On May 27, 1935, in a unanimous decision the nine members of the Supreme Court said there were constitutional limits beyond which the federal government could not go in claiming the right to regulate the economic affairs of the citizenry. It was a glorious day in American judicial history, and is worth remembering.
FDR’s Broken Promises for Smaller Government
When Franklin Roosevelt ran for president in the autumn of 1932 he did so on a Democratic Party platform that many a classical liberal, free market advocate might have happily supported and even voted for.
The platform said that the federal government was far too big, taxed and spent far too much, and intruded into the affairs of the states to too great an extent. It said government spending had to be cut, taxes needed to be reduced, and the federal budget had to be brought back into balance by ending deficit spending. It also called for free trade and a sound gold-backed currency.
But as soon as Roosevelt took office in March 1933 he instituted a series of programs and policies that turned all those promises upside down. In the first four years of FDR’s New Deal, taxes were increased, government spending reached heights never seen before in U.S. history, and the federal budget bled red with deficits.
The bureaucracy ballooned; public-works projects increasingly dotted the land; and the heavy hand of government was all over industry and agriculture. The United States was taken off the gold standard, with the American people compelled to turn in their gold coin and bullion to the government for paper money under the threat of confiscation and imprisonment.
FDR Takes Executive Control
Roosevelt asked the Congress for broad executive authority to fight the economic crisis of the Great Depression. But if Congress refused to give him this free hand to arbitrarily do what he wanted, he warned darkly that he would just take it through independent executive action: “I will not evade the clear course of duty that will then confront me.”
In a series of speeches FDR insisted that private industry had to give up some of its freedom; agriculture had to be supervised and assisted by the government; public expenditures were needed to increase and reflect modern responsibilities of enlightened political authority, including social security, unemployment insurance, and workers’ compensation; competition, speculation, and banking required increased government regulation; the hours, wages, and conditions of work had to come under greater government control; income and spending power among groups in American society needed to be redistributed; massive public works projects had to be undertaken for the national betterment.
A “New Deal” of Government Control Government Spending and Programs Run Wild
In 1933, deficit financing covered 56.6 percent of government expenditures. For 1934, 1935, and 1936, the figures for deficit financing were, respectively, 54.6 percent, 43 percent, and 52.3 percent of government expenditures. In four years, the federal government’s debt went from $19.5 billion in 1932 ($270 billion in 2015 dollars) to $33.8 billion in 1936 ($608.4 billion in 2015 dollars), representing a 73.3% increase.
On May 12, 1933, the Congress passed the Agricultural Adjustment Act (AAA), giving the government wide powers to fix the prices of farm products, purchase agricultural surpluses over an increasing number of crops, and pay farmers to reduce acreage in various lines of production.
Farmers were given subsidies and government-guaranteed price supports, with Washington determining what crops could be grown and what livestock could be raised. Government ordered some crops to be plowed under and some livestock slaughtered, all in the name of centrally planned farm production and pricing.
On May 18, 1933, the Congress passed the Tennessee Valley Act, giving the federal government authorization for the undertaking of a massive public works project for the construction of dams and electrification in the southern states. It was nothing less than socialist planning for land use, conservation, and supplying of energy for a vast subsection of the country.
The AAA also gave the Roosevelt administration the authority to reduce the gold content and value of the dollar by up to 50 percent. Then, in contradiction to the promise that “a sound currency [would be] preserved at all hazards,” on June 5, 1933, Congress passed a resolution voiding the gold clause in all government and private contractual obligations, as well as requiring all Americans to turn in their privately held gold for Federal Reserve Notes, under penalty of confiscation and imprisonment.
On March 29, 1933, the Civilian Conservation Corps was established, putting government in the business of creating work for America’s youth in the national forests with mock military-style drilling.
The Works Progress Administration (WPA) was passed on May 12, 1933, designed to create make-work projects for thousands of able-bodied men, all at taxpayers’ expense.
Since unemployed artists were “workers” too, they were set to work in government buildings across the land. Even today, in some of the post offices dating from the 1930s, one can see murals depicting happy factory workers and farm hands in a style similar to political “art” produced in Stalin’s Russia and Hitler’s Germany.
On June 16, 1933, the Congress passed the National Industrial Recovery Act (NRA) providing for total federal government control of the industrial sectors of the U.S. economy. Mandatory “codes of fair competition” were established for each sector of the economy, establishing pricing and production regulations for almost every manufactured good in the country.
Modeled on Mussolini’s fascist economic system, it forced virtually all American industry, manufacturing, and retail business into cartels possessing the power to set prices and wages, and to dictate the levels of production. Within a few months over 200 separate pricing and production codes were imposed on the various branches of American business.
Every retail store in America was encouraged to display the NRA “Blue Eagle” emblem (with lightening bolts in one claw and an industrial gear in the other) in its store windows to assure people that the stores were “Doing Their Part,” meaning it followed the pricing and production codes. Citizen committees were formed to spy on local merchants and report if they dared to sell at lower prices than those mandated under NRA central planning.
Propaganda rallies in support of the NRA were held across the country. During half time at football games cheerleaders and children would form the shape of the Blue Eagle. There were government-sponsored parades throughout America that featured Hollywood stars supporting the NRA.
At one of these parades the famous singer Al Jolson was filmed being asked what he thought of the NRA; he replied, “NRA NRA Why it’s better than my wedding night!” Film shorts produced by Hollywood in support of the NRA were shown in theaters around the country; in one of them child movie star Shirley Temple danced and sang the praises of big-government regulation of the American economy.
And dancer, Ginger Rogers, sang “We’re in the Money” in the movie,Gold Diggers of 1933, praising debasement of the currency for inflationary prosperity.
The Supreme Court brought this headlong march into economic fascism to a halt in 1935. The catalyst was a legal case known asSchechter Poultry Corp. versus United States. Schechter, a slaughterhouse that sold chickens to kosher markets in New York City, was accused of violating the “fair competition” codes under the NRA. The case made its way up to the Supreme Court, with the nine justices laying down their unanimous decision on May 27, 1935.
Three hundred people packed the court that day to hear the decision, with prominent members of Congress and the executive branch in the audience. The justices declared that the federal government had exceeded its authority under the interstate-commerce clause of the Constitution, since the defendant purchased and sold all the chickens it marketed within the boundaries of the State of New York.
Therefore, the federal government lacked the power to regulate the company’s production and prices. In addition, the justices stated that the NRA’s power to impose codes constituted arbitrary and discretionary control inconsistent with the limited and enumerated powers delegated by the Constitution.
This was soon followed by the Supreme Court’s rejection of the AAA in January 1936, when the justices insisted that the federal government lacked the authority to tax food processors to pay for the farmers’ subsidies and price supports. Furthermore, since farming was generally a local and state activity, the federal government did not have the power to regulate it under the interstate-commerce clause of the Constitution.
Franklin Roosevelt was furious that what he called those “nine old men” should attempt to keep America in the “horse and buggy era” when this great nation needed a more powerful central government to manage economic affairs in the “modern age.” FDR’s response was his famous “court packing” scheme, in which he asked Congress to give him the power to add more justices to the Supreme Court in order to tilt the balance in favor of the “enlightened” and “progressive” policies of the New Deal.
But this blatant power grab by the executive branch ended up being too much even for many of the Democrats in Congress, and Roosevelt failed in this attempt to assert naked presidential authority over another branch of the federal government.
Shortly after the Supreme Court declared both the NRA and AAA unconstitutional, David Lawrence, founder and long-time editor ofU.S. News and World Report, published a book titled Nine Honest Men (1936). He praised the justices for their devotion to the bedrock principles of the Constitution, and their defense of the traditional American ideals of individual liberty, private property, and the rule of law—even in the face of the emotional appeal of government to “do something” during an economic crisis.
FDR soon, however, had his way with the Supreme Court as sitting members retired, and he could replace them with other justices more responsive in their decisions to the new “progressive” rationale for more paternalistic government over the lives of the citizenry.
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