Roosevelt Signs the National Industrial Recovery Act

Date June 16, 1933

The National Industrial Recovery Act was an attempt to help businesses recover from the Great Depression. It temporarily replaced the U.S. market system with a system of planning boards under which labor and management would decide on wages, prices, and output levels.

Locale Washington, D.C.

Key Figures

• Franklin D. Roosevelt (1882-1945), president of the United States, 1933-1945
• Hugh S. Johnson (1882-1942), first head of the National Recovery Administration, 1933-1934
• Rexford Guy Tugwell (1891-1979), American economist and Roosevelt adviser
• Robert F. Wagner (1877-1953), U.S. senator from New York, 1927-1949
• William E. Borah (1865-1940), U.S. senator from Idaho, 1907-1940
• Clarence Darrow (1857-1938), American attorney and head of the National Recovery Review Board
• Harold Ickes (1874-1952), U.S. secretary of the interior, 1933-1946

Summary of Event

The National Industrial Recovery Act was passed by Congress on June 16, 1933, in an attempt to bring relief from the Great Depression by overhauling the way in which American industry was organized. The experiences of the War Industries Board during World War I had convinced many in Washington that it was possible greatly to expand production if the competitive system were replaced with a system of industrial cooperation, guided by government. By the spring of 1933, the severity of the Depression was such that even the U.S. Chamber of Commerce was urging the new administration of Franklin D. Roosevelt to expand government’s role in the economy. Rexford Guy Tugwell, an economist at Columbia University and a member of Roosevelt’s Brain Trust (a distinguished group of presidential advisers), had sketched out a plan for peacetime governmental direction of production through the use of industry codes in his book The Industrial Discipline and the Governmental Arts, published in early 1933.

The National Industrial Recovery Act (NIRA) as sent by President Roosevelt to Congress on May 15, 1933, was divided into two parts. Title I closely followed Tugwell’s recommendations. It authorized a suspension of antitrust laws to allow management and labor in each industry to write binding codes specifying standards of fair competition. The National Recovery Administration (NRA) was established to administer the codes. Section 7a of Title I was aimed at securing the rights of labor by guaranteeing the right to collective bargaining and by including minimum wage and maximum hour stipulations. Title II of the bill established the Public Works Administration and appropriated $3.3 billion for carrying out public works.

The bill was passed quickly by the House of Representatives with little dissent, but it ran into trouble in the Senate. Many senators feared that suspending antitrust laws would give industry free rein to fix prices and restrict output. A group led by Senator William E. Borah of Idaho attempted to amend the bill to preclude price fixing, but the bill’s Senate sponsor, Robert F. Wagner of New York, arguing that the drafters of the industry codes should be given maximum flexibility, was able to defeat the amendment. The Senate finally passed the bill on June 13, 1933, by a vote of forty-six to thirty-nine. Roosevelt signed the bill on June 16.

Roosevelt chose Hugh S. Johnson to head the National Recovery Administration and decided to place the Public Works Administration under the control of Secretary of the Interior Harold Ickes. Johnson had had considerable relevant administrative experience serving as an aide to Bernard Baruch on the War Industries Board during World War I. Although Johnson appeared to have considerable authority to impose codes of fair practice on industry, he chose instead to attempt to obtain voluntary cooperation. He hoped to establish a system of industrial self-government not dissimilar to the European doctrine of syndicalism, although Johnson saw himself as building on the industry trade associations that had arisen and grown during the 1920’s. Johnson’s reliance on voluntary cooperation was reinforced by doubts about the constitutionality of the NIRA and fear that disgruntled industrialists might bring lawsuits against it.

The process of writing codes took place largely in offices at the Department of Commerce, with NRA administrators mediating between delegations of owners and workers from each industry. The reliance on voluntary cooperation resulted in few codes being drawn up during the early months. In July, Johnson persuaded Roosevelt to agree to a stopgap proposal under which essentially every business in the country would adopt NRA standards on minimum wages and maximum hours immediately. Businesses in compliance with what was called the President’s Reemployment Agreement would be allowed to display a sign featuring the NRA’s Blue Eagle and the motto We Do Our Part. Gradually, NRA administrators began to hammer out the industry codes. By June, 1934, codes covering 450 industries with twenty-three million workers had been drawn up.

The industry codes all included provisions establishing minimum wages and maximum hours and guaranteeing the collective bargaining rights of workers. Employment of children under the age of sixteen was also generally prohibited. Most codes specified minimum prices and otherwise attempted to restrict competition. Examples of restrictions on competition included production quotas, under which individual companies would be assigned a specified share of total industry output, which would itself be limited; restrictions on the installation of new machinery; and restrictions on the hours during which existing machinery could be operated.

Supporters of the NIRA in Congress and in the Roosevelt administration had always been ambivalent concerning the wisdom or necessity of allowing business to restrict output and fix prices. The ambivalence is evident in a parenthetical phrase included in the following passage from section 1, Title I of the act, which states that the purpose of the legislation is “to promote the fullest possible utilization of the present productive capacity of industries, [and] to avoid undue restriction of production (except as may be temporarily required).” In practice, it became clear during the negotiations for drawing up the codes that industry saw output restrictions and price fixing as a quid pro quo for agreeing to the restrictions on wages and hours and guarantees of collective bargaining.

Support for the NRA began to wane as it became clear to what extent the industry codes allowed the code authorities to replace determination of wages, prices, and output through the market with determination by administrative fiat. Support was also undermined by the mercurial and erratic behavior of Johnson as administrator. Responding to criticism, Roosevelt set up the National Recovery Review Board, chaired by attorney Clarence Darrow, to review the industry codes. Johnson was finally obliged to resign in late September, 1934. He was replaced as the administrative authority by a five-person National Industrial Recovery Board (NIRB). The NIRB, particularly under the influence of Leon Henderson, the NRA’s chief economist, attempted to scale back the regulation of smaller industries and to modify the price fixing and output-restricting provisions in existing codes.

The original act was set to expire in June, 1935. In February, Roosevelt formally asked for a two-year extension. Privately, however, Roosevelt appeared to have been ready to abandon the NIRA as having done little to help economic recovery. Many in Congress were also skeptical. In the end, congressional consideration of an extension of the NIRA was rendered moot when the Supreme Court ruled in Schechter Poultry Corporation v. United States (1935) that the NIRA was unconstitutional. The Court was unanimous in ruling that the act was an unconstitutional delegation of legislative authority to the executive branch and that the commerce clause of the Constitution did not allow the federal government to control the details of the operations of businesses that had only a slight involvement in interstate commerce.

Significance

Following the Supreme Court decision, the vast apparatus of industrial codes and industrial authorities that had been created under the authority of the National Industrial Recovery Act was rapidly dismantled. Congress preserved the labor legislation embodied in the NIRA by passing the National Labor Relations Act (NLRA, popularly known as the Wagner Act), which actually went beyond section 7a of the NIRA in attempting to ensure fair labor practices. The NLRA created the National Labor Relations Board (NLRB) to police labor relations.

In the years since the demise of the NIRA, the law’s impact has been debated by economists and historians. Economists have generally viewed the NIRA as having retarded recovery from the Great Depression. Economists have tended to be critical of the industry codes for artificially raising wages and prices and authorizing—in fact, often promoting—output restrictions. Some historians have been kinder to the NIRA, which they are inclined to view favorably in light of the social consequences of the labor law reforms contained in the act. Arthur Schlesinger, for example, although conceding that the NIRA contributed little economically to the recovery, has argued that legislative sanction for maximum hours, minimum wages, and collective bargaining and against child labor would have been difficult to obtain any other way.

A careful analysis of the economic impact of the act has been carried out by Michael M. Weinstein, who argues that the codes had a substantial effect on wages and prices. The NIRA’s impact on wages resulted, first, from the enactment of minimum wage regulations that raised the wages of workers who previously had been earning below the minimum and, second, from increases in the wages of those who had been earning more than the minimum in order to restore previous wage differentials. Weinstein estimates that in the absence of the NIRA, average hourly earnings in manufacturing in May, 1935, would have been less than $.35 per hour, rather than almost $.60 per hour. The act resulted in higher prices as a result of its effect on wage costs and its encouragement of collusive behavior and price fixing. Weinstein estimates that in the absence of the NIRA, the price level in May, 1935, would have been more than 20 percent lower than it actually was.

Higher prices reduced the purchasing power of the existing stocks of money and wealth. This resulted in lower levels of consumption than would otherwise have occurred. The lower real value of the money stock also resulted in higher interest rates than would otherwise have existed. These higher interest rates, in turn, retarded borrowing by businesses to finance new machinery and equipment and borrowing by households to finance houses and, to a lesser extent, automobiles, furniture, and other consumer durables.

In fact, industrial production had increased, on a seasonally adjusted basis, by more than 50 percent between March and July, 1933, before the NRA began operations. During the operating life of the NRA, industrial production actually declined slightly. Perhaps most damning was the fact that after the Supreme Court ruled in May, 1935, that the NIRA was unconstitutional, industrial production during the rest of 1935 increased by almost 15 percent.

Investment spending performed somewhat better during the NRA period. Spending by businesses on new machinery and equipment and new factories and office buildings rose more than 40 percent between the depressed second quarter of 1933 and the second quarter of 1935. This increase, however, still left business investment spending more than 60 percent below its level in 1929 and further still below the level necessary if the economy was to return to full employment. Similarly, spending by consumers on new houses more than doubled during the time of the NRA, but residential construction remained more than 70 percent below its peak level of the late 1920’s.

Peter Temin has provided an interesting argument that reinforces the view that the NRA retarded recovery from the Great Depression. Temin notes that there are a number of parallels between the course of the early years of the Depression in the United States and in Germany. After 1933, however, the paths of the two countries diverged economically. Germany experienced very rapid employment gains, whereas employment recovered only slowly in the United States. Temin argues that the recovery in Germany was spurred, in part, by the determination of the Nazis, who came to power in January, 1933, to hold down the growth of wages. In the United States, in contrast, the NRA acted to keep wages far above market-clearing levels. Although there are many striking contrasts between U.S. and German economic policy in the post-1933 period, Temin believes that differences in wage policies are central to understanding the differing pace of employment recovery in the two countries. The NRA effectively precluded the possibility that the large numbers of unemployed workers in the United States would be able to find jobs by competing on the basis of wage rates.

Bibliography

Fine, Sidney. The Automobile Under the Blue Eagle: Labor, Management and the Automobile Manufacturing Code. Ann Arbor: University of Michigan Press, 1963. Detailed case study. Emphasizes labor aspects of the NIRA; also deals with Henry Ford’s resistance to the NIRA.

Hawley, Ellis W. The New Deal and the Problem of Monopoly. Princeton, N.J.: Princeton University Press, 1966. Puts the NRA in a broader context of New Deal concern with economic planning and the revival of antitrust after Schechter Poultry Corporation v. United States.

Johnson, Hugh S. The Blue Eagle from Egg to Earth. Garden City, N.Y.: Doubleday Doran, 1935. A colorful, opinionated account of the top NRA administrator’s life and the NRA experience, which he regarded as “a holy thing.”

Ohl, John Kennedy. Hugh S. Johnson and the New Deal. De Kalb: Northern Illinois University Press, 1985. Lively, objective, scholarly account of Johnson’s life and of the achievements and problems of the NRA.

Roos, Charles F. NRA Economic Planning. Bloomington, Ind.: Principia Press, 1937. An economist who worked in the NRA tries to assess its relevance to the issue of economic planning. Long, scholarly, and analytic.

Rosenof, Theodore. Economics in the Long Run: New Deal Theorists and Their Legacies, 1933-1993. Chapel Hill: University of North Carolina Press, 1997. Examination of the New Deal and its theorists from the perspective of their impact on later years. Contains an extensive bibliography and index.

Schlesinger, Arthur M., Jr. The Coming of the New Deal. Vol. 2 in The Age of Roosevelt. Boston: Houghton Mifflin, 1958. Chapters 6-10 provide a sympathetic treatment of the formulation and administration of the NRA by one of the best-known biographers of Roosevelt.

Storrs, Ladon R. Y. Civilizing Capitalism: The National Consumers’ League, Women’s Activism, and Labor Standards in the New Deal Era. Chapel Hill: University of North Carolina Press, 2000. Examination of the interrelationship between New Deal programs and women activists fighting for social justice and consumer rights. Includes the chapter “The Acid Test of the New Deal: The National Recovery Administration, 1933-1935.”

Temin, Peter. Lessons from the Great Depression. Cambridge, Mass.: MIT Press, 1989. Chapter 3 presents Temin’s argument that the high wages resulting from the NRA retarded economic recovery in the United States. Contains references to fairly advanced economic theory, but the basic argument is easily understood.

Tugwell, Rexford G. The Industrial Discipline and the Governmental Arts. New York: Columbia University Press, 1933. Contains Tugwell’s rationale for the sort of system embodied in the NRA codes. Reveals the extent to which confidence in the free market system had declined by 1933.

Weinstein, Michael M. “Some Macroeconomic Impacts of the National Industrial Recovery Act.” In The Great Depression Revisited, edited by Karl Brunner. Boston: Martinus Nijhoff, 1981. A brief analysis of the economic impact of the NIRA. Relatively nontechnical, but some knowledge of elementary economics is presumed.