The NRA: How Price-Fixing Perpetuated the Great Depression
During the Great Depression of the 1930s the first thing to be sacrificed was free markets. Industrialists, farmers, laborers, and many more came to Washington for handouts, regulations, or price controls.
Some observers seem to think employers are less willing than employees to seek federal help, so the actual case is revealing. The National Industrial Recovery Act (soon shortened to NRA) became law under President Franklin Roosevelt in 1933 and dramatically altered America’s traditional free-market system. Under the NRA, a majority of firms in any industry had government approval backed by force to determine how much a factory could expand, what wages had to be paid, the number of hours to be worked, and the prices of products. Whether or not a businessman helped write the code for his industry, he was bound by the terms and subject to a fine or jail term if he violated them.
Evil Price-Cutting
Why were Roosevelt and certain New Dealers so eager for higher wages and prices without an increase in productivity and with less competition? They believed that if people earned more, they could buy more, and that would stimulate recovery from the Great Depression. In this high-wage theory the efficient, innovative, and price-cutting businessman was evil because he was believed to contribute to lower wages and therefore diminishing purchasing power. He was a violator of “fair competition.” His gain was not just the loss of his competitors but of the whole country. By encouraging codes of “fair competition,” the NRA was giving all existing businesses a chance to make profits, to pay high wages, and to survive the price-cutter.
Many businessmen liked the idea of raising their prices and sending to jail any competitor who wanted to charge lower prices. But such a move discouraged inventors and entrepreneurs from experimenting with ways to make products cheaper and better. The NRA in effect carved up markets among existing producers, fixed prices and wages, and assumed all industry was stagnant and unchanging. In automobiles, however, Henry Ford had experimented with assembly-line production and had cut the price of American cars from about $3,000 to $300. Under the NRA he was not allowed to innovate further. So Ford refused to sign the code and jack up his car prices, as his competitors at General Motors and Chrysler were doing. “I do not think that this country is ready to be treated like Russia for awhile,” Ford wrote in his notebook. “There is a lot of that pioneer spirit here yet.”
Ford was told his company would receive no government contracts until he signed—and with the large increase in government agencies during the 1930s, that meant a huge loss of business. For example, the government rejected a Ford agency bid on 500 trucks for the Civilian Conservation Corps that was $169,000 below the next best offer. “We have got to eliminate the purchase of Ford cars [by the government because the company has not] gone along with the general [NRA] agreement,” Roosevelt said at a press conference.
Ford’s assertion of freedom and independence gave hope to those who wanted to return to competition.
When Hugh Johnson, the head of the NRA, was asked what would happen to those “who won’t go along with the new code,” he threatened, “They’ll get a sock in the nose.” Although Johnson refrained from applying his fist to Ford’s nose, he did use the arm of the law to jail many men who refused to jeopardize their businesses by complying with NRA codes. In York, Pennsylvania, for example, Fred Perkins, who produced storage batteries to help light farms, went to jail for paying his employees less than what had been written into the NRA code by the storage-battery businessmen. Perkins’s employees were outraged that their boss was in jail, and they met with him to receive instructions on how to continue the business in his absence. As J.B. Jones, one of Perkins’s employees, said, “We asked him for work and he gave it to us at a time when we were in distress. The wages he was paying were fair.”
A more dramatic jailing was that of 49-year-old Jacob Maged of Jersey City, New Jersey. Maged had been pressing pants for 22 years, and his low prices and quality work had kept him competitive with larger tailor shops in the better parts of town. The NRA Cleaners and Dyers Code demanded that he charge 40 cents to press a suit. Maged, despite repeated warnings, insisted on charging his customers only 35 cents. “You can’t tell me how to run my business,” he insisted.
Not only was Maged thrown in jail, he was also slapped with a $100 fine. “We think that this is the only way to enforce the NRA,” said Abraham Traube, a director of the NRA code authority for the Cleaners and Dyers Board of Trade. “If we did the same thing in New York City we would soon get the whole industry in line.” Many editorialists, however, sided with Maged. “It didn’t matter,” the Washington Post said, “if Maged had to charge less than the bright and shiny tailor shop up the street if he wanted to continue to exist. The law said he couldn’t.” “For a parallel,” the New York Herald Tribune said, “it is necessary to go to the Fascist or Communist states of Europe.”
Embarrassing Questions
No merchants wanted to pay fines or go to jail, but the more than 500 NRA codes often imposed such quirky regulations that it was hard for many to comply. Finally, in 1935, the Schechter brothers, who sold kosher chickens in Brooklyn, took their case to the Supreme Court to challenge the constitutionality of the NRA. Justice George Sutherland asked so many embarrassing questions about the NRA chicken code that the audience actually broke into laughter at some of the exchanges. By a 9-0 vote the NRA was found unconstitutional.
The defeat of the NRA was a cause for celebration. “The Constitution has been re-established,” rejoiced Senator William Borah of Idaho. “Impulsively adopted . . . ,” journalist Frank Kent said, “it [the NRA] was fastened on the people by the most blatant ballyhoo ever promoted by a Government, and it ends in a horrible mess.” President Roosevelt disagreed and said the Supreme Court was taking the country backward with a “horse and buggy” interpretation of the clause in the Constitution that gives Congress the power to regulate commerce. Roosevelt’s desire to continue his experiments in central planning and government intervention would keep the Great Depression going for many years more. When we freed up the American economy after World War II, however, we encouraged competition, innovation, and the creation of new jobs. The Great Depression was over at last.
Comment by Ann E. Mouse on 12 April 2009:
So I hope this depression will be remembered as starting with the banks voluntarily ceding the free markets in a multi-trillion dollar theft from the tax payers. Why is everyone suddenly bitching about Roosevelt when the banks just stole all our money and told us 1 – it was for our own good and 2 – we are not allowed to ask who is getting it and what they are doing with it? That socialism is ok for free marketers but someone mentions giving a few billion to avg citizens and everyone is acting like Obama is Castro.
If we just took those trillions and gave them directly to citizens the depression would have had more of a chance of being stopped than by letting the banks steal it.
Why don\’t so-called free marketeers lambast Roosevelt for creating the bank holidays and preventing the bigger Chicago and the New York banks from failing? Capitalism would have then been exposed, we would have had to try to run the country with (effectively) all the banks having failed – and guess what? People would have found ways to continue to live, work and \"be productive\" but suddenly those in power and their tool to keep the masses in line would have been lost, the curtain pulled back.
Free Market advocates should be worshipping Roosevelt for preventing capitalism, as practiced in the US, from failing completely and being exposed as self serving for the wealthy but unworkable for society at large.
Maybe your next article and book could be about that \"Roosevelt – hero who helped the rich and powerful retain control of the US and thus the World\"
Comment by John Lowry on 21 April 2009:
I agree with the first response. Capitalism is perfect in its own form. It is a great theory but fails when you add one thing. That one thing is greed. I think that is one of the best quotes that I have ever seen. It is self serving for the wealthy but unworkable for the society at large. The rich want to stamp out competiton and control prices. Set the price high enough that the middle class can not afford the finer things. It\’s a simple situation of seperation of class similiar to the different levels of passengers on the Titanic.
Comment by Dean West on 21 April 2009:
Ann Mouse and John Lowry,
This latest failure is not the result of the free market failing. We’ve not had a free market since long before Roosevelt. Teddy Roosevelt, that is.
Greed is not a bad thing, and in a free market is self-correcting. I’d suggest a purchase of the book “Atlas Shrugged” by Ayn Rand, or less ponderous, “Economics in One Lesson” by Henry Hazlitt or “Economic Sophisms” by Frederic Bastiat.
Take care,
Dean
Comment by John Lowry on 22 April 2009:
Dear Dean,
I have read “Atlas Shrugged” and it is one of my favorite fiction novels. You have to remember that in a perfect world that greed and a self correcting market might work.
Seriously I may love to wash cars but I am not going to do it for free cause I love it.
Overall, there needs to control and moderation. The market can not be completely free and it can not be completely control, but to much of the either will ruin it.
Greed from the financial executive is a prime example why there needs to be regulation. I am a high paid executive. My company failed but I still should get my bonus and not be fired. They have to much power to be self-regulating. To many peoples quality of life hang in the corrupt hands.
v/r
John
Comment by Cari Beth on 23 April 2009:
Dear John Lowry,
You also have to remember that it is only in a perfect world where government \\"control and moderation\\" will work as well.
You cannot have liberty and even \\"moderate\\" government control at the same time.
If opting between the two in today\\\’s challenge filled world, the wiser choice is to let individuals in the free market decide how to operate. You underestimate the human instinct of self-preservation.
The world will not destruct if decisions are left up to individuals rather than nanny-minded governments operating in the name of good.
Comment by Frederick Davies on 24 April 2009:
Ann E. Mouse,
“…giving a few billion to avg citizens…”
A FEW billions! What kind of “few” are you talking about? The ones with 3 zeroes at the end!?
“If we just took those trillions and gave them directly to citizens the depression would have had more of a chance of being stopped than by letting the banks steal it.”
Yeah, maybe leasing a few helicopters to bomb the country with money will work… ever heard of inflation?
John Lowry,
Men have been greedy since the dawn of time; so if capitalism survived til the 1930′s, it must have had a mechanism to control greedy people, otherwise it would not have existed long enough for Roosevelt to screw it up then. Using a continuous phenomenon to explain a punctual event requires more than just pretty phrases.
Comment by Mark on 24 April 2009:
John Lowry you are not a “high paid executive.” Your grammar is far too poor for me to believe that claim.
Comment by M Heiss on 24 April 2009:
What leftists hate most is liberty. It is out of their control.
Comment by Milton Recht on 24 April 2009:
No one is saying Roosevelt caused the bank failures and the economic downturn. Economy wide slowdowns and bank failures occurred before Roosevelt\’s presidency, but were of much shorter duration than the Great Depression. They were also self-correcting.
Prior to Roosevelt, these downturns were called depressions. The epithet \"Great\" was added to Roosevelt\’s depression because it lasted longer and was more severe than previous depressions. Many of his programs made matters worse and not better. His advisers in his second term recognized that they had been ineffectual. The public did not like Roosevelt by the end of the 1930\’s and if not for the troubles in Europe and the approaching war, Roosevelt would not have been reelected to his third term.
Many of Roosevelt\’s policies caused great hardships and extended the economic slowdown beyond its normal cycle. His price fixing demanded that many food producers destroy grains and kill livestock to preserve high prices while many in the US stood in bread lines. His work program policies forced many women, blacks and immigrants out of work because they favored white males, even though these non-favored were the primary or sole breadwinners for their families.
Roosevelt was a crafty politician. He controlled his image. He never let himself be photographed in a wheelchair. He read Sunday comics on the radio. He was likable, but not effective in ending the 1930\’s depression. Hitler, Pearl Harbor and post WWII returning GIs ended that severe economic downturn.
The authors are just historians reciting correct facts about Roosevelt. That these facts do not match many comment writers idolized Hollywood version of Roosevelt just shows that many Americans do not have accurate knowledge of American history.
Comment by wintercow20 on 24 April 2009:
I am not sure anyone will read this if they are fixed in their ways … but no serious scholar tries to argue that capitalism has ever existed or can exist. Most criticisms of capitalism turn out to be criticisms of corporatism. All capitalism means is allowing two people to transact if each finds it in their interest, without violating the rights of others; and not forcing two people to transact if they do not wish to do so. It is nothing more, nothing less.
Furthermore, to bring up “greed” as the reason capitalism only works in a theoretical world is a total straw man. Greed is ever-present in humans, regardless of where or how they conduct their economic affairs. No real scholar would ever argue that having greed or getting rid of greed is a reason for having capitalism. The point about markets that is worth noting is that:
(1) They tend to harness the forces of self-interest to work in the benefit of others, even if that was not the intention (you should note a distinction between self-interest and greed by the way).
(2) They tend to restrict the damage that greed can inflict on other people by virtue of connecting the benefits and costs of decision-making to the people making decisions, and limiting the damage it can inflict on 3rd parties.
Evidence seems to be pretty strong showing that people are greedy in all aspects of their lives (it is not confined to economic life) and most parts of poeple’s lives are not profitably thought of in terms of capitalist/ non-capitalist. Evidence also abounds that when there are greedy people with guns, that is more dangerous to human health and well being than when the greedy people do not have guns. But why would folks be persuaded by a little thing like historical evidence?
Comment by Craig on 24 April 2009:
“The rich want to stamp out competiton and control prices.”
Of course they do; it’s a very human trait. They can’t, however, unless government interferes in the market and gives them the power which was the point of the entire article.
Comment by Bob on 24 April 2009:
The Schechter brothers knew chicken sh*t bogus laws when they saw them and fought to make them more kosher. We should thank them for their brave act!
Comment by Flash Gordon on 24 April 2009:
I\’ve been told that freedom has its enemies, and I know that it\’s true. It\’s hard to believe it, nevertheless.
That anyone would prefer to be bossed around by an overbearing government than to be free, self reliant and self actualizing which are the absolute prerequisites to a meaningful pursuit of happiness, is just mind boggling. Yet it is not at all uncommon that a clear-heading defense of freedom such as Burton Folsom Jr. has written here will inevitably be followed by some bitter and ignorant rant such as John Lowry and Ann Mouse have given us.
Of course, Ms. Mouse is absolutely correct that the bank bailout, as all bailouts, was horribly wrong. The so-called \"sub-prime crisis\" would probably be over by now if the politicians had done nothing, and the taxpayers would not be facing the worst tax of all: rampant inflation that is sure to come from all the bailout and \"stimulus\" insanity.
Comment by tired of politricks on 24 April 2009:
It is the politicians who are greedy, for power. They use crises and the ignorance of the majority of the people about economics to take advantage of them. If not for politicians making laws to favor one group over another, it wouldn’t happen. The market won’t allow it. In the market, you serve customers with value, or you fail. The businessmen in the article were trying to lower their prices below the price floor established by the NRA (and thereby offering superior value for their customers). You knee jerk leftists aren’t reading for comprehension, just buzz words.
Comment by colorless.blue.ideas on 25 April 2009:
<b>wintercow20:</b>
<cite>
Evidence seems to be pretty strong showing that people are greedy in all aspects of their lives (it is not confined to economic life) and most parts of people’s lives are not profitably thought of in terms of capitalist/ non-capitalist.
</cite>
Well said. It is <b>power-greed</b> which attracts many people to government and to employment as government functionaries.
<cite>
Evidence also abounds that when there are greedy people with guns, that is more dangerous to human health and well being than when the greedy people do not have guns.
</cite>
It was left unsaid, but mayhaps should be explicit, <em>\\\\"greedy people with guns\\\\" <em>means</em> \\\\"government\\\\".</em>
Comment by Stephen Smith on 1 May 2009:
It’s hard for me to feel too bad for Ford, considering his entire business was predicated on the socialization of America’s transportation infrastructure. Whereas before private streetcar companies ran their cars on private tracks, in the automobile age, private cars ran on public roads. While I’m no fan of FDR and his statist policies, I find it difficult to shed a tear for the automakers, who were at the time in the process of lobbying the state to use its police power to put the streetcar companies out of business (by, among other things, taxing them and using the proceeds to pay for roads – essentially subsidizing their competition).
The socialization of America’s transport networks is an understudied topic, even among libertarians, who you’d think would be the natural constituency. It’s rare that you see a self-described libertarian give up the chance to hold on private autos (running on public roads) as the paragon of market economics. Spare me…
Comment by Curly Camara on 5 May 2009:
EXCELLENT comment typed below by Dean West. Another book I would suggest the “confused” read….Weath of Nations. How can people criticize greed and fantasize about an economic system that is void of greed…when it’s a part of fundamental human nature. I think acknowledging reality and developing systems that accommodate for inherent human behaviors is better than spending time, money, energy, on trite social experiments.
We’re so screwed, unless of course you’ve positioned yourself to benefit from the questionable necessity of an ever expanding government.
Excellent reading list Mr. West.
Comment by Dave true liberal on 2 December 2009:
What is sad is that people really believe we had a “free market” in the 20th century and that its the reason for failures. The more “mixed” an economy, the more distortions, greed in govt and business, more manipulations, and more disasters. Even before the 20th century, it was often manipulated by bankers and government. Anyways, great article. Just say not to economic fascism/socialism.
“Fascism entirely agrees with Mr. Maynard Keynes… so far as it goes, serve as a useful introduction to fascist economics. There is scarcely anything to object to in it and there is much to applaud” Benito Mussolini
In a laudatory review of Roosevelt’s 1933 book Looking Forward, Mussolini wrote, “Reminiscent of Fascism is the principle that the state no longer leaves the economy to its own devices.… Without question, the mood accompanying this sea change resembles that of Fascism.”
Pingback by One way FDR prolonged the Great Depression - INGunOwners on 7 April 2010:
[...] GM by $169,000 but yet the contract was awarded to GM…..and here is the rest of the story. The NRA: How Price-Fixing Perpetuated the Great Depression | The Freeman | Ideas On Liberty __________________ to secure peace is to prepare for [...]
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Comment by Ken Douglas on 8 November 2010:
“Governments benefit not by the people being at peace with each other, but by them being at war with each other in some way.” This is a quote from Angryharry.com. Tired of politics hit it square on the nose. Politicians want power by all means necessary. Dividing Americans by class and race.
Comment by Ken Douglas on 8 November 2010:
Also read “NEW DEAL OR RAW DEAL…How FDR’s Economic Legacy has Damaged America” by Burton Folsom, Jr.. A very good read.
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