9. Business Advocacy of Government Intervention

9. Business Advocacy of Government Intervention

November 1959

To: Robbie

From: Murray

The NRA, with its proposal for a virtual national compulsory cartelization of American industry, was perhaps the most ambitious plan in American history—certainly the most ambitious in peacetime—to end the competitive system and to substitute for it a giant system of regulated and enforced monopolies or cartels, somewhat similar to fascism. It had its inception in September of 1931, when Gerard Swope, head of General Electric, unveiled his Swope Plan in a speech before the National Electrical Manufacturers Association. Every industry would be mobilized into trade associations, under federal control, which would regulate and stabilize prices and production, and prescribe codes of trade practices. Overall, these associations and the federal government, aided by a joint administration of management and employees representing the nation’s industry, would “coordinate production and consumption.” Swope had first unveiled his plan, six months before, to his colleague and fellow “enlightened” businessman, Owen D. Young, chairman of General Electric, who had heartily approved. The fellow industrialists, softened up by Swope and Young beforehand, heartily approved the plan, which became front-page news all over the country.

One of the most enthusiastic supporters of the Swope Plan was Henry I. Harriman, head of the New England Power Company, and at this time president of the U.S. Chamber of Commerce. In his report on the Swope and similar plans, as head of the chamber’s Committee on the Continuity of Business and Employment, Harriman wrote, “We have left the period of extreme individualism.... Business prosperity and employment will be best maintained by an intelligently planned business structure.”

With business organized through trade associations and headed overall by a National Economic Council, any dissenting businessmen will “be treated like any maverick—They’ll be roped, and branded, and made to run with the herd.” Under Harriman’s sponsorship, the U.S. Chamber of Commerce, in its December 1931 meeting, endorsed the Swope Plan by a large majority.

President Nicholas Murray Butler of Columbia University hailed the plan as an “example of constructive leadership.” Wallace B. Donham, dean of the Harvard School of Business and influential in business circles, cited the success of the Soviet Union as demonstrating the value and necessity of a “general plan for American business.” (Nicholas Murray Butler also considered Soviet Russia to have the “vast advantage of a plan.”) Paul Mazur, of Lehman Brothers, referred to the “tragic lack of planning” in the capitalist system. Rudolph Spreckels, president of the Sugar Institute, urged governmental allocation to each company of its proper share of market demand. Ralph E. Flanders, then head of the Jones and Lamson Machine Company, called for fulfillment of the great “vision” of a new stage of government planning of the nation’s economy.

One of the Swope Plan’s leading boosters was J. George Frederick, who helped Swope publish and edit Gerard Swope, The Swope Plan⁵⁴ and then followed it up with a lengthy praise of planning in general and the Swope Plan in particular, along with business comments upon it, in J. George Frederick, Readings in Economic Planning.⁵⁵ Frederick called for compulsory business membership in, and obedience to, the rules of their trade associations, and believed that such trade-association government, with its return to a guild system, would eliminate the wasteful and destructive competition of irresponsible cranks. “A broader social control over economics is inevitable,” he declared. Similar plans were concocted by another “enlightened” businessman, Henry S. Dennison, president of the Dennison Manufacturing Company, who had his own “five-year plan” for the American economy, with industry to be fully brought under trade-association rule by the second year. Benjamin A. Javits had also had a plan similar to the Swope Plan as early as 1930. Commenting favorably on the Swope Plan was Charles F. Abbott, director of the American Institute of Steel Construction. Abbott declared,

The Swope Plan can be called a measure of public safety.... We cannot have in this country much longer irresponsible, ill-informed, stubborn and non-cooperating individualism.... The Swope Plan, seen in its ultimate simplicity is not one whit different in principle from the traffic cop... an industrial traffic officer—“Constitutional” liberty to do as you please is “violated” by the traffic regulations but... they become binding even upon the blustering individual who claims his right to do as he pleases.

A.W. Robertson, chairman of the board of Westinghouse Electric, supported the plan, but more moderately, saying that the “spirit of cooperation” the plan called for would undoubtedly benefit the economy. The president of the National Association of Manufacturers not only supported the Swope Plan, but wanted to go further in forcing all firms to join the regulated trade associations, including those employing below fifty people (which the Swope Plan had excluded). Magnus W. Alexander, president of the National Industrial Conference Board, backed the plan. And H.S. Person, managing director of the Taylor Society, snorted, “we expect the greatest enterprise of all, industry as a whole, to get along without a definite plan.”

Specific industries also had their individual plans within the overall framework. The Associated General Contractors of America, in 1931, called for a governmental licensing of contractors. And C.E. Bockus, president of the National Coal Association, in an article called “The Cost of Overproduction in the Bituminous Mining Industry,” declared that the “precise need of the [coal] industry is the right to secure, by cooperative action, the continuous adjustment of the production of bituminous coal to the existing demand for it, thereby discouraging wasteful methods of production and consumption.... The European method of meeting this situation is through the establishment of cartels.”⁵⁶

One of the most important supporters of the compulsory cartelization idea was Bernard M. Baruch, Wall Street financier and perennial “elder statesman.” As early as 1925, Baruch, inspired by his experience as chief economic mobilizer in World War I, had conceived of a great economy of trusts, regulated and run by a federal commission. In the spring of 1930, Baruch proposed to the Boston Chamber of Commerce a “Supreme Court of Industry.”⁵⁷ It might also be pointed out that Swope’s younger brother, Herbert Bayard Swope, was Baruch’s closest confidant.

Herbert Hoover had been leaning in this direction ever since his stint as secretary of commerce in the 1920s, and liked to pepper his speeches with vague but disquieting talk about interindustry “cooperation” and “elimination of waste.” To his eternal credit, however, Hoover was horrified at this scheme, and, despite the concerted business pressure upon him, turned it down cold. In a note, sending the Swope Plan to his attorney general for comment, and published much later in his memoirs, Hoover wrote about the plan:

The plan provides for the mobilization of each variety of industry and business into trade associations, to be legalized by the government and authorized to “stabilize prices and control distribution.” There is no stabilization of prices without price fixing and control of distribution. This feature at once becomes the organization of gigantic trusts such as have never been dreamed of in the history of the world. This is the creation of a series of complete monopolies over the American people... if such a thing were ever done, it means the decay of American industry from the day this scheme is born, because one cannot stabilize prices without restricting production and protecting obsolete plants and inferior management. It is the most gigantic proposal of monopoly ever made in this country.

And the pressures on Hoover were severe indeed. Hoover relates that Henry I. Harriman warned him that if he persisted in opposing the Swope Plan, the business world would support Franklin D. Roosevelt for president, because Roosevelt had agreed to adopt the plan! (And adopt it he did!) Truly, Virgil Jordan, economist for the National Industrial Conference Board, was right when he wrote at the time (with approval) that the world of business was ready for an “economic Mussolini”—and they could hardly have picked a better candidate than FDR.

The whole Swope-Harriman movement was summed up well by one of the most radical and socialistic of the brain trusters, Rexford Guy Tugwell, who has recently written of Swope, Harriman, and the rest that they

believed that more organization was needed in American industry, more planning, more attempt to estimate needs and set production goals. From this they argued that... investment to secure the needed investment could be encouraged. They did not stress the reverse, that other investments ought to be prohibited, but that was inherent in the argument. All this was, so far, in accord with the thought of the collectivists in Franklin’s brain trust [e.g., Tugwell] who tended to think of the economy in organic terms.⁵⁸

When the New Deal arrived, Gerard Swope was called the only industrialist among the FDR brain trusters. Swope helped write the final draft of the National Industrial Recovery Act, and then stayed in Washington to help run the NRA. As a member of the industrial advisory board of the NRA, Swope took part in a famous joint meeting of the industrial and labor advisory boards in June 1933, which hammered out an agreement, setting a minimum wage and a maximum work week for all of industry. Swope was also one of the three industry representatives on the early National Labor Board.

In the meanwhile, Henry I. Harriman turned up as a leader in the agricultural brain trust that put over the AAA and also helped write the NRA. Chosen head of the NRA was General Hugh S. Johnson, a friend of Swope’s and an old disciple of Bernard Baruch. When Johnson was removed from his post, Baruch himself was offered the job of head of the NRA, but turned it down. And Johnson’s old colleague George Peek, another Baruch disciple, was named head of the AAA. Baruch, it might be pointed out, paid part of Johnson’s salary while the latter was in office.

With the draft of the NRA still in the works, President Roosevelt hinted on April 12 about a forthcoming plan to secure “the regulation of production, or, to put it better, the prevention of foolish overproduction.” When the U.S. Chamber of Commerce met in Washington in early May, FDR called on business to work with government “to prevent over-production, to prevent unfair wages, to eliminate improper working conditions.” The businessmen were highly enthusiastic; twenty-seven out of the forty-nine speakers urged more government direction of industry. Paul W. Litchfield of Goodyear Tire and Rubber said, “we must make substantial concessions to what we have in the past classified as the more radical school of thought.” In his second fireside chat, on May 7, FDR heralded a “partnership in planning” between government and business. When the NRA bill passed on June 13, FDR said that the bill “is a challenge to industry which has long insisted that, given the right to act in unison, it could do much for the general good which has hitherto been unlawful. From today it has that right.”

General Johnson assured industry that he was not planning to control them; “It is industrial self-government that I am interested in. The function of this act is not to run out and control an industry, but for that industry to come to this table and offer its ideas as to what it thinks should be done.”

Johnson used all possible propaganda devices to induce employers and firms to sign the NRA codes and receive the Blue Eagle, symbol of cooperation. Donald Richberg trumpeted to business:

There is no choice presented to American business between intelligently planned and controlled industrial operations and a return to the gold-plated anarchy that masqueraded as “rugged individualism.”... Unless industry is sufficiently socialized by its private owners and managers so that great essential industries are operated under public obligation appropriate to the public interest in them, the advance of political control over private industry is inevitable.

In adhering to the NRA, business was forced to accept collective bargaining and wage and labor codes, but expected to raise prices and restrict production in the time-honored manner of cartels. Thus, the National Association of Manufacturers drew up a model industry code that called for the assignment of production quotas to firms by the code authorities; and the trade associations wanted outright price-fixing powers for their industry.

On June 23, business had forced Johnson to agree that industrial codes could include agreements not to sell below the costs of production.

Because of business pressure, many industrial codes included techniques for industrial price control: various forms of minimum-price injunctions, as well as production quotas and other industrial self-controls over production. In the latter class were maximum hours of machine operation, imposed restrictions on the amount of new plant or equipment, refusal of entry of a new firm where the industry decided that “overcapacity” existed, or the maintenance of maximum ratios of output to inventory. The business community, despite these extensive cartelizations, clamored for more.

Ralph Flanders declared that the legislators and administrators could not really be blamed for the price fixing and production quotas of the NRA. “It was our businessmen who were most thoroughly sold on the idea that recovery and prosperity depended on the restraint of competition.”

Harold Ickes has noted that “such price-fixing and production control regulations as found their way into the codes, got there almost exclusively at the demand of businessmen themselves.”

The NRA itself said that “none of the more restrictive provisions approved remotely approached the stringency of proposals which were offered, demanded and battled for by a large number of industrial groups of fully representative character.”

The code authorities, in each industry, were fully bossed by industry. They represented the trade association and had no labor or public members. The NRA delegated its powers over prices and production to these trade associations.

By the fall and winter of 1933 disillusion with the NRA was beginning to set in. William Randolph Hearst called it “absolute state socialism,” and Walter Lippmann denounced its “bureaucratic control” and “excessive centralization.” There were widespread evasions of the codes and breakdowns of the code system. Yet, business, generally, was simply angry at the pro-labor union codes and wanted the cartelizing turned over completely from government to organized business—but with government, of course, to provide the enforcing arm. By November, Gerard Swope now proposed that the NRA be replaced by a National Chamber of Commerce and Industry, headed by the U.S. Chamber of Commerce, which would replace the NRA as the superorganizer and overseer of trade associations.

Prices, under the spur of the NRA, as well as inflation, rose steadily, but before there was any true recovery or much reduction of unemployment. Criticism for monopoly began to mount against the NRA and its price-fixing, price-raising policies. In vain, the NRA held hearings on its price policy in January 1934, headed by Arthur D. Whiteside of Dun and Bradstreet, one of the outstanding champions of NRA price fixing.

The most persistent and knowledgeable attacker on the national scene was Senator Gerald P. Nye. To meet his criticisms, the president set up a National Recovery Review Board in March 1934, with most of the members nominated by Nye, to survey the NRA’s possible tendency toward monopoly. The staff was headed by Lowell B. Mason, recently a member of the Federal Trade Commission, and then as now an opponent of both monopoly and government intervention. Under Mason’s guidance, the board delivered a scathing report in May, attacking the NRA as a promoter of monopoly. Donald Richberg, of the NRA, angrily accused the board members of being “philosophic anarchists.” John L. Lewis, of the NRA’s Labor Advisory Board, blasted the board for getting its information from “irresponsible malcontents, sweatshop employers and business interests which had lost special privileges.” But Gerald Nye continued to press his attack in the Senate, and George Terborgh’s report for the Brookings Institution in March, Price Control Devices in NRA Codes, shook some confidence in the NRA.

After the end of the Johnson regime, in the fall of 1934, the NRA began to move to relaxing the codes and the price-fixing provisions. On this struggle, Arthur M. Schlesinger, Jr. observes with some justice,

For it was the businessmen who wished to turn their backs on the free market and set up a system of price and production control; and it was the New Dealers who opposed them at every turn and tried to move toward a functioning price system and a free market. If the business image of NRA had prevailed, the result would very likely have been in time to put the private economic collectivism thus created under detailed public regulation and thereby bring into existence the very bureaucratic regimentation which business accused the New Deal of seeking for itself.⁵⁹

As late as January 1935, the NRA held a series of price hearings, and 90 percent of the two thousand businessmen that testified insisted on monopolistic price control by the NRA. George A. Sloan of the Cotton Textile Institute said bitterly that if the NRA were to end price fixing, it “might as well turn us back to 1932 and go home.”

Despite the mounting criticisms of the NRA, the public cooling of ardor, and troubles of evasion by small-business concerns, organized business, as well as organized labor, enthusiastically supported renewal of the NRA when time for renewal came in mid-1935. To William Green, of the American Federation of Labor, “it is unthinkable on the part of labor that we should go back, after having taken such a forward step in economic planning.” The United States Chamber of Commerce voted for continuing the NRA by a four-to-one margin; and the influential Business Advisory Council of the Department of Commerce was nearly unanimous for the NRA.⁶⁰