National Industrial Recovery Act of 1933
The National Industrial Recovery Act (NIRA) of 1933 was a significant piece of legislation aimed at fostering industrial recovery during the Great Depression. It established the National Recovery Administration (NRA), which was tasked with creating codes of fair competition for various industries. These codes included provisions for minimum wages, maximum hours, and the right for workers to join unions and bargain collectively. The act also authorized $3.3 billion in public works spending to stimulate economic demand, although these efforts were somewhat offset by tax increases.
While the NIRA initially led to a temporary boost in industrial production and price stabilization, it faced criticism for being dominated by large firms and for the emergence of company unions that undermined workers' rights. By 1935, the U.S. Supreme Court declared the NIRA unconstitutional, but many of its key labor provisions were later incorporated into other legislation, such as the National Labor Relations Act and the Fair Labor Standards Act. Overall, while the NIRA aimed to address the economic crisis, it reflected broader misconceptions about the causes of the Great Depression and ultimately had a mixed impact on labor relations and industrial practices.
National Industrial Recovery Act of 1933
The Law Federal legislation that created the National Recovery Administration to negotiate codes of fair competition with individual industries
Also known as NIRA
Date June 16, 1933
From a businessperson’s perspective, the Great Depression resulted from excess supply of goods and unfair competition and price-cutting. The NIRA codes were intended to permit firms to join together to reduce competition.
The NIRA came in three parts. Title I contained the law’s special features. It created a National Recovery Administration (NRA) with the responsibility of convening representatives of individual industries and working with each to develop a code of fair competition. Once a code was approved, it had the force of law and was exempted from the antitrust laws. Each code was required to contain provisions establishing minimum wages and maximum hours for labor. Section 7a established the right of workers to join unions and bargain collectively.
Title II provided for a program of public-works expenditures of $3.3 billion, to be financed by taxes on capital stock and “excess profits” provided in Title III. The expenditures were a sensible way to increase aggregate demand. However, their potentially expansionary effect was largely offset by the tax increases.
The NRA began with an intense publicity blitz. Its symbol was the blue eagle; its motto was “we do our part.” General Hugh S. Johnson was appointed the first administrator of the NRA. According to President Franklin D. Roosevelt, the intention of the NIRA was to ensure a shortened workweek and competitive wages for workers to “prevent unfair competition and disastrous overproduction.”
Trade associations and labor unions were actively involved in developing the codes. The first approved was for the cotton textile industry. Over its lifetime, the NRA approved 557 basic and 189 supplementary industry codes, covering about 95 percent of industrial employers.
The code negotiations were dominated by the largest firms, but there were often bitter disagreements on details. Labor unions were quick to press for the enlargement of their membership and influence. However, many employers evaded the spirit of section 7a by developing company unions that could be dominated by the employer. By the spring of 1934, one-fourth of all industrial workers worked in plants where there was a company union. Section 7a inspired greater militancy by labor unions. The number of workers involved in labor disputes increased sharply, rising from 324,000 in 1932 to 1.2 million in 1933.
A major goal of the codes was to prevent further price reductions and, if possible, to gain increased product prices. Some codes achieved this by prescribing “standard costs” on which firms were supposed to base their selling prices. Some codes provided that each firm’s prices be publicized. Other codes limited the number of hours of plant operation—the pioneer cotton-textile code restricted machinery operation to two, forty-hour shifts a week. Some codes assigned production quotas to individual firms.
Wholesale prices of nonfarm products rose sharply after March, 1933, rising about 10 percent by October of the same year. Business expectations of price increases led many firms to add to their inventories. Industrial production experienced a sharp rise from March, 1933, but gave way to a renewed slump later that year. The NRA program did little to expand aggregate demand for goods and services.
In May, 1935, the NIRA was declared unconstitutional by the U.S. Supreme Court. However, important elements of it were reenacted. Labor’s right to organize and bargain collectively was firmly established by the National Labor Relations Act (Wagner Act) of 1935. Provisions for minimum-wage rates and maximum work hours were permanently created by the Fair Labor Standards Act of 1938. The quasi-monopolistic elements of the NRA codes were reestablished in individual programs for motor and air transportation, bituminous coal, and petroleum extraction and in the Miller-Tydings Act of 1937, permitting resale price maintenance.
Impact
In the short term, adoption and administration of the NIRA stimulated a brief boom in business inventory buildup. The NRA codes themselves tended to cause increases in product prices but were widely evaded. The program reflected the misconception that the Great Depression was a problem of excess supply of goods and services, instead of primarily a great fall in aggregate demand. Most economists were relieved when the program was terminated.
Bibliography
Brand, Donald R. Corporatism and the Rule of Law: A Study of the National Recovery Administration. Ithaca, N.Y.: Cornell University Press, 1988.
Johnson, Hugh S. The Blue Eagle from Egg to Earth. Garden City, N.Y.: Doubleday Doran, 1935.
Ohl, John Kennedy. Hugh S. Johnson and the New Deal. DeKalb: Northern Illinois University Press, 1985.
Rosen, Elliott A. Roosevelt, the Great Depression, and the Economics of Recovery. Charlottesville: University of Virginia Press, 2007.