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Cutthroat Competition and Dead Chickens

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President Franklin Roosevelt’s New Deal created much of the moral framework of contemporary political thought. The National Industrial Recovery Act (NIRA), a hallmark of Roosevelt’s first hundred days in office, symbolizes blind faith in government as moral savior.

In a May 17, 1933, message, Roosevelt called for Congress to “provide for the machinery necessary for a great cooperative movement throughout all industry in order to obtain wide reemployment, to shorten the working week, to pay a decent wage for the shorter week, and to prevent unfair competition and disastrous overproduction.” Roosevelt demanded new power for the government because “employers cannot do this singly or even in organized groups, because such action increases costs and thus permits cutthroat underselling by selfish competitors unwilling to join in such a public-spirited endeavor.” In Roosevelt’s new ethics, the evil businessman was the one who charged low prices, and the “public-spirited” businessman was the one who colluded with other businessmen to gouge customers. The National Recovery Administration, created by the act, personified New Deal fairness, vesting unlimited arbitrary power in one person’s hands and presuming that whatever he decreed was fair. Section 3 of the act allowed the president to personally impose codes of conduct on any industry. A 1934 Brookings Institution study of the NRA noted:

“A further expansion of the president’s powers … authorizes him, whenever he shall find that activities which he believes are contrary to the purpose of the law are being practiced in any trade or industry, to license business enterprises if he shall deem it essential to make effective a code of fair competition or agreement. No person shall, after a date which shall have been fixed in an announcement that licensing is required in an industry, engage in any business specified in such announcement unless he shall first have obtained a license pursuant to the regulations prescribed….

“Carrying on of business without a license where a license is required is made a criminal offense. The penalty is a fine not to exceed $500 or imprisonment not to exceed six months or both.”

The study noted that “the licensing provision, giving the president the power of life or death over business enterprises, is the ultimate weapon of enforcement and the capstone of the powers granted to the president … the most extraordinary extension of presidential power in American history.” The final provision of the bill vested in the president the power “from time to time to cancel or modify any order, approval, license, rule, or regulation issued under this title.” Sen. Carter Glass of Virginia denounced “the utterly dangerous effort of the federal government at Washington to transplant Hitlerism to every corner of this nation.”

Roosevelt declared in 1933, “We recognize the right of the individual to seek and to obtain his own fair wage, his own fair profit, in his own fair way — just so long as in the doing of it he does not push down or hold down his neighbor.” And to protect people, Roosevelt’s policies gave government a right to “push down or hold down” whatever group or industry it chose. The NRA restricted working hours, inflated prices, and obliged businesses to form committees to severely restrict competition. Federal officials proceeded to sanction codes for hundreds of industries, from the dog food industry (Code 450) to the shoulder pad manufacturing industry (Code 262). Code 348, governing the burlesque theatrical industry, dictated that no production could contain more than four stripteases.

Any violation of a code was an “unfair method of competition,” and subjected violators to a fine of up to $500 for each offense, with each day considered a separate offense. New Jersey tailor Jack Magid was jailed for “charging 35 cents for pressing a suit,” in violation of the NRA code that mandated a 40-cent charge. The NRA assumed that prosperity could be secured by restricting production and boosting prices — prosperity through “universal monopoly and universal scarcity,” as critics quipped.

The inevitable result of Roosevelt’s policies was to subjugate consumers to producers and to minimize freedom of contract in the name of social justice. The codes included the power to dictate minimum wages on an industry-by-industry basis. One result, according to a 1937 study, was that half a million black workers were thrown onto the relief rolls. (Black workers were often the first to be tossed out of work because of prejudice in the job market, among other factors.) Record-high unemployment was an agonizing problem at the time Roosevelt took office — but it is tricky to create more jobs by mandating higher wages. (Unemployment remained extremely high through 1939, declining only after the onset of the Second World War.)

With the arrival of the NRA, the time had come when the nation could no longer afford to allow chicken buyers to choose their chickens. In 1934, the Schechter brothers — who ran the largest poultry slaughterhouse in Brooklyn — were arrested for violating the federal code of fair competition for the Live Poultry Industry of the Greater New York Metropolitan Area. Their case arrived at the Supreme Court in 1935. The heart of the case — 10 of the alleged 18 violations — involved “straight killing,” which the NRA defined as “the practice of requiring persons purchasing poultry for resale to accept the run of any half coop, coop, or coops, as purchased by slaughter house operators, except for culls.”

Now, more than 60 years later, it is amusing to read the brief that the Roosevelt administration submitted to the Supreme Court. The Roosevelt administration brief fretted about “cutthroat competition” in the chicken slaughter business. The brief stressed that, under the 1934 fair-conduct rules, “purchasers … shall not have the right to make any selection of particular birds.” The brief noted, “The ‘straight killing’ requirement of the Code is really a requirement of straight selling.” Letting buyers pick their birds, according to the Roosevelt administration, generated many “evils” — primarily that it made it more difficult for sellers to charge higher prices for all chickens. It is difficult to comprehend why the New Deal Brain Trust assumed that the fewer choices the buyer had, the more ethical trade became.

The administration’s brief to the Supreme Court justified pervasive federal restrictions on chicken sales by quoting trial testimony: “One of petitioner’s witnesses testified that members of the industry ‘are looked upon as the worst type of businessmen in the world.’” Yet, 64 pages later in the same brief, the administration asserted: “The [NRA] codes will therefore consist of rules of competition deemed fair for each industry by representative members of that industry — by the persons most vitally concerned and most familiar with its problems.” Apparently all that was necessary to make an industry ethical is to give “the worst type of businessmen” power to dictate rules for their competitors and customers and then have federal agents enforce the rules on everyone. (Ironically, the same presumption prevails today: many people assume that politicians are the “worst type of men,” but allow politicians to impose edicts on everyone else and expect justice to result.)

The Supreme Court unanimously struck down the NIRA. The court decision asked:

“What is meant by ‘fair competition’ as the term is used in the act? Does it refer to a category established in the law, and is the authority to make codes limited accordingly? Or is it used as a convenient designation for whatever set of laws the formulators of a code for a particular trade or industry may propose and the president may approve … as being wise and beneficent provisions…?”

The justices were dismayed at the sweep of the power granted in the act. Justice Cardozo observed that “here in effect is a roving commission to inquire into evils and upon discovery correct them … the discretion of the President in approving or prescribing codes, and thus enacting laws for the government of trade and industry throughout the country, is virtually unfettered.” The Court ruled that the NIRA was “an unconstitutional delegation of legislative power.”

However, in the subsequent years, after Roosevelt’s court-packing threat of 1937, the justices succumbed to whatever creative definition of fairness that Congress or federal agencies chose to proclaim. For instance, in 1942, Congress passed the Emergency Price Control Act, which created an Office of Price Administration. The OPA had sweeping power to set or strike down prices in any industry or activity that it considered to be “defense-related” — a vague term that could have encompassed practically the entire national economy. The act contained no substantive guidelines for the administrator’s decisions but merely required prices that “in his judgment will be generally fair and equitable.”

The Supreme Court upheld the law in 1944. Justice Owen Roberts bitterly dissented that “it is plain that this Act creates personal government by a petty tyrant instead of government by law.” He also denounced the administrative system created by the statute as a parody of due process: “The court review is a solemn farce in which [courts] must go through a series of motions which look like judicial review but in fact are nothing but a catalogue of reasons why, under the scheme of the Act, the courts are unable to say that the Administrator has exceeded the discretion vested in him.” Roberts’s comment summarizes the “due process” offered by scores of other federal administrative regimes set up in that period and afterwards.

Though some of the programs and policies of the New Deal era have been terminated, the moral heritage of the New Deal continues to permeate American government and American political thinking. To recognize the moral void at the center of government power and to cease presuming that fairness lurks in the bowels of regulatory proceedings are the prerequisites for honest thinking about justice and fairness.

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    James Bovard serves as policy adviser to The Future of Freedom Foundation. He has written for the New York Times, The Wall Street Journal, The Washington Post, New Republic, Reader's Digest, Playboy, American Spectator, Investors Business Daily, and many other publications. He is the author of a new e-book memoir, Public Policy Hooligan. His other books include: Attention Deficit Democracy (2006); The Bush Betrayal (2004); Terrorism and Tyranny (2003); Feeling Your Pain (2000); Freedom in Chains (1999); Shakedown (1995); Lost Rights (1994); The Fair Trade Fraud (1991); and The Farm Fiasco (1989). He was the 1995 co-recipient of the Thomas Szasz Award for Civil Liberties work, awarded by the Center for Independent Thought, and the recipient of the 1996 Freedom Fund Award from the Firearms Civil Rights Defense Fund of the National Rifle Association. His book Lost Rights received the Mencken Award as Book of the Year from the Free Press Association. His Terrorism and Tyranny won Laissez Faire Book's Lysander Spooner award for the Best Book on Liberty in 2003. Read his blog. Send him email.