March 28, 2024


The First New Deal

Planning, market coordination, and the National Industrial Recovery Act of 1933

In 1933, four years into the Great Depression, Congress enacted the National Industrial Recovery Act (NIRA) in close cooperation with the Roosevelt administration. The central action of the statute was to facilitate price coordination across a given market or industry.1 Its rationale was to contain the destructive competition and below-cost pricing that were exacerbating the problems already roiling the economy as a result of the initial stock market crash, and subsequent cascading credit and liquidity crises. In addition to addressing the credit crisis directly through banking and monetary reform, the Roosevelt administration thus sought to buoy up purchasing power by stabilizing prices.2 NIRA also systematized and federalized the existing patchwork of legal support for collective bargaining between workers and business firms, in an effort to stimulate and stabilize wages.3 The idea of boosting demand and ultimately production through a floor on wages was not new; it had had currency for decades thanks to the influence of institutionalist economists, policymakers, and many business leaders.4 Still, NIRA at that time represented the most ambitious and broad-ranging effort to put that idea into practice. 

In discussions of economic law and policy today, the “First New Deal” is understood as a major experiment in “planning” that displaced “markets.” This characterization is broadly endorsed by mainstream antitrusters, legal progressives, socialists, and most others too. Beyond that point of convergence, the normative valence attached to each—as well as the political meaning of “planning” within a broader political project—diverges, with some endorsing “markets” over “planning” or vice versa, and with some seeing “planning” as key to a broad emancipatory project, and others seeing it as simply a backstop for the continuation of a fundamentally inegalitarian economic system. 

What these often bitterly divergent viewpoints have in common, though, is a failure to grasp just how intrinsic the activity of economic planning is to markets themselves. This is not in the mere sense of bare-bones public and legal market management mechanisms (such as contracts and property law), though indeed those mechanisms frequently enable significant degrees of economic planning that obviously displace competition (think for example of long-term output or requirements contracts). In Patrick Atiyah’s magisterial history of English contract law, he suggested that a major reason for the rise of contract law in the nineteenth century, and specifically for the modern emphasis on the will of the parties and on expectation damages, was that the legal form facilitated economic planning—and economic planning was necessary for the growth of markets and capitalism.5 

The economic planning facilitated by the law and by public choices about it runs even deeper, however. A tapestry of economic coordination systematically weaves itself between the private and public spheres, centrally including the business firm itself. The point here is not merely that ideal theory never quite fits the world perfectly. To be sure, the real world is always a bit messier than our categorical representations of it—a necessary consequence of any theory, indeed of any thought. But the problem isn’t that reality doesn’t quite stay within the lines of the broadly shared picture of markets as unplanned competition; it is rather that this picture has the wrong shape altogether. 

If we don’t see this, we are quickly led down the garden path of downstream debates that are variations on the following themes: When is planning (and/or coordination between market participants) justified by sufficiently-systematic or structural “market failure”? What is the cause of market instability, falling margins and/or below-cost pricing, either generally or over some long historical period and across sectors? Such questions and debates aim at an unwarranted level of generality, which unfortunately follows naturally from the wrong-shaped picture of markets that infects our thinking across the political spectrum. The consensus view seems to be that the paradigm market (or really, set of interlocking markets in an economy) is, first, devoid of economic planning, and second, runs on a set of generally applicable, interconnected motive forces that result in successfully calibrating prices and costs, and ultimately in employing all available resources in the service of existing human needs (and desires). Planning or “intervention” are justified if and only if the mutual operation of those motive forces for some reason breaks down. Whether one believes that breakdown is more or less frequent, the paradigm largely retains its force as a normative and analytic baseline for legal and policy thinking, and indeed for social theory. 

If, instead, planning and coordination are understood as intrinsic to markets—and typically have an essential role in pricing decisions, in cognizing and managing costs, and in regulating the economic rivalry that affects both prices and costs—then we should probably not seek to understand specific pricing problems, nor conditions of chronic instability, as symptoms of either special or general breakdown of the ideal market mechanism. Rather, since avoiding these outcomes is generally what planning, or economic coordination mechanisms, seek to do, we might look to see if and why those particular mechanisms may have broken down. (Certainly, we’d also look for specific explanatory empirical conditions relating to costs, demand, or rivalry—but without attributing any particular norm or baseline to any of those dimensions of markets, instead understanding them as characterized by empirical variety). 

These are general points, but the public price coordination experiments undertaken in the early 1930s United States furnish a helpful entry point. Two significant home-grown tributaries flowed into what became NIRA and its family of price coordination experiments: the Progressive planning tradition and the antitrust tradition.6 Today, NIRA is commonly counterposed to antitrust (both in principle and in terms of the historiography of the New Deal). But at the time, the antitrust camp had little truck with the self-coordinating market ideal. Resistance to public price coordination experiments, meanwhile, particularly among conservative jurists, was also not based on a preference for unplanned markets, but instead on ideas of freedom of contract—which were in many respects inconsistent with the unplanned market ideal. And the Supreme Court’s ultimate rejection of NIRA as unconstitutional was not even based upon freedom of contract (much less an embrace of unplanned markets), but instead upon the conclusion that the scheme did not involve enough planning. Ironically, it was ultimately the Progressive planning tributary to NIRA—rather than the antitrusters and rather than the courts—that did the most to bring the self-coordinating market ideal to the center of American law and policy. That is, the Progressive planners inaugurated the tradition, still with us today, of asserting special exceptions to unplanned markets as the justification for specific instances of economic planning. In so doing, they helped to elevate the self-coordinating market ideal to its vaunted position. 

The competition that kills

The price coordination experiments of the first New Deal are conventionally counterposed to the antitrusters, the “neo-Brandeisians,” and the second phase of the New Deal. While some degree of divergence between camps identified in these terms is undeniable, the idea that they map onto a clear conflict of principle on the questions of competition or planning is at best greatly exaggerated. First, even the association of key figures of the second New Deal with Louis Brandeis or with antitrust itself appears to be overstated.7 Second, Brandeis’ own work, in promoting trade associations and other forms of economic associationalism, formed a key precedent for NIRA.8 If NIRA was about containing ruinous competition, Brandeis had long been writing about “the competition that kills,” seeking to contain it through decentralized forms of coordination and, once on the Court, promoting toleration for it under antitrust law.9 And thirdly, this advocacy on Brandeis’ part was not a personal quirk or a novel departure, but was instead consistent with the antitrust tradition of the earlier Populist era, which had always aimed to cultivate dispersed forms of economic coordination while targeting those forms—such as “the trusts”—that concentrated economic planning in a few hands.10 Perhaps surprisingly, the Brandeisian antitrust tradition was far less tied to the ideal of unplanned competition than the Progressive planning tradition was.

So, while the unplanned market ideal undoubtedly came to eventually influence American antitrust, it was not yet associated with the antitrusters. This ideal was, in the first place, birthed in the matrix of classical political economy, then refined and purified in the still relatively recent “marginal revolution.” In this ideal competitive state, competition (or potential competition) allocates economic resources to their optimal uses. In a textbook competitive market, economic coordination is either not present or invisible. It’s not present in the sense that coordination between firms is nonexistent, by assumption. Any coordination that does exist is presumed to occur only within firms, i.e., via the entrepreneurial function of coordinating the various factors of production within the production process. The implications of this idea, therefore, pertain not only to public planning as such but, more precisely, to any proposed economic coordination mechanism outside the firm, be it notionally private cooperation (or “collusion”) or public regulation. 

Importantly, the competitive ideal has little to do conceptually with the existence of economic rivalry, an idea with which it is frequently conflated—even, sometimes, within the very thought traditions that birthed the competitive ideal, and certainly within many policy and legal applications of those traditions. As none other than Friedrich Hayek lucidly explained the distinction: 

Perhaps it is worth recalling that, according to Dr. Johnson, competition is “the act of endeavouring to gain what another endeavours to gain at the same time.” Now, how many of the devices adopted in ordinary life to that end would still be open to a seller in a market in which so-called “perfect competition” prevails? I believe that the answer is exactly none. Advertising, under-cutting, and improving (“differentiating”) the goods or services produced are all excluded by definition—“perfect” competition means indeed the absence of all competitive activities.11

Instead, ideal competition might be best described as the optimization of welfare through the sorting and aggregation of preferences and their matching with available resources and goods, a state in which even technical differences or improvements—the most common folk justification for ‘competitive markets’—are assumed away from the basic analytic apparatus.12

Brandeis and the antitrust tradition up to this point were simply not rooted in the competitive ideal of the self-coordinating market. Brandeis understood competition as rivalry, and he had no interest in welfare maximization in the technical sense, preferring to directly articulate the normative goals of policy. He also understood economic rivalry to be necessarily conditioned by legal rules, making the choice of these rules both unavoidable and essential to ensure that competition actually served pro-social aims.13

This position is distinct from a vague endorsement of tempering competition with coordination or planning. It implies a conception of competition in which there are basic, qualitative differences between forms of competition, beyond any differences in degree. That is, at any given time firms may compete in one dimension (say, product quality) and not another (say, labor costs). Legal rules as well as prevailing market settlements channel competition (and economic activity) along various dimensions. For an obvious example, the law channels competition away from overt violations of property rights. (The National Cash Register Company at one point had a “knockout squad” that employed competitive strategies such as surreptitiously dropping sand in rival cash registers while on sales calls.)14) While that result may seem obvious, the boundaries of property rights (and business torts) are often not. From this alone it should be evident that there will always be some social contestation—and social choice—regarding the appropriate channels of competition. But the markets of ideal theory have little space for these facts, conceiving of competition at best in terms of magnitude rather than qualitative difference. Importantly, this is just as true for imperfect competition theory as for perfect competition.

Indeed, the position of Brandeis and other Progressive-era antitrusters (like Henry Martin of the Antitrust League), and of Populist critics of monopoly before them, is different to anything resembling “imperfect competition theory,” which does continue to pay fealty to the self-coordinating market ideal as a normative and analytic benchmark, regardless of its adherents’ beliefs about the frequency with which actual markets depart from that ideal. On the other hand, embracing economic rivalry as one good among others (as the antitrusters of the time generally did) does not imply any commitment to the self-coordinating market. For Brandeis and fellow travelers, economic coordination and markets went together like a horse and carriage: they were complements, not substitutes. You don’t need to demonstrate a “horse failure” to introduce the use of a carriage. In fact, you need a working horse to use a carriage, just as, for the Populists and for Brandeis, markets generally required working mechanisms of economic coordination. 

NIRA directly built upon Brandeis’ life-long project of dispersed coordination as a driver of stability and sustainable pricing. Its basic goals were to set prices at a level, relative to business costs, that would ensure a margin sufficient for the business to reproduce itself according to socially defined criteria and to meet other specific social and economic goals. To do this, accounting for production costs was a key task facing the NIRA trade groups and the federal agency. As participants in this experiment have detailed, it was a practical problem that NIRA largely failed to solve. Here, the operational reason for failure largely harmonizes with the constitutional failure that lawyers are most familiar with: a lack of uniform, substantive standards.  

Before his years on the Supreme Court, Brandeis had expended significant energy on the issue of cost accounting among smaller and mid-sized businesses, in an effort to prevent “the competition that kills.” He identified below-cost pricing as itself an antitrust harm (for instance when used by dominant firms against smaller ones with less capacity to absorb losses) and promoted legislative, administrative, and private efforts to systematize the accounting of costs across markets in order to prevent such practices.15 He also promoted minimum price coordination across firms as a mechanism of maintaining sustainable pricing, living wages, and independent enterprise. His idea was that legitimating coordination beyond firm boundaries provided a source of stability that could obviate the need for stabilization through corporate consolidation and domination. Whatever its failures, and however it otherwise diverged from Brandeis’ vision, NIRA built upon these efforts. 

The planners

“Make no small plans, for they have not the power to move men’s souls,” said Rexford Tugwell. Tugwell was an original member of Roosevelt’s “brains trust” and—alongside his direct role as an administrator in landmark New Deal agricultural programs—also a “key architect of NIRA.”16 When he signed the Act into law, Roosevelt channeled Tugwell and other adherents of the high-wage doctrine (who believed that underconsumption had caused, or at least exacerbated, the Depression) by emphasizing the program’s promise to raise the “ purchasing power of the public.”17 This was to be achieved not only through the collective bargaining provisions in the statute but also through the price floors themselves, which would help to secure internal investment, wages, and jobs. 

Tugwell emphasized the continuity between public planning and the extensive planning that already pervaded the economy through the mechanism of business firms themselves: 

National planning can be thought of-in a technical rather than a political sense-merely as normal extension and development of the kind of planning which is a familiar feature of contemporary business . . . We have many illustrations of the extension of central office control over numerous units of the same industry, and even over various units of different industries which contribute to one product, such as motors, tires, telephones, or radios.18

Public planning was therefore a change in form, not substance. In these terms, NIRA effectively outsourced pricing decisions from individual firms to bodies composed of representatives from industry, organized labor, and the public.

Tugwell had been a student of Simon Patten’s at Wharton—an influence he celebrated, writing a long, affectionate account of Patten’s life and ideas.19 Tugwell emphasized the institutionalist bent of Patten’s economic ideas; like others of his generation, he had sought out advanced study in Germany, where he discovered his dissatisfaction with the English economists’ pervasive emphasis on scarcity, eventually coming to champion an economics of “abundance” while also adopting his German teachers’ “inductivism” and interest in the “facts of industrial life” over pure theory.20 That said, it is remarkable that Patten still adopted many of the analytical devices of marginalism, notably his own version of the marginal utility concept.21

Such flirtation with the analytical framework of marginalism, and with the accompanying framework of the self-coordinating market, was common to many Progressive institutionalist economists. For Patten (and Tugwell), that did not seem to directly involve the conceptual framework of relative prices and allocative efficiency itself. But many others, notably many of the most influential Progressive planners, cognized the basis for economic planning quite precisely in terms of specific breakdowns of the self-coordinating market. As such, this current ran through the planning tradition as inherited by NIRA.  

Recall that according to the basic logic of the self-coordinating market, phenomena such as overproduction, under-employment, and insufficient rates of return can only be brief, passing readjustments. But the various crises and perceived crises—depressions, mass unemployment, falling profits—of the late nineteenth century (coinciding with the rise of big business and the rapid geographical expansion of markets) challenged the applicability of the competitive ideal. Progressive economic thought and debate was greatly shaped by the backdrop of these phenomena—even as it was also shaped by recent analytical refinements of the self-coordinating market idea in the form of marginalist economic thought. 

This combination of influence produced the basic form of argument in which many influential Progressive thinkers argued that specific exceptions and breakdowns in the operation of competition were the reason and the justification for economic regulation or planning—whereas an earlier generation of lawyers and jurists largely assumed that markets were publicly ordered generally speaking, whether for egalitarian or hierarchical ends.22For example, key Progressive figures argued that market equilibria broke down when faced with the high fixed-cost production brought on by rapid industrialization.23 A central common theme across much Progressive-Era thought was that the cause of disequilibration lay in industries at the leading edge of technological development and thus in investment in physical assets, which were often also the industries boasting large firms and concentrated markets.24 Where costs decreased with increasing production, firms would tend to grow in size in order to capture these economies of scale. However, the high degree of investment in fixed, physical assets implied by this industrial pattern was said to create a tendency toward destructive competition, or pricing below actual costs. Investments in large-scale industrial production (fixed costs) effectively created a situation in which firms were held hostage by their own investments, and thus were driven to both overproduction and underpricing.25

While commentators have broadly tended to characterize this constellation of influential economic and regulatory thought in terms of its opposition to “the classical model of the competitive market,” as Sklar called it, at a more fundamental level this movement of thought in fact affirmed the underlying cogency of that theory, arguing that its descriptive power was disrupted only through the appearance of a set of contingent (and new) facts, namely high fixed-cost industries. Aside from the fact that this failed to account for extant patterns of destructive competition at the time (which were just as, if not more, common in industries characterized by relatively low fixed costs and numerous small firms), this also did nothing to contest the place of ideal competition as a normative and analytic baseline. In a world where almost no one else was asserting the self-coordinating market ideal as a basis for working out law or policy in the first place, Progressives erected the greater part of their justification for planning and regulation on the basis of exceptions to that ideal.

Planning in the courts

This comes into particular relief when we examine the major Supreme Court cases that considered NIRA and other policies in its orbit. Nebbia v. New York (1934) upheld a state-level policy to stabilize milk prices. The case sheds light on the primary arguments against policies of public price coordination in play at the time. Schechter Poultry (1935), which famously held NIRA to be unconstitutional, is notable for not taking up any of those arguments against public market coordination, instead holding that Congress failed to meaningfully articulate the substantive standards by which public market coordination will occur. Finally, Appalachian Coals (1933), which evaluated a joint venture among coal operators to stabilize prices, illuminates the central role of the business firm in the emerging self-coordinating market ideal. 

Freedom of contract

The decision in Nebbia v. New York dealt with a program coordinating milk prices engineered by the New York legislature. The state’s efforts began in 1932 with an extensive one-year research program spanning thirteen public hearings, 2000 pages of testimony, and numerous reports from industry and state officials. The basic problem was that milk prices were depressed below average costs, posing an existential threat to producers and to other actors along the supply chain. As with all farm products at this time, deflation in milk prices exceeded economy-wide deflation—which meant that farmers’ costs had not fallen as much as the prices of their products. (The federal Agricultural Adjustment Act proceeded on the basis of a similar finding.) 

Numerous factors contributed to this scenario. First, as the committee observed and the Court agreed, milk has an especially short shelf-life.26It is plausible that this alone strengthens deflationary pressures, relative to other commodities. (Notably, in an early draft fragment from what became the General Theory, Keynes speculated that a reason for a structural tendency to deflation rather than inflation—other things equal, and absent stimulus—is that goods in general are more susceptible to spoliation than currency.27) Second, there was no way to quickly adjust productive capacity to lowered demand—you already have the cows you have—resulting in persistent oversupply.28 

The New York legislative committee found that a specific exacerbating factor in the local market was the practice of maintaining “surplus milk” in order to meet variable demand of a basic foodstuff.29 Larger milk distributors maintained surplus milk, which they obtained at a lower price, while smaller distributors did not maintain such reserves and obtained their milk at a “blended” price (between the ordinary and the surplus price paid by larger distributors).30 This meant that smaller distributors could persistently underprice larger ones, causing much of the milk on the market to be priced below (the larger distributors’) cost.

The actual holding in Nebbia was concerned with the limits of the “public interest” in a business. This category had formed the traditional legal justification for regulation extending to prices. Thus, the disagreement between the majority and the dissent was mainly about the breadth of the category of businesses affected by “public interest”—with the majority holding that milk distribution is a business “which public interest demands shall be regulated” and the minority taking a narrow view of the “public utility” exception. What makes Nebbia interesting for our current purpose, however, is not its primary holding, but how clearly it distills the rationale or framework that “public interest” or “public utility” are meant to be a departure from.

It’s often assumed that freedom of contract arguments and self-coordinating market arguments fit together seamlessly as a basis to attack “planning.” This is not true, and Nebbia helps to illustrate why. As an initial matter, the courts of the so-called Lochner era emphasized liberty of contract far more than they ever emphasized a self-coordinating or “competitive” market, which largely entered in as an afterthought or a gloss, if at all. The idea of a self-coordinating competitive market was emphasized far more by the Progressive policy-makers and technocrats who did battle with the courts, albeit largely by asserting special exceptions to it. The New York legislative committee did essentially this, resulting in the conclusion that “the ordinary play of the forces of supply and demand, owing to the peculiar and uncontrollable factors affecting the industry” were not sufficient to “right” the “evils” of underpricing.31 Once again, the idea that ordinarily the “play of the forces of supply and demand” set prices (at an ideal level) on their own was supplied by the legislative and administrative “planners” and technocrats—not by the old-fashioned courts in the thrall of laissez-faire.

While not exactly missing altogether from court opinions through the preceding decades, this idea of a self-coordinating market—resulting in prices that ideally allocated productive resources to their optimal use—was simply not dominant among American jurists. In Nebbia, as elsewhere, it emerged in the majority opinion only via the arguments of the reformerswho wanted to engage in price regulation. Notably, it is largely missing altogether from the Nebbia dissent—which wanted to strike down the price regulation—and which instead emphasized freedom of contract and the privacy of pricing decisions. 

The business challenging the New York statute had argued that its constitutional due process rights (the main doctrinal vehicle for freedom of contract arguments in such cases) were particularly implicated because the regulation constituted “direct fixation of prices.”32 While noting that “the due process clause makes no mention of sales or of prices any more than it speaks of business or contracts or other incidents of property,” the Court’s majority did acknowledge that:

The thought seems nevertheless to have persisted that there is something particularly sacrosanct about the price one may charge for what one makes or sells, and that, however able to regulate other elements of manufacture or trade, with incidental effect on price, the state is incapable of directly controlling the price itself.33

The Court then went on to deny this proposition—but only by expanding the category of businesses or property “affected with a public interest” that would justify price regulation.

The Nebbia opinions (the majority and the dissent) did not invoke the self-coordinating market ideal, except in quoting the New York legislative committee. The debate was about freedom of contract, as embodied in constitutional due process rights, and the limits upon those rights worked by the public interest category. Still, the Nebbia dissent did cite one earlier decision in which, rarely for this period, the Court had invoked competitive markets. In that case, the Court had struck down a state price discrimination statute aimed at agricultural buyers, on the ground that “Buyers in competitive markets must accommodate their bids to prices offered by others, and the payment of different prices at different places is the ordinary consequent.”34 (This, of course, should not be true in a single“competitive market”; the Court may have meant that the different “places” constituted different markets, or it may be further evidence for how distant the concept of an ideal market still was from jurisprudence.) 

Still, the idea surfaces one of the tensions between the freedom of contract rationale and the self-coordinating market rationale, as bases for undermining price regulation. Under conditions in which the laws of supply and demand are working as “the classical theory” prescribes, there is only one market price. There are no choices about prices for firms to make, at all. Firms may choose how much to make or sell, but they don’t choose the price at which they sell. As such, the dynamic process of adjusting bids, and the “payment of different prices at different places” does not happen when supply and demand are in equilibrium. Again, Hayek explained this point: 

What the theory of perfect competition discusses has little claim to be called “competition” at all … if the state of affairs assumed by the theory of perfect competition ever existed, it would not only deprive of their scope all the activities which the verb “to compete” describes but would make them virtually impossible.35

Therefore, if there are choices about prices to make, if there is any meaningful liberty to interfere with, then the market is by definition not in equilibrium and there is no basis to say that government regulation is pulling it further away from equilibrium. The freedom of contract objection and the self-coordinating market objection (to a policy of public price coordination like NIRA, or like the New York Milk Control Board) cannot meaningfully coexist in the same case. If the former applies—if there is any actual choice that a firm is able to make about pricing—the market is by definition not in equilibrium. But if it is, then there is no freedom to choose a price, no freedom that can be interfered with. This isn’t the only logical tension between the freedom of contract and competitive market frameworks,36 but it is one that disputes over price regulation particularly surface.

Why care about this now? Because the two-step invocation of the competitive ideal and freedom of contract as the basis of attacks on public market coordination is very much still with us, even though the relative prominence of the two ideas has changed. In the early decades of the twentieth century courts predominantly emphasized freedom of contract, while the competitive ideal was at best ambiguously in the background. Courts today invoke the competitive ideal as a benchmark much more directly and frequently against particular instances of “regulation.” Yet, invocations of textbook competitive markets would have little normative pull—particularly in the broader public sphere—without their affective association with the freedom of contract idea.

The chickens come home to roost

The Supreme Court’s decision in Schechter Poultry, which famously held NIRA to be unconstitutional and thus marked the end of the “first New Deal,” did not reject public market coordination at all.37 Instead, it implicitly embraced the possibility of such state action while rejecting the way NIRA went about it—broadly tracking internal criticisms of NIRA in the process. This further undermines the facile opposition between “the planners” and the “neo-Brandeisians” as a framework for understanding the internal dynamics of the New Deal.

As an initial matter, the opinion affirms the obvious continuity between the “fair competition” concept in NIRA and its earlier appearance in the 1914 Federal Trade Commission Act. That continuity is evident from the statutory text, which expressly referred to the FTC Act and which empowered the FTC—an agency created by Congress in 1914 to implement antitrust law and policy—to enforce the new industry codes to be created by the federal agency administering NIRA. This basic continuity between the statutory schemes undermines the idea that NIRA (while indeed entailing certain exemptions from the Sherman Act) was fundamentally at odds with the broader antitrust or antimonopoly project. Moreover, the Schechter decision in no way contested this continuity, only pointing out that the statute’s reference to the FTC Act did not itself supply the missing content for the concept of “fair competition” that NIRA otherwise failed to provide. And this much was surely right, in that NIRA’s concept of fair competition necessarily went beyond whatever was already contained in the FTC Act, even though it built upon it. 

As already noted, the problem of below-cost pricing that NIRA centrally concerned itself with was one of the primary economic ills emphasized by Brandeis himself—a figure who towered over the framing of the FTC Act and who was more broadly the primary voice of antitrust in the Progressive Era. Below-cost pricing was also investigated by the FTC in the 1920s across several industries. And as a tactic of gaining market dominance, it was already well-recognized in pre-FTC antitrust law, including in the landmark Standard Oil decision, as a violation of section 2 of the Sherman Act.38

But perhaps most importantly, Schechter would be an odd marker for the judicial rejection of experiments in public price coordination—since it didn’t reject that project at all. The Supreme Court never even reached the constitutional “due process” question, within which liberty of contract was housed, nor did that idea enter in through some other doctrinal door. The Court certainly did not invoke competitive markets or the competitive ideal in the abstract. Instead, the nub of the decision was to reject the particular arrangement for market coordination before the Court insofar as it lacked substantive governing standards at the legislative level. That is, Congress failed to supply its invocation of “fair competition” with much, or any, meaningful content. 

The specific legal argument of the decision was that Congress may not constitutionally delegate its law-making power to the executive. At a minimum, the Court said, Congress should specify some substantive standard that the executive may then interpret, implement, apply and enforce. Whatever the reasonable boundaries of that constitutional imperative are—and although a conservative judiciary today threatens to weaponize it as a broad attack on federal administration as such—it is not particularly controversial that NIRA far outstripped them. Indeed, in this respect it’s worth noting that the Supreme Court’s rejection of NIRA was, in essence, on all fours with one of the most lucid internal criticisms of NIRA—namely that the absence of a meaningful system-wide standard led to chaos, with codes following very different methodologies, leaving them especially vulnerable to capture by powerful corporate actors.

Those criticisms were well laid out by one Herbert Taggart, an accounting expert intimately involved with the administration of NIRA.39 While a certain skepticism about the whole enterprise does infuse his functional criticisms, they are still well worth considering by those who are themselves more optimistic about the project of public involvement in price coordination. Taggart’s criticisms spanned the two main types of standard-setting used by the codes to quell destructive below-cost pricing: standards that attempt to define below-cost pricing across firms, and those that simply prohibit firms from pricing below their own costs. (According to conventional theory, these should of course be one and the same).40

Taggart’s objections to setting minimum cost levels across an industry or market include internal workability concerns as well as more basic concerns about too much market stability. The more basic concerns were common ones: Taggart—like critics dating back to at least Adam Smith—worried about standardizing costs to the extent of disincentivizing innovation, and more generally incentivizing production/production methods that no longer matched the moment for whatever reason.41The workability issues, on the other hand, arose because in order to be meaningful, the prohibition on below-cost pricing must be per-unit, while Taggart argued that per-unit cost comparisons are effectively impossible in the vast majority of cases. This is because: 1) consistency in accounting practices across firms is difficult even in case of truly identical or comparable products, given the difficulty in consistently allocating overhead costs;42 2) truly identical products are rare, in that almost all markets display some level of product or service differentiation (even extending to the “bundle” of goods and services that’s actually being sold); and 3) inter-industry comparisons of costs are particularly intractable. 

One might suppose that rules aimed at preventing individual enterprises from pricing below their own costs would fare better, but Taggart convincingly argued that such rules pose unique problems of their own. On the one hand, such a rule avoids the basic cost commensurability problems. On the other hand, it introduces its own problems—because at least in an inter-firm system, a common minimum price is eventually set, by hook or crook, and subsequently known to all. In the single-firm system, there is no common minimum price, which means that the basic problem of allocating overhead costs leads to basic compliance uncertainty. According to Taggart, ultimately “all of the cost accounting proposals approved by NRA contained loopholes of such magnitude that almost any price above labor and materials could be justified.”43

The issues raised by Taggart are important in their own right, and they also help to reveal the distance between the Schechter decision and any embrace of a self-coordinating market ideal. The central point about Schechter for the current purpose is that it did not oppose public market coordination as such, nor did it rely on the freedom of contract or self-coordinating market rationales as a basis for opposing NIRA. In fact, the non-delegation holding in a basic sense embraced the possibility of public market coordination: the whole problem was that Congress did not take the reins enough, not that it took them at all. 

Imagine what a substantive statutory standard for fair competition might have looked like if Congress had decided to articulate one. Whether it dealt with cost accounting standards or not, it would have had to state that some means and methods of competition were legitimate, while others were not. This is hardly the stuff of the self-coordinating market ideal. The Court not only didn’t endorse that ideal, its prescriptions pulled directly away from it. 

This is further highlighted by the fact that the constitutional delegation problem was not only about the executive branch, but also about private firms:

Would it be seriously contended that Congress could delegate its legislative authority to trade or industrial associations or groups so as to empower them to enact the laws they deem to be wise and beneficent for the rehabilitation and expansion of their trade or industries? Could trade or industrial associations or groups be constituted legislative bodies for that purpose because such associations or groups are familiar with the problems of their enterprises?44 

That is, the Court was expressly concerned that Congress was, in effect, delegating law-making power to private firms by empowering groups of firms to legislate market rules. In the foregoing passage, the Schechter decision echoes many in the nineteenth-century who worried about private associations trampling upon the state prerogative to order markets. This is a precise inversion of an endorsement of self-coordinating markets. The legal problem the Court identified with NIRA was, in part, an inappropriate privatization of a public function—not a problem with public market coordination as such. 

A diamond in the rough

Though it did not deal with NIRA directly, the 1933 decision Appalachian Coals v. United States rounds out our exploration of early New Deal experiments in price coordination through the eyes of the Court. As one antitrust commentator noted, “the scholarly consensus has been that Appalachian Coals was a temporary Depression era loss of faith in free markets in which the Court endorsed a price-fixing cartel, abandoning the per se rule against price-fixing until it came to its senses . . .”45 That scholarly consensus, of course, fits comfortably with the opposition between planners and antitrusters in New Deal historiography. However, it is incorrect as a matter of the development of antitrust law: Appalachian Coals displays substantive continuities with many earlier and later legal developments. It is better seen as the apotheosis of a significant and not-yet-integrated minor strain in twentieth-century competition policy—one that predated it and that is still with us.

The simplistic consensus also does not adequately capture the dynamics of the decision itself. The case arose from a joint selling agency in an industry—bituminous coal—that was formed to cope with a tendency toward unstable and unsustainable prices that far predated the Depression. In fact, those issues had been the subject of a Federal Trade Commission study and report in the early 1920s—again reinforcing that below-cost pricing was already a traditional competition policy concern. Experiments in various forms of private market coordination were nothing new to the industry. As Branden Adams has lucidly explained, an effective contest to manage the bituminous coal market unfolded over decades, involving three essential players: the coal operators, the mineworkers union, and the railroad corporations that transported the coal.46

By the early 1930s, the market was suffering from reduced demand for reasons that went beyond the general downturn: there had been an expansion of production capacity in response to an earlier spike in demand (triggered by the First World War), followed by the development of other energy sources and by the increasingly efficient extraction of energy from coal itself.47 This mismatch between capacity and demand was exacerbated by various other conditions. One of those conditions was the prevalence of a method of production that essentially required the production of other sizes and shapes of coal in order to meet orders for a given type (such as stove coal, egg coal, lump coal, and the like). This led to systemic production of “distress coal”—recalling our “surplus milk”—which further depressed prices.”48 Finally, the district court had found that coal buyers were large entities and often highly organized, adding to the downward pressure on prices.49

For all these reasons, the Court decided the coal operators’ joint selling agency was a reasonable measure and did not violate antitrust law. The Appalachian Coals Court cited the earlier, famous Chicago Board of Trade (a Brandeis opinion), which had upheld what was essentially a form of price-fixing in the context of a commodities exchange for the express purpose of stabilizing and rationalizing trading.50 Now, the Court held that the coal operators’ association (which also featured a research department to increase energy efficiency) appeared reasonably designed to “make competition fairer,” to “promote the essential interests of commerce,” and in essence to help a struggling industry recover from crisis.51 In an observation that might today be controversial, the Court also noted that the “interests of producers and consumers are interlinked.”

 When industry is grievously hurt, when producing concerns fail, when unemployment mounts and communities dependent upon profitable production are prostrated, the wells of commerce go dry.52

Repeatedly, the Court invoked “fair” competition, and affirmed that “reasonable” (above-cost) prices were desirable. 

Yet what most distinguishes Appalachian Coals is not so much any of the foregoing—all of which were quite ordinary ideas in previous decades, even if increasingly challenged by the Progressive embrace of self-coordinating market benchmark—but its demonstration of the emerging role of the firm as a kind of invisible anchor of the competitive ideal. The Court noted that the simple fact that the coal operators coordinated between themselves on prices could not condemn the arrangement, given that it would be uncontroversial that such coordination would be protected if “the defendants had eliminated competition between themselves by a complete integration of their mining properties in a single ownership.”53 The Court went on: 

We know of no public policy, and none is suggested by the terms of the Sherman Act, that in order to comply with the law those engaged in industry should be driven to unify their properties and businesses in order to correct abuses that may be corrected by less drastic measures. Public policy might indeed be deemed to point in a different direction.54 

Rejecting the idea that “the formation of a huge corporation” should “be considered a normal expansion of business, while a combination of independent producers in a common selling agency should be treated as abnormal—that one is a legitimate enterprise while the other is not”— the Court concluded that antitrust law did not contemplate such an “artificial” distinction.55 While Appalachian Coals made the point even more explicit, this rejection of “the firm exemption” is entirely consistent with Brandeis’ observation a couple of decades earlier that the German steel cartel was a superior arrangement to US Steel because it rationalized prices while retaining independent centers of decision-making (the latter being a standard antitrust concern, then as well as now). 

Like Brandeis’ earlier advocacy and writings, Appalachian Coals endorsed “fairness” in competition, an idea that, among other things, encompassed “reasonable” prices, i.e., prices that sustain the reproduction of industry, employment, and living wages. The decision is especially important for revealing the basic connection between a strong embrace of “the firm exemption” and the self-coordinating market ideal. When economic coordination is limited to firms—and when firms are viewed as indivisible entities rather than groups of people engaged in planning—then the myth of the self-coordinating market can begin to flourish. Appalachian Coals is significant not only because it expressly embraced price stabilization as a goal of law and because it allowed an inter-firm coordination mechanism to go forward partly on that basis, but also because it rejected the primacy of the business firm as the sole acceptable engine of economic planning. If there is a single element that unifies the various moments of the second New Deal, it is the movement toward precisely this anointing of the business firm that Appalachian Coals resisted. It is no accident that the policies associated with that period—alongside their very tangible egalitarian effects—also inaugurated the legal and policy developments that would eventually usher in the primacy of the self-coordinating market framework. (That, though, is a story for another day.)

Rivalry and planning

Any too simple distinction between planning and competition does little to help us understand the price coordination experiments of the early New Deal. Nor does it help us think about a forward-looking program of economic governance. 

The conceptual distance between economic rivalry and the self-coordinating competitive market is highly relevant here, because only the latter is inconsistent with planning as such. Acknowledging the value of economic rivalry, in itself, in no way forecloses economic planning. A belief that economic rivalry can, other things being equal, conduce to social and economic benefits does not imply the existence of a unique welfare maximum that planning would distort. (Both perfect and imperfect competition theory, however, do carry this implication; that the latter provides for exceptions where planning may compensate for some other distortion does nothing to change its acceptance of the underlying rule.) The specific views of Brandeis and the earlier populists make this logical possibility—an endorsement of both rivalry and planning—concrete.

That rivalry and planning are not mutually exclusive does not mean that there aren’t political and institutional choices to be made, and also further deliberations on the economic governance to be pursued. Planning and rivalry exist together like a controlled burn. The fire may die down to nearly an ember in some cases but never quite disappear; conversely, anything called a market has a fire-keeper, no matter how big and chaotic the fire may sometimes burn. And crucially, along with the degree of control, we have to ask who the fire-keepers are. Who is tending the burn of competition? In any given case, is it an individual dominant firm, a group of firms, labor organizations, government agencies, or some other group of people? 

Once we accept the inevitability of some level of market-wide price coordination, we can recognize the valuable lessons from the public price coordination experiments of the 1930s. Taggart’s cost accounting questions may seem technical, but they lead to a profound and basic inquiry about how to value the things we value, and how to then measure them against the costs of our collective endeavors. His criticisms of NIRA can perhaps be summarized under two major headings. The first is the familiar discomfort with too much stability, which may dampen performance, innovation, and other productive or desirable outcomes. The second is the apparently technical, but actually quite profound and substantive set of questions about how to accurately measure business or production costs, and then how to standardize that measurement across firms or production units and across industries. 

Both are valid concerns that an affirmative program for economic governance will need to grapple with. Concerns about the costs of stability have, for the most part, been overemphasized in recent decades. Historically, plenty of highly coordinated and stabilized production environments in fact led to a high degree of technological innovations, including quite revolutionary innovation. (The medieval craft guilds—favorite target of the early classical economists—are one such example; the regulatory environments  of well-capitalized mid-century firms, which functionally limited payouts to shareholders and executives and incentivized reinvestment, are another.) That said, we need not deny that too much stability can dampen effort, innovation, and dynamism. It does not follow, though, that unlimited instability leads to maximum innovation. Indeed, it seems plausible that some core stability is necessary for competition to work in a virtuous way—the controlled burn. The problem is that this rather prosaic fact is simply not recognized, much less synthesized, in any working account of competition policy. At best, it is outsourced to other areas of law (such as labor law and social welfare policy). Much left-wing thought, too, counterposes markets and planning without really questioning the mainstream theory of markets and competition or providing a distinct account.

The question of how to consistently measure costs and make that measurement commensurate across firms and products, meanwhile, is key. Such a task is particularly difficult in the shadow of a theory of markets that may even encourage us to think of costs as deductively derivable from other variables, rather than the most irreducible, ground element of price-making. This, I believe, is one area where new thinking is genuinely needed. Digging into the details of NIRA—as well as other case studies of price-making mechanisms, whether they be public, private, or somewhere in between—can help guide our work moving forward. 

One final, important point about measuring costs is not quite made explicit by Taggart. Any benchmark for costs will necessarily involve a social determination of appropriate returns—to labor, but also to other input providers. Further, that social process of decision-making involves a normative determination that cannot be reduced to any purely “material” factors—though it is surely intertwined with the material. Far too many thinkers on the left assume that there is some objective amount that labor produces and thus should receive in return, but such assumptions make the same errors as mainstream theory. There is no escaping the open-ended social determination of appropriate returns to workers, a determination that necessarily implicates questions of fairness. False certainties will not help us, but perhaps shedding them will encourage a greater embrace of planning, moving us towards the means of realizing the world we desire.

  1. See “An Act to encourage national industrial recovery, to foster fair competition, and to provide for the construction of certain useful public works, and for other purposes.” Pub. L. 73-67 (June 16, 1933).

  2. For a summary of the former reforms, see Zach Carter, The Price of Peace (2020).

  3. This element of the statute effectively survived in the form of the later National Labor Relations Act—not only in principle but in terms of institutional structure and personnel. For a helpful discussion, see Chris Tomlins, The State and the Unions: Labor Relations, Law, and the Organized Labor Movement in America, 1880-1960 (1985).

  4. See, for instance, Bernard C. Beaudreau and Jason E. Taylor, “Why Did the Roosevelt Administration Think Cartels, Higher Wages, and Shorter Workweeks Would Promote Recovery from the Great Depression?” The Independent Review 23, 91 (2018).

  5. P. S. Atiyah, The Rise and Fall of Freedom of Contract (1979).

  6. Events in the new Soviet Union were obviously also a general touchpoint of economic debate throughout the New Deal as well as the 1920s.

  7. Jessica Wang, “Neo-Brandeisianism and the New Deal: Adolf A. Berle, Jr., William O. Douglas, and the Problem of Corporate Finance in the 1930s,” Seattle University Law Review 33, 1221 (2010). To add to this, when antitrust enforcement was revived in the second phase of the New Deal, principally through the administration of Thurman Arnold at the Department of Justice, it began to enter a distinctly new phase from its prior Populist and Brandeisian incarnations. This point is set out further in a separate forthcoming work.

  8. Gerald Berk, Louis D. Brandeis and the Making of Regulated Competition, 1900–1932 (2009); Laura Phillips Sawyer, American Fair Trade: Proprietary Capitalism, Corporatism, and the ‘New Competition,’ 1890–1940 (2018).

  9. Louis Brandeis, “Cutthroat prices: The competition that kills,” Harper’s Weekly (November 15, 1913). See also Berk’s and Sawyer’s discussions of Brandeis.

  10. For a detailed account of those origins, see Paul, “Recovering the Moral Economy Foundations of the Sherman Act,” 131 Yale L. J.175 (2021).

  11. Friedrich Hayek, “The Meaning of Competition,” in Individualism and Economic Order (1946) 364.

  12. It is true that competition is a kind of latent, background force in this picture, insofar as the threat of it constrains choices and thus drives outcomes. But it is never actually acted out over time, in the sense that we might refer to its operation in the real world. And the primacy of welfare-maximization, rather than rivalry, is precisely what allows various forms of “planning”—from Soviet central planning to the celebration of the large, monopolistic corporation in the Chicago School—to displace decentralized forms of decision-making, among some adherents of the framework.

  13. In this, he converged with at least one person usually put on the “planner” side of the New Deal: Gardiner Means. In his 1939 report on the “Structure of the American Economy,” Means spoke of “canalizing rules”—which channel economic activity and competition—as an essential element of economic structure. See National Resources Committee, The Structure of the American Economy (1939).

  14.  Walter A. Friedman, “John H. Patterson and the Sales Strategy of the National Cash Register Company, 1884 to 1922,” Business History Review 72, 570 (1998).

  15. Berk.

  16. Jason E. Taylor, Deconstructing the Monolith: The Microeconomics of the National Industrial Recovery Act 18 (2019).

  17. Beaudreau and Taylor (2018), earlier, 95.

  18. Rexford Tugwell, “The Principle of Planning and the Institution of Laissez Faire,” American Economic Review 22, 75 (1932): 76-77.

  19. Rexford G. Tugwell, “Notes on the Life and Work of Simon Nelson Patten,” Journal of Political Economy 31, 153 (1923).

  20. Id., 176.

  21. See E.K. Hunt, “Simon N. Patten’s Contributions to Economics,” Journal of Economic Issues 4, 38 (1970).

  22. On the latter point, see for instance William J. Novak’s extremely thorough study in The People’s Welfare: Law and Regulation in Nineteenth-Century America (1996).

  23. Martin Sklar, The Corporate Reconstruction of American Capitalism, 1890-1916 (1988): 57-59 (discussing Hadley and Conant), 61 (discussing Jenks). These men and their ideas dominated the turn of the century Industrial Commission, (Teddy) Roosevelt’s Bureau of Corporations, National Civic Foundation, and indeed the earlier Roosevelt administration generally. These were also the first actors to argue expressly for antitrust exemptions in order to manage and stabilize markets.

  24. Sklar 60-61; Gerald Berk, Louis D. Brandeis and Regulated Competition (Chapter 2).

  25. There is some inconsistency, or at least internal variety, in this form of explanation. Nevertheless, as Morton Horwitz explained, a growing chorus converged around “the inevitability of industrial concentration,” and “always represented some variation of [Henry Carter] Adams’s original insight about increasing returns to scale” (in Adams’s influential 1887 tract “The Relation of the State to Industrial Action”). Morton Horwitz, The Transformation of American Law 1870-1960: The Crisis of Legal Orthodoxy (1994). Actually, one of Adams’s original arguments was that firms in industries where costs decrease instead of increasing with scale would have more power, not less. He concluded that “where the law of increasing returns works with any degree of intensity, the principle of free competition is powerless to exercise a healthy regulating influence.” But the reason, for Adams, was that where such economies of scale obtain, there is little incentive for new entrants, given that incumbents will always be able to more cost-effectively expand operations. This is a little different from the argument about below-cost pricing. Though Adams himself advocated state control of industries characterized by this pattern, many other leading figures simply argued for countervailing market stabilization measures—permitting monopoly, most obviously—to rein in destructive competition. This became a major theme in pushing for relief from antitrust law in Teddy Roosevelt’s administration.

  26. Nebbia v. New York, 291 U.S. 502 (1934). All subsequent quotations in this section are to this decision, unless otherwise stated.

  27. As Nathan Tankus has pointed out to me, in The General Theory itself, this idea is expressed in terms of money’s higher “own rate of interest” relative to other assets.

  28. Nebbia, 291 U.S.

  29. Id.

  30. Id.

  31. Id. (invoking the report of the legislative committee). The Court then echoed this language later in its own reasoning, stating that “the normal law of supply and demand was insufficient to correct maladjustments detrimental to the community.”

  32. Id.

  33. Id.

  34. Fairmont Creamery v. Minnesota, 275 U.S. 70 (1927).

  35. Friedrich Hayek, “The Meaning of Competition,” in Individualism and Economic Order (1946) 360-61.

  36. Another is the very real way in which freedom of contract arguments were successfully deployed in favor of price-fixing contracts at common law (in the United States at various points in the nineteenth century, and in Britain for quite a bit longer).

  37. A.L.A. Schechter Poultry Corp. v. United States, 295 U.S. 495 (1935).

  38. Standard Oil (1911); Christopher R. Leslie, “Revisiting the Revisionist History of Standard Oil,” 85 Cal. L. Rev. 573 (2012).

  39. Herbert F. Taggart, Minimum prices under the NRA, University of Michigan Bureau of Business Research (1936).

  40. Ironically, Taggart’s own more basic skepticism about the price coordination experiment was at least loosely based in faith in a self-coordinating market to optimize welfare in various ways. This is interesting because his specific functional criticisms about the prohibitions on below-cost pricing all rely on the assumptions of that theory being systematically violated. This is not a reason to dismiss Taggart’s functional criticisms, and certainly not for anyone who isn’t similarly tied to a self-coordinating market ideal. But the tension is well worth grappling with, for anyone who is.

  41. Taggart also worried about incentivizing movement across industries for reasons having little do with production efficiency or relative demand, given the dramatic unevenness of inter-industry enforcement standards (which he argued was inevitable given the virtual impossibility of commensurable inter-industry cost measures). This concern seems somewhat overstated, in that it tends to assume far more perfect mobility than is likely in most cases.

  42. One obvious reason for this is that all the firms in a market typically also make other products, other than the one that defines that market.

  43. Id. at 226. Notably, however, even this standard would have prevented many of the more brazen instances of below-cost pricing known to the current era.

  44. 295 U.S. at 537.

  45. Sheldon Kimmel, “How and Why the Per Se Rule Against Price-Fixing Went Wrong,” Dept. of Justice-Antitrust Division Economic Analysis Group working paper (2006): 4.

  46. Branden Adams, “Coalminers and Coordination Rights,” LPE Blog (2021); Branden Adams, Dark dreary mines: bituminous coal in the United States, 1865-1900 (PhD Dissertation, Stanford University, Department of History).

  47. Appalachian Coals v. United States, 288 U.S. 344, 361-62 (1933).

  48. Id. at 362-63.

  49. Id. at 363.

  50. Id. at 372.

  51. Id.

  52. Id.

  53. Id. at 376.

  54. Id.

  55. Id. at 377.

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