3. Political Alternatives

If any portion or class of society is sheltered from the action of the environment in any essential respect, that portion of the community, or that class, will adapt its views and its scheme of life more tardily to the altered general situation; it will in so far tend to retard the process of social transformation.

—Thorstein Veblen

Trade association experiences with codes of ethics suggest the presence of market influences that tend to neutralize voluntary efforts to restrain competition. As long as there are no legally enforceable restrictions on entry or trade and pricing practices, the inherent antagonisms between individual and group interests will render industry-inspired restraints ineffective. As long as compliance was truly voluntary, with individual firms free from the compelling influences of fines, injunctions, damage actions, or jail sentences, the costs of noncompliance were minimal and would be incurred whenever the anticipated benefits of doing so were greater than the costs associated with compliance.

This lack of enforcement machinery in association codes caused many business leaders to direct their attentions toward developing more effective methods of securing compliance with business standards desired by the more influential members within the various industries. The business community had discovered that firms would not sacrifice their individual interests to group interests unless there was coercion to make them do so. Unable to accomplish the trade-practice desideratum through codes resting upon voluntary compliance, a number of business leaders and trade associations considered compulsory measures. The journalist John T. Flynn noted the inherent weaknesses in voluntary systems of “self-rule” and pointed to the seemingly inevitable attraction of political means for realizing competitive stabilization:

They [trade associations] are harassed by the unwillingness of those rebellious and adventurous spirits who refuse to accept their rule. They are forever running into the disturbing fact that while a trade may, after a fashion, “rule itself,” it cannot rule some other trade which is in collision with it…. It is this very weakness which sends trade associations to Congress and the legislatures every year with appeals to the government to join them in some program of regulation. But the practice of regulating others is habit forming. It is a mania. … As soon as men find themselves in a game they begin to invent rules for that game, and the more extensive and complicated the rules become. At first they depend upon a certain spiritual pressure operating through the law of honor to support the rules. But very soon they seek more effective means of getting the rules obeyed. This involves a kind of force.¹

A “self-regulation” that was couched in the voluntary-sounding parlance of “cooperation” soon gave way to proposals that envisioned more formal and pragmatic methods for compliance. Business attitudes toward “self-regulation” underwent a transition from favoring purely voluntary efforts to restrain market practices to favoring those that were involuntary in nature. The phrase ultimately came to encompass the notion of trade associations establishing business standards that would be subject to legal enforcement by such associations employing the power of the government. Thus, by the late 1920s, many business leaders would have agreed with Bernard Baruch that the cooperative experiences of the World War I years “should be stimulated and encouraged by a Government agency, which at the same time would be clothed with the power and charged with the responsibility of standing watch against and preventing abuses.”²

A vehicle used to develop support for the emerging doctrine of industrial “self-regulation” was the artificial polarization of the alternatives of “government control” and “self-regulation.” To an impartial observer, it might appear that the only question had to do with whether business decision-making was to be regulated by the state or by the consensus of the members of a given industry. The alternative of individual firms making their own decisions, in response to their individual assessments of market conditions, was never afforded; quite the contrary, such a state of affairs was characterized as the very “evil” to be exorcised. This evaluation of business attitudes was shared by John T. Flynn, who, in discussing the meaning of the concept “let business rule itself,” observed:

This is one of those fair-sounding but ambitious phrases which may mean very much or very little. It may be innocent enough provided we can agree on its intent. But when we say business should be left to rule itself we must be quite certain what we mean by business. … If this little war-cry is devised for no deadlier purpose than to demand self-rule for the individual factory or store, then we need not quarrel with it, for it means nothing. One thing is certain: no one intends to permit the individual business man to rule himself as independently as in the old days of free competition. Let no one suppose that those who want business to rule itself have any notion of letting the individual business man go scot-free of regulation. They wish him to be supplied with plenty of discipline. They propose, however, that this regulation shall come not from the government but from business itself.³

The NICB, which had contributed much to the development of support for the regulation of business from within, characterized this “power of self-regulation” as “the real basis for hope of the preservation of the competitive system” and then noted that, even though government regulation had its benefits, the role of trade associations in helping to eliminate unfair trade practices had a great deal more to do with the “transformation, now going on, from cut-throat warfare for profits toward a more chivalrous competition.”⁴ It is fairly apparent that, to the NICB, the “preservation of the competitive system” involved the preservation of the positions of existing firms and that aggressive sales practices and pricing policies that threatened these market positions had to be eliminated. Sharing this view was O. H. Cheney, vice-president of the American Exchange Irving Trust Company, who asserted:

The new competition cuts across old distributing lines, and so must the new cooperation. The sooner every trade association activity becomes integrated into the organized activity of the whole industry, the sooner it will be ready to fight constructively in the new competition. Regardless of inter-distributor competition, every factor within an industry must fight together; and regardless of inter-commodity and inter-industrial competitions, all industries having common interests must understand and help each other.⁵

The NICB, in a study of the role of business organizations in helping to provide stability and to minimize competitive practices, noted the problem of “reconciling freedom and authority” and sought to strike a middle position between the “extremes” of “individualistic policy of unfettered and unregulated competition” that had produced “waste” and “ill-will,” and the alternative of “authoritative control of industry under official bureaucratic forms.” The system of “voluntary cooperation” was seen as a “synthesis of freedom and authority” that could provide for the “autonomous regulation of commercial practices,” through which the “trade associations may come to share with the government itself, as in the days of the medieval guilds, the responsibility for eliminating unfair and predatory competitive conduct.”⁶

The medieval guild is a perfect analogy for the system that was sought by many business leaders in the 1920s. The essence of that earlier practice was that a given trade or industry was considered not as a composite of independent and free-acting firms engaged in the same line of economic activity, but as a collectivized unit comprising the members of such trades who functioned under the centralized, legally enforceable direction of the guild itself. The guild was a self-contained entity, representing the will of the dominant members of that trade and having the power to regulate the practices of the members to make certain that no activity was engaged in that would be disruptive of the positions of other members. As the economist Ludwig von Mises pointed out, the guild “enjoys full autonomy; it is free to settle all its internal affairs without interference of external factors and of people who are not themselves members of the guild.”⁷

The guild system was enjoying a resurgence of popularity in England and continental Europe at this time, and American business leaders were beginning to see in the corporate state an attractive alternative to the disruption of unencumbered competition. Many businessmen were convinced that competition became “undesirable” whenever it had the effect of disrupting existing market relationships or threatening the position of a competitor. Business leaders sought to persuade one another of the “community of interest” each had in the elimination of those aggressive practices that endangered the status quo.

That the realization of such objectives depended, ultimately, upon the exercise of state power to enforce industry-desired standards had become evident to many within the business community. Of course, many business leaders had, long before the 1920s, come to embrace political solutions to economic problems and to regard the role of government as complementary to business purposes. Julius Barnes observed, “So sound are the fundamentals of American business that the spirit of courage, confidence and enterprise could be revitalized quickly by intelligent team play between Government and industry.” He then added: “The manifest quick response of the processes of industry to government policies, wise or unwise, emphasizes the growing interdependence of Government and industry in this country.”⁸

The growing acceptance, by business leaders, of this “interdependence of Government and industry” became increasingly evident. Indicative of this emerging sentiment was the infatuation many businessmen had with one of the principal champions of guild socialism, Italian premier Benito Mussolini. Julius Barnes, Willis Booth (vice-president of Guaranty Trust Company), James Emery (counsel for the NAM), Lewis Pierson, E. H. H. Simmons (president of the New York Stock Exchange), Elbert Gary, Thomas W. Lamont (head of J. P. Morgan), Otto Kahn (of Kuhn, Loeb and Company), and Andrew W. Mellon were some of the more prominent men of commerce and industry to see in Mussolini the quality of leadership needed for the solution of economic problems. Gary’s enthusiasm was such that he declared, “We should be better for a man like Mussolini here too.” Kahn characterized Mussolini as a “patriotic realist,” adding “I bow in homage [to him].” Mellon regarded Mussolini as “a strong hand to reestablish the Italian Government upon sound principles.” Pierson was so mesmerized by Mussolini as to hail his restoration of “the ideals of individualism,” while Lamont referred to himself as a “missionary” for Italian fascism.⁹

The case for an extended political authority for enforcing industry trade standards was advanced by other businessmen. In a somewhat emotional speech to the annual meeting of the U.S. Chamber of Commerce in 1928, Edwin B. Parker expressed his support for government enforcement of such “self-regulatory” rules. Parker urged that the business community be “purged of those pirates whose acts stigmatize and bring business generally into disrepute. … Ruthless and selfish initiative must be curbed in the public interest and in the interest of legitimate business.” Although, according to Parker, “business can, and is prepared in effect to legislate for itself in eliminating unfair, uneconomic and wasteful trade practices, including all forms of unfair competition,” business nonetheless lacks “both the machinery and the power” to enforce business-promulgated standards of business conduct or to discipline those who would “demolish the canons of sound business practices.” The enforcement of such “sound business practices” would, in Parker’s view, occur “when the appropriate Government agency has, after full hearing, approved such rules as in the public interest.”¹⁰

The interrelationship of cooperation and government enforcement was also observed by Francis H. Sisson, vice-president of the Guaranty Trust Company, who wrote: “[W]e are urgently in need of cooperation, not only among our industrial, commercial, transportation and financial interests, but also between the government and these important elements in our economic life.” While Sisson recognized that “[s]tringent government control” would be a “deadly menace,” he commended the idea of a “cooperation” between business and government, under which “competition that causes economic waste would be eliminated,” resulting in “a high sense of justice and fairness.” Projecting the beneficial effects of cooperation onto a world market, Sisson declared: “[W]e cannot adequately cooperate outside of the United States if we are compelled to indulge in costly and wasteful competition within our borders.”¹¹ Similar sentiments were voiced by Gordon C. Corbaley, president of the American Institute of Food Distribution, who espoused the right of manufacturers to eliminate “destructive competition” by controlling “excess productive capacity.” Corbaley also recommended the establishment of a national administrative board to coordinate industrial activity.¹² Meanwhile, Lewis Pierson prophesied, five years before the enactment of the NRA, that”[t]he day … is not far distant when organized business, organized labor, and a comprehending government will unite for the intelligent teamwork that alone can solve our newer problems.”¹³

The turbulence wrought by the significant organizational and industrial developments discussed earlier and the unrestrained, aggressive practices of one’s competitors reinforced business understanding of the proposition later put forth by Mancur Olson: that the competitive self-interests of individual firms will work to the detriment of the collective interests of the industry itself “unless there is coercion … to make individuals act in their common interest.” The centralizing demands of the new industrial order that had been impressing its character upon American society caused many business leaders to begin experimenting with various political formulas to reorient the perspectives of businessmen.

TRADE PRACTICE CONFERENCES

One of the initial efforts of trade associations to obtain some degree of government approval and enforcement of codes of business practices involved the “trade practice conferences” established and conducted by the Federal Trade Commission. The FTC had frequently received complaints from industry members concerning trade practices that were so pervasive within particular industries that it would have been fruitless to attempt to deal with them on the basis of formal proceedings against each firm engaging in the practices. Consequently, as early as 1919 the FTC began inviting members of specific industries to participate in conferences designed to identify trade practices that were felt by “the practically unanimous opinion” of industry members to be unfair. As already noted, individual firms were unwilling to adhere to more passive trade standards, not only for the self-interest motivations mentioned by Mancur Olson but for the correlative reason that they knew their competitors would also deviate from agreed rules. While the earliest conferences were initiated by the FTC itself and were without any specific statutory authorization, it did not take long for trade associations and industry members to see in such machinery an effective method for the enforcement of those rules which, it was hoped, would stabilize the conditions so many had found so intolerable. The conference procedure was, apart from the enforcement offered by the FTC, rather close in concept to the trade association “codes of ethics,” making it a readily acceptable political alternative to the more disappointing voluntary efforts. As a result, the trade practice conferences received the active support of the U.S. Chamber of Commerce and other trade groups throughout the 1920s and up into 1931 when, as a consequence of the FTC suddenly reducing the scope of trade practice rules, many within the business community began actively promoting alternative programs, some of which were to ultimately become part of the New Deal’s National Industrial Recovery Act.¹⁴

The basic procedure governing a trade practice conference involved the FTC inviting the members of a specific industry to attend a conference, at which a discussion of trade practice problems and proposed solutions would take place under the general supervision—though not the direction—of a representative (ordinarily a commissioner) of the FTC. Complaints regarding existing conditions and proposed rules to deal with such conditions came from industry members themselves, with the commission playing a role more akin to that of a moderator than that of an ultimate authority. Industry members were then invited to express themselves as to the fairness or unfairness of specific trade practices. In the words of the FTC, “If the practically unanimous opinion of the representatives of the industry condemns a given practice … [it] is given great weight by the Commission in considering such practices.”¹⁵ It must be emphasized that such industry expressions did not obligate the FTC to follow any of the recommendations made at the conference. Though such expressions were purely “advisory” in nature, it is also correct to point out that, to the degree they represented a consensus of opinion within the industry, they tended to have a great deal of influence with the FTC as statements of the “common law” for that industry. The commission’s attitude toward such declarations was stated rather succinctly: “The effect is that the weight of opinion of the industry has been communicated to the Commission and that thereafter the Commission will feel it to be its duty in case complaints are made to it of a continuance of the condemned practices on the part of any member of the industry, to issue its formal complaint….”¹⁶

It is understandable, then, that the business community saw in the trade practice conferences a greater potential for the enforcement of industry standards than what had existed in the trade association-formulated codes of ethics. Despite the commission’s having acknowledged that the enforceability of rules emanating from such conferences would ultimately be subject to judicial review, any experienced legal counsel could give adequate assurance to his clients—at least at this point in time—that the courts would tend to give a stamp of prima facie “reasonableness” to rules that represented the nearly unanimous thinking of industry members who had participated in the formulation of such rules under the auspices of the FTC.

The rules that came out of the conferences and were approved by the FTC fell into two categories: Group I rules and Group II rules. Group I rules were considered by the commission as expressions of the prevailing law for the industry developing them, and a violation of such rules by any member of that industry—whether that member had agreed to the rules or not—would subject the offender to prosecution under Section 5 of the Federal Trade Commission Act as an “unfair method of competition.”¹⁷ Although a number of business leaders and trade association executives were fond of speaking of the “voluntary” nature of the trade practice conferences, there was no question as to the binding nature of Group I rules on all members of a given industry, regardless of whether a particular firm had ever “voluntarily” chosen to be bound by such rules. As one chairman of the FTC put it, “[T]he Commission undertakes to enforce compliance [with Group I rules] by proceeding against all violators, whether they have subscribed thereto or not….”¹⁸

Contained within Group I were rules that dealt with practices considered by most business organizations to be the more “disruptive” of stable economic conditions. Generally included were prohibitions against inducing “breach of contract;… enticement of employees;… espionage;… disparagement of competitors;… commercial bribery;… price discrimination by secret rebates, excessive adjustments, or unearned discounts; … selling of goods below cost or below published list of prices for purpose of injuring competitor; misrepresentation of goods;… use of inferior materials or deviation from standards; [and] falsification of weights, tests, or certificates of manufacture.”¹⁹ While some of these rules involved efforts to restrain fraudulent practices that would harm consumers, most were clearly directed toward competitive practices that, it was feared, would have a harmful effect upon the competitors of firms employing such methods.

Group II rules, on the other hand, dealt with practices that the courts or the FTC had not generally held to be unlawful per se. They usually were practices that were objectionable to members of a specific industry but were not universally regarded as “unfair methods of competition” within the meaning of the Federal Trade Commission Act. Even though the FTC considered the violation of a Group II rule to be an unfair method of competition, this class of rules was considered binding only upon the firms that had actually agreed to them, a fact that prompted FTC chairman Abram F. Myers to observe that the absence of enforcement against nonsigners was “a serious stumbling block” to business efforts on behalf of self-regulation.²⁰

The basic content of trade practice conference rules, whether of the Group I or Group II variety, did not generally differ from the trade association codes of ethics. What did differ, of course, was that the FTC now afforded a means for the enforcement of such rules, with the categorization of rules into either Group I or Group II determining how and against whom such rules would be enforced. To illustrate the point, a trade practice submittal of the National Petroleum Marketers Association, adopted in 1920, contained a provision outlawing cash discounts and secret rebates.²¹ The trade practice rules for the oil industry, adopted the same year, provided for uniform agency and tank rental agreements, with minimum rental rates established. Cash discounts were also prohibited. The 1928 rules for the petroleum industry in Virginia required, as a Group I rule, the posting of and adherence to selling prices, along with the prohibition of any discounts, while the Group II rules sought to discourage the direct sale of petroleum from bulk plants into the buyers’ trucks. The millwork industry rules, adopted in 1928, required adherence to published prices by all manufacturers.²² A trade practice conference for the motion picture industry, held in 1927, resulted in a code that banned, among other practices, “commercial bribery” and “paid commercial advertising from motion picture exhibitions” (Group I), as well as “fake motion picture acting schools” and “deceptive titles” (Group II).²³ The grocery trades, responding to the intense competition generated for the most part by the chain stores, adopted proposals seeking to restrict such price-lowering practices as “secret rebates,” “free deals,” “premiums, gifts, or prizes,” “selling … below delivered cost,” and “price discrimination.”²⁴ That such rules and proposals were principally reactions against the very aggressive competition taking place within these industries, and not a “moralistic” response to corporate fraud and corruption, will be more evident from the examination of specific industries in subsequent chapters.

Based upon the past efforts of many businessmen to foster more sedentary methods of competition, the tendency of trade practice conference rules to prohibit the more energetic competitive modes was rather predictable. As Kittelle and Mostow have noted:

A study of trade practice submittals and rules issued prior to 1930 indicates that businessmen, in requesting conferences, were not always motivated by a desire to help the consumer. Many were unquestionably hopeful of achieving some measure of price-fixing or control over production or the channels of distribution; and some of the early rules went rather far toward making this hope a reality.

They added what, by now, should be rather apparent, namely, that businessmen, in seeking the prohibition of certain practices, “were all too prone to regard as ‘unfair competition’ almost any kind of active competition that discommoded them, particularly if it related to price.”²⁵ A similar conclusion was drawn by Robert Himmelberg, who declared that “the codes became potential instruments for limiting competition. The blanket prohibition of price discrimination would have the effect of preventing a seller from shaving prices to win a new customer, and thus eliminate one of the leading inducements for price competition.”²⁶

The role that the trade practice conference played as a tool for business self-regulation was noted by M. Markham Flannery, director of trade practice conferences for the FTC: “Never in the history of American business has there been a time when self-regulation has received more intensive consideration.” Discussing the role of trade practice conferences in the self-regulatory scheme, Flannery pointed out what others had observed: effective self-regulation was dependent upon the establishment of rules that could be enforced against violators, a function for which the conferences were best suited.²⁷ Edwin B. Parker praised the trade practice conference as “an expeditious and economical means of eliminating the use of unfair methods of competition,” adding that such “voluntarily” adopted rules would, when ratified by the FTC, become “the rule of business conduct for that industry.” Such a procedure, Parker concluded, “offers to business an opportunity in good faith to set up simple machinery in each trade, diligently to seek out the abuses which unquestionably exist to a greater or less extent in every industry, and to take effective measures to eliminate them.”²⁸

Echoing these views was O. H. Cheney, who observed that “about the only way to regulate business effectively is to let it regulate itself by giving the best thought and character in an industry a chance to come to the top, and to back it up with the police power of the Commission.”²⁹ In his opinion, then, the “self-regulation” was presumably to be subject to enforcement by the federal government and was not to be “voluntary” in the sense that any recalcitrants could avoid adhering to the standards developed by members of the industry.

Retailer Lincoln Filene’s appraisal of the trade practice conference procedure was that “it was a definite forward step in the general movement to make industries ‘self-regulating’ so far as unfair trade practices are concerned, and to tie in the self-regulating process with the only federal administrative body then in existence to cooperate with and to enforce the conclusions of the industry.” Filene saw in such procedures the possibilities for FTC activity in areas in which the NRA later became involved. In his view, trade practice standards upon which an industry could not reach agreement could be determined by the FTC itself. The consequence of following such principles would be, according to Filene, “to build a structure of lasting value to business and to the community,” one that would be consistent with his long-held goals of competitive regularization for the retailing trades.³⁰

LOOKING AHEAD

A number of proposals for the establishment of regulatory machinery, patterned on variations of the trade practice conferences, were made by business leaders during the postwar decade. One such plan, put forth in 1924 by Bernard Baruch, envisioned the creation of a so-called Court of Commerce. Such a court would, in his mind, provide business with a tribunal for seeking to stabilize business conditions. The procedure employed would be much like the seeking of a declaratory judgment. Businessmen would appear before the court “with such questions as whether in time of overproduction and low prices they could cut down production and fix a price.” Baruch favored the use of such a court over the FTC (which he described as “an inquisitorial body”), for such a court “would encourage such practices of cooperation and coordination in industry as would be found to be clearly of public benefit.” Such a court would also “be clothed with the power and charged with the responsibility of standing watch against and preventing abuses.”³¹

A proposal similar to Baruch’s had been made in 1919 by Rush C. Butler, chairman of the Federal Trade Committee of the U.S. Chamber of Commerce, who, criticizing the effects of the Sherman Act, recommended that Congress establish an administrative agency whose job would be to determine, in advance, “whether or not agreements between competitors in restraint of trade are or are not unlawful.”³² He recommended such an arrangement for the internal problems of the coal industry in particular. Suggestions like these by Baruch and Butler demonstrate the relationship business “cooperation” bore to the maintenance of business stability through restricted production and pricing practices. As long as the business agreements contemplated in these proposals were truly voluntary in nature (i.e., firms were not to be legally compelled to adhere to any industry determined trade standards), the proposals of Baruch and Butler, at least at this point, only seek to remove any taint of antitrust illegality from agreements made between or among firms. As such, no real harm can be discerned in their suggestions. It is evident, however, that the business leaders advocating systems for the stabilization of competitive conditions were not always meticulous in distinguishing the voluntary from the involuntary means.

In May 1930, Baruch took the opportunity to renew his support for a courtlike system of “self-regulation.” Drawing upon what he considered to be the favorable atmosphere created through the WIB, Baruch told the Boston Chamber of Commerce that American business needed “a common forum where problems requiring cooperation can be considered and acted upon with the constructive, nonpolitical sanction of the government.”³³ Noting that effective means of restraining “excess production” were prevented by existing laws, Baruch went on to suggest that a “tribunal invested like the Supreme Court” be established. He added:

It should have no power to repress or coerce but it should have power to convoke conference, to suggest and to sanction or license such common-sense cooperation among industrial units as will prevent our economic blessings from becoming unbearable burdens. Its sole punitive power should be to prescribe conditions of its licenses and then to revoke those licenses for infringement of such conditions.³⁴

Among business leaders, apparently contradictory meanings were attached to such concepts as “voluntary,” “nonpolitical,” and “noncoercive.” While Baruch spoke of the “nonpolitical” nature of such a proposed tribunal and would even have denied it the “power to repress or coerce,” he went on to talk of a licensing procedure as the “sole punitive power” of the tribunal. In other words, each individual business would have been required to obtain a license from this agency as a condition to doing business. This license, and with it the right to conduct business, could have been revoked in the event a firm failed to abide by the rules established by the tribunal. That such a system could hardly be considered “noncoercive” would be evident from the moment a dissenting businessman, stripped of his license by the tribunal, sought to continue operating his business.

Baruch’s plan was, in effect, but a reiteration of the same basic regulatory structure he had advocated since the cessation of the WIB. It was, in format, identical to his 1924 proposal for a Court of Commerce. The idea of having some sort of an “industrial court,” composed of members of the business community, had intrigued many business leaders, including such men as the noted retailer John Wanamaker, who earlier proposed a plan for a “Supreme Bench” of businessmen that was similar, in many respects, to that offered by Baruch. Along the same lines, the president of the Wool Institute proposed “a special supreme court for industry” that would “interpret the economic law governing state, interstate and national transactions.”³⁵

In a policy recommendation that was consistent with the prevailing sentiments of many business leaders for a greater politicization of competitive relationships, Rexford G. Tugwell proposed

[t]hat industrialists move faster than they have in the past toward close association, so that, without compulsion from any governmental body, a general scheme and a definite program, for economic affairs, on a national scale can gradually emerge, with inter-business and inter-industry controlling bodies responsible for coordination and maintaining the smooth flows of goods and services.

Tugwell then observed,

[W]e linger in the past, with our clumsy governmental machinery for control hopelessly out of date. We muddle where we ought to clarify; we obstruct where we ought to encourage. Governmental controls ought to be brought to bear where voluntary ones break down, where, in fact, the interests of the public conflict with those of a super-coordinated industry.³⁶

In order to achieve the level of maturity that he felt industry must attain, Tugwell declared that one of the requirements was “the need to socialize industry, which means to make it serve social ends rather than individual ones.” He then asked: “[I]s industry becoming socialized? As we move toward greater associationism, toward a generally closer-knit fabric of relations, it seems inevitable that socialization should accompany the movement. The identity of social with group interests grows greater as the group grows larger.”³⁷ Tugwell concluded that “there still remains a clear tendency toward associationism of a kind which arises out of normal technical processes. And when this happens, it is always more possible to achieve coordination among producing groups than it was before.”³⁸

Tugwell’s observations are significant in that they were premised upon the same influences identified by Mancur Olson, and they recognized the progression from voluntary to political means of regularizing trade practices. There is certainly no deterministic influence at work here: business and trade association leaders could well have confined their efforts for moderating competitive influences to agreements, understandings, and appeals to “business ethics.” In fact, many were undoubtedly content to approach the question informally, without recourse to political intervention. Nevertheless, the historical development of legislative efforts to realize commercial and industrial stabilization was generally preceded by voluntary programs that, upon failing to accomplish their intended objectives, were superseded by appeals from many business sources for more effective measures.

What business leaders were seeking in their proposals for “self-regulation” was a system for moderating trade practices in order to maintain stable, predictable, nonthreatening business conditions. This process has been referred to as “rationalization,” a concept more specifically detailed as

the process of associating together individual undertakings or groups of firms in a close form of amalgamation, and ultimately of unifying, in some practicable degree of combination, whole industries, both nationally and internationally; with the allied objects … of increasing efficiency, lowering costs, improving conditions of labour, promoting industrial cooperation, and reducing the waste of competition, these objects being achieved by various means which unification alone makes in full measure available—the regulation of the production of an industry to balance the consumption of its products; the control of prices; the logical allocation of work to individual factories; the stabilization of employment and regularization of wages; the standardization of materials, methods and products; the simplification of the ranges of goods produced; the economical organization of distribution; the adoption of scientific methods and knowledge in the management and technique of trades as a whole; and the planning and pursuit of common trade policies.³⁹

H. S. Person, managing director of the Taylor Society and an advocate of “rationalization,” observed rather prophetically that, as of 1930, “there has been … no situation in the United States sufficiently critical to generate the emotional impulse for a positive step in the direction of rationalization.”⁴⁰That the “situation” of the Great Depression had already begun to provide the “emotional impulse” that was to culminate in the New Deal National Industrial Recovery Act experiment was evident from the nearly unified voice with which business leaders increased their appeals for “self-regulation” in business.

BUSINESS IN THE GREAT DEPRESSION

While it is convenient to use 24 October 1929—"Black Thursday"—as the benchmark inaugurating the Great Depression, a proper understanding of this economic crisis demonstrates a series of events, along a continuum beginning at least as early as 1921 and running well into the New Deal years, that must be understood in order to fully grasp the cause and effect factors associated with the depression. Nevertheless, the popular reaction to the “great crash” of the stock market justifies the use of this date for gauging the attitudes of business leaders toward the depression and their proposals for dealing with it. Did the depression bring with it any change in business philosophy toward stabilizing and rationalizing competitive conditions? What policies were advocated by business leaders, and how do they compare with suggestions for economic reform put forth in prior years?

The principal contention of this study is that the business community had become increasingly sensitive to the creation of an environment that would insulate firms from the adverse consequences of aggressive competition. If this assessment is correct—if business was, indeed, pursuing policies designed to preserve the positions of existing firms—then one might expect an intensification of such efforts during the catastrophic depression years.

While the impact of the depression injected a new sense of urgency into their appeals, it does not appear that leading businessmen made any significant deviation from their desire for a system of industrial “self-rule” under federal supervision. The depression gave additional strength to the arguments on behalf of the restructuring of competitive relationships, but it did not alter the basic content of their proposals. If anything, this time period served as a catalyst for the conversion of the idea of “self-regulation” into the concrete proposals that ultimately became the National Industrial Recovery Act.

There is no universally accepted explanation for the cause of the Great Depression. Interpretations have ranged from Milton Friedman and Anna Schwartz’s⁴¹ view that the depression was occasioned by erroneous Federal Reserve monetary policies to Peter Temin’s⁴² suggestion that consumption and investment changes following the stock market crash were to blame, to Henry Simon’s⁴³ contention that such factors as government-created instability in commercial banking and the abandonment of competition through increased government intervention were to blame, to Charles Kindleberger’s⁴⁴ view that the depression had foreign origins. Herbert Hoover⁴⁵ shared Kindleberger’s explanation, although he attributed the primary cause of the depression to World War I. One must add to the list John Kenneth Galbraith’s⁴⁶ identification of such factors as insufficient advances in investment, the maldistribution of income, and corporate and banking structural deficiencies, as well as such questionable explanations as psychologist John J. B. Morgan’s⁴⁷ “manic depressive psychoses of business.”

The cause of the Great Depression has also been characterized—certainly in the popular mind—by the over-production of goods, a condition that has generally been attributed to the failure of businessmen to make accurate predictions. This time period has been used to help propagate the notion that a market economy cannot be self-regulative, but must be subject to political supervision and direction. But, as another economic historian has demonstrated,⁴⁸ the period leading up to the depression was not marked by overproduction in the sense that businessmen failed to properly anticipate consumer demand. Rather, there was an “overbidding” of costs associated with the production of certain types of goods; the costs ended up being too high in relation to the selling prices of the goods themselves. This “malinvestment,” resulting in the overproduction of certain specific goods (and not of all goods throughout the economy) was sired, in this view, not by the absence of political intervention, but because of it, in the form of the inflationary expansion of credit and the supply of money. Far from serving as a model of the dysfunctional nature of market disciplines, the Great Depression is seen as a classic example of the adverse effects of deviating from the market and imposing political direction upon the economy.

Regardless of the origins of the problem,⁴⁹ many industries found themselves in the depression years with stocks of unsold goods, a situation for which the standard textbook response is a reduction in prices in order to clear the market. Up until this time, it had been accepted policy for governments not to interfere with such market readjustment mechanisms. Following the 1929 crash, however, the Hoover administration intervened to prevent price declines, a move which retarded economic recovery.⁵⁰ Such price-stabilizing policies happened to coincide with business efforts to eliminate sharply fluctuating prices. The depression did create surpluses in many industries, but for other industries there was a decline in demand as a result of a general ordering of buyer preferences during the depression. The aggressive competitive practices of the predepression years, coupled with falling prices that, in part, characterized the market’s attempt to reestablish equilibrium, served to intensify the demands of many businessmen for some method for effectively controlling competition.

Many business leaders, during the early depression years, would doubtless have been in agreement with the prescription offered by Wallace B. Donham, dean of the Harvard School of Business:

Our new group of business men must develop and enforce a group conscience if the evolution of business ethics is to be speeded up; a group conscience which will hold not only the individual but the whole group to both personal and group responsibility for relations with the rest of the community. When this degree of solidarity is accomplished, and when business has to this extent acquired the ability to enforce its own sanctions, and not till then, will business have assumed the leadership which has been forced on it by science.⁵¹

Donham’s statement serves not only to summarize the development of business attitudes toward intraindustrial relationships, but is a fitting prologue for what was to follow.

As 1929 drew to a close, many businessmen continued their expressions of concern for the development of cooperative attitudes among competitors. One trade association executive condemned the businessman who operated his business “in entire disregard of the effects on his competitor and the rest of the industry,”⁵² while another executive lamented price discrimination and secret rebates, calling them “evils” that had resulted from “mass production, overproduction, high-power selling and national advertising.” He praised the FTC’s trade practice conferences as effective means for laying down and enforcing rules for industries, then offered this view of the modern businessman: “Instead of being the individualistic merchant of the old days, he must believe in the new spirit of cooperation.”⁵³

Proposed remedies for these trade conditions continued to find expression among members of the business community, with the emphasis tending to be on political solutions. Noting that “our profits are absolutely unprotected,” one businessman proposed the establishment of “business ethics legislation” in order to “make it possible for fair practices to become a law in any industry when 80 or 90 per cent of that industry, together with governmental supervision, agree on a policy.”⁵⁴ Perhaps the thinking of most businessmen was best summarized by Henry S. Dennison, president of Dennison Manufacturing Company: “We must manage ourselves if we are to gain on the past. No laissez-faire, no unchanneled and unimpeded course of nature, no invisible hand will do it for us…. [W]e now find ourselves in a period of growing social self-control,”⁵⁵ Even though “laissez-faire” has never characterized the American economy, each succeeding generation speaks of its accretions to the ever-expanding regulatory apparatus as “bringing an end to laissez-faire.” Dennison’s remarks, while reflective of this approach, should not be taken as an accurate appraisal of predepression policies.

Business attempts to promote trade stability received a setback when, in 1931, the FTC—having become concerned that the trade practice conference procedures might have been subject to abuse by trade groups—undertook a major revision of the then-existing trade practice rules. In the eyes of many members of the business community, this revision greatly restricted the effectiveness of such conferences as a means of moderating competitive practices. A publication of the influential NICB provides a terse summation of the business response to the emasculation of trade rules by the FTC:

It was this unilateral revision of codes to which members of various industries had subscribed under the impression that they represented something in the nature of a covenant, or contract, imposing mutual obligations, that brought to an end the second stage in the development of the trade practice conference. Chagrined by being left without official approval for numerous practices and activities which they deemed appropriate and useful in combating the current depression, and unconvinced of any real advantage from agreeing to abide by settled rules of law … business men lost their enthusiasm for these emasculated codes. What they wanted was not less but more of the same medicine.⁵⁶

This assessment of business attitudes toward enforceable trade practice rules is quite accurate. The quest for a workable system, undertaken long before the onset of the depression, began to increase in intensity. Many business leaders embarked on campaigns for alternative political resolutions of their perceived problems of competitive instability. The groundwork was thus begun not only for the NRA but for a close working relationship between many businessmen and the New Deal philosophy of government-structured economic behavior.

One of the most detailed blueprints for seeking to stabilize industrial conditions—one that served as a precursor for the NRA—was put forth on 16 September 1931 at the National Electrical Manufacturers Association meeting in New York by Gerard Swope, president of the General Electric Company. Known, appropriately, as the Swope Plan, it envisioned the ultimate organization of all companies with fifty or more employees into trade associations to be supervised by an administrative body of the federal government. These trade associations would be empowered to define “trade practices, business ethics, methods of standard accounting and cost practice, standard forms of balance sheet and earnings statement, etc.” They would also be permitted to

collect and distribute information on volume of business transacted, inventories of merchandise on hand, simplification and standardization of products, stabilization of prices, and all matters which may arise from time to time relating to the growth and development of industry and commerce in order to promote stabilization of employment and give the best service to the public.⁵⁷

The Swope Plan envisioned the adoption of a system of workmen’s compensation, of life, disability, and unemployment insurance, and of old-age pensions (all ostensibly to gain the support of labor), but the primary impetus for the plan came from a desire of industrialists for a coordinated system to stabilize industry through rules made by trade associations and enforced by the federal government.

The Swope Plan, in other words, epitomized the thinking of an increasing number of business leaders as to the appropriate means for enforcing business-desired competitive standards. The plan contemplated that a majority of the members of an industry would enjoy the use of the coercive power of the federal government in establishing and enforcing rules against a dissenting minority. There would be no more futile appeals to a competitor’s “conscience” or sentimentalized rhetoric about the “good of the group”; the Swope Plan proposed to give industry members, through their trade associations, the politically backed power to command. The rationale for the exercise of such coercive authority was expressed in the official explanation of the Swope Plan. Employing a definition of questionable consistency, it spoke of the “voluntary acceptance of decentralized mandatory government of industry… in association with the U.S. Government.”⁵⁸ The involuntary nature of the plan was then spelled out:

Probably the shoe of “coercion” will pinch most in the rules or plan set up by a Swope Plan trade association for stabilization of production and price. Life [sic] the farmer who will not limit wheat or cotton production, the individual manufacturer will in all likelihood bleat and bluster when he is asked to follow a given plan. The answer to this is the same answer that our forefathers probably gave to a citizen in a New England town when he objected to a “town meeting’s” action: “Do your hollering and your arguing in due order and time when you exercise your prerogative as a free citizen by coming to the meeting and debate and vote; and then when the matter is decided by majority vote, obey the mandate….” By this test, the plan for logical government in industry is in no sense a contravention of liberty, nor an interference by government in business. Business merely uses the government’s aid in governing itself.⁵⁹

In what, at the very least, must be considered a presumptuous undertaking, the following argument was advanced:

How can coercion be “considerate and fair?” Only when the fullest technical opinion within a given industry agrees that it knows the interests of the moderately small producer better than he does. A man’s peers can pass upon a man’s needs more fairly than any others. Coercion in the coerced one’s own best interests is no less considerate than a measure of coercion applied to an adolescent when all moral suasion has failed.⁶⁰

Swope himself was an articulate spokesman for a collectivist viewpoint. Asserting that “industry is not primarily for profit but rather for service,” Swope was a living example of the “managerial” mentality identified by Schumpeter. He adhered to the “trusteeship” theory of management, premised on a triadic responsibility to workers, investors, and the public. His thoroughly institutionalized outlook is represented in his declaration that the business organization has an overriding “duty of perpetuating itself.” He acknowledged, as other business leaders had already done, that the environment of economic stability contemplated within his own Swope Plan was dependent upon coercive political structuring. In his words, “one cannot loudly call for more stability in business and get it on a purely voluntary basis.”⁶¹

Business reaction to the Swope Plan was very favorable. Praise for it came from such noted business leaders as J. E. Edgerton, president of NAM; Silas Strawn, president of the U.S. Chamber of Commerce; and Magnus W. Alexander. Editorial support came from Business Week.⁶² Among other business supporters of the Swope Plan were Cornelius Kelly, of Anaconda Copper,⁶³ and General Electric’s Owen D. Young. Young declared: “We can in this country have organized economic planning with some curtailment of individual freedom which, if the plan be wise and properly executed, will tend to diminish economic disorder and the penalties which we pay.”⁶⁴ Young made a more direct appeal for government control in these words: “We are now learning … that we must enlarge our restraints and controls over the economically powerful…. Business having failed to discipline itself, I see no escape from some direction and control by politics.”⁶⁵ He added:

Cooperation is required by the great majority of the participants and the coercion of the rest may ultimately be necessary. I hate not only the term but the idea of coercion, and yet we are forced to recognize that every advance in social organization requires the voluntary surrender of a certain amount of individual freedom by the majority and the ultimate coercion of the minority. It is not the coercion of the recalcitrant minority but the voluntary submission by the large majority which should impress us.⁶⁶

He further noted that the surrender of individual freedom contemplated by such a plan could be made to either the government or to the “organized group,” of which each individual member would be a part.⁶⁷ Why—assuming people to be motivated by self-interest—any individual would ever voluntarily choose to surrender some of his individual freedom in order to submit himself to the coercion of others is a point to which Young did not address himself.

Young had long been an advocate of government regulation as a means of safeguarding the interests of those engaged in commerce and industry. In his view, the important consideration was to have more effective regulation, not less. Speaking before the Senate Committee on Interstate Commerce on the subject of the communications industry, Young stated:

[W]henever I have spoken about unifying communication services, either in the domestic or in the international field, I have always attached to it the proviso that adequate regulation and control shall be put into the government of such services and the rates to be charged therefor. I have no doubt but what effective regulation can be established, fair alike to the people rendering the services and to the people served. In fact, I may say that we must learn how to regulate adequately our public services in private hands, or there will be no alternative but the government ownership of such services.⁶⁸

The supporters of “cooperative regulation” in business, then, largely took the position that such regulation, in order to effectively deal with intraindustrial problems, had to be made mandatory. Henry S. Dennison expressed this view:

[I]t is necessary to realize that the field for purely voluntary action in the business world is a limited field…. [W]e must be willing to imagine a referee with a power and influence greater than that which any group from the business world would be willing voluntarily to grant him and to maintain in him.

Dennison went on to assert that if “business umpiring” was to go beyond voluntary activity and become truly effective, resort must be had to an agency such as the FTC.⁶⁹

It is at this juncture that the legitimate business interest in stabilizing competitive conditions becomes an illegitimate exercise of group domination and coercion. So long as firms were not compelled by legal force to follow the restrictive schemes of their competitors, people in the market who thought such restraints to be excessive would be assured of at least the opportunity of competitive responses. The mechanism of self-interest that prevents voluntary restrictions of the market from being effective is negated once the threat of fines, injunctions, or imprisonment is interjected to dissuade one from pursuing that self-interest. In this sense, the regularization of competition and the stabilization of existing relationships through the employment of political sanctions does more than simply disadvantage the more aggressive competitors: it also serves to diminish the effectiveness of the market mechanisms as spontaneous, impersonal disciplinarians of economic behavior. To the extent that the survival of any firm—not to mention the health of the economic system generally—depends upon firms having the resiliency to respond to conditions of disequilibrium, legally enforceable restraints upon competitive behavior could only serve to foster greater entropy.

Variations on the Swope theme were offered by the NAM and by a special committee of the U.S. Chamber of Commerce.⁷⁰ Their respective proposals called for legislation that would allow sellers to enter into agreements covering such matters as production, markets, and prices. The Chamber committee reflected the collectivist outlook that had settled into business thinking by this time:

A freedom of action which might have been justified in the relatively simple life of the last century cannot be tolerated today, because the unwise action of one individual may adversely affect the lives of thousands. We have left the period of extreme individualism and are living in a period in which national economy must be recognized as the controlling factor.⁷¹

The committee further recommended the establishment of a national economic council, composed of representatives of different sectors of society, that would serve in an advisory capacity to deal with economic problems. Such a council would function under the auspices of the Chamber of Commerce and would be “charged broadly with the responsibility of proposing policies and measures that will contribute to our economic well-being.” The report concluded by advocating a reduction in working hours in industry and, consistent with the Swope Plan, proposed a system of unemployment insurance financed by state and local governments and private sources, along with workmen’s compensation and old-age pensions.⁷²

A resolution of the NAM, passed in the spring of 1932, noted that the prohibition by the antitrust laws of cooperative agreements between sellers had “fostered widespread industrial and social maladjustment.” It went on to recommend that Congress amend this legislation to permit such voluntary agreements. The objectives of such agreements, according to the resolution, would include (among others) the avoidance of “destructive competition” and “wastage of materials,” as well as the preservation of earnings. It thus incorporated the rhetoric of “conservation” that, as we shall discover in chapter 6, was exploited to further anticompetitive purposes.⁷³

Francis H. Sisson, while noting that the antitrust laws served a valid purpose at the time they were enacted, declared that such laws had become a “stumbling-block in the path of economic progress.” The public, he went on, had accepted free competition “as the panacea for all economic ills,” but in the current trend toward consolidation such thinking needed reexamination. In his opinion, “[t]he economic forces behind the consolidation movement are irresistible;… the advantages of free competition, from the point of view of the people as a whole, are immeasurably out-weighed by those of cooperation.”⁷⁴ Sisson then observed that the integration of business “can be achieved only through the sacrifice of the automatic regulation that free competition has always provided. For this automatic regulation must be substituted an artificial regulation dependent on human wisdom and foresight, and subject to the weaknesses of human nature.”⁷⁵ Thomas L. Chadbourne added the thought that repeal or amendment of the Sherman Act was essential to curbing “the calamity of over-production and unwieldy surpluses.”⁷⁶

Another leading businessman, J. Harvey Williams, president of J. H. Williams and Company, reiterated many of these sentiments when, in 1932, he declared that “destructive competition” existed within all industries except those that were “so integrated or so dominated by a few large units that they [were] able to escape the blind competition and the general urge for volume regardless of profit.” What was needed, Williams concluded, was the organization of industries into more effective systems of cooperation in order “to stabilize the industry at a fair profit.” Drawing upon the examples of railroads, banks, and stock brokerage firms, he noted that while price competition had been all but eliminated from such industries, there was nevertheless a “tense competition” for business in the providing of quality and service. Williams then gave away the underlying motivation for the regulation of competitive practices when he admitted that bank interest rates and brokerage fees would undoubtedly be much lower if such institutions were subject to “the same kind of unbridled competition for volume to which we in industry are subject.” In such a case, he added, “those elements of the public interest would not think that this cutthroat competition was such a good thing for the country.” He then observed: “It is claimed that prices will go up if competitors are permitted to agree on prices. In so far as cost plus a fair profit is not being realized today, that probably is true; and to that I say, what of it?”⁷⁷ The same point had been made by another business executive who viewed what he considered subprofit selling as stealing from the industry itself. He urged the establishment of “a legalized fair selling price” and, in order to maintain such a price, suggested: “[W]hy not stabilize it and protect it, for only through a fair price can the profits of industry be conserved.”⁷⁸

APPROACHING THE NEW DEAL RECOVERY PROGRAM

As the depression wore on, business leaders became more militant in their proposals for stabilizing trade conditions. In his role as president of the U.S. Chamber of Commerce, Henry I. Harriman elaborated upon his thoughts on how to deal with businesses that did not choose to “cooperate” with his organization’s proposal for recovery: “They’ll be treated like any maverick,” he said. “They’ll be roped, branded, and made to run with the herd.”⁷⁹ Harriman—committed to the idea of a form of central planning—approached President Hoover, urging him to recommend to Congress the Chamber’s plan for self-regulation. Hoover, though long an advocate of government intervention into economic affairs,⁸⁰ refused Harriman, contending that such a program would lead the country into fascism or socialism. On 23 September 1932, in the midst of the presidential campaign, Harriman again urged Hoover to support the Chamber proposal, saying that Roosevelt had agreed to it and, if Hoover did not, a sizeable number of key business leaders would support Roosevelt. Hoover again refused Harriman’s appeal. Although there is no way of determining the extent to which this reluctance cost Hoover business support, there is no question that Roosevelt enjoyed substantial backing from within the business community.⁸¹ Roosevelt responded to this support when, a few weeks after his inauguration, he submitted his “recovery bill” to Congress. This measure became the cornerstone of the early New Deal. Like the Swope Plan, it called for the rehabilitation of American business through a government-enforced system of industry created “codes of fair competition.”⁸²

The superficial appearance of the legislation as systematically conceived conceals the backstage efforts of a variety of interests engaged in the drafting of a measure that would be marketable to industry, labor unions, and the political leadership. Spurred on by Senate passage of Senator Hugo Black’s “share-the-work” bill—which provided for an outright statutory determination of the maximum number of hours an employer could work his employees in a week (namely, thirty)—business interests joined with administration and congressional leaders to prepare a substitute measure for industrial recovery. Business was not opposed to the idea of limiting hours of work. A Chamber of Commerce committee, headed by Paul W. Litchfield, president of Goodyear Tire and Rubber Company, had already endorsed the principle of permitting agreements among employers to limit hours and set minimum wages as a means for promoting recovery.⁸³ What the business community did find objectionable in the Black bill was the political—rather than the business—determination of standards, a point clearly made by Harriman.⁸⁴ As we have already seen, business and trade association leaders had long favored a “voluntary” system of “cooperative self-regulation” that, translated into more precise language, contemplated the establishment of machinery through which the dominant members of an industry could establish trade practice rules that all members of the industry would have to follow. It was implicit that business was to set the standards, with the government’s role limited to that of providing the mechanism for enforcement. The Black bill was inconsistent with this premise. Many businessmen would doubtless have embraced Bernard Baruch’s seemingly contradictory use (unless one understands the context in which it was used by business leaders) of the word “voluntarily”: “While we agree fully that industry must voluntarily accept and ask for coordination, and that any appearance of dictatorship must be avoided, the power of discipline must exist.”⁸⁵

It was under such circumstances that at least three distinct groups began the task of drafting a recovery bill, with Assistant Secretary of State Raymond Moley, New York Senator Robert Wagner, and Undersecretary of Commerce John Dickinson serving as the nuclei for the groups. Moley worked rather closely with Hugh Johnson and Donald Richberg. One of the central provisions in their proposal was for federal licensing of business firms as a means of enforcement. Senator Wagner was assisted by various representatives of business, labor, and government. Two well-known trade association attorneys, David Podell and Gilbert Montague, helped with this draft, as did James Henry Rand of Remington Rand and Virgil Jordan, president of the NICB. The Dickinson group—made up of such advocates of government planning as Rexford Tugwell, Frances Perkins, and Jerome Frank—later merged with the Wagner group to draft a single proposal. These groups met at the White House with FDR and, after some prolonged negotiations, compromise, and rewriting, emerged on 15 May with a final draft of the bill. It was submitted to Congress two days later,⁸⁶ and received overwhelming support from the business community. Virgil Jordan seemed to reflect business sentiments when he declared:

Contrary to the popular impression, there is nothing essentially revolutionary in the proposals contained in the Wagner bill. They represent rather a logical extension of principles of industrial control already implicit in the organization of American business. They merely offer an opportunity to work out those principles and for the first time to give them practical effectiveness.⁸⁷

The NAM had also been active in the preparation of legislative proposals, having presented a draft of a bill to Secretary of Commerce Daniel C. Roper. The NAM’s proposal contemplated the establishment of a federal agency along the lines of the WIB. Working in conjunction with trade associations, it would seek to accommodate production to demand and establish “fair” prices. The agency itself was to be composed of seven members: the secretary of labor, along with five representatives of commerce, finance, labor, agriculture, and the public, respectively.⁸⁸

It is worthwhile to note that, while the administration’s recovery bill represented the culmination of years of effort by business leaders and trade associations to establish effective machinery for the moderation of trade practices, it was by no means anathema to the policies of twentieth-century political “liberals.” There has been a popular polarization of “progressivism-liberalism,” on the one hand, and “big business-corporatism” on the other, a dichotomy whose demonstrated inaccuracy has diminished its intellectual respectability. The harmonious relationship between the economic policies long advocated by the business sector and the commitment of the “liberal” political and intellectual community to national economic planning became abundantly evident during the New Deal years. That persons such as Rexford Tugwell, Robert Wagner, Jerome Frank, and Robert LaFollette could so easily join forces with Henry Harriman, Gerard Swope, and Virgil Jordan in constructing a piece of legislation with such far-reaching implications for political intervention in economic matters is a reflection of the consistency of purpose between “liberal” and business policies. This point was acknowledged by Senator Wagner himself, who, referring to the recovery bill, declared:

I think this bill is important as the first step toward that which the Liberals of this country have been preparing for years. It was a part of the platform of the 1912 Progressive Party, namely the necessity of a national planned economy. Until we have that, I venture to say that we are not going to have an orderly organized economic system. A good deal of the chaos and disorganization from which we are suffering now is due to this lack of planning.⁸⁹

This is not to suggest that American businessmen were prepared to turn the policy and decision-making functions of this proposed agency over to men like Tugwell and LaFollette. Businessmen insisted upon the reservation of this function to themselves, this being what was meant by “voluntary” self-regulation. Any conflict between “liberals” and the more influential members of the business community was not over the question of whether this machinery for economic planning should exist. The contest was only over who should control such machinery. The basic objectives of both “liberals” and many key business leaders for the regularization of economic life were, indeed, quite harmonious. In the New Deal recovery program lay the promise for the realization of the structuring of economic activity long sought by what, at first appearance, might seem to be interests with diametrically opposed purposes.

The recovery bill also enjoyed the support of organized labor. With the right of collective bargaining spelled out in Section 7(a), as well as provisions for establishing maximum hours and minimum wages in labor agreements—or, in the absence of an agreement, having such matters subject to prescription by the president as a code of fair competition—labor leaders and their organizations joined forces with business to back the measure. Working on behalf of the proposal were William Green, president of the American Federation of Labor; W. Jett Lauck, of the United Mine Workers; and Secretary of Labor Frances Perkins. Support for the principle of coordinated industrial planning also came from Sidney Hillman of the Amalgamated Clothing Workers and the American Federation of Labor’s Matthew Woll. On the eve of its passage, the recovery bill was hailed by the A.F. of L. as “the most advanced and forward looking legislation for recovery yet proposed.”⁹⁰

Even though the president’s recovery proposal had not yet passed Congress, business leaders and trade associations—with reasonable assurance of the measure’s eventual passage—began detailing their plans for organizing and regimenting the members of their respective industries along the lines long advocated by business spokesmen. In the keystone of the New Deal, American business eagerly anticipated the dream of a system for controlling competition and bringing trade practices within more comfortable boundaries. The press and trade journals of early 1933 echoed the resolutions, the spirit of cooperation, and the pleas for less aggressive competition heard since the end of World War I, with Business Week editorially observing “a surprising unanimity among business men in favor of the general theory” encompassed in the recovery proposal.⁹¹

General business sentiment in 1933 was in agreement with the influential business leader, Alexander Sachs, who assessed the period as an era of “economic nihilism” that “cannot be permitted to go on.”⁹² Henry Harriman appeared to sum up the reaction of businessmen in referring to the recovery bill as the “Magna Charta of industry and labor.”⁹³ NAM president Robert L. Lund declared that his membership approved the bill as a means for reorganizing business and eliminating “demoralizing dangerous competition.” Lund asserted that American industry had always been in sympathy with the purposes of the bill as a means of permitting it to “police itself against ruthless competition in the form of unregulated price cutting.”⁹⁴ The NAM did voice opposition to some of the provisions of the recovery measure; it believed that the general impact of the licensing, import controls, and—most notably—the collective bargaining sections might be detrimental to business recovery. The manufacturers’ group was not, however, opposed to the principle of industry-determined and government-enforced “codes of fair competition.” As Lund was quick to point out, “the purpose” of the bill had the “entire approval” of his organization.⁹⁵ The NAM had, in fact, passed resolutions favoring the creation of self-regulating trade and employment standards, with a government agency (the resolution suggested the WIB) to promote and supervise such industry agreements until the emergency was terminated either by a presidential declaration or congressional resolution. Paradoxically, the resolution went on to condemn “experiments in government.”⁹⁶

The “constant inconstancy” of a freely competitive economy continued to provoke business to seek more permanent, stable relationships. Silas Strawn told a meeting of the U.S. Chamber of Commerce: “If we continue to adhere strictly to the theory that competition must continue regardless of the fate of the producer, it may become so keen as to deprive him of any return on capital invested and deny a living wage to his employes.”⁹⁷ Business desired, according to Paul Litchfield, that “the destructive competition which had marked industry in the past be done away with.”⁹⁸ He added: “[W]ere we permitted to establish fair and reasonable prices through group agreements the best interests of the country, social and financial, would be served.”⁹⁹ The illusion that institutional interests could be served by maintaining equilibrium conditions fueled efforts to preempt the autonomy and flexibility necessary for the preservation of the health of the economic system itself.

It became increasingly evident that business efforts to subject trade practices to the enforceable collective will of industry members, were about to pay off. In May 1933, President Roosevelt came before the U.S. Chamber of Commerce for what critics might have characterized as a victory celebration. So delighted was the Chamber with Roosevelt’s policies that it planned to have his address broadcast live over network radio, but FDR rejected this proposal, saying that his remarks were meant not for the general public but for Chamber members only. The esotericism implicit in Roosevelt’s exclusion of the nonbusiness public—like that prevailing in the old “Gary dinners”—was a fitting prelude to the corporate-state cartelism of the NRA.

Chamber members greeted Roosevelt with what was described as “an enthusiasm which can hardly be overemphasized.” His talk got right to the heart of what businessmen wanted to hear when he declared:

In almost every industry an overwhelming majority of the units of the industry are wholly willing to work together to prevent overproduction, to prevent unfair wages, to eliminate improper working conditions. In the past success in attaining these objectives has been prevented by a small minority of units in many industries. I can assure you that you will have the cooperation of your government in bringing these minorities to understand that their unfair practices are contrary to a sound public policy.¹⁰⁰

Chamber delegates responded with resolutions endorsing the industrial “self-regulation” inherent in Roosevelt’s recovery program. In the words of the Wall Street Journal, these delegates anticipated that such regulation would “free the public from the detriments of competition.”¹⁰¹ At the same time, the trade journal Steel remarked editorially: “Industry should welcome the opportunity to participate in the shaping of the national industry recovery act…. The majority of industrial executives will be willing to sacrifice certain rights and privileges temporarily for the benefits to be derived from sanely coordinated activity.”¹⁰²

Additional business praise for Roosevelt came following a later radio broadcast in which he further outlined his industrial recovery program. Thomas J. Watson of IBM declared that businessmen were “appreciative and very thankful for the constructive work which [Roosevelt was] doing in our interests.” The pharmaceutical industry’s R. E. Spicer asked that “reasonable price-fixing be promptly permitted” in order to “prevent continuous ruinous cut-throat competition in the retail drug and other business.” E. S. Jouett, vice-president of the Louisville & Nashville Railroad, was more succinct in stating: “Your address was the greatest I have ever heard from any one.” Even Henry Ford, a man often held up as the epitome of twentieth-century “rugged individualism,” ran a series of newspaper advertisements across the country praising FDR in these words: “Having observed the failure of sincere efforts to haul us back the way we came, he designed a new method—new political and financial machinery—to pull us out the way we are going—forward.”¹⁰³

Business leaders were thus able to segue the predepression rhetoric of “industrial cooperation” into the general recovery theme. Gerard Swope made the now commonplace assertion that “isolation is no longer possible for any one company” and that the only long-range security for industry was to “build up a strong autonomous self-regulating organization.” Then, employing a non sequitur that had become almost trite by this time, Swope declared that the only alternative to such industrial self-regulation was regulation by the government itself. This same thought was voiced by Paul Litchfield, of Goodyear Tire and Rubber, who warned that the failure to resolve the current crisis would lead to state socialism.¹⁰⁴ The contention that the enactment of legislation compelling firms to adhere to industry created codes was necessary to forestall regulation by the government not only fails for lack of evidence or logic, but also ignores the basic fact of this proposed industrial recovery legislation, namely, that it would subject business to government direction. Granted, the source of the code provisions would be found in the wills of businessmen instead of government bureaucrats or politicians; but the failure of any firm to adhere to code norms would ultimately result in having the recalcitrant offender subjected to injunctions, fines, or other penalties enforced by administrative agencies and the courts. To suggest such a system as an alternative to government regulation is an abuse of poetic license, to say the very least.