7. Retailing and Textiles

Merchants and master manufacturers… draw to themselves the greatest share of the public consideration. … As their thoughts, however, are commonly exercised rather about the interest of their own particular branch of business, than about that of the society, their judgment, even when given with the greatest candor … is much more to be depended upon with regard to the former of those two objects, than with regard to the latter.

—Adam Smith

THE RETAILING TRADES

Nowhere was the revolution in business more disruptive of the positions of existing firms than in retailing. Almost overnight, the independently owned retail establishments found themselves confronted by well-organized and financed department stores, chain stores, and mail-order businesses, a development previously discussed in connection with Carl Taeusch’s analysis of the changes taking place in twentieth-century American life. Such changes also had a profound impact on the wholesaling trades. In his analysis of the evolution of managerial systems within larger firms, Alfred Chandler observed that “these new managerial hierarchies replaced the wholesalers with their own salaried employees and managers.” These developments were eroding the business done by wholesalers. Between 1889 and 1929, Chandler informs us, “the proportion of goods distributed by wholesalers … was cut in half.”¹

The popular image of retailing has been that of a confrontation between the locally owned, family-operated grocery, drug, or department store, and the impersonal, nationally managed corporate giants, whose trademarked names provided the substitute for personal “reliability” that local buyers had previously attributed to the neighborhood retailer. The “mom and pop” store was giving way to the A & P, and those whose interests were threatened by such changes became vocal champions of the “ethical” trade practices that were synonymous with the methods of the old order.

There prevails a highly romanticized view of the small, independent retailer as the paladin for a system of free and open competition. An examination of the evidence, however, reveals few trades with a better track record than independent retailers at getting to the political arena with programs for depriving somebody of a competitive advantage. Virtually every innovation in retailing has met with the organized and vocal opposition of retailers who were unwilling to adjust their own selling methods to meet the competition, and who responded with legislative proposals to preserve the status quo. The targets of the old order were any organizations or sales practices that offered a substantial threat to existing retailing methods. The suggested legislation—whether in the nature of a Green River ordinance, a Sunday closing law, anti-street-peddlers ordinances, fair-trade laws, anti-price-discrimination laws, or tax proposals to confiscate chain stores out of existence—attested to the eagerness of some retailers to use the coercive powers of the political state to weaken or destroy their competitors. As one writer has observed:

The history of retailing reveals that every innovation in distribution methods has been opposed by those fearful of its impact on the existing order. Department stores, mail-order houses, house-to-house sellers and, most recently, the supermarkets, each in turn ran into more or less organized opposition. Almost invariably the State legislatures were appealed to for special taxes or other restrictive measures designed to check the new method of distribution or to stop it altogether.²

One of the early—and more blatant—anticompetitive efforts of independent retailers involved the use of the taxing powers of government at both the state and federal levels to put an end to the chain store movement by the simple process of confiscation of property through taxation. At the convention of the National Association of Retail Grocers (NARG) in 1922, legislation was urged limiting the number of chain stores allowed in any community. This proposal was followed the next year by the introduction of a bill—at the behest of independent retailers—in the Missouri legislature to impose a progressive tax on chain stores. While the bill did not pass, independent retailing interests began descending upon state legislatures with various proposals to limit—or prohibit—the operation of chain stores. During the period from 1923 to 1933, some 689 anti-chain store tax bills were introduced in state legislatures across the nation, with 28 of them being enacted into law in twenty states.³ Such legislation was actively promoted by independent retailers and their trade associations, including such groups as the NARG which, in 1928, was successful in getting a United States Senate resolution passed calling for, among other matters, an inquiry into “[w]hat legislation, if any, should be enacted for the purpose of regulating and controlling chain store distribution.”⁴

Characteristic of the political efforts to interfere with the emerging trade practices was a Grocery Trade Conference of over five hundred representatives of retail and wholesale grocers, as well as grocery manufacturers. Its purpose was to adopt resolutions to be submitted to the FTC for approval as trade practices to govern the grocery trade. One-third of the resolutions dealt with pricing policies and included, among others, condemnation of “secret rebates” or “secret allowances”; “free deals, operating to induce merchants to purchase beyond their economic sales requirements”; “premiums, gifts or prizes”; selling products at or below cost; and deviations from agreements regarding discounts for cash. At the instigation of the American Wholesale Grocers’ Association (AWGA), the conference went on to adopt a resolution “that commercial bribery, whatever the bribe, however it is given, and whether given with or without the consent of the employer, is an unfair method of business.”⁵ The condemnation of so-called bribery, even when done with the consent of the employer, strips away the argument that the practice is “unfair” because it induces an employee’s breach of trust with his employer. The real objection related to the fact that “commercial bribery” increased the cost of obtaining a customer’s business or, stated another way, reduced the effective price of a competitor’s good or service to the customer.

The degree of animosity that independent retailers had developed against aggressive competitive activities in general—and the chain stores in particular—can be seen in the statements of some of the more prominent industry spokesmen. One of the foremost champions of self-styled “ethical” trade practices was Edward A. Filene, president of William Filene’s Sons Company of Boston and an ardent advocate of industrial self-regulation. Lashing out at what he considered unfair trade practices, Filene offered a rather emotional characterization of businessmen who, under the custom of trade practices, charge as high a price for their merchandise as they can induce their customers to pay. He drew an analogy between such businessmen and the “thief,” “robber,” and “cheat” who obtains money by force or fraud. In his view,

The merchant who buys a pair of shoes and sells them for more than a fair advance over cost, performs no adequate service to the community and is ethically no more entitled to a profit than is the man who steals an automobile and sells it to some unsuspecting purchaser, or the man who makes adulterated goods and sells them for genuine.⁶

As a perusal of trade journals will verify, the condemnation of competitive business practices was often accomplished by associating price cutting, invasion of another firm’s territory, and other aggressive trade practices with acts of a violently or fraudulently criminal nature. This approach, typified by Filene’s observations, is subject to two fundamental criticisms. In the first place, statements such as Filene’s attack the firm that charges too high a price for its merchandise but, as the evidence demonstrates, the real concern was for those firms that were undercutting the prices of competitors. Thus, it would appear that Filene was setting up a straw man; he was seeking to take advantage of popular sentiments against high prices by identifying the practices of the price cutter as being opposed to the interests of the consumer.

Second, to equate the practice of charging as high a price as a customer is willing to pay with open theft is an aggravated abuse of poetic license and a corruption of the meaning of words. It demonstrates the underlying premise of many businessmen that competitive trade practices can be as objectively defined “honest” or “dishonest” as can an act of robbery. By identifying a criminal act—in which force is used to deprive a victim of a property interest he or she does not choose to part with—with trade practices that are consummated voluntarily and without the use of force, one can then proceed to construct a seemingly “objective” system of “fair” prices, “fair” profits, and “fair” sales practices. The effort by many members of the business community to construct “codes of ethics,” criteria of “unfair trade practices” and, ultimately, “codes of fair competition” under the NRA all attest to the support given to the notion that subjective economic values can be evaluated in objective terms, and that some members of the business community are as justified in imposing their preferences upon an entire economy as police are in the effort to rid society of thieves, robbers, and burglars! As we saw earlier, retailing interests took a back seat to no one in employing trade association “codes” in just such an effort to specify acceptable and unacceptable trade practices.

Filene confirmed that the movement toward “cooperation” and “ethical trade practices” was really directed against self-seeking business firms employing energetic competitive methods to maximize their profits: “The coming war on waste will force us out of that extreme individualism that has been a heavy handicap to business…. We will come to know that the independent individualistic production by thousands of manufacturers of even the right thing will result in a wasteful surplus.”⁷ Once again, business rhetoric treats aggressive competitive practices as synonymous with “waste.”

In an effort to stimulate a greater degree of stability in retailing, the U.S. Chamber of Commerce sponsored a National Distribution Conference in 1925. The basic purpose of this conference was to help develop an environment in which both “unethical” and “uneconomical” trade practices could be brought under control. One of the leaders of this effort was another Filene—A. Lincoln Filene—who chaired a committee that considered such problems as price fluctuations, the disrupting influence of “fly-by-night” businesses, and lack of standardization in products and trade practices. Noting that “the practices of the least progressive should be brought up to a higher standard,” Filene’s committee recommended the establishment of a Joint Trade Relations Committee, the function of which would be to receive complaints of trade abuses and take action to eliminate these and other unethical practices. It would also encourage the development of codes of ethics and methods for dealing with trade disputes; such an organization would then become a repository for the “common law of business.”⁸ The term “progressive” applied, in this case, not to those innovators who, in Schumpeterian terms, were introducing radically new distribution methods, but to business firms that had accepted the gospel of “business cooperation” and conformed their activities to the object of maintaining a competitive detente. Indeed, the “progressives” were those doing their best to resist innovative changes and to preserve the status quo.

Lincoln Filene continued his efforts when, in June 1926, his committee proposed the establishment of trade relations committees among manufacturers, wholesalers, and retailers, with the ultimate purpose of organizing a regulating committee comprised of all sectors involved in the production and distribution of goods. The function of this committee would, in the opinion of Edward L. Greene, managing director of the National Better Business Bureau, be akin to organizations such as bar associations, which dealt with the unethical practices of lawyers.⁹ The Better Business Bureau had itself been created by existing business interests principally to discourage the entry—especially at the local level—of new business firms. Legislative proposals, coupled with public relations campaigns to convince consumers to trust only the “established” firms in their communities and to be skeptical of the fledgling and out-of-state enterprises, were resorted to in efforts to inhibit the growth of competitive alternatives.

Along related lines, the National Retail Dry Goods Association (NRDGA) set up, in 1927, a Bureau of Trade Relations, the purpose of which was to study unfair trade practices. It was further contemplated that a clearing house for complaints would be established, through which alleged code violations would be reported. Lincoln Filene interpreted the attitude of supporters of this bureau as favoring it as only a “first step” in a longer-range effort to solve economic problems of the industry. Future concerns of the bureau might, in his view, include agreements on “popular price levels for different types of merchandise.”¹⁰

In looking back upon the idea of a Joint Trade Relations Committee, Lincoln Filene observed that, while such experiments had, prior to 1925, taken place in such industries as hardware, men’s clothing, and women’s garments, this committee’s contribution to progress had been to extend the trade-practice control idea to both industry-wide and tradewide organizations. That such efforts ultimately failed was due, Filene felt, “to the fact that there was no compelling economic pressure on business nationally to induce it to spend time on reforms which then seemed unimportant. Self-interest was not sufficiently endangered.” Further, according to Filene, the failure of the FTC to determine which unfair trade practices could be legally controlled had contributed to the failure to reform unfair trade practices.¹¹

Consistent with Lincoln Filene’s efforts, George L. Plant, director of the NRDGA’s Trade Relations Bureau, outlined in 1928 a program to be proposed to the trade relations committee of his association. Part of the proposal envisioned, according to Plant, a “really workable code of ethics” for each segment of the industry, as well as the establishment of cooperative efforts with other trade associations to better coordinate production and distribution as well as to collect and disseminate information on undesirable business practices. Plant added that “there are many practices, which while not in themselves illegal, are nevertheless regarded as undesirable and unethical.” It was hoped, he went on, that a trade practices code could provide effective enforcement for approved business standards. After such a code was set up, Plant foresaw a program in which a “central clearing house” could be established among the participating associations to collect information and maintain files on complaints involving members of the association.¹²

Such proposals were the outward manifestation of a pervasive change in the attitudes of businessmen toward each other, a change that was brought about by a desire to reduce the threat of free, unrestricted competition. The rallying point for such a change was the “spirit of cooperation,” through which the businessman sought to convince his competitor of the evils of “greed,” with the “greedy” being defined as those whose interests were in substantial conflict with his own.

As we saw earlier, many business leaders used the Great Depression to intensify their prior appeals for a more cooperative, less aggressive form of competition. Lincoln Filene exemplified this attitude when he stated:

[A]long with the innumerable lessons learned from the depression came the realization that the age-old and illegal abuses of good faith in the dealings of business men with one another must in some fashion be done away with. The depression has, I believe, laid a solid groundwork for constructive progress in this field over the years to come.¹³

By the start of 1933, the retail trades were heavily involved in efforts to seek legal restraints against those retailers—especially the supermarkets—who engaged in loss-leader selling. Retail trade associations, composed largely of independent retailers, mounted campaigns to convince consumers—and legislators—that there was something almost fraudulent about a retailer offering to sell certain items below their actual costs as an inducement for customers to shop at that store. The Associated Grocery Manufacturers of America prepared a model state law that, it was hoped, would be used by retailers within their respective states in seeking legislative solutions. Some disagreement arose within the industry not as to the principle of such legislation, but of the form it should take. As a result, the AWGA also prepared a model bill for use against the chains. This alternate bill defined “loss leader” selling as selling below cost, whereas the manufacturers’ bill addressed itself to sales below purchase cost. The wholesalers felt that the manufacturers’ bill could benefit the chain stores at the expense of the independents by permitting the manufacturers to sell grocery products to the chains at quantity discounts, thus allowing the chains to sell such items at a legally lower price than the independents could do.¹⁴ This debate continued up into 1936 and helped spark interest in securing passage of state fair-trade laws, the Robinson-Patman Act (1936), and the Miller-Tydings Act (1937).

Nowhere was the attraction to political solutions more evident than in the New Deal-era responses of independent retailers to the bogey of chain stores. The initial reaction of this group to the NRA was to devise a marketing code that would effectively strip the chains of any competitive advantages they enjoyed—a move the chains, understandably, sought to counter. The NARG, for example, supported a measure limiting the number of hours of employment for stores, a proposal that would have had less impact on the independent retailers, who could operate above the maximum hours level by having themselves or members of their immediate family working.¹⁵ The National Wholesale Grocers Association supported the maximum-hours concept and also offered recommendations for the prohibition of sales below cost, secret rebates, and “free deals.” At the same time, a group of New York City retailers—with the improbable name of the Business Independence League—called for a federal investigation of chain-store ethics and urged the enactment of a city tax on chain stores.¹⁶

In spite of opposition from R. H. Macy’s Percy Straus, other retailing interests were able to prevail on behalf of an anti-price-cutting provision in a code proposed by the NRDGA. The language in question prohibited sales at prices below cost (based on invoice) plus 10 percent.¹⁷ Other retailers anticipated code provisions dealing with minimum wages, the elimination of overproduction and unfair competition, and the restraint of unfair advertising, style changes, and house-to-house selling. One retailer suggested the creation of local, state, and national retail boards empowered to license retailers.¹⁸

Picking up the pace established by other retailers, the retail tobacco dealers met to put together an NRA code for their industry. A debate ensued over a proposal to require a minimum profit of 20 percent on the sale of cigarettes. This proposal was favored by 80 percent of the participating tobacco organizations, with the opponents objecting that a 20 percent minimum was not high enough. There was little question, however, that the tobacco retailers were generally pleased with the NRA concept. Nor was there any question as to the anticompetitive, price-raising consequences of the NRA code. For example, Macy’s department store in New York City had, for some time, conducted a very profitable business selling cigarettes at cut-rate prices. As soon as the tobacco retailers’ code was approved, however, Macy’s was forced to stop selling lower-priced cigarettes. It reopened this department the day following the U.S. Supreme Court’s decision striking down the NRA.¹⁹

The drug industry greeted the NRA with code-enforcement machinery already provided for in the Drug Institute. Patterned after the AISI and receiving its inspiration through such men as Charles Walgreen, the Drug Institute had sought to stabilize competitive conditions within the industry and found the NRA to be quite consistent with its objectives. By the time the legislation had been signed into law, drug retailers had let it be known that they wanted code provisions that would maintain “fair” profits and “fair” wages, as well as product standards, and would seek to prevent overproduction, the demoralization of prices, and “unfair” methods of competition. They also sought code language that would eliminate such competitive advantages as the advertising of fixed prices for prescriptions or listing one’s business as a “cut-price drug store”; the dispensing of medicines by physicians, or the granting of professional discounts to physicians on merchandise; and the practice of department stores in absorbing sales taxes in the price of merchandise. Drug manufacturers, likewise desirous of taking a crack at distressing sales practices, sought to prohibit retail clerks from trying to persuade customers to shift their preferences from one brand to another.²⁰

The impact that the NRA would have on sales practices in general—one of the major facets of competition—was considered by a number of executives familiar with the advertising industry. One called it an “encouraging development” that business would “be required to cease selling below cost,” adding that this “should eliminate the most vicious and destructive of the price cutting.” Another executive looked forward to “the elimination of piratical tactics by the destructive minority,” while yet another characterized the pre-New Deal era as

one grand throat-cutting contest. Manufacturers were simply interested in finding out how many sub-cellars there were in the price structure. They found that every time they took a couple of steps down they ran into more competitors, and that giving things away was not the solution. Now the Government is making them be good to themselves. That is, they can’t give things away, and so will be forced to rely on other appeals than price.²¹

In contrast to these highly competitive practices, Dudley Cates looked upon many of the retailing codes with these sentiments: “They tend to discourage enterprise, to check the trading instinct which makes a merchant, and to crystallize forms and practices for all time or until the dam bursts from the pressure within.”²²

Retailing interests had expressed general satisfaction with the NRA and approved its retention. Writing in 1934, Edward Filene described the “new relations between business and government” as “a new world, … a new era.” He then added that the NRA had not changed the preexisting social order, but had simply recognized “the fundamental laws of that order.” Prior generations had, according to Filene, simply been too myopic in their outlook, and had they exercised the proper degree of responsibility, they “would have taken much the same attitude and much the same course that we are taking now.”²³ Lincoln Filene, meanwhile, asserted his support for the permanency of a government-enforced system of trade practices, declaring: “[T]here is no turning back to the days when business was a law unto itself, and … both progressive business leaders and the public will in the future demand some method by which the federal government will permanently have something final to say in matters affecting the daily functioning of business….”²⁴ Calling for a “revised, enlarged, and strengthened Federal Trade Commission” that would serve to enforce codes established within the various industries, Lincoln Filene detailed a program that, he hoped, would “make permanent the gains which the initial impulses of the NRA have made it possible to expect.”²⁵

Other retailing spokesmen voiced their support for the NRA. The pre-Schechter efforts to secure a renewal of the NRA system were endorsed by the board of directors of the NRDGA; and in a poll of automobile dealers, some 77 percent favored retention of the NRA code “if properly enforced.” At the same time, the Retailers National Council—which was made up of representatives of eleven national retail associations—issued a statement expressing its desire of “cooperating with the President in his further efforts to promote recovery.”²⁶

With the exception of a few persons such as the inveterate individualist Sewell Avery of Montgomery Ward, the retailing trades were fairly unanimous in their expressions of regret for the Schechter decision and urged a continuation of NRA codes on a voluntary basis.²⁷ The president of the National Retail Council declared: “Since all but one of the trade associations in the council asked that NRA be continued, there will be great disappointment at the decision. The code of fair practices, backed up by the law, had given thinking merchants throughout the country what they had long wanted.”²⁸ One association executive then declared: “The unexpected has happened and the fight must be started again. This association must redouble its efforts to fight for the NRA’s existence.”²⁹ The attitude of the retailing industry toward the Scbechter case was fairly well summed up by Business Week: “Wholesalers and many independent retailers everywhere will mourn the NRA. Through codes, they had gained a large degree of protection against the inroads of department, chain-store, and other types of mass-selling competition that now have them helpless again.”³⁰ Consistent with this analysis, the National Association of Retail Druggists (NARD) expressed resentment at the end of the code system, while two national associations representing wholesale grocers began urging alternative legislation to deal with trade abuses. The National Automobile Dealers Association announced its intention to carry on the basic principle of the NRA code. Other associations representing the retail trades recommended a voluntary adherence to NRA code standards, while the board of directors of the New York Pharmaceutical Council, representing some forty-five hundred retail druggists, and the New Jersey Retail Grocers Association each called for new legislation embodying the principles of the NRA.³¹

As we have already seen, the general satisfaction business had with the NRA quickly manifested itself in the form of various efforts to superimpose political solutions upon what were perceived as intraindustrial problems. Following the Schechter decision, retailing interests lost little time in promoting legislation that would take a whack at the chain and discount operations. It was a matter of record that the chains were able, by virtue of their being able to engage in quantity buying, to demand—and usually obtain—price concessions that the smaller retailers were not in a position to realize. These lower costs permitted the chains to offer their merchandise to consumers at lower prices. While the independents were very critical of such “price-discrimination,” these buying and selling practices of the chain stores provided for a more efficient utilization of resources, benefiting not only the chains but consumers who found themselves paying less for retail items.

The conditions of free competition are most objectionable to those firms least able to compete effectively, and in this sense the responses of the so-called independent retailers were not wholly unanticipated. While retail trade associations railed against the “price discrimination” that they saw as characterizing quantity-discount buying, and while their arsenal of rhetoric was more than capable of turning out propaganda to show such buying practices to be in conflict with egalitarian sentiments, in point of fact what these interests were resisting was not some sinister chain-store “conspiracy,” but the revolution in distribution that was taking place within the economy generally. The retailing sector of the economy, no less than any of the other areas, was undergoing fundamental revisions that, to established interests, were perceived as threats to their very existence. One of the natural consequences of free competition is change, or what is often called innovation, a condition that has been described as “the disturbance of peaceful, unchanging business routine by bold innovators who institute new methods.”³² This factor took the form, in retailing, of a restructuring of the entire distribution process. The more familiar retail outlets—most of which tended to be owned by an individual or a very small group independent of other retail, wholesale, or manufacturing firms—were suddenly confronted by the chain stores, which had integrated a number of retail outlets into a singly owned organization. In the decade 1920–30, twenty of the larger chain operations had grown from a total of 9,912 stores to 37,524, while government figures indicate that, as of 1929,10.8 percent of all retail establishments were part of a chain organization.³³

In addition to the threat of horizontally integrated competition—carrying with it the threat of such competitive advantages as quantity-discount buying—the independent retailers found themselves up against organizations that had begun to integrate themselves vertically as well. Innovation in retailing was beginning to take the form of companies such as A & P, which not only brought a number of retail outlets into one organization but had incorporated wholesaling, brokerage, and food processing into the system. The efficiencies already realized through horizontal integration were enlarged upon, and the independent retailer was fast finding himself at the disadvantage of offering identical products to the consumers at prices higher than those offered by the chain stores. In the face of competitive superiority, the independents increasingly turned to the political state to get legislation passed to deprive the chains of their competitive advantages.

The bargaining advantages enjoyed by the chains in being able to obtain quantity discounts in their purchase of merchandise continued to aggravate the independents. While this same quantity-buying advantage was available to the independents through retailing alliances, their attentions were drawn, instead, to the Robinson-Patman “anti-price discrimination” bill in Congress, which proposed to strip the large retailing organizations of their purchasing advantages. This bill proposed to make the giving of quantity discounts unlawful unless such discounts reflected actual cost savings to the seller. It also sought to prohibit discounts—even though based upon cost savings—that were restricted to too limited a number of buyers. The independents saw in such proposed legislation an effective means of taking from the chains the cost advantages that the less-efficient independents were unable to realize in the marketplace. That the measure was designed only to redistribute economic advantages from the more efficient to the less efficient firms (and had nothing whatever to do with fostering abstract egalitarian premises) was evident from the provision that price discrimination was unlawful only “where the effect of such discrimination may be substantially to lessen competition or tend to create a monopoly … or to injure, destroy, or prevent competition with any person who either grants or knowingly receives the benefit of such discrimination, or with customers of either of them.”³⁴ Nor was the enthusiasm of the independents dampened by the fact that the bill would make retailing less efficient—thus increasing prices to consumers.

Support for the bill seemed to come most strongly from those retailing sectors in which the chains were most active, namely, grocery and drug stores. While such groups as the NRDGA and the National American Wholesale Grocers Association joined the chains and some wholesalers in opposing the Robinson-Patman bill, they were more than offset by such organizations as the NARG, the National Wholesale Druggists Association, the National Retail Druggists Association, the United Independent Retail Grocers and Food Dealers Association, the Associated Grocery Manufacturers of America, the National Retail Grocers Association, and the National Food Brokers Association, all of whom backed the proposal.³⁵ The efforts of the independent retailers to legally deprive the chain stores of their advantageous positions had assumed the proportions of a campaign to protect public morality itself. In the words of one trade association executive, the overriding objective was “to obtain legislation which will outlaw crooked and misleading trade and merchandising practices and protect small business against the wiles of the ruthless price cutter.”³⁶

Success in obtaining passage of the Robinson-Patman Act in 1936 whetted the appetites of retailers for further political restraints on competition. Support for the so-called fair-trade laws resulted in the passage of the Miller-Tydings Act in 1937. Such legislation, designed to enforce resale price maintenance arrangements, was actively promoted by a number of retail trade associations—most notably the NARD and the NRDGA³⁷—in order to get at another branch of competitive “culprits,” the discount stores. The more-established retailing interests were not prepared to acknowledge the American capitalistic system as encompassing the right of some firms to sell name-brand merchandise at prices lower than they were willing or able to charge. They were, as a result, quite active both in Congress and the state legislatures in securing laws that would allow a manufacturer not just to contract with individual retailers to establish a minimum retail price for the sale of its merchandise but, in some instances, to impose the terms of such contracts upon retailers not parties thereto.

Any analysis of resale price maintenance must distinguish, conceptually, those arrangements brought about by agreements between a manufacturer and its distributors from those imposed upon unwilling distributors by legislative fiat. It is one thing for a manufacturer to insist upon its right to freely contract with distributors and to have the terms of that contract enforced. It is another matter for distributors to seek to impose pricing standards, via legislation, upon their competitors who have not contractually agreed to such terms. In promoting resale price maintenance laws, there is no evidence that the retailing interests were simply seeking to foster the principle of freedom of contract. In California, for example, the “non-signers” provision was incorporated into the legislation at the urging of retailers.³⁸ Under the “non-signers” system, a price-maintenance agreement between a manufacturer and any one retailer would effectively establish a minimum price for the sale of that item upon all retailers within the state, even if they had not agreed with the manufacturer on such a price.³⁹ These provisions resulted in the imposition of pricing policies upon unwilling participants, thus giving the manufacturer benefits for which he had not contractually bargained and binding some distributors to the terms for which their competitors had bargained. When, in 1936, the U.S. Supreme Court declared state fair-trade laws to be constitutional,⁴⁰ the groundwork was laid for the federal legislation that was to follow.

At the state level, retailing interests were also actively promoting “unfair practices” and “anti-loss-leader” legislation. As with earlier trade association and NRA codes, these laws were premised on the establishment of industry-wide (within the states where they were enacted) standards for the determination of minimum prices. Generally prohibited was the selling of merchandise below such prices when done with the “intent” or “effect” of “injuring a competitor.” As we saw earlier, the practice of attacking “below cost” pricing was designed not to dissuade “predatory” and “malicious” retailers from carrying out ill-motivated designs upon their competitors, but to intimidate them into not cutting prices. A retailer might have a difficult time gauging, in advance, whether his pricing practices could have the “effect” of “injuring a competitor” within the meaning of the statute, especially since the act of lowering one’s prices is likely to draw customers away from a competitor. As one observer has pointed out, “state laws became mere subterfuges” for the restrictive activities of trade associations, leading—in the case of the unfair practices laws—to “significant limits upon aggressive loss-leader selling.”⁴¹

A desire to return to the basic structure of the NRA continued to intrigue many retailing interests. By early 1937, the membership of the NRDGA had approved the principle of the establishment of a “little NRA” for retailing. The former chairman of the Dress Code Authority told the association: “The unwilling minorities of retail trade groups as well as industrial groups will not be allowed to stand in the way of progress. Legislation backing up this control will be available if we take the lead in asking for it.” Later in the year, after the inability to get agreement from the membership on the form such a “little NRA” should take, the board of directors of the association approved the enactment of state laws regulating maximum hours and minimum wages in retailing.⁴²

The chain stores provide a striking example of an industry serving both as a victim and an employer of political intervention for the regularization of trade practices. Many of the chains, which had been the objects of numerous legislative attacks, were nevertheless supporters of the fair-trade laws. One of the consequences of the depression was, apparently, a diminution of price cutting as an effective tool by the chain stores. Chain stores, however, continued to experience price cutting by other competitors. As early as 1932, men such as Charles Walgreen, George Gales (president of Louis K. Liggett Company), and Malcolm G. Gibbs (president of Peoples Drug Stores) led other drug chains in supporting such laws in order to stabilize their positions vis-à-vis “price cutters” who were competing with them, just as the independent retailers were seeking legislation to protect themselves from the “price-cutting” chains.⁴³ The situation poses an anomaly only if one makes the mistake of assuming that business supported—or opposed—various political programs out of a sense of ideological commitment. Opponents of restrictive legislation were, in the main, no more devotees of the principle of undiluted laissez-faire capitalism than the proponents were the disciples of state socialism. Most businessmen—then, as now—could be described as “pragmatists,” ready to align themselves with any cause that promised either short-range or long-range benefits to their firms. In this regard, the motives of most retailers (and other businessmen) has been put forth no more clearly than by Adam Smith himself:

The interest of the dealers … in any particular branch of trade or manufacture, is always in some respects different from, and even opposite to, that of the public. To widen the market and to narrow the competition, is always the interest of the dealers. To widen the market may frequently be agreeable enough to the interest of the public; but to narrow the competition must always be against it, and can serve only to enable the dealers, by raising their profits above what they naturally would be, to levy, for their own benefit, an absurd tax upon the rest of their fellow-citizens. The proposal of any new law or regulation of commerce which comes from this order, ought always to be listened to with great precaution, and ought never to be adopted till after having been long and carefully examined, not only with the most scrupulous, but with the most suspicious attention. It comes from an order of men, whose interest is never exactly the same with that of the public, who have generally an interest to deceive and even to oppress the public, and who accordingly have, upon many occasions, both deceived and oppressed it.⁴⁴

The independent retailer’s use of the powers of the political state to promote intratrade interests reached its zenith in the “death sentence” bill of Congressman Wright Patman in 1938. Through the use of a progressive tax, chain stores would have literally been taxed out of existence, a prospect that tended to fill the independent retailers with delight. The proposed tax would have escalated upward from an annual rate of $50 per store for a chain of ten stores to $1,000 per store for chains with over five hundred stores. The bill was made all the more outrageous by a provision that multiplied the total amount of the tax, as computed by the above scale, by the number of states in which the particular chain was in business. The effect of such a tax on chain stores can be seen in table 7.1.⁴⁵

Table 7.1. Impact of Patman “Death Sentence” Bill on 24 Chains as of 1938

Company	No. of Stores	No. of States	1938 Earnings	H.R.1 Tax
American Stores	2,416	8	$ 57,627	$ 17,652,000
A&P*	12,000	40	9,119,114	471,620,000
Bickford’s	106	4	558,924	92,800
Bohack, H. C.	488	1	(179,741)	279,700
Dixie Home Stores	172	2	189,197	105,800
Edison Bros.	123	29	919,323	894,650
Fanny Farmer	237	15	904,009	1,315,500
First Nat’l Stores	2,350	7	2,705,191	14,983,500
Gamble-Skogmo	247	18	278,538	1,686,600
Grant Co., W. T.	491	38	2,766,424	10,731,200
Kinney, G. R.	328	37	151,503	5,420,500
Kresge**	679	27	8,997,051	12,676,500
Kress, S. H.	235	29	3,668,216	2,508,500
Kroger Co.	3,992	19	3,741,569	71,867,500
Lerner Stores	164	39	1,299,231	1,922,700
Liggett	552	36	518,432	12,330,000
Mangel Stores	106	27	18,674	626,400
Melville Shoe Corp.	639	40	1,484,061	17,180,000
Newberry	476	45	1,792,741	12,100,500
Penney, J. C.	1,541	48	13,739,160	63,912,000
Safeway***	2,873	22	4,206,781	58,597,000
Schiff Co.	277	28	265,180	3,127,600
Walgreen Co.	510	37	2,067,846	11,118,500
WoolworthCo.***	1,864	48	28,584,944	81,070,500

*	Estimated U.S. stores; earnings include Canadian stores.
**	Includes Canadian stores and earnings.
	Includes Canadian and Cuban stores and earnings.

Had this measure been enacted into law, these twenty-four chains would have paid a total tax of just under $874 million in the first year—a figure almost ten times their combined earnings, and which compared to a total 1938 federal budget of $6,792 billion.⁴⁶ Stated another way, this tax would have imposed on twenty-four corporations the burden of paying almost 13 percent of the federal budget for 1938! While such a measure could not be justified as the chains’ “equitable share” of the costs of government, it was not proposed for such a purpose. The measure served as an example of the ultimate power of government—reminiscent of John Marshall’s classic observation that “the power to tax involves the power to destroy”—to fashion an environment suitable to the economic interests of some at the expense of others.

The bill was enthusiastically supported by the trade associations representing independent retailers, including the NARD, the NARG, the United States Wholesale-Grocers Association, the National Retail Hardware Association, and the Motor Equipment Wholesalers Association.⁴⁷ The popular image of the small, independent retailer as the champion of “free competition” is an illusion that consideration of the “death sentence” bill should help lay to rest. However one may choose to rationalize legislation that is directed at the regulation of sales and pricing practices, when one gets to the advocacy of the political state legally confiscating the businesses of competitors, the outer limits of economic authoritarianism have been reached. That retailing interests could so easily endorse such a proposal is evidence of the degree to which so many in business had, by 1938, abandoned the marketplace as the disciplinarian of economic activity and accepted the politicization of the economy.

THE TEXTILE INDUSTRIES

The textile industries, having also experienced many years of intense—and, to industry members, unstable—competition, shared the view that intraindustrial cooperation was necessary. One of the leading executives of the industry, Royal W. France, president of Salt’s Textile Company, expressed a commonly held sentiment in his recognition of the need for self-regulation in his industry.⁴⁸ In a speech to the American Cotton Manufacturers Association (ACMA), George E. Roberts, vice-president of the National City Bank of New York, discussed the nature of the then-current competitive conditions, observing that “it is a common saying that business generally is overdone, that competition is excessive, [and] that profits are inadequate….” While he regarded such irregularities as “inherent in the system of free and competitive business activity,” Roberts went on to recommend industrial “cooperation” that could result in a “well-ordered industry.”⁴⁹ At this same meeting, Walker D. Hines, president of the Cotton Textile Institute (CTI), attacked the notion of the “survival of the fittest” in the cotton industry; such a notion, he said, “seems to assume that the mills should not join in an exchange of information as to production, stocks, costs, etc., should not encourage each other to try to balance their production with demand, and should not encourage meeting together in groups to discuss their common problems.”⁵⁰

One of the more influential trade associations, the CTI was formed in 1926 in an effort to bring stability to an otherwise beleaguered industry. The cotton industry had, for a number of years, experienced a rather erratic pattern of production, brought on largely by changes in clothing styles and retailing methods, and the existence of highly autonomous units. These conditions led this industry—like the steel and oil industries—to become one of the chief advocates of a system of effective intraindustrial self-regulation of production, pricing, and “unfair trade” practices that, it was felt, resulted from and served to reinforce a general state of instability within the industry. While supply and demand balanced out on an annual basis, it was quite ordinary for production to run well ahead of sales during one time period and to lag sharply during another. The consequence of this was a sharply fluctuating employment of plant facilities from year to year. Many firms, rather than permit their machinery to stand idle, began round-the-clock production as a means of lowering unit fixed costs. The increased production, of course, helped drive industry prices downward. Understandably, the reduction of production was one of the causes to which the CTI and many of its members became firmly dedicated. The institute, which conceived its main function as being the stabilization of prices through the prevention of overproduction, undertook the solicitation of pledges from industry members to limit weekly hours of production, a campaign that included an effort to eliminate night work. It also sought agreement from firms to cease the employment of women and minors during night hours, an effort motivated not by humanitarian impulses but by a desire to restrict production. These campaigns resulted in compliance by over 80% of the industry.⁵¹

Problems of overproduction also existed in the wool industry. In 1927, this industry had the capacity to produce—at prevailing prices—some $1.75 billion in goods, while sales amounted to only $656 million for that year. Similar patterns were seen, in 1929, in the weaving and spinning divisions, with the former experiencing a 37.5 percent, and the latter a 35.8 percent, ratio of actual consumption to productive capacity. Between 1924 and 1928, wool machinery activity fell from 73.7 percent to 66.4 percent of actual capacity.⁵²

Industry expectations of the CTI were undoubtedly expressed by one executive who looked for a system of cooperation with “every mill radiating from a central point, which we will call the American Cotton Textile Institute.” He went on:

With every mill reporting fully to the Institute, and receiving in return full and complete data, we will have an industry pitched on broad and sound principles. This naturally is predicated upon the complete elimination of the ignorance, jealousy, and lack of confidence, that appear to thoroughly permeate the industry as a whole today. We have reached the point where something has to happen.⁵³

Concern over price-cutting practices was as intense in the textile industries as any other sector of the economy. A resolution adopted in 1927 by the ACM A declared, in part, that “[c]utting of prices below a fair profit level is the greatest single menace to the industry as a whole…. Ethically, it is a form of dishonesty to one’s self.”⁵⁴ It is not really clear how one could be said to be “dishonest to one’s self” in seeking to maximize his self-interest, but the statement does reflect industry fears. Along the same lines, J. H. Hartig, president of the International Association of Garment Manufacturers, declared, in 1928, that low prices were harmful to the industry, adding: “Just as lower prices cannot materially increase the available business for an industry, so unwise concessions merely produce a deadly competition within the industry.”⁵⁵

Another concern was the consolidation of various units. Walker Hines told the ACM A in 1928 that “there are far too many mills in this country,” and recommended the consolidation methods that had been employed with such success in other industries. Even though all of these voluntary efforts resulted in a sizeable amount of “cooperation” from industry members, the inability to persuade all firms to participate in limiting production in order to keep prices up—for reasons explained by Mancur Olson—led many textile-industry leaders to the conclusion that government compulsion was necessary to universalize such efforts.⁵⁶

The factors that most distressed the cotton textile industry were (1) a reduced demand for textile goods—influenced by fashion changes, lowered population growth rate, and competition from substitutes and foreign textiles; (2) productive overcapacity; and (3) regional competition existing between Northern and Southern mills. While modern, more efficient machinery accounted for much of the competitive advantage enjoyed by Southern producers, lower construction costs, the availability of lower-priced labor, and the absence of labor unions combined to attract firms into the South. The wage differential enjoyed by Southern mills—the amount of which diminished as Southern wage levels rose—gave the Southern producers a cost advantage they were able to convert to lower prices. The increased production that was coming out of the South was reflected in figures that showed the percentage of productive capacity located in the South increasing from over 50 percent in 1920 to approximately 80 percent by 1940.⁵⁷ Between 1923 and 1929 alone, the ratio of active spindle hours between Southern and New England producers increased from approximately 56:39 in 1923 to 68:28 by 1929.⁵⁸

Representatives of the textile industry expressed their concern for what they felt were problems of overproduction and price cutting, and they proposed solutions for dealing with them in order to help provide stability between production and consumption. Among the suggestions offered was the development of a system of standardized cost-accounting procedures, mutual agreements by producers to limit working hours, the creation of a “special supreme court for industry,” and the application of the principle of the Webb-Pomerene Act—which permits combinations of producers for export purposes—to domestic industries “for the purpose of controlling production.”⁵⁹ One industry member declared: “Price fixing should be allowed when it is done in the public interest. This would result in increased employment and tend to stabilize legitimate industries.” Walker Hines, meanwhile, urged “intelligent planning to keep production in balance with demand.”⁶⁰

The efforts on behalf of cooperation, consolidation, limitation of production, and self-government in the textile industry all served the same objectives sought by members of other industries: the voluntary alteration by industry members of pricing, production, and sales practices in order to stabilize prices and prevent the disruption of those conditions that would maximize profits for the industry. The self-interest of competing firms—each of which hoped that others would comply with the restrictive agreements, all the while looking for ways for itself to cut corners—ultimately provided the marketplace remedy for voluntary cartels: the collapse and abandonment of such agreements. In the meantime, many textile producers continued, along with members of other industries, to maintain the illusion that freely competitive conditions in a market could be short-circuited by agreements that were premised on the notion that men could be induced to abandon their selfish motivations.

The textile industry was not without its advocates of political intervention to restrain competitive practices. One of the most remarkable proposals for government regulation came from the executive director of the United Women’s Wear League, who called for the establishment in that industry of an advisory authority invested with the licensing power to declare who was and who was not competent to enter business. This trade official drew upon earlier French legislation that provided for an officer of the government to judge the “competency and financial right” of prospective businessmen to enter a given trade. He also made reference to a law that required all businesses to keep their financial records in books supplied—and owned—by the government; erasures were considered “prima facie evidence of fraud,” permitting prosecution.⁶¹ A similar proposal was made by a member of the knitted goods industry, George Boochever, who complained that in spite of the existence of a code of ethics for his trade, there was no effective means of enforcing such codes against violators. As a solution to such a problem, he proposed that business adopt the same sort of licensing and “disbarment” procedures used to discipline members of the legal profession.⁶²

There were seemingly endless proposals from business groups to use the powers of the political state to effect some advantage against a competitor. An example of the inconsistent attitudes businessmen had toward government involvement in economic affairs was colorfully sketched, in 1928, by John T. Flynn:

[M]arching legions of the trade associations descend on Congress with a “truth-in-fabric” bill. The men who make pure wool are in competition with the men who make a mixture of wool and cotton. There is nothing so shocking about mixing wool and cotton as one might suppose. It is not like mixing Scotch and wood alcohol. It may actually improve the fabric. But whether it does or not, the wool fabric men propose to have Uncle Sam on their selling staff. They demand government action: they want laws, inspections, government labels introduced into the fabric business. They may be the first to denounce the government for its officious meddling in the affairs of the railroads, but they appear to think a little meddling in the wool business would be an excellent thing. They think it is shameful interference with business to protect the citizen as he gets into his railroad coach, but it is quite proper to protect him as he steps into his morning tweeds.⁶³

Industry members were becoming increasingly aware that voluntary methods of achieving competitive stability were doomed to failure. Political solutions—which offered the coercive powers of the state for enforcement purposes—began to dominate industry thinking even before the New Deal. B. B. Gossett, president of the ACM A, asserted in June 1932,

[W]e must have some form of economic control. Such a plan would involve not only the balancing of production to demand but perhaps also reasonable price regulation and the proration of business. Unfortunately, the limitations of the present laws will not permit of the setting up of such a plan of economic control. It is therefore felt that an effort should be made to have the antitrust laws amended to such an extent as will permit of the regulation of these matters in a reasonable way, possibly subject to Government supervision, alike in the interest of the manufacturers and their customers as well as the public in general.⁶⁴

The highly competitive textile industry, which had been seeking stabilization of prices for many years, eagerly anticipated the New Deal recovery bill. The CTI voiced its support for the measure, while the leading trade journal Textile World observed in a May 1933 editorial, that what the industry needed most of all was industrial self-regulation, backed with the power of enforcement that the industry had heretofore lacked. It hoped to eliminate “unfair” methods of competition such as low wages, price cutting, and “[u]nlimited operation of plants.” Concluding that “the imposition of the will of 85% upon the other 15% could hardly be called tyranny,” the editorial asserted what, by now, had become one of the principal tenets of the new industrial order: “Those who still believe that the rights of the individual cannot be curtailed in the interests of the group are merely living in a bygone era.”⁶⁵ H. P. Kendall, president of the Kendall Company, said: “Undoubtedly, the Recovery Act means that the Government has taken a long step toward state socialism, which is described as ‘cooperation with business.’ Will the textile industry carry on in such a way that the Government will not have to exercise further control?” Another industry member bluntly declared: “It is time that an industry incapable of intelligently managing its own affairs should be forced to accept outside control.”⁶⁶ Members of the garment industry—who had longed for greater security from the vicissitudes of competition—saw the opportunity for the enforcement of trade-practice standards having “the force of law behind them.”⁶⁷ Noting that “unfair competition has created demoralization in the industry,” the board of directors of one industry council representing 180 clothing manufacturers adopted a resolution supporting enactment of the recovery bill.⁶⁸ G. H. Dorr, president of the CTI, added his support to the idea of government-enforced trade-association rules. He had no objection to making the coercive powers of the state available to force the minority into compliance with the wishes of the majority. In his view, “You can’t have self-government in industry unless you have power to govern the minority.…”⁶⁹

It is not surprising that, with the prospect of enabling legislation to permit effective industrial self-regulation, members of the textile industry began formulating plans for dealing with the perennial nemesis: overcapacity of plant facilities. A number of textile executives met with President Roosevelt to propose a plan for stabilizing the industry. Such a plan included, among other matters, provisions for regulating the hours of work for employees, the hours of plant operation, and the permanent abolition of night-shift employment for women and minors. The restriction or elimination of night employment had been actively sought by many within the industry as a means of restricting production. In testimony before the House Committee on Labor, Ernest Hood, president of the National Association of Cotton Manufacturers, renewed industry support for a provision to eliminate such employment for women and minors. Hood concluded by calling for legislation that would allow trade associations to enter into agreements for the regulation of production and prices.⁷⁰

At the 1933 convention of the ACMA, B. B. Gossett issued a plea for “sustained cooperation” from industry members to help solve the problem of seasonal fluctuations in demand and production. Gossett said that in the cotton industry supply and demand balanced out for the year as a whole, but such seasonal fluctuations had the effect of reducing prices “below the cost of production,” a level that—consistent with the prevailing view of businessmen as to what constituted “below cost” pricing—was “insufficient to meet labor cost, taxes, insurance, supplies, selling expenses and administrative overhead.” Such price reductions, which Gossett strangely identified as a “burden on our customers,” could be overcome, he felt, by intentional industry-wide production adjustments prior to the drop-off in demand. Warning his associates not to be motivated by “selfishness,” Gossett concluded by saying: “We must put aside individualism; we must put aside unenlightened selfishness and stand together as one in a great irresistible push with stability and prosperity for all as our goal.”⁷¹

One rather intriguing proposal for voluntarily regularizing the woolen industry came from a manufacturer who suggested establishing a bank, to be subscribed to by industry members who also agreed to do all their financing through this bank. The bank would, through its control over credit, be in a position to discipline those firms that violated industry rules. The promoter of this plan acknowledged the difficulty associated with voluntary efforts to restrain market activity. Even though he claimed that some 25 percent of the productive facilities of the woolen industry were backing his idea, he acknowledged that if a significant number of manufacturers refused to participate, the plan would not work.⁷²

Members of the various textile trades entered into NRA code making with a sense of optimism. The cotton-textile industry lost little time in drafting what became the Cotton Textile Code. Provisions in the code faithfully reflected the competitive struggles within the industry. The comparative cost advantages enjoyed by Southern mills in lower wage rates were reduced by establishing a minimum wage of thirty cents per hour for Southern producers and thirty-two and one-half cents per hour for the Northern mills. In an effort to limit production, restraints were placed on adding new machinery and mills were prohibited from operating more than forty-hour work shifts each week. The failure of this latter provision to resolve the problems of overproduction led, in 1934, to a further cutback to thirty-hour maximums.⁷³

As we saw previously, business leaders tended to resolve the conflict between government regulation and economic freedom by coming down on the side of regulation whenever it suited their immediate interests to do so. This was as evident in the textile industries as elsewhere, as witness the statement of G. H. Dorr. In response to the question whether the NRA codes interfered with the rights of individual businessmen, Dorr stated:

What is this boasted freedom that we talk about? In the absence of any self-regulation in an industry, a minority, and a small minority, can force on the industry as a whole an unduly low price, unsound trade practices and unsound and destructive competitive conduct.

This is an essential characteristic of the competitive system. The unintelligent or unscrupulous minority can ordinarily make the majority dance to its tune. It is ordinarily only through the collective action of a code that the majority can get the “liberty” to conduct their business by the competitive methods and standards that they desire.⁷⁴

When it is recalled that the pre-NRA rhetoric was also directed against the “minority” of competitors who invariably upset the restrictive and cartelizing efforts of the dominant firms in an industry, and when economic analysis demonstrates the inherent weakness of voluntary cartels to prevent the maverick firms from disrupting the competitive stability sought by other firms, it is quite evident what men like Dorr were attacking: any condition that interfered with the anticompetitive ambitions of industry members. Unrestrained competition, in other words, was unacceptable to those firms desirous of securing their positions against the effects of what, to consumers, were more attractive trade and pricing practices. The defense of the NRA on the grounds it provided the majority of industry members with “the competitive methods … they desire” pays lip service to competition while rejecting the unrestrained exercise of choice by market participants that is implicit in a system of free competition. The suggestion that competition can be legally stripped of its most effective operational and disciplining features and still be regarded as “competition” serves to encourage that corruption of language that has come to be associated with the political process. The notion that the “liberty” of the majority can be realized only by suppressing that of the minority has contributed to an understanding of “human freedom” as a collective rather than an individual attribute. Just as it has become popular to define the scope of “human freedom” as that conduct not otherwise prohibited by law, so business efforts to legally proscribe certain trade practices and to structure intraindustrial relationships into a less effective form of competition have undoubtedly helped to foster the belief that one who is aggressively seeking to promote his business by undercutting other firms and making his product more attractive to buyers is a threat to competition!

Following the Schechter decision, the hard-pressed textile industries lined up in support of a continued observance of code principles,⁷⁵ with some industry spokesmen advocating the enactment of legislation to provide for the enforcement of such codes.⁷⁶ One such proposal sought “to preserve, through industrial self-government, such stabilizing benefits as accrued to this industry under the National Industrial Recovery Act” and went on to recommend “the strongest possible bureau of fair trade practices.”⁷⁷ The influential ACMA recommended conformity to existing codes for its members.⁷⁸ At about the same time, a meeting was held—under the auspices of the Industry and Business Committee for NRA Extension—among representatives of some 150 industries to discuss a proposal for legislation to create a new NRA system under which codes would be submitted to a congressional body for approval.⁷⁹ This measure, offered by Peter Van Horn, president of the National Federation of Textiles, was an obvious attempt to satisfy the Supreme Court’s objection, in Schechter, that the NRA code-making process involved an unconstitutional delegation of legislative authority. By submitting such codes to Congress instead of to the executive branch, the approved codes would—the proponents of the measure hoped—have the effect of a validly enacted piece of legislation. A resolution favoring such a law received unanimous backing at this meeting.⁸⁰

In spite of Schechter, the textile industry had not given up on seeking political solutions to competitive problems. The desire of Northern textile firms to impose higher labor costs on their Southern competitors—both to reduce the comparative advantage in pricing enjoyed by the Southerners and to reduce total production—led many in the textile industries to become some of the principal advocates of minimum-wage legislation.⁸¹ It was the quite practical interests of some employers seeking to benefit themselves at the expense of their competitors, and not any “humanitarian” sentiments, that was responsible for the enactment of the Fair Labor Standards Act in 1938. Minimum-wage laws not only served to increase the hourly rate of pay for Southern mills but placed a premium on overtime work, factors that both added to the production costs of the Southern mills and reduced the incentives for maximizing production. Labor unions added their support to such legislation in order to help eliminate lower-priced sources of labor.⁸² Any suggestion that the textile industries had soured on the use of the political state to alter market relationships and deprive competitors of their comparative advantages is hardly warranted by the evidence.

CONCLUSION

No industries were more plagued by intense and aggressive competitive practices than the retailing and textile trades. Industry efforts to develop an effective consensus on behalf of a more sedate, cooperative form of competition were frustrated by the relative ease of entry of new firms and the lack of concentration in each of these trades. In addition, revolutionary changes in retailing methods and periodic changes in clothing styles only reinforced collectivizing sentiments among industry members. The efforts of many retailers and textile manufacturers to persuade their colleagues to voluntarily restrain the pursuit of firm interests—in favor of the collective interests of the industry—met with failure. As in other industries, the ineffectiveness of such voluntary efforts led many within the retailing and textile industries to embrace political solutions to the problems associated with too freely competitive an environment. Supporting both the general trade-regulating machinery of the NRA and the more specific legislative programs designed to deal with particular conditions within the respective trades, many industry members became eager enthusiasts for an extension of political authority over the economic life of the nation.