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In addition to the WIB, the precedents for the NRA included the Swope Plan of General Electric’s Gerard Swope. While Hoover had denounced the Swope Plan for government-sponsored cartelization, Roosevelt began consulting with Swope while he was still governor of New York. The trade associations that Hoover had sponsored as secretary of commerce were another inspiration. Rooseveltian “corporatism” was Hooverian associationalism with teeth.

One foreign precedent that influenced American New Dealers of the 1930s was the trade board or wages council, an institution that had been adopted in other English-speaking democracies a generation before the Depression. In 1896, the Australian state of Victoria established wage boards to set wages in industries with impoverished and exploited workers. By 1911, all the Australian states except for West Australia had adopted the system. Similar reforms were undertaken in New Zealand. Following a study of the Australian and New Zealand systems by the British Parliament, Winston Churchill, then a member of Parliament in the Liberal Party and the president of the Board of Trade, introduced the Trade Boards Act of 1909 that created boards made up of representatives of employers, workers, and the general public to set wages and standards in “sweated” professions employing chiefly poor women, such as lace making and box making. In the form of “wage councils,” the trade board system was expanded to cover other industries in Britain. Under Churchill’s law, the wage rates suggested by the tripartite boards became compulsory when approved by the president of the Board of Trade. The similarity to the NRA codes, which became compulsory when approved by the president of the United States, was pointed out in the
Atlantic
in February 1934 by the British political theorist Harold J. Laski, who observed: “In principle, they [the codes] are nothing more than the British system of trade boards against sweating in industry; and the wonder is that men can still be found to inspect their well-tried habits in a mood of panic.”
⁵³

In promoting the NIRA, Franklin Delano Roosevelt was following in the footsteps, not of Benito Mussolini, but of Woodrow Wilson, Bernard Baruch, Gerard Swope, Herbert Hoover, and Winston Churchill.

DID THE NIRA IMPEDE RECOVERY?

The NIRA offered industries a relaxation of antitrust policy in return for their agreement to provide minimum wages to workers. Roosevelt hoped that trade-association codes would eliminate businesses that relied on inadequate wages: “No business which depends for existence on paying less than living wages to its workers has any right to continue in this country.”
⁵⁴
Henry Harriman, head of the Chamber of Commerce, agreed: “We must take out of competition the right to cut wages to a point which will not sustain an American standard of living, and we must recognize that capital is entitled to a fair and reasonable return.”
⁵⁵

The claim that the NIRA retarded recovery by imposing minimum wages in different industries is not taken seriously, except by those whom Hoover derided as “die-hard liquidationists.” If labor unions cause unemployment, by raising the cost of labor, then the 1930s should have been prosperous, because unions were weak and included few workers, and the 1950s, when a third of the workforce was unionized, should have suffered from a depression.

John Maynard Keynes made a more subtle and persuasive argument against the NIRA. Roosevelt had expressed the hope that the NIRA codes, by raising aggregate demand, might promote short-term recovery in a July 24, 1933, radio broadcast: “If all employers in each competitive group agree to pay their workers the same wages—reasonable wages—and require the same hours—reasonable hours—then high wages and shorter hours will hurt no employer. Moreover [it] makes more buyers for his product.”
⁵⁶

Keynes politely demurred, in an open letter to the president in 1933, published in the
New York Times
: “You are engaged on a double task, Recovery and Reform;—recovery from the slump and the passage of those business and social reforms which are long overdue.” He warned that “even wise and necessary Reform may, in some respects, impede and complicate Recovery. For it will upset the confidence of the business world and weaken their existing motives to action, before you have had time to put other motives in their place.” The NIRA, he suggested, was a distraction: “That is my first reflection—that N.I.R.A., which is essentially Reform and probably impedes Recovery, has been put across too hastily, in the false guise of being part of the technique of Recovery.” Keynes wrote: “I do not mean to impugn the social justice and social expediency of the redistribution of incomes aimed at by N.I.R.A. and by the various schemes for agricultural restriction. The latter, in particular, I should strongly support in principle.”

The alternative favored by Keynes was deficit-financed public expenditure on a scale comparable to that of wartime: “But in a slump governmental Loan expenditure is the only sure means of securing quickly a rising output at rising prices. That is why a war has always caused intense industrial activity. In the past orthodox finance has regarded a war as the only legitimate excuse for creating employment by governmental expenditure. You, Mr President, having cast off such fetters, are free to engage in the interests of peace and prosperity the technique which hitherto has only been allowed to serve the purposes of war and destruction.” He suggested projects “which can be made to mature quickly on a large scale, as for example the rehabilitation of the physical condition of the railroads. . . . Could not the energy and enthusiasm, which launched the N.I.R.A. in its early days, be put behind a campaign for accelerating capital expenditures, as wisely chosen as the pressure of circumstances permits? You can at least feel sure that the country will be better enriched by such projects than by the involuntary idleness of millions.”
⁵⁷

While praising him in public, Keynes privately said that Roosevelt “had about as much idea of where he would land as a pre-war pilot.”
⁵⁸
In hindsight, Keynes was right that the NIRA was a measure of long-term reform that distracted the energy and attention of the Roosevelt administration and Congress from more urgent recovery measures. Roosevelt, though, had not been impressed with Keynes in his meetings with him and, until the late 1930s, he was not persuaded by the British economist’s argument for large-scale deficit spending during a depression. In his “forgotten man” speech in April 1932, candidate Roosevelt rejected proposals for massive government deficit spending: “People suggest that a huge expenditure of public funds by the Federal Government and by State and local governments will completely solve the unemployment problem. But it is clear that even if we could raise many billions of dollars and find definitely useful public works to spend these billions on, even all that money would not give employment to the seven million or ten million people who are out of work. Let us admit frankly that it would only be a stop-gap. A real economic cure must go to the killing of the bacteria in the system rather than to the treatment of external symptoms.”
⁵⁹

THE BLUE EAGLE FALLS TO EARTH

The NIRA did not last long enough to do much good or harm. Hugh Johnson’s erratic personality and flamboyant style made him a poor choice to head a controversial program. When he was appointed to head the NIRA agency, Johnson told friends: “It will be red fire at first and dead cats afterward. This is just like mounting the guillotine on the infinitesimal gamble that the axe won’t work.”
⁶⁰
The general described the NIRA as a “Holy Thing . . . The Greatest Social Advance Since Jesus Christ.” He removed “I” from the National Industrial Recovery Administration to make the acronym NRA, following a
Business Week
article that mocked NIRA as “Neera, My God To Thee.”
⁶¹

On May 27, 1935, the Supreme Court ruled in the case of
A. L. A. Schechter Poultry Corp. v. United States
that the NIRA was unconstitutional on two grounds: Congress lacked the power to regulate intrastate commerce and had sought to delegate too much discretion to the president. The occasion for the ruling was a suit brought by the Schechter family poultry business in Brooklyn, New York, which had been accused of selling diseased meat. The NRA’s Blue Eagle, it was said, had been defeated by the “sick chicken.”
⁶²
In January 1936, the Supreme Court struck down the Agricultural Adjustment Act (AAA), the equivalent of the NIRA in agriculture; in 1938 Congress re-created it in a second bill that passed constitutional muster.

In May 1935, after the Supreme Court struck down the NIRA as unconstitutional, Justice Louis Brandeis told FDR’s aide Thomas Corcoran: “You go back and tell your President that this Court has told him it is not going to permit the centralization of power. . . . Furthermore, . . . I warn you to send back to the states all those bright young men you have brought to Washington. It is in the states where they are needed.”
⁶³
Roosevelt denounced the decision as a “horse and buggy” interpretation of federal economic power. The decision inspired Roosevelt’s unsuccessful and unpopular “court-packing” plan to enlarge the Supreme Court’s membership in order to dilute the influence of the reactionary justices.

Within a few years, the
Schechter
opinion was effectively reversed. Its attempted ban on delegations of congressional power to the executive was ignored by later courts, which tolerated significant grants of discretion to presidents and executive-branch agencies by Congress. And its prohibition of federal minimum wage laws in “intrastate” commerce was overruled in
United States v. Darby
(1941), which upheld the minimum wage created by the National Labor Relations Act of 1935. Far from saving America from statism, the
Schechter
decision was a last gasp of reactionary nineteenth-century Jeffersonian ideology in the federal judiciary.

In her anti–New Deal polemic
The Forgotten Man
, the conservative journalist Amity Shlaes tried to turn the case into a libertarian melodrama, portraying the Schechters as poor, struggling immigrants victimized by a tyrannical federal government.
⁶⁴
In reality, A. L. A. Schechter was not a struggling small business, but the largest of the firms in Brooklyn’s kosher slaughterhouse industry, making more than a million dollars a year, in part by using low wages to undercut its rivals. Nor were the Schechters victims of Gentile anti-Semites in the federal bureaucracy, as some conservatives have claimed. Orthodox rabbis helped to draft the NRA poultry code and the critics of the Schechters included groups that represented their rivals, including the Official Orthodox Slaughterers of America.

Notwithstanding their collision with the NRA, the Schechters, like most Jewish Americans in the 1930s, were ardent supporters of FDR. In 1936, a
New York Times
headline read: “
ARCH-FOES OF NRA VOTE FOR NEW DEAL
;
ALL 16 BALLOTS IN THE SCHECHTER FAMILY WENT TO PRESIDENT, POULTRY MAN REVEALS
.” The
Times
quoted Joe Schechter: “I wonder if it would be possible to congratulate President Roosevelt through the newspapers and tell him that sixteen votes in our family were cast in his favor.”
⁶⁵

FROM THE WRECKAGE OF THE NIRA

While many historians have distinguished a second New Deal from the first New Deal, this ignores the continuity between the NIRA and subsequent programs. Much of the New Deal’s lasting legacy consisted of pieces of the shattered NIRA, which were pried from the wreckage and re-created as separate programs. A number of the industry-wide code authorities of the NIRA, for example, were re-created in the form of commissions that oversaw regulated industries, from bituminous coal and oil to aviation and trucking. These will be discussed in chapter 13.

The collapse of the NIRA led the Roosevelt administration to seek the goals of union recognition, minimum wages, and social insurance directly, by means of government regulation and provision, rather than indirectly, by means of trade-association agreements. The Wagner Act of 1935, a free-standing equivalent of section 7(a) of the NIRA, gave unions the right to engage in collective bargaining. The Fair Labor Standards Act (FLSA) of 1938 created a national minimum wage and instituted the eight-hour day. Conservative Democrats in the South exempted the occupations in which most black Americans worked, such as agricultural work and domestic work, but they were gradually added later in successive revisions of the act.

The Wagner Act and the statutory minimum wage created by the FLSA in 1938 were poor substitutes for a more flexible and adaptable system that might have evolved over time in the United States, if the NIRA had survived. In Britain, Germany, and other European countries, statutory minimum wages for a long time were limited to a few sweatshop industries, like those supervised by Churchill’s trade boards. France was one of a few European democracies to adopt a national minimum wage from an early period, for the same reason that the United States did—the proportion of workers who belong to unions has always been much lower in France than in Central and Northern Europe.
⁶⁶

The weakness of unions in the United States is often blamed on the Taft-Hartley Act of 1947, which weakened the Wagner Act, or the failure to organize the American South, or hostile attitudes toward unions by courts and government agencies, beginning with the presidency of Ronald Reagan and his Republican successors. But in every other modern democracy where substantial portions of the private sector workforce are unionized, NIRA-style employers associations, called “peak associations,” bargain at the national or regional level with labor representatives. Most of the democratic countries with such tripartite government-business-labor sectoral wage-setting systems have seen their productivity increase at roughly the US rate over the last half century. There is, however, one difference—thanks in large part to higher levels of unionization, the distribution of income in those countries is far less unequal and there is greater upward economic and social mobility than in the United States.