FDR, the NRA, and the Rise of the Modern Corporation

FDR was probably sincere when he expressed his desire to help "The Forgotten Man"--the everyday American. The policies of his administration, however, had the opposite effect. Not only did high wages keep many individual Americans out of work, the draconian rules of the National Recovery Act destroyed hundreds of small businesses. The NRA purposely herded industry into larger and larger corporations. This is one aspect of FDR's failed policies whose negative effects we are still dealing with.

When FDR came to power in America,

By the time the NRA bull had finished running through the china closet, hundreds of small businesses had been destroyed. This fact, and the fact that small business destruction was largely by design, have been redacted from public school textbooks.

Fascist Italian dictator Benito Mussolini was all the rage across the western world. Many of the policies of the Roosevelt administration, though tamer in practice than Mussolini's strong-arm tactics, were nonetheless based on the efficiencies that the fascist government of Italy seemed to exhibit. One such American program was the National Recovery Administration.

A common misconception in America today is that the policies of the Franklin D. Roosevelt administration helped the common man. They did not. FDR's policies made life much more difficult for the everyday American to get by. In many cases, it was not until Roosevelt's policies were removed that the economy began rolling again. Nowhere is this more evident than in the bizarre rules and obvious effects of the National Recovery Administration. In the two years that the NRA existed prior to it being declared unconstitutional by the U.S. Supreme Court, hundreds of businesses had failed due to the economically imbecilic rules of the NRA. According to Burton Folsom's book, New Deal or Raw Deal, an independent review board later observed that
[m]any codes...spurred "the exit of the small enterprises" and led to "the always growing autocracy of the greater" corporations. Yale economist Irving Fischer analyzed the impact of the NRA and told Roosevelt "the NRA has retarded recovery and especially [has] retarted re-employment.

Burton Folsom, New Deal or Raw Deal, p. 57
A hallmark of the NRA was to allow the larger corporations in each industry to write the rules for that industry. Invariably, those rules were to the detriment of the smaller companies, many of whom died out. This was by design. FDR, in this regard, said "Must we go on in many groping, disorganized, separate units to defeat or shall we move as one great team to victory?"

The tire industry illustrates one recurring problem of the NRA

Corporations still largely write their own rules today, to the detriment of us all. How ironic that such a malady was perpetuated by an Administration that claimed to be in favor of helping the forgotten man.

(the "fox-guards-henhouse" problem) and its dire results. Goodrich, Goodyear, and Firestone were commissioned to write the "tire code" for the NRA. Almost overnight, the price of tires soared. This meant that many people could no longer afford to buy a car, and many others drove on bald, used, or rebuilt tires, which increased the danger to themselves on the roads.

The worst effect, however, was the disappearance of many smaller tire companies from the market. These smaller tire companies, to stay in business, had been compelled to make better tires than The Big Three, and to sell their tires for lower prices. The NRA's tire code, written by those who could not afford to sell their tires for as little as the smaller companies, required that tires be sold for no less than certain minimum prices. This rule, favorable to the larger companies, helped The Big Three to run nearly all the other tire companies out of business.

In this way--and in a plethora of industries--the NRA ensured that hundreds of thousands of Americans would remain without jobs and that the economy would continue to languish far beyond the timeframe that it would have had the economy been able to take its natural course.

Frederick Wood, attorney for Joseph Schechter in the Supreme Court case in which the NRA was thrown out, opined sarcastically that
it might be all right to go the way of Mussolini or Hitler, but a constitutional amendment was necessary for that...

Amity Schlaes, The Forgotten Man, p. 241
Supreme Court Justice Charles Evans Hughes said,

Extraordinary conditions do not create or enlarge constitutional power. [The NRA] lies outside the sphere of Constitutional authority.

But the damage had, by this time, already been done.

By the time the NRA bull had finished running

In this way--and in a plethora of industries--the NRA ensured that hundreds of thousands of Americans would remain without jobs and that the economy would continue to languish.

through the china closet, hundreds of small businesses had been destroyed. This fact, and the fact that small business destruction was largely by design, have been redacted from public school textbooks. In the NRA regime, large corporations made the rules, and those rules benefited the large corporations.

Corporations still largely write their own rules today, to the detriment of us all. How ironic that such a malady was perpetuated by an Administration that claimed to be in favor of helping the forgotten man. How unfortunate that the ghastly remedies of the NRA still plague the American economy 75 years later.



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Comments

  1. Frank, congratulations, you have mastered the Republican philosophy popularly known as "up is downism."

    ReplyDelete
  2. I was so waiting for you and others to pick apart my article with what you consider to be facts, but instead you resort to weak and simple sloganeering.

    ;-)

    ReplyDelete
  3. I really haven't got the time to debate stuff that happened 70 years ago, especially when the weather is so nice-- on a WEEKEND.

    Hey, at least you're not one of those people claiming that FDR caused the Great Depression.

    ReplyDelete
  4. Nope.

    Actually, I think that was Joe Biden.

    ;-)

    ReplyDelete
  5. Frank, I agree that allowing corporations to watch the henhouse has been disastrous for the U.S, and I am very skeptical of government aid which ends up being corporate welfare.

    Does that mean that there should be no one watching the henhouse? Should there be no tire standards, to use the example you cited?

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  6. btw, I think the ramifications were a lot more complex than you seem to suggest. I do believe that there were aspects of the New Deal which did help many people genuinely in need of help (ie, not just fatcats), softening the impact for many.

    (same goes for the Democratic side; I think those who claim that the New Deal was an unalloyed and resounding success are naive at best).

    ReplyDelete
  7. Derek,

    Good points. I agree that there should be tire (safety) standards, but the problem the NRA had was setting pricing standards.

    I probably was a bit too focused in this article on the FDR/Corporation nexus to properly point out that FDR did do some good things (I think I implied that he wanted many more good things which didn't/couldn't work out.) Many people did receive great help at the hands of the New Deal. That, however, is what is seen. What is unseen is much harder to quantify. That's why it's important to stick to the known laws of economics rather than the willy nilly politics that comprised so much of the New Deal.

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  8. Yes, I appreciate that you did clearly insist that FDR's intentions were good. That is far more than many free-market advocates will do. Your post seemed to imply that his results were solely negative.

    Given the very cut-throat, ruthless nature of the laws of economics, I would hesitate to rely solely on them to take care of the needs of the disadvantaged in society, especially during such catastrophic times as that of the Depression.

    ReplyDelete

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