosecategorized as Class B were evaluated by a board of ofWcers, and if theboard determined that a Class B ofWcer had been so designated because ofneglect of duty or misconduct, then the ofWcer was discharged without com-pensation. If, however, the ofWcer had served 10 or more years and was notdeemed negligent, then he was placed upon the unlimited retired list. Assuch, he was to receive a retirement beneWt equal to 2.5 percent multipliedby years of service not to exceed 75 percent of his base pay at the time ofretirement. This maximum was subsequently reduced to 60 percent in 1924.Although there were subsequent revisions to the army and navy pensionplans, the acts of 1916 for navy personnel and 1920 for the army establishedthe foundations of the modern U.S. military pension plan. The key ele-ments of the uniWed military pension were mandatory retirement, a limitedtime to demonstrate superior potential for promotion to the next grade,and a deWned beneWt retirement plan for those who failed to demonstratethat potential or who reached the mandatory retirement age. Interestingly,it was at almost the same time that Congress established a retirement planfor federal (that is, nonmilitary) civil servants (Chapter 9).
Overall then, Table 8.7 contains a summary of most important legislationpertaining to military pensions in the United States from colonial timesthrough the Great War. Table 8.8 contains a summary of pension outlaysafter 1866, while Table 8.9 presents the inXation-adjusted expenditures in2000 dollars.
Modern Military Pensions and thePrinciples of Economics
Although for many readers this history of post-Civil War military pensionswill be interesting in its own right, others will be ediWed to learn that itprovides additional evidence illustrating how military administrators, ser-vice men, and policymakers in the late nineteenth century responded to theeconomic environment they faced. There are several characteristics of this
The Development of the U.S. Army Pension Plan 143
08Chap8.qxd 2/27/03 9:32 AM Page 143
144 Chapter 8
Table 8.7. Important Military Pension Acts of the United States, by Date, Act,Service, and Key Provisions
1775 Continental Congress Revolutionary navyA portion of the proceeds of prizes taken by the navy would be used to paydisability beneWts to ofWcers and seamen, and death beneWts to widows and chil-dren of those who died in service.
August 26, 1776 Continental Congress Revolutionary armyHalf-pay for life or the term of disability, with proportionate amounts for minordisabilities that interfered with earning a livelihood.
May 15, 1778 Continental Congress Revolutionary armyHalf-pay for 7 years for ofWcers serving for the duration (not to exceed half-pay ofa colonel) and $80 per year for enlisted personnel.
August 24, 1780 Continental Congress Revolutionary armyThe Act of 1778 was extended to widows and orphans.
October 21, 1780 Continental Congress Revolutionary armyOfWcers serving for the duration half-pay for life.
March 22, 1783 Commutation Act Revolutionary armyVeterans were granted Wve years’ full pay in money or 6 percent securities in lieuof half-pay for life.
April 30, 1790 1 Stat. 119, Ch. 10 Regular armyCompensation for total disability was not to exceed half-pay for ofWcers or $5 amonth for enlisted personnel, with proportionate amounts for lesserdisabilities.
August 4, 1790 1 Stat. 138, Ch. 34 Revolutionary armyThe Act of 1783 was honored with interest-bearing securities of the newgovernment.
(Payments to disabled veterans and survivors were authorized on an annual basisuntil they were Wnally continued for life in 1828.)
February 28, 1793 1 Stat. 324, Ch. 17 Revolutionary armyClaims for Revolutionary War Pensions had to be submitted within two years ofthe date of the Act. (Later acts permitted veterans to Wle for subsequentdisabilities that were associated with war injuries.)
1798, 1 Stat. 799, Ch. 24, Regular navyLegislation enacted for the government of the navy formally established the pensionfund as a depository for the government’s share of the proceeds from the sale ofprizes.
March 2, 1799 1 Stat. 709, Ch. 24 Regular navyOfWcers/seamen disabled in the line of duty were to receive half-pay for life, withprovision for payment for life to their widows if they were married at the time theyreceived the injury that resulted in death.
08Chap8.qxd 2/27/03 9:32 AM Page 144
The Development of the U.S. Army Pension Plan 145
June 26, 1812 2 Stat. 759, Ch. 107 Regular navyA pension fund supervised by the Secretary of the Navy was established forprivateers in which was deposited 2 percent of the prize money earned by U.S.privateers.
April 16, 1816 3 Stat. 285, Ch. 55 War of 1812 armyHalf-pay was granted for Wve years to widows and orphans.
April 24, 1816 2 Stat. 296, Ch. 68 Regular armyMaximum pay for disabled enlisted personnel was raised to $8.00 and juniorofWcers by $2.00–$3.00. (Throughout this era ofWcers and enlisted personnelreceived severance pay, and this payment aften included land warrants in the so-called military reserves. These beneWts were extended to widows and orphans.See in particular the Act of Dec. 24, 1811 [2 Stat. 669, Ch. 10].)
1824 4 Stat. 4, Ch. 15 Regular navyThis legislation repealed the Act of March 3, 1817 which had (after the War of1812) broadened the Wve-year half-pay pension entitlements to include widowsand orphans of naval ofWcers and seamen who died as a result of diseasecontracted in the naval service, as well as from wounds received in battle.
May 15, 1828 4 Stat. 269, Ch. 53 Revolutionary armyAll surviving veterans covered by the October 1780 legislation were granted fullpay for life retroactive to March 3, 1826.
June 7, 1832 4 Stat. 529, Ch. 126 Revolutionary armyBeneWts of the May 15, 1828 Act were extended to all veterans, with themaximum equal to a captain’s pay and proportional payments for time served.
1842 12 Stat. 600, Ch. 204 Regular navyfund was completely exhausted Navy pensions were paid from annualappropriations until reestablishment of the fund under the Act of July 17, 1862.
June 15, 1844 5 Stat. 667, Ch. 58 Regular navy/marinesResponsibility for the payment of pensions to seamen (or their wives ororphans) by virtue of wounds incurred in combat with the enemy while on boardarmed privated ships of the United States was assumed by the government(retroactive to July 1, 1837, when the privateer pension fund had been depleted).
May 13, 1846 9 Stat. 9, Ch. 16 Mexican War armyHalf-pay was not to exceed half-pay of a lieutenant colonel.
July 21, 1848 9 Stat. 249, Ch. 108 Mexican War armyHalf-pay for Wve years was granted to widows and orphans.
February 28, 1855 10 Stat. 616, Ch. 127 Regular navy“An Act to Promote the EfWciency of the Navy” provided a board to examine andreport to the Secretary of the Navy the efWciency of ofWcers in the navy, ashoreand aXoat. Those ofWcers found incapable of performing their duties would bedropped from the rolls or placed on the reserved list under which they wouldreceive leave of absence or furlough pay.
08Chap8.qxd 2/27/03 9:32 AM Page 145
146 Chapter 8
January 16, 1857 11 Stat. 153, Ch. 12 Regular navyAmendments to the 1855 statute were enacted to permit ofWcers to be restored tothe active list after application and appropriate examination by a board ofinquiry. If the board recommended restoration, the President might nominatethe retired ofWcer to the Senate. If not, the ofWcer remained on the retired list,receiving leave of absence or furlough pay.
June 3, 1858 11 Stat. 309, Ch. 85 Mexican War armyThe provisions of the 1848 Act were extended to life.
July 22, 1861 12 Stat. 268, Ch. 9 Civil War armyCivil War volunteers received the same disability pension as those disabled in theregular army. The widows/legal heirs of those killed in service received $100 plusany arrears of pay due the deceased member.
August 3, 1861 12 Stat. 287, Ch. 42 Civil War armyProvided for the transfer of career ofWcers to the retired list as a result ofincapacity for active service, on approved Wndings of a retirement board, or forretirement after 40 years of service, on application of the ofWcer. Retirement paywas equal to pay proper of their grade plus 4 rations a day, commuted to 30 centseach ration. A fundamental weakness of the act was that it limited the total num-ber of ofWcers on the retired list to a maximum of 7 percent of the authorizedstrength of the active list.
July 14, 1862 12 Stat. 566, Ch. 166 Civil War armyestablished the general law pension system, subsequently amended by the Act ofJuly 17, 1862.
July 17, 1862 12 Stat. 596 Civil War armyOfWcers of the army or marine corps over age 62 or with more than 45 years’service might be retired at the discretion of the President. The 7 percent limit onthe size of the retirement list was retained.
March 2, 1867 14 Stat. 515, Ch. 14 Regular navyEnlisted men who had served honorably in the navy for 20 years or more and weredisabled for sea service because of age or inWrmity received 50 percent active-dutypay. Any disabled person serving honorably for 10 or more years could apply foraid from the pension fund, receiving no more than half of active-duty pay.
1870, 16 Stat. 315, Ch. 294 Regular armyauthorized retirement based on 30 or more years of service (at the discretion ofthe President) and Wxed the pay of retired ofWcers at 75 percent of the pay of thegrade at which retired.
July 15, 1870 16 Stat. 315, Ch. 294 Regular armyFurther reduction in active-strength ceilings along with some relief from the 7 per-cent limit previously placed on the retirement list.
February 14, 1871 16 Stat. 411, Ch. 50 War of 1812 armygeneral service-pension like that of May 15, 1828 for Revolutionary Warveterans was extended to War of 1812 veterans.
June 30, 1882 22 Stat. 117, 118, Ch. 254 Regular armyintroduced the compulsory retirement principle based on age 64.
08Chap8.qxd 2/27/03 9:32 AM Page 146
The Development of the U.S. Army Pension Plan 147
February 14, 1885 23 Stat. 305, Ch. 67 Regular armyProvided for retirement upon completion of 30 years’ service with retirementequal to 75 percent of the pay of the rank in which retired.
January 29, 1887 24 Stat. 371, Ch. 70 Mexican War armyDisability, indigence, or age 62 entitled veterans or their widows to $8 a month forlife or the length of disability or indigence. (All widows’ payments required thatthe widow remain unmarried.)
September 30, 1890 26 Stat. 504, Ch. 11252 Regular armyEnlisted men were allowed to compute certain active wartime service asdouble time when computing the 30 years necessary for retirement.
October 1, 1890 26 Stat. 562, Ch. 1241 Regular armyprovided for the compulsory retirement of ofWcers failing physically upon exami-nation for promotion.
1899 30 Stat. 1004, Ch. 413 Regular navyThe 30-year retirement privilege was extended to enlisted members of the navywith the added proviso that applicants must concurrently be at least 50 yearsof age.
March 3, 1899 30 Stat. 1004, Ch. 413 Regular navyCaptains, commanders, and lieutenant commanders might apply for voluntaryretirement without limit to age or service.
March 2, 1907 34 Stat. 1216, Ch. 2515 Regular armyadded an allowance in lieu of quarters, fuel, and light.
08Chap8.qxd 2/27/03 9:32 AM Page 147
Table 8.8. Pension Outlays for the Army, Navy, and Total, 1865–1917, Number ofPensioners, and Average Outlay per Pensioner
Fiscal year outlays Total AnnualYear Army Navy Total pensioners average
Source: Data until 1899 from Glasson (1900); data from 1900 from Glasson (1918) basedon Reports of the Commissioner of Pensions, especially the 1917 report, pp. 29–30. Percapita outlays calculated by the authors.Years are Wscal years.
08Chap8.qxd 2/27/03 9:32 AM Page 148
Table 8.9. InXation-Adjusted Total Pension Outlays and Real Outlays per Pensioner,1866–1917 (in dollars of 2000 purchasing power)
Total pension outlays Per pensionerYear ($M 2000) ($ 2000)
Source: Nominal total outlays and per pensioner averages from the previous tables.Conversion to inXation-adjusted (real 2000 dollar purchasing power) done using multi-plicative factors for December of each Wscal year. The average factor over the periodshown as measured by the arithmetic mean was 17.74 and the median was 15.25. Therange of the factors was from 9.3 in 1866 to a high of 18.0 in 1898.
08Chap8.qxd 2/27/03 9:32 AM Page 149
history that closely follow our discussion of the economics of pensions ingeneral and military pensions in particular. The Wrst is the initial diver-gence, and subsequent long-run convergence, of the basic features of the armyand navy pensions plans. The economic reasons for the early divergence ofthe basic features of the two plans was discussed at length in earlier chap-ters. Basically, the argument was that, in the age of sail, monitoring shipsat sea was prohibitively costly and many forms of naval compensation, in-cluding the funding of the navy pension plan, were based on an incentivescheme tied to the capture of prizes. As a component of overall compensa-tion, navy pensions were also covered by the prize system. Army activitiescould be monitored more directly, and, as a result, army compensation wasnot tied to any formal incentive scheme nor were army pensions; ratherarmy wages and pensions were paid on a pay-as-you-go system.
Eventually, however, the two systems converged. There are several rea-sons for that convergence. The Wrst is based on the evolution of the tech-nology and organization of modern warfare. One of the striking features ofthe evolution of naval warfare from the age of sail to the that of the dread-nought was the demise of the prize system. As naval vessels grew in size andspeed, developments that themselves were the result of improvements inmetallurgy and power transmission, it became increasingly difWcult for oneship to render another immobile for boarding and seizure. In the age ofsail, a man-of-war could attempt to disable an opponent by shooting awayspars, masts, sails, and rigging. Before the prey could repair the damage, itwas boarded and seized. Such was not the case with a more modern man-of-war, nor was it the case for a modern merchantman.
Another technological change that fundamentally altered the economicsof naval warfare was the advance in the size, velocity, and accuracy of navalgunnery. Killing with a Wrearm is essentially an exercise in physics; that ismass and velocity, coupled with accuracy, determine the effectiveness of theshot. An accurate, large-caliber weapon Wred at a high velocity offers themost deadly combination. This characteristic of modern naval warfare wasall too obvious to observers of the American success in the war with Spainin which two American Xeets on opposite ends of the world devastated theirSpanish counterparts with their effective Wre power. As Admiral A. S. Barkersaid of the U.S. engagements with the Spanish Xeets in 1898: “An hour ortwo at Manila, an hour or two at Santiago, and the maps of the world werechanged” (Miller 1997) and so too was naval warfare. In the age of Nelson,ships of a few hundred tons lobbed shell after shell at one another from afew hundred yards, often with little effect; 140 years later the Bismarck sankthe Hood, all 41,000 tons of her, with one shot Wred from Wve miles away.The escalation of the killing power of naval vessels rendered obsolete anynotion of a commerce raider capturing and hauling a fellow man-of-warinto a prize court.
But what about strictly commerce raiding? If a commerce-raiding capital
150 Chapter 8
08Chap8.qxd 2/27/03 9:32 AM Page 150
ship caught a lone merchantman, the raider could often persuade the cap-tain of the merchantman to surrender the ship, but then the question aroseas to what to do with the potential prize. Because of the advances in thespeed of the capital ships and wireless telegraphy, after the capture, theraider simply assumed the merchantman’s problem. How to get the cap-tured ship into a safe port? Compounding the difWculty of the prize game forboth parties were two other developments, one old and the other new. Theformer was organizational, the latter technological. In order to solve the lonemerchantman’s problem, combatants adopted the convoy system, which hadbeen common in the age of sail—a large number of merchant vessels guardedby a smaller number of naval vessels. The accompanying vessels were fastdestroyers that could launch torpedoes at the larger capital ships engagedin commerce raiding. No lone raider could successfully attack a convoy.
The technological innovation that solved this problem and led to a newtype of raiding was of course the submarine. The submarine solved severalproblems for the raider. In terms of being able to sink a ship, it had all theWrepower it needed, since the killing power of a torpedo was vastly multi-plied by the energy unleashed by striking at or below the waterline. Untilwell into the Second World War, Wnding and catching a submarine wasquite difWcult. However, the same technology that made the submarine sodeadly made its capture of a prize impractical. The submarine was a smallhighly specialized instrument, and it was provisioned for and maintained bya small crew with nothing to spare. Surface raiders could carry the extramen to seize and guide a prize into court; a submarine could not spare themen. Furthermore, even if a submarine could capture rather than sink amerchantman, the submarine would have not been able to defend the prizeagainst the subsequent attack of an enemy raider or, later, aircraft. Takentogether these developments killed the prize system. During the War of1812, the U.S. frigate Constitution and H.M.S. Shannon represented the apexof vessels designed to wage a war in which capture not destruction was theultimate end. The dreadnought, however, was designed to send an oppo-nent to the bottom, not to a prize court.
The U.S. Congress formally dismantled the prize system after the anni-hilation of the Spanish Xeets during the war with Spain. A sunken warshipstill yielded “gun” and “head” money (see Chapter 3), but the cost of set-tling disputes concerning ships sent to the bottom of the sea proved pro-hibitive and the practice was outlawed. During World War I, some privatemerchants offered to pay U.S. seamen “gun” and “head” money for sinkingGerman ships. Secretary of the Navy Josephus Daniels respectfully declinedto accept their offer (Perry 1919). The British continued the practicethrough World War II, but compared to the past it yielded little income toBritish seamen (Oliver 1946).
Another reason for the convergence of the army and navy pension plansis related to the technological innovations described above. With advances
The Development of the U.S. Army Pension Plan 151
08Chap8.qxd 2/27/03 9:32 AM Page 151
in the speed of sea transportation and in wireless communication, moni-toring naval activity became a much less costly affair. In the age of sail, aship of the line might have gone for long periods with little or no contactwith the admiralty or fellow combatants. In the age of the dreadnought, acaptain’s actions or inaction could be monitored much more closely, thusameliorating the need for an incentive scheme based on prizes.
The Wnal explanation of the convergence of army and navy plans was thequest for a reduction in the cost of managing two entirely separate pensionplans. After the Civil War, the navy pension plan received a great deal ofcriticism because it had the potential to be much more lucrative than thatoffered to army veterans. From a managerial standpoint, Congress viewedthe two services as roughly equal contributors to the welfare of the repub-lic. Therefore, large differences in compensation between the two serviceswere bad for the morale of at least one of them. From a managerial pointof view, this would have led to an overallocation of certain resources, suchas skilled workers, to the higher-paying service. There were also basic issuesof equity. Risking one’s life for one’s country was perceived as equally valu-able whether one did so on a blockading vessels, or in the trenches, or in acavalry regiment facing a native insurrection. As a result, there was a long-run movement in Congress to equate the compensation of the two services.
These phenomena explain the convergence of the two plans. Let us nowturn to the other important characteristics of military pensions in theUnited States. Among these is the emergence of a retirement pension plan—that is a deferred compensation plan regardless of disability. As discussed inChapter 2, the deferred nature of the compensation was designed to bondthe soldier or seaman to the service. However, one of the problems faced bynineteenth-century civilian leaders was that the bonding of military per-sonnel, particularly ofWcers, to their services was all too strong. Once in themilitary, they chose to simply retire on the job, continuing to receive fullpay rather than the reduced pay offered by off-job retirement. So it becamenecessary to induce soldiers to retire through various schemes, includingpresidential prerogative, plucking boards, and mandatory retirement. Thebasic problem with the early attempts at mandatory retirement was that pro-motion occurred almost entirely based on seniority. Therefore, there wasno effective way of weeding out unWt ofWcers. It was only at the end of thenineteenth century that the navy Wnally solved this problem by promotingon merit while simultaneously limiting the time a less-then-meritorious ofW-cer could spend in a particular rank.
Finally, it is worth noting that in addition to emerging before those forother workers, U.S. military pensions were quite lucrative relative to otherearly plans. Few public sector workers could equal the 75 percent replace-ment rates on the typical U.S. military pension in the late nineteenthand early twentieth centuries. Although U.S. retirement pensions generallycame later than those for European soldiers, excluding the exceptional
152 Chapter 8
08Chap8.qxd 2/27/03 9:32 AM Page 152
military pension that accompanied a peerage in Europe, U.S. military pen-sions typically exceeded those offered in Europe. The same cannot be saidof U.S. civil service pensions, for the simple reason that there was no U.S.civil service pension plan until 1920.
Notes
1. See Chapter 4.2. The Newburgh Conspiracy has received many different treatments in the liter-
ature of the American Revolution. This discussion owes much to Ferguson (1961).For a more recent treatment, see Teipe (2002).
3. See Chapters 4 and 5.4. Much of the material in this section is taken from Congressional Research
Service (undated); Congressional Research Service (1972); and U.S. House ofRepresentatives (1975).
5. Ranks in the U.S. services can be confusing to those unfamiliar with them. Alieutenant in the navy holds essentially the same rank as a captain in the army;whereas a captain in the navy is equivalent to a colonel in the army. The two juniorcommissioned grades in the navy, ensign and lieutenant ( junior grade), correspondwith the army ranks of second lieutenant and Wrst lieutenant, respectively. To add tothe confusion the commanding ofWcer of a navy vessel carried the title of “captain”even if his formal rank was lieutenant or commander.
6. The highest navy ranks of admiral and vice-admiral were made essentially bypolitical appointment.
