4. Under the Blue Eagle and Beyond

For no form of co-operation, small or great, can be carried on without regulation, and an implied submission to the regulating agencies.

—Herbert Spencer

The National Industrial Recovery Act was enacted into law by Congress on 13 June 1933, and with it was created the NRA. Whether one chooses to praise this piece of legislation as the epitome of industrial enlightenment, tolerate it as a pragmatic response to the depression, or condemn it as a blatant exercise of political power to enforce industrial cartels, the functional realities of NRA code making are rather clear. Much has been written on this “partnership between government and business,” but no more succinct appraisal has been given than that of James Walker, who declared:

In total effect this legislation was revolutionary. It reversed the age-old American philosophy of free, wide-open competition. It denied the individual businessman final determination of many questions of managerial judgment. The majority of an industry acting with government, or government alone, could restrain him as to plant expansion, plant location, and use of productive capacity. Price controls could be imposed and selling territory limited. While he was not forced to join in code-making, he was bound by code terms and implementation.

From June, 1933, to May, 1935, monumental efforts were made to fit our economy into this strange system. Businessmen dropped productive work to swarm like bees around Washington, making codes, amending them, and interpreting their uncertain provisions. Bureaucracy grew in geometric progression.

In the end most of American business, as well as the majority of our industrial workmen, had been brought within code control. Upwards of 731 codes were established. To create and implement them the President promulgated 70 executive orders besides which administrative orders were issued to the extent of about 11,000.¹

The NRA can be summarized as a system in which the essential business decision-making and trade practices of American commerce and industry were brought under the government-sanctioned direction and control of trade associations. The structure involved segmenting business firms into appropriate trade groupings ranging from such grand industries as iron and steel, petroleum, automobile manufacturing, and cotton textiles, to such esoteric industries as lightning rod manufacturing, steel wool, mop sticks, and corncob pipes. It is virtually impossible to conceive of an economic transaction involving commercial or industrial activity that would not have come within the domain of one (or more) of these numerous industry classifications. Each grouping was subject to the rule-making activities of the principal members of the industry involved, with the entire process supervised by the NRA, a separate federal agency headed by a man who had long been one of Bernard Baruch’s chief lieutenants, General Hugh S. Johnson.

Johnson’s military background reflected the combative nature of the NRA system. Having once referred to the NRA as a “Holy Thing … the Greatest Social Advance Since the Days of Jesus Christ,” Johnson characterized the workings of his agency in these words:

I think industry can both run itself and govern itself and that the coercive power of political government will be necessary only to discipline units within an industry which depart from practices which the overwhelming bulk of that industry regard as unfair and destructive…. Is this regimentation? If it is, it is regimentation by the majority itself through the peculiarly American doctrine of majority rule. That is no more regimentation than any form of government which any community elects to impose upon itself for the common good.²

Johnson’s enthusiasm for “regimentation” was infectious. Bernard Baruch took up the martial spirit, suggesting that the recovery program be looked upon as a war. Baruch even recommended the creation of NRA insignias for businesses to use to identify themselves as “soldiers against the common enemy within,” and to differentiate them from those who “are on the other side.” This martial attitude was also reflected in the Rubber Manufacturers Association’s appointment of Newton D. Baker, the former secretary of war, as special counsel to aid the industry in drafting a code of fair competition under the NRA.³

The basic machinery of the NRA consisted of industry “codes of fair competition” that had been submitted by one or more trade associations determined to be “truly representative” of the trade or industry to be regulated. Following a series of preliminary conferences and public hearings, a final draft of a code was settled upon by the members of the industry. If it received the approval of the NRA administrator, the code was sent on to President Roosevelt to either approve, modify, or reject. From start to finish, the code-making process was a joint effort by industry representatives, NRA officials, and the president to prescribe binding rules of business conduct upon all members of an industry. While the NRA codes were not unlike the trade association “codes of ethics” in their anticompetitive spirit and intent, they enjoyed what their predecessors had not: legal enforceability.

As the code-making process began, a struggle for the alignment of power ensued within the various trades and industries. Intraindustrial relationships that had, prior to the NRA, been established by the impersonal influences of the marketplace now became subject to political determination. Firms and groups that had achieved success through offering goods or services to customers on terms more favorable than that of their competitors and that, in the process, challenged the market positions of such competitors now found their competitive advantages taken away from them. Such loss of advantage occurred not as the result of superior competitive policies or strategies by one’s adversaries, but as a consequence of abandoning free exchange and substituting political coercion. This code-making process was later described by Marshall Dimock in this way:

During the NRA days, all through trains to Washington were filled with groups of excited businessmen from the same line of industry working until late at night putting the finishing touches on what they wanted Washington to sanction—because once these codes were approved and had been signed by the President their provisions were legally enforceable as standards of fair practice.⁴

The homogenous nature of the trade associations and government during the NRA years was evidenced not only in the code-making functions but in the enforcement phase as well. Each code was placed under the administration of a code authority, the membership of which was generally composed of industry members and one or more nonvoting representatives from the government. Depending upon the internal structure of a given industry, trade associations themselves were often named as the code authority for an industry. Thus, in the case of the steel industry, the board of directors of the American Iron and Steel Institute became appointed as the authority for the steel code. In spite of the varying forms the code organizations took, industry representatives were the dominant forces in establishing and administering the codes of fair competition, with the secretary of the code authority, in most cases, also being the chief administrative officer of the trade association.⁵ The historian Paul Conkin has characterized the NRA this way:

The N.R.A. never really tried, in any extensive or coherent way, to force public goals upon an unwilling business community. It was the businessmen who dominated the early N.R.A., both in the writing of codes and in the operation of the enforcing code authorities. Usually without direct price-setting, most industry codes achieved the same result indirectly by limiting production, preventing price cutting, and forbidding unfair competition.⁶

Whatever rationalization might otherwise be offered to explain business support for the creation of the NRA, one inescapable fact remains: the NRA was the logical culmination of the basic premise that businessmen had been expressing for many years, namely, that a condition of free and unrestricted competition had to be restrained in order to protect the market positions and profit levels of their firms. The ceaseless struggle against entropic forces was too troublesome to those firms whose institutionalization had made them less resilient. An enforceable system for compelling overly aggressive challengers to respect the positions of existing firms and to restrain the pursuit of their own self-interests had not only been called for by business leaders throughout the 1920s but resulted in an overwhelming amount of support by that sector for the legislation creating the NRA. The NRA was far more than a freakish aberration of economic history: it was the natural outgrowth and instrumental expression of the emergent principle of industry-centered business thinking.

COMPETITION AND THE NRA CODES

Statements by business leaders in praise of the newly created NRA began flooding the newspapers, trade journals, and trade association meetings. Business response was overwhelmingly favorable, the general tone being not one of resignation to an inevitable fate, but an enthusiastic support that, in some cases, bordered on irrepressible excitement. It is quite clear that a large number within the ranks of commerce and industry looked upon this venture into government-enforced “business self-regulation” with the expectation of realizing more than simply recovery from the depression. The same anticompetitive oratory that dominated business thought and policy during the 1920s and that underlay business efforts on behalf of political alternatives for industrial stabilization during the years preceding the depression flowered once again in expressions of business support for the NRA. Trade association officials enthusiastically began the task of rounding up industry members to get them branded with a “code of fair competition” that would effectively make all business firms subject to the will of the leading members of the industry. The attitude of businessmen toward the NRA was poignantly described by one business magazine:

Washington hotels rejoice and Cabinet members groan over the wild rush of business men to the capital to find out about the new industrial plan. They want to know everything, but mostly how to punish the rascal who has been cutting prices in their industry, and how to fix some nice new prices.⁷

The presidents of the U.S. Chamber of Commerce and the NAM reiterated their support for the new law, with Henry Harriman noting: “The act will permit legitimate business enterprise to lift itself above destructive competition which has prevented recovery.” Robert L. Lund confirmed that “[i]ndustry at all times has been in sympathy with the declared objectives of the legislation.”⁸ Harriman, as we have seen, had long been attracted to the idea of a politically structured economic system and, in April 1933, had gone so far as to testify to a congressional committee that he favored amending the Constitution itself in order to grant to the president the power to control industry.⁹ He elaborated his support for economic planning in a simplistic analysis that has since become the bromide of every pseudoeconomist: “[T]he laissez-faire economy which worked admirably in earlier and simpler industrial life must be replaced by a philosophy of planned national economy.”¹⁰

Impassioned response to the NRA was expressed by a number of business leaders, including Harry Thayer, former president of Western Electric and long an advocate of “trade combination.” Thayer confirmed that business support for the system contemplated under the Recovery Act was more than simply a desperate response to a desperate problem; he declared that the enactment of the NRA “seemed … to be almost worth the price of the depression.”¹¹ Others in the electrical manufacturing industry expressed the hope that, even when the depression was over, portions of the NRA could be made applicable as a permanent tool for economic planning.¹² An official of the American Paint and Varnish Manufacturers Association stated that the new legislation “could readily eliminate abuses which [the association] has been fighting since its formation in 1899.”¹³ Not inappropriately, perhaps, the National Fertilizer Association looked forward to “cleaning up a number of bad trade practices.”¹⁴ Perhaps the attitude of business toward the developing “partnership” with the state was best expressed by one of the leading business publications in a May 1933 editorial titled “Toward Stability,” which recounted:

The American business man at this moment is utterly weary of the ruthless competitive struggle. It has been too much for him; he has survived so far, but he is spent. He is willing, he feels just now, to surrender some part of his freedom of action to achieve a degree of stability.

It will take some pains to work out details. But the solution is not impossible and it is worth all the pains and time it may cost. Let industry formulate its own codes of practice. Each industry knows its own special needs, its own problems. Let the government supervise these self-formulated codes, first to see that they are fair to the public, second, to see that they are enforced on the unscrupulous fringe who will never cooperate voluntarily with the majority, and who, under the present system of free competition, can undo the progressive work of all the rest.

Limit this, if you like, to the period of the emergency. Once tried we predict the system never will be abandoned.¹⁵

One of the more energetic boosters of the NRA was Thomas Watson. His support ranged from employing IBM’s in-house publication to promote the NRA to ordering company employees to participate in NRA parades. In his words, “We must do something to help them. We have no right to think or talk of the NRA failing. It is not going to fail.”¹⁶ Another supporter, the shipbuilder and NAM official C. L. Bardo, called the NRA “the most important legislation ever enacted,” while Alfred I. duPont stated that he had always favored legislation that would set aside the antitrust laws and permit business to be conducted “as it should be, free from inordinate competition.”¹⁷

Business leaders were generally hopeful that the system contemplated in the recovery bill would become a permanent institution even after the emergency of the depression was over. Some mechanism for enforcement was inevitable if, indeed, business was to be transformed from the myopia of individual firm self-interest to the farsighted perspective of the collective interests of the industries. Since the NRA allowed for both government enforcement and industry determination and control of code standards, the arrangement was understandably attractive to business leaders.

One of the more optimistic visions of economic organization was given by a trade association president and former Federal Trade Commission member, Nelson Gaskill, who foresaw “an economic sovereignty the like of which the world has never seen.” The provisions of the recovery bill would become permanent, he predicted, and from it a “regulated competition or a systematized democracy will develop.” Gaskill was of the view that the fierce competition of earlier years was being rejected by business and that such competition could be moderated through the use of licensing, under which existing members of an industry could effectively exclude the entry of new firms.¹⁸

It should come as no surprise to learn that the most popular code provisions in the various trades dealt with pricing policies. Over 70 percent of the codes provided for uniform methods for determining costs, established practices for the setting of minimum prices and eliminating “below-cost” selling, and prohibited “commercial bribery” and rebates. Fifty-nine percent of the codes set up a system of “open pricing”; price discrimination, defamation of a competitor, interference with the contractual relationships of a competitor, and “piracy” were other popular subjects.¹⁹

A forthright appraisal of the self-seeking efforts of business organizations in developing NRA codes was provided by Dudley Cates, an insurance executive who also served as an assistant to Hugh Johnson. Cates noted that “a substantial majority” of the codes had been able to restrain the “excessive competition” that had caused “unbearable hardship and shocking loss.” All too often, however,

the NRA has been cluttered up with a multitude of codes of another kind, proposed by naively hopeful business men whose attitude gives the lie to the theory that we are a race of rugged individualists. Accepting the law as an invitation to occupy front seats at the millennium, they deposited their problems on the Government’s doorstep. Many of these codes go far beyond wage and hour provisions and other protection to labor rights, and propose the changing of trade rules which do not even remotely touch public interest…. Many of the pending codes have no purpose other than to destroy some strategic advantage gained by the foresight, the energy, or the skill of some individuals or groups, to the envy of their competitors. Imaginations have been running high in search of ways to capitalize the act for private advantage.²⁰

The rubber industry’s exploitation of the code-making process demonstrates the anticompetitive nature of the recovery system. Like so many other industries, the rubber manufacturers had experienced intense competition that had manifested itself in the form of lowered prices. In spite of voluntary efforts within the industry to curb such practices, price cutting continued to dominate the industry. Not unexpectedly, therefore, the tire manufacturers looked to the NRA for price increases for their products. Harvey Firestone identified the major problems in his industry as “secret prices and rebates, causing discriminatory prices and price cutting,” and went on to advocate an open-price system as part of the industry’s code. Firestone expressed particular concern with the sellers of the so-called special brand tires and sought to control their pricing practices, which included price cutting and large trade-in allowances on used tires. The “special-brand distributors,” Firestone lamented, were able to undersell the independent tire dealers, putting pressure on tire manufacturers “to meet the prices of the special-brand tires or be eliminated from the business.” The Retail Rubber Tire and Battery Trade Code, which declared destructive price cutting to be an unfair method of competition, was a fair reflection of the role the NRA codes played in realigning competitive relationships, providing some firms—through political means—with advantages over competitors that they had been unable to obtain in a system of free competition.²¹

The tendency of the code-making processes to indulge the price-raising preferences of industry representatives may have gratified the short-range desires of businessmen, but as a measure designed to get the economy out of the throes of the depression it was counterproductive. One of the major problems faced by many industries was that of clearing stocks of unsold merchandise. This problem is overcome in the marketplace by a fall in prices, which stimulates demand to buy up the surpluses. One very effective way to interfere with this adjustment mechanism is to maintain prices above free-market levels, thus preventing the clearance of surpluses that is necessary for economic recovery.²² The use of the codes of fair competition—under what has been regarded as the keystone of the New Deal program—provided legal impediments to the adjustments of supplies to demand. Its counterproductivity, especially when considered in connection with the effect of such measures as wage-maintenance provisions,²³ constitutes one of the more damning indictments of politically based economic planning.

NRA codes dealt not only with pricing policies and other competitive practices but with the regulation of production as well. Since both the level and stability of prices were largely related to the amount of and fluctuations in production, business efforts to effectuate a more regularized environment placed a great deal of emphasis on production factors. This desire to stabilize production was particularly evident in the petroleum and textile industries, where fluctuations in production had been responsible for price instability. Production controls in the NRA codes involved setting maximum production quotas for each company, determining the maximum number of hours (whether on a daily, weekly, or monthly basis) in which production could take place, and/or establishing controls over new productive capacity for firms and/or production for the purpose of increasing inventories. Any number of variations or mixture of these control methods could be found in the codes. Out of sixty codes controlling the number of hours for the operation of plants and/or machinery, forty-three involved the textile industry.²⁴ There were only eight codes that established maximum production quotas, but these included the codes of such basic industries as cement, copper, glass containers, iron and steel, lumber and timber, and petroleum.²⁵

Code restrictions on the creation of new productive capacity were prominent within the textile industries, iron and steel, petroleum, transportation, and the clay products, glassware, and cement industries. As the category implies, these provisions were designed to limit the construction of new—or the modification of existing—productive facilities or, in some cases, even to limit the entry of new firms, all for the purpose of further controlling production. The most important codes seeking to control the amassing of additional inventories were those governing the petroleum and cement industries.²⁶

On the whole, one finds a very high correlation between the provisions of the NRA codes and the voluntary undertakings from prior years (such as the trade association “codes of ethics”) regarding trade practices thought to be most harmful to the collective interests of industries. If one digs through the veneer of “social responsibility” rhetoric and the emotional appeals that surrounded the NRA, one is left with a collection of legally enforceable, politically imposed codes that kept the competitive behavior of business firms within the more comfortable and nonthreatening boundaries long desired by principal firms within the various industries. These interests, seeking to preserve the value of their assets by maintaining their market positions against the assaults of competitive interlopers, achieved through the NRA the long-sought objectives of having enforceable, industry-controlled cartels. The NRA, as much as anything else, symbolized the completed emergence of a collectively defined system of “business.” It was a victory of organized industry over individual firms.

Paradoxically, in endeavoring to promote commercial and industrial stability, the NRA was enervating the very competitiveness that rendered firms—as well as the economic system as a whole—resilient enough to continue the negentropic processes necessary for their survival. Apparently unaware that the maintenance of equilibrium conditions was a denial of the dynamical and transformative nature of any healthy organism, most members of the business community seemed eager to relax the intensity of the continuing efforts to overcome entropy. Whatever long-term disadvantages might be visited even upon the firms advocating such policies were ignored as faith in the collective illusion of security intensified. That such political structuring was tantamount to fostering a hardening of the arteries, arthritis, and obesity within an otherwise healthy organism, was to be left to future judgments.

BUSINESS ASSESSES THE NRA

Business reaction to the NRA was by no means universally favorable. A great deal of opposition had developed, largely among smaller industrialists who did not have as much influence in the code-making process within their industries. There was also criticism of the administration of the NRA, with businessmen often addressing themselves to such problems as “bureaucracy” in general, procedural rigidities, arbitrariness, and an ineffectiveness occasioned by having an agency invested with too broad a scope of responsibility and too little authority.²⁷

In spite of sizeable opposition, however, it is clear that a substantial portion of the business community favored the NRA concept. A referendum of the membership of the U.S. Chamber of Commerce, in late 1934, showed overwhelming allegiance to the idea of a compulsory system for regulating trade practices. While 87 percent of those responding favored the proposal for allowing the existing act to expire in June 1935 “in accordance with its provisions,” support was also voiced for the following proposals:²⁸

For enactment of new legislation prior to expiration of the N.I.R.A.	FOR AGAINST	78.1% 21.9%
To permit industry to formulate its own rules of fair competition, subject to government approval.	FOR AGAINST	95.2% 4.8%
To restricting the power of the government agency to approval or veto.	FOR AGAINST	94.6% 5.4%
To have rules of fair competition enforceable against all concerns in the industry.	FOR AGAINST	91.8% 8.2%

Such results would appear to indicate opposition to the administration of the NRA as then constituted but support for the principle of business-determined and government-enforced controls to restrict competitive trade practices to within parameters favored by the more influential members of an industry.

Continued support for the NRA came from a variety of business sources, including Pierre S. duPont, Gerard Swope, and General Motors’s Alfred Sloan.²⁹ The National Association of Credit Men, an organization claiming a membership of some twenty thousand in the fields of manufacturing, banking, and distribution, announced the results of a poll of their membership that showed 57 percent favoring a continuation of the NRA. On the other hand, the board of directors of the Illinois Manufacturers Association, long an opponent of the NRA, adopted a resolution opposing the NRA’s continuation in any form. The New York and Philadelphia Boards of Trade also favored the termination of the NRA.³⁰

Simultaneously with its being freed from the era of prohibition, the brewing industry produced enthusiasts for the NRA. In the opinion of the influential Jacob Ruppert, the NRA restrictions were “a blessing and an opportunity.”³¹ William Piel added his endorsement, calling the NRA an exercise in “self-regulation,” which he described as “the government willing to prosecute and punish code violators only at industry’s own command.”³² One might question the willingness of members of this industry, having been legally put out of business for a time as the result of political intervention, to so eagerly embrace this latest exercise of political authority over the marketplace. Such an apparent anomaly, however, may be explainable as an expression of the short-range outlooks that too often characterize business decision-making.

Carleton E. Palmer, president of the pharmaceutical company E. R. Squibb & Sons, had considered price cutting to be a major problem in his industry and called for “cooperation rather than destructive competition.”³³ Since his firm has been one of the leading manufacturers of aspirin, the opportunity ought not be passed up to recall novelist William Saroyan’s classic response to an unidentified aspirin commercial that closed with a reminder that “aspirin is a member of the NRA.” “Maybe,” Saroyan quipped, “the NRA is a member of aspirin,” explaining that both were “deadening a lot of pain, but they [weren’t] preventing any pain.”³⁴

With the statutorily created expiration date of June 1935 approaching, many business and trade association leaders undertook a campaign to extend the life of the NRA for an additional two-year period. Business rallies were held to promote such an extension, and the Business Advisory and Planning Council of the U.S. Department of Commerce—a body composed of industrialists—went on record favoring a two-year extension.³⁵ The NAM and the Congress of American Industry held a joint convention at which they adopted a platform calling, in part, for a one-year extension of a modified NRA agency. While the platform spoke of having codes of fair competition be “voluntary on the part of industry,” it was rather evident that the same definition of “voluntariness” was being applied here as previously, namely, that a code should not be imposed upon an industry unless a majority of the members of that industry approved it. Having received the backing of such a majority, however, the standards “should be binding upon the minority.”³⁶

Two basic proposals for NRA extension were before Congress: one, a resolution offered by Senator Bennett Clark to continue the NRA to 1 April 1936; the other, a measure offered in the House by Robert Doughton for a two-year extension. While these measures were under consideration, a rally of some seventeen hundred businessmen was held in New York City to support the Doughton proposal because of its greater time-frame.³⁷ This position was also endorsed at a meeting of some fifteen hundred businessmen held in Washington, D.C.³⁸

Other trade associations and business executives joined in supporting a two-year renewal of the NRA, with heavy support coming from those industries that, prior to 1933, had been most subject to intense competition. George Sloan, chairman of the Consumers’ Goods Industries Committee, stated that the two hundred industries represented by his group favored the two-year extension proposal—rather than the alternative ten-month extension—adding that most of the objections to the NRA had come from a “minority element that has opposed the NRA from the beginning.” This minority, he observed, came not from highly competitive industries but from those which had been “better able to prevent the effects of cut-throat competition without the aid of the Recovery Act.” Spokesmen from such industries as retailing, clothing and textiles, coal, steel, paper, drugs, tobacco, and copper also endorsed such an extension. One trade association official spoke of the need for a “revised NRA” that would “adapt itself to the present day needs and not the economic society of fifty years ago.” Noting opposition from some business interests, Donald Richberg was nevertheless moved to claim, in testimony before the Senate Finance Committee, that 90 percent of business wanted the NRA continued.³⁹

In spite of the experiences of prior years, some business representatives believed that the NRA controls on competitive practices could be effectively maintained without government enforcement. A man who had served not only as counsel to several trade associations but as a member of the Consumers Goods Industries Committee as well was of the opinion that voluntary compliance could be had on such NRA code provisions as the filing of prices, control of production, minimum wages, maximum hours, and requirements for uniform discounts.⁴⁰ One executive indicated that businessmen were adhering to the labor standards established under the NRA in order to retain the advantages from the trade practice provisions in the codes. An abandonment of the wage and hour standards was implicitly threatened if the fair-trade provisions were eliminated.⁴¹

Consistent with the results of its prior referendum, delegates to the May 1935 meeting of the U.S. Chamber of Commerce adopted a resolution favoring the enactment of new legislation to “permit voluntary codes of fair competition by industries actually engaged in interstate commerce.” Henry Harriman predicted that the NRA, in one form or another, would “become a permanent part of our economic policy” and urged a retention of the good sections and the elimination of the bad portions of such legislation.⁴²

The thought that the organization of business along NRA principles would become a permanent feature had been expressed in December 1934 by industrialist George H. Mead in terms that further establish the NRA as the product of decades of business effort to stabilize trade practices:

I think that the codification of industry along such lines [as the NRA] as it has been conducted is going to be continued for many years. I think that the experiment is not really a new experiment, but is the culmination of thirty years of thinking, and I think that the development is here to stay….

Mead, who had served as chairman of the NRA’s Industrial Advisory Board, acknowledged that this program had not been particularly revolutionary, and that if in it there was any fault to be found, it was that “too much was tried in an entirely too short a time.”⁴³

The campaign by business leaders to persuade Congress to extend the NRA was rendered moot when, on the eve of the statutory expiration date, the Supreme Court handed down its landmark decision, Schechter v. United States.⁴⁴ The case involved a small poultry-slaughtering business in Brooklyn that was charged with violating the minimum wage, maximum hours, and sales practice provisions of the NRA “Live Poultry Code.” The conviction, affirmed by the circuit court of appeals, was overturned when the Supreme Court declared the NRA unconstitutional. The crux of the decision was that the act unlawfully delegated legislative power to the executive branch of the government, as well as extended federal authority beyond matters directly affecting commerce by controlling practices of a purely local nature. With the Court having earlier decided, in the Panama Refining Company case,⁴⁵ that the oil control section of the act had extended too much discretionary authority to the president to prohibit the transportation of “hot oil,” the Schechter decision could not have been totally unexpected.

Though the Schechter case brought an end to the industry-wide system of government-enforced codes, it did not diminish the efforts of business leaders to stabilize competitive conditions and practices. In the words of Theodore Lowi, “[T]he practice of government controls in cooperation with trade associations did not end; it simply became less formal and explicit.”⁴⁶ The commonly accepted notion that American business breathed a collective sigh of relief over the demise of the NRA is inaccurate. The business opposition that did develop tended to focus more upon administrative difficulties than upon the principle of government enforcement of industry-determined trade standards.

The board of directors of the NAM issued a statement declaring that, as a result of the Schechter decision, “the opportunity is again afforded for industry to go forward on a basis of voluntary self-government.” They went on to “urge every trade and industrial association to take immediate steps within its sphere to stabilize wages, hours, working conditions and competitive practices on a voluntary basis.”⁴⁷ Their statement seemed to reflect the attitudes of the membership, a canvass of which showed an intention to voluntarily maintain wage, hour, and fair-practice regulations.⁴⁸ The president of the U.S. Chamber of Commerce, Harper Sibley, echoed this sentiment in his call for the employment of trade associations to carry out the fair practice codes on a voluntary basis, while the Chamber’s board of directors proposed the use of interstate compacts to accomplish industrial stabilization.⁴⁹ The president of the New York State Chamber of Commerce asserted that problems in industry had always been caused by a “10 percent” minority of businessmen.⁵⁰

One industry after another met through their trade associations and, with few exceptions, proposed to continue adherence to standards and practices as set forth under the NRA codes.⁵¹ Among the other more influential trade groups urging a continuation of existing code practices were the Cement Institute, the National Electrical Manufacturers Association, the National Automobile Dealers Association, the Toy Manufacturers of the U.S.A., the International Association of Garment Manufacturers, the Institute of Carpet Manufacturers of America, the Associated Grocery Manufacturers of America, the National Association of Retail Grocers, the American Iron and Steel Institute, the National Association of Wool Manufacturers, and the Investment Bankers Association.⁵² The degree to which the business community had come to identify government regulatory agencies with their own objectives was seen in the initial reaction of securities dealers, who looked for a transfer of NRA code principles to the Securities and Exchange Commission.⁵³ Even though the NRA had been swept into history, it had taught business how to achieve a political structuring of competitive practices while at the same time subjecting the controlling agency to industry influence and direction. Commenting editorially, Business Week declared:

Thousands of business men have gained experience in a new kind of cooperation. Trade associations have been strengthened and trained in the business of eliminating evil trade practices and avoiding destructive competition. There would seem to be an opportunity now for a determined drive in the direction of voluntary cooperation in many industries.⁵⁴

A subsequent Business Week editorial favored continuation of NRA standards and urged the passage of legislation permitting cooperation in industries suited to the code-making process.⁵⁵ Business attitudes were such that, by January 1937 Harper Sibley was able to assert: “American business recognizes the advisability and feasibility of proper regulation by government in many fields of business, as in the Interstate Commerce Commission, where the regulatory body acts as an impartial umpire among conflicting interests.”⁵⁶

With the NRA laid to rest by the Supreme Court, business interests had a revived interest in the trade practice conferences, a procedure all but forgotten in the preceding two years. Only a small number of these conferences had been held during 1934 and 1935, and those involved either conferences that had been undertaken before the NRA was in full operation or, as in the case of the wholesale drug trade, an industry that refused to adopt an NRA code. In 1936, however, the FTC held conferences for some sixteen industries, while receiving additional post-NRA voluntary codes from twenty-two other industries. More conferences were held the next three years. Gilbert H. Montague went so far as to suggest a reconsideration of the Nye bill, under which the controversial Group II rules could, if approved by the majority of firms within an industry, be made legally binding upon the minority as well.⁵⁷

Having seen the advantages to be derived from a business-government partnership in the structuring of the marketplace, various trades and industries began—even before the Schechter decision—to propose legislative programs to control specific industries or regulate specific trade practices.

The sugar industry, for example, which had long felt the need to “harmonize conditions”⁵⁸ between buyers and sellers (a euphemism for promoting price stability), succeeded in getting legislation enacted in 1934 establishing a sugar quota system. This law afforded the industry the means of controlling the most important factor affecting prices, namely, production. Under it, the secretary of agriculture was empowered to establish both foreign and domestic supplies of raw sugar and to allocate this quantity among existing producers. This quota system led to a situation in which government divination of such factors as supplies and future demand replaced impersonal market influences. With production thus artificially stabilized, the sugar industry was able to realize—at the expense of consumers—a less competitive pricing structure.⁵⁹ Likewise, the Food, Drug, and Cosmetic Act—enacted in 1938 with the support of food processors—was designed to force the minority of processors to adhere to production standards advocated by the more numerous firms.⁶⁰ Further, the Agricultural Marketing Agreement Act of 1937 provided for the establishment of “marketing agreements” among producers of agricultural commodities. Upon receiving the support of two-thirds of the handlers of such products, these agreements became legally binding upon all handlers whether they had agreed to such terms or not. Reflecting their NRA ancestry, these agreements “provided for a three-cornered determination of price policy and the manipulation of supplies which would achieve the price objectives agreed upon by processors and distributors … counselled by representatives of the Secretary of Agriculture, to whom was reserved the right to approve or disapprove their proposed action.”⁶¹

The Motor Carrier Act of 1935 was the outgrowth of support from many quarters in the field of transportation, including the railroad industry, which, since the railroads had long dominated the ICC, was desirous of bringing other transportation systems under the control of this agency.⁶² The railroads were characterized by one observer as desirous of promoting “any legislation which might hinder the growth of commercial motor transportation.”⁶³ The larger motor carriers, in a display of intraspecies aggression common to legislative campaigns, joined in supporting expanded ICC control over other facets of transportation. While the smaller operators tended to oppose the measure, the American Trucking Association backed it.⁶⁴ In recognition of the effect that free competition in the transportation industry would likely have on freight rates, backing for the concept of an expanded ICC came from the more dominant and influential trade organizations.⁶⁵

Meanwhile, the air transport industry had been promoting federal regulation as a means of protecting the interests of existing firms from the encroachment of competition. The Civil Aeronautics Act of 1938 was fostered by industry members seeking to limit the entry of new competitors and to control trade practices in order to protect their investments. The attitude of airline industry members was well-represented in the testimony of Edgar S. Gorrell, president of the Air Transport Association, who favored such regulation in order to provide a reasonable assurance of permanence to the air carriers. Alleging that 50 percent of the investments in the industry had already been lost, Gorrell maintained that a number of airlines would face serious financial difficulties unless they were protected from so-called cutthroat competition.⁶⁶ As one scholar has described industry efforts on behalf of such legislation:

The hearings, reports, and debates on a regulatory measure are replete with condemnations of “unbridled,” “cut-throat,” “disastrous,” “destructive,” “wasteful,” “unregulated” competition and of “chaotic conditions,” “unsound ventures,” “haphazard growth,” “blind economic chaos,” and industry sowing of “wild oats.” What was favored was “orderly and sound growth,” “orderly planning,” “a measure of stability,” and “financial stability.”⁶⁷

IN RETROSPECT

The NRA was a culmination of long-sought business objectives of reducing the uncertainties and fluctuations brought on by lively and aggressive competition. It had been fathered, midwifed, and eventually mourned by commercial and industrial interests seeking the most effective machinery for cartelizing American industry. Hugh Johnson, in responding to the charge that the NRA involved business regimentation, stated that “there was not one single code that industry did not propose and beg to have applied.”⁶⁸ While the business community had neither a monopoly on wanting to coerce others into group-serving behavior nor a universal and monolithic disposition for doing so, it is quite difficult to find—either before or after 1933—examples of regulatory schemes that did not arise from the efforts of some business interests to secure advantages over their competitors that were unattainable in an unrestrained market.

Gardiner Means has identified four different groups that were instrumental in helping to create the NRA: (1) business groups who had been interested in getting the antitrust laws set aside in order to allow firms in an industry to get together to eliminate “destructive price cutting or price chiseling”; (2) the “industrial self-governors” who were interested in a “more comprehensive industrial self-government” for industry; (3) organized labor; and, (4) various persons—such as Rexford Tugwell—who had more of a philosophical interest in industrial planning. Means went on to identify three principal benefits that were provided by the NRA: (1) the “therapeutic value” of ending the “state of shock” in which business found itself as a result of the depression; (2) establishing organized labor as a source of “countervailing power” within the business sector; and, (3) getting “the idea of industrial self-government”—which he acknowledged as being influenced by the “fascist experience” of earlier years—"out of our system.”⁶⁹ In words that reflect the sense of “cooperation” that the business community had labored so hard to institutionalize during the postwar years, Thurman Arnold observed that the NRA “expressed the change which had come over men’s thinking,” adding that “[t]he profit motive, which at one time was a respectable justification for any sort of price-cutting, had become a somewhat immoral thing because of the competing symbol of cooperation.”⁷⁰

Some might wish to argue that the 1930s began in the business-dominated spirit of the Swope Plan and NRA codes of fair competition, but ended in the anti-big-business rhetoric of Thurman Arnold and the Temporary National Economic Committee. Indeed, as head of the Antitrust Division, Arnold’s “trust-busting” activities gave the outward appearance of a fundamental shift in governmental policy. But while his efforts had some limited impact on business behavior,⁷¹ there is little evidence of any business disenchantment with the general principle of a politically backed industrial “self-regulation.” Quite the contrary. Arnold himself declared in July 1939 that “[i]t is business men and business men alone who file practically all the complaints with my division, and it is for business men that the anti-trust laws must be enforced.”⁷² One searches in vain during the post-Schechter years for any widespread expression of business sentiment for an economic system premised upon laissez-faire principles, or for the impersonal order implicit in Adam Smith’s “invisible hand.”

The New Deal is often equated, in both popular and scholarly literature, with the demise of laissez-faire brought about by a discreditation of its self-regulatory mechanisms. As a polemic on behalf of corporate-state policies, such a view is understandable. As a statement reflecting historical fact or economic analysis, it is woefully inaccurate. Legislative inroads into economic life were occasioned not by the failure of the market to provide order and discipline but by the market’s general immunity to being corrupted for the benefit of special interests. The purpose of such legislation, including the NRA legislation, was to repress and stabilize competitive conditions—to ossify industries and restrain those influences that represented the threat of change. Although the policy arguments offered on behalf of such political programs emphasized socially conscious motives, their real purpose was to provide the coercion essential for holding together a collectivized industrial order. The partnership between business and government that continued to unfold during the 1930s was much more than a simple marriage of convenience. It represented, instead, a response made necessary by the inherent weakness in every form of collectivism (including cartels), namely, the tensions between private and group interests.

The motives of self-interest that living systems have in acting to overcome entropy spontaneously generate that intense expression of energy we call a “competitive marketplace.” Perhaps, as we develop a more integrated and holistic view of our biological, economic, and psychological natures, we will begin to understand the importance of maintaining social systems and practices that maximize the opportunities for autonomous and resilient behavior. As historians remind us, there is always the danger that social organizations—created as tools to coordinate our creative, negentropic efforts—will seek to institutionalize themselves and to regard their organizational permanence as their raison d’être. They will then undertake—whether through voluntary or political means—to structure the environments in which they operate, so as to reduce the intensity of such negentropic efforts. When this occurs, as Quigley and others have pointed out, the processes by which we act to resist entropy and sustain ourselves become thwarted. Furthermore, because our own needs to generate negative entropy continue to express themselves, institutional efforts to maintain these structured environments become intensified. In time, unless such institutionalizing practices are reversed—thus restoring the unhindered processes by which we (individually and societally) act to resist entropy—we may experience the collapse of the civilization itself. It is upon the consideration of such broader consequences that we ought to focus our attentions in evaluating business efforts on behalf of politically enforced stability.