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Blue Eagles and Déjà Vu

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The first major step that this nation took toward merging government and industry, and toward the total abandonment of the free-market system, was the enactment of the legislation that created the National Recovery Administration. The NRA with its famous Blue Eagle symbol soon began grinding out hundreds of “codes” repealing economic freedom and arbitrarily fixing wages, prices, and hours.

In the temporary passion of that moment, many businessmen welcomed the idea of controls and were openly pleased with the idea of an escape from competition. Codes in the 1930s was the equivalent of the current euphemism guidelines. These codes ultimately affected some 22 million workers. Like all schemes which require people to behave in a way they would not act of their own free will, force eventually has to be used against the populace. Since the NRA codes required citizens to make decisions which were contrary to their own economic interests, penalties for noncompliance had to be severe. Tailors were arrested, indicted, convicted, and sentenced because their prices for pressing a pair of pants were a nickel below the relevant NRA code. Farmers were fined for planting wheat that they themselves ate on their own farms. Barbers who charged less than the code rate for a shave and a haircut were subject to fines of $500 and more. Even the village handyman was prosecuted, since he did not fit in under the multiple wage-and-hour scale set up by the codes.

The complexity of the codes soon antagonized labor as well as management. The average factory worker who had been earning $25 a week was cut back to $18.60 under NRA codes. As a result, strikes became a way of life and auto workers, frustrated by red tape, began calling the NRA the National Run Around. When the textile code authority cut production in the mills in 1934, another great strike began in the South. Before the strike ended, the National Guard had been called out in seven states and scores of textile workers were killed and wounded. A few months later, NRA administrator Gen. Hughie Johnson resigned under a storm of criticism — or, as he phrased it himself, “a hail of dead cats.”

The Schechter case

As was the case with the rights of minorities in the 1950s and 60s, or with Watergate in the 70s, a few had the courage to challenge the power of the state. A fairly small company, the Schechter Poultry Company, refused to observe NRA standards of “fitness” governing the slaughtering of chickens. When the case reached the Supreme Court, the NRA was unanimously declared unconstitutional. The Court wrote: “Such a delegation of powers is unknown to our law and it is utterly inconsistent with the constitutional prerogatives and duties of Congress.” After the decision was read, Justice Brandeis told one of FDR’s legal aids: “I want you to go back and tell the president that we’re not going to let the government centralize everything.” That was a call to return to fundamental American principles.

This article is from Wriston’s remarks of May 5, 1975, before the Society of American Business Writers, and was reprinted in the September 1975 issue of The Freeman, published by The Foundation for Economic Education, Irvington, New York.

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    Walter B. Wriston (August 3, 1919 - January 19, 2005) was a banker and former chairman of Citicorp.