When The Supreme Court Stopped FDR’s Economic Fascism in America

by | Nov 24, 2015 | History

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.

There was a time when the Supreme Court of the United States defended and upheld the constitutional protections for economic liberty in America. This year marks the 80th anniversary of one of the Supreme Court’s finest hours, when it overturned Franklin Roosevelt’s agenda for economic fascism in the United States.

The trend towards bigger and ever-more-intrusive government, unfortunately, was not stopped, but the case nonetheless was a significant event that at that time prevented the institutionalizing of a Mussolini-type fascist economic system in America.

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.

Roosevelt’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.

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 Roosevelt’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 coins and bullion to the government for paper money under the threat of confiscation and imprisonment.

Roosevelt takes executive control.

In his inaugural address in March 1933, Roosevelt said that he considered his election as a mandate from the American people for “direct, vigorous action. They have asked for discipline and direction under leadership. They have made me their present instrument of their wishes. In the spirit of the gift I take it.”

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 Roosevelt 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

Taken all together, Roosevelt said that the “spirit of my program” represented a “New Deal” for America, involving “a changed concept of the duty and responsibility of government toward economic life.” He said that as part of this, “business must think less of its own profit and more of the national function it performs.” And the suppression of private interests to a common interest would “make possible the approach to a national economic policy which will have as its central feature the fitting of production programs to the actual probabilities of consumption” as considered appropriate by the new government planners.

Government spending and programs run wild.

During the next four years, Franklin Roosevelt’s New Deal implemented all of those proposals. Between 1933 and 1936, federal government increased by 83 percent. To cover this massive increase in government spending, Roosevelt’s administration ran huge budget deficits.

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.

An alphabet of government planning programs

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 an amount 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 
the political “art” produced in Stalin’s Russia and 
Hitler’s Germany.

Industrial fascism comes to America.

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 more than 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 store was “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 prices lower than those mandated under NRA central planning.

Propaganda campaigns for government planning

Propaganda rallies in support of the NRA were held across the country. During halftime 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 Ginger Rogers sang “We’re in the Money” in the movie Gold Diggers of 1933, praising (prematurely) the end of the Depression.

Ending the march into economic fascism

The Supreme Court brought this headlong march into economic fascism to a halt in 1935. The catalyst was a legal case known as Schechter Poultry Corp. v. 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. Moreover, the justices stated that the NRA’s power to impose codes constituted arbitrary and discretionary control was inconsistent with the limited and enumerated powers delegated by the Constitution.

That 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.

“Nine Old Men” or “Nine Wise Men”?

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.” His 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 his 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 of U.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 to government to “do something” during an economic crisis.

Roosevelt 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.

As a result, in spite of that landmark decision 80 years ago against the imposition of economic fascism in America, the U.S. government has continued to grow in power over the American people. But it should be remembered that men of courage, integrity, and principle can stand up to Big Brother and resist the headlong march into economic tyranny.

That unanimous Supreme Court decision in 1935 was one bright example of it.

Dr. Richard M. Ebeling is the recently appointed BB&T Distinguished Professor of Ethics and Free Enterprise Leadership at The Citadel. He was formerly professor of Economics at Northwood University, president of The Foundation for Economic Education (2003–2008), was the Ludwig von Mises Professor of Economics at Hillsdale College (1988–2003) in Hillsdale, Michigan, and served as vice president of academic affairs for The Future of Freedom Foundation (1989–2003).

The views expressed above represent those of the author and do not necessarily represent the views of the editors and publishers of Capitalism Magazine. Capitalism Magazine sometimes publishes articles we disagree with because we think the article provides information, or a contrasting point of view, that may be of value to our readers.

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