Table Of ContentDeconstructing the Monolith
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Deconstructing
the Monolith
The Microeconomics of the
National Industrial Recovery Act
Jason E. Taylor
The University of Chicago Press
Chicago and London
The University of Chicago Press, Chicago 60637
The University of Chicago Press, Ltd., London
© 2019 by The University of Chicago
All rights reserved. No part of this book may be used or reproduced in any manner whatsoever
without written permission, except in the case of brief quotations in critical articles and reviews.
For more information, contact the University of Chicago Press, 1427 E. 60th St., Chicago, IL 60637.
Published 2019
Printed in the United States of America
28 27 26 25 24 23 22 21 20 19 1 2 3 4 5
IsBn- 13: 978- 0- 226- 60330- 8 (cloth)
IsBn- 13: 978- 0- 226- 60344- 5 (e- book)
DoI: https://doi.org / 10.7208/chicago/9780226603445.001.0001
Library of Congress Cataloging-in-Publication Data
Names: Taylor, Jason E., author.
Title: Deconstructing the monolith : the microeconomics of the National Industrial Recovery Act /
Jason E. Taylor.
Other titles: Markets and governments in economic history.
Description: Chicago ; London : The University of Chicago Press, 2019. | Series: Markets and
governments in economic history | Includes bibliographical references and index.
Identifiers: lCCn 2018030491 | IsBn 9780226603308 (cloth : alk. paper) | IsBn 9780226603445 (ebook)
Subjects: lCsH: United States. National Industrial Recovery Act of 1933. | United States—Economic
conditions—1918–1945. | Industrial policy—United States. | United States—Economic policy. |
New Deal, 1933–1939.
Classification: lCC HD3616.U46 T36 2018 | DDC 338.973—dc23
lC record available at https://lccn.loc.gov/2018030491
♾ This paper meets the requirements of ansI/nIso Z39.48–1992 (Permanence of Paper).
Contents
Preface vii
1 Introduction 1
2 The Underpinnings, Precursors, and Development of the NIRA 15
3 The NIRA Code Negotiation Process 33
4 The President’s Reemployment Agreement of August 1933 53
5 Codes of Fair Competition: Industrial Planning
and Collusion under the NIRA 77
6 The NIRA Compliance Mechanism in Theory and Practice 107
7 The Economics of Compliance and Enforcement
and the NRA Compliance Crisis 129
8 The Schechter Decision and the Lingering Effects of the NIRA 157
9 Conclusion 173
Acknowledgments 183
Notes 185
References 195
Index 201
Preface
On a visit to the National Archives in College Park, Maryland, an archivist
asked what I was researching. Upon hearing my answer, he replied with a
discouraging tone, “The National Recovery Administration stuff has al-
ready been heavily mined. You’re unlikely to find anything new.” But I was
not searching for a smoking gun suggesting that the National Industrial Re-
covery Act (NIRA) was not what it seemed. Instead I was there to get a better
sense of what the program really did by examining documents detailing how
the NIRA affected the day-t o-d ay lives of workers, business owners, and con-
sumers during its nearly two- year run. What was the view of the program—
and how did it affect economic decisions—on the ground?
Economists generally, though not always, treat the NIRA as a macroeco-
nomic program and attempt to assess its overall impact—that is, they take
a view from high above. Did the NIRA raise inflation expectations? Did the
NIRA’s labor provisions exacerbate the national unemployment situation?
Was the NIRA a negative supply shock or a positive demand shock? And per-
haps most importantly, did the NIRA promote or impede recovery from the
Great Depression? These are the questions economists most often tackle when
it comes to the program that is often considered the most far- reaching and
significant piece of legislation from President Franklin Roosevelt’s New Deal.
When I began studying the NIRA two decades ago, these macro-o riented
questions were the ones that captured my attention. But as I dove more deeply
into the industry- specific codes of fair competition, I realized that these codes
were like snowflakes in that no two were alike. Some codes were scores of
pages long and dramatically restricted economic behavior in ways consistent
with a profit-m aximizing cartel by, for example, employing production quo-
tas, pricing restrictions, information-s haring provisions, and constraints on
viii PrEfaCE
adding new productive capacity. Other industry codes were just a couple of
pages long and did very little to constrain firm behavior. If the rules imposed
by the NIRA varied so dramatically from industry to industry, should we not
expect the effects of the program to likewise vary from industry to industry? And
if the effects did indeed vary dramatically by industry, is the view from above
really the best way to examine and assess the effects of the NIRA?
This book challenges the view of the NIRA as a monolithic program whose
impact can be measured via macroeconomic or even manufacturing-s ector-
level price or output data. The focus here is on the vast heterogeneity within
various aspects of the NIRA. This heterogeneity certainly exists at the indus-
try level to the extent that the program affected firm behavior. To illustrate, I
find that industries with longer and more complex codes of fair competition
were more affected by the NIRA than were those with short and simple codes.
But the heterogeneity also exists temporally. While some industries’ codes of
fair competition were approved and implemented as early as July 1933, the me-
dian industry code (i.e., number 279 out of 557) was not approved until mid-
February 1934. Importantly, the codes could not (officially) affect industry
trade practices until they were approved by the government. The NIRA also
had major compliance issues, and these likewise varied over time, place, and
industry. Some industries experienced high rates of compliance with their
codes throughout the entire program, but many saw compliance wane dra-
matically in the fall and winter of 1933/1934, so that the NIRA had little or no
effect on firm behavior. In other industries, compliance with the NIRA’s labor
and trade practice provisions continued even beyond May 1935, when the pro-
gram was ruled unconstitutional.
When one treats the NIRA as a monolithic macroeconomic program that
began in June 1933 and lasted through May 1935, the heterogeneous aspects
of the law—both by industry and over time—are completely ignored. Impor-
tantly, this type of treatment can provide an inaccurate view of the law’s im-
pact. By viewing the NIRA through a microeconomic lens, this book strives
to provide a better understanding of how the program affected the behav-
ior and well-b eing of workers and firms during the twenty-t hree and a half
months that it existed as well as in the period that immediately followed its
demise. The answer varies dramatically by industry and by time period. Ac-
counting for this heterogeneity not only leads to a better historical under-
standing of the NIRA but is also important for economists who wish to em-
ploy the policy experiments enacted by the legislation to gain insight into
labor, cartel, and political economic theory.
1
Introduction
On November 8, 1934, a hearing was held by the National Recovery Adminis-
tration (NRA) in which multiple affidavits were presented against the Liberty
Baking Company of Washington, DC. The main charge against the bakery’s
proprietor, Pete Theodor, was that he was selling loaves of bread for five cents
each.1 “If this man is allowed to continue his unfair practices, he will cause a
disruption of the bread market in the city of Washington . . . his competitors
are daily losing business to him and are on the verge of dropping their prices
in order to meet his.” So said Harry T. Kelly of the baking industry’s regional
code authority in Washington. At the end of the hearing, Theodor agreed to
raise his price to six cents in line with the baking code.
Over the next three days, the NRA sent various undercover buyers to Lib-
erty Baking to determine whether the firm was complying. Theodor must
have been suspicious of one of these agents because he charged him the
proper six cents, but the agent covertly remained on the premises and caught
Theodor selling bread to another customer at the illegal price of five cents. As
punishment for selling bread at a price below the one agreed upon in the in-
dustry, a November 12 telegram was sent to Liberty Baking stating that the
bakery could no longer display the NRA’s Blue Eagle compliance emblem—
an emblem whose presence (or absence) President Franklin Roosevelt and
members of his administration asked consumers to consider when deciding
where to make purchases. The company was ordered to return all its Blue
Eagle paraphernalia to the local postmaster. On November 19, Assistant Post-
master W. M. Mooney reported to the NRA Compliance Division that Lib-
erty Baking continued to display the Blue Eagle. The case was then referred
to the program’s Litigation Division, where fines and imprisonment could be
imposed if the company was found guilty in the courts. However, by the time
