Lecture 26 Part 2

Introduction to the Great Depression

  • Host: Russ Roberts of George Mason University and Stanford University's Hoover Institution.

  • Purpose: Presentation of the Great Depression.

  • Platform: Part of Econ Talk by the Library of Economics and Liberty.

  • Website: econtalk.org, provides subscription options, episode information, and contact details.

Guest Introduction

  • Guest: Amity Schlase, syndicated columnist for Bloomberg.

  • Discussion Topic: The National Recovery Administration (NRA).

Overview of the National Recovery Administration (NRA)

  • Importance of the NRA: The NRA's influence and scope were not widely known.

  • Tension between two ideologies:

    • Big business is viewed as efficient but potentially dangerous.

    • Government becomes conflicted regarding support for big businesses despite philosophical reservations.

  • Roosevelt's fluctuating stance: He oscillated between supporting big business and criticizing it.

The Philosophy Behind the NRA

  • Historical Context:

    • The NRA's conflicting elements emphasized efficiency through scale.

    • Belief that the economy was stagnant due to inefficiencies.

  • Objectives of the NRA:

    • Promote large businesses,

    • Support higher prices to combat deflation.

  • Misguided view of efficiency:

    • Advocated cooperative frameworks inspired by the Soviet model, where labor would participate in governance alongside business and government (e.g., early post-war Germany).

The Soviet Influence on the NRA

  • Inspiration from the Soviet Union:

    • Strong influence on New Deal thinkers despite their non-communist affiliations.

    • Perceived success of the Soviet centralized economy led many to believe in its viability in America.

  • CIA observations: For decades, the CIA affirmed the Soviet model, attributing high output and living standards to central planning.

  • Reality Check:

    • Post-revolutionary economic conditions were often misrepresented; poor living standards in the Soviet Union were acknowledged only after historical scrutiny.

Social and Economic Conditions in the 1930s

  • Contrast between American and Soviet economies:

    • Soviet Union portrayed as thriving amidst U.S. Great Depression.

    • The rise of central planning was viewed positively compared to perceived failures of capitalism in the U.S.

  • Recruitment of spies: Whitaker Chambers noted that many secular citizens in the U.S. were willing to spy for the USSR due to disillusionment with capitalism’s failures.

The Role of Poetry in Economic Commentary

  • Reference to Ogden Nash's poem about inefficiency in planned economies (e.g., cows producing less milk under regulation) highlighting the absurdities of central planning.

    • "Mumblebee, pumblebee, my red cow…"

Challenges Faced by Small Businesses

  • Bureaucratic hurdles of the NRA:

    • Features excessive rules across numerous industries.

  • Case Study: Schechter Poultry v. United States.

    • Conflicts faced by the Schechter family, kosher butchers, under NRA rules.

    • Struggles with compliance affecting their ability to maintain kosher practices while facing legal prosecution.

The Legal Battle of the Schechter Family

  • Circumstances:

    • Charges against them for selling at low prices and violating complex regulations.

    • Their fight against the federal government despite language barriers and educational disparities.

  • Economic Argument:

    • Defense based on market principles and consumer demand, challenging the government's economic understanding.

  • Impact of regulations on the middleman:

    • The NRA's disdain for middleman roles and consumer choice undermined market efficiency.

    • The ban on consumer choice in selecting chickens led to ineffective outcomes in markets, especially relevant in health contexts (e.g., selecting healthier chickens).

Cultural and Ethnic Considerations

  • Scrutiny of the middleman role:

    • Antisemitic undercurrents in attacking Jewish middlemen by depicting them as corrupt.

    • Contextual history of Jewish populations in Europe who often played roles as middlemen.

Supreme Court Decision and Its Significance

  • Verdict in favor of the Schechters: Supreme Court sided with the defendants against federal overreach, leading to reassessment of the NRA's legal standing.

  • Legal Foundations:

    • The case hinged on the Commerce Clause, restricting the federal government's jurisdiction over local commerce.

  • Reflections on Limited Government: Observations on the connection between constitutional limitations and economic freedom.

Conclusion of the Presentation

  • The Supreme Court's decision emphasized the foundational legal principles as a barrier against extensive government regulation of local markets.

  • Recap of core themes:

    • Disconnect between government economic intervention and real-world economic principles.

    • Acknowledgment of historical context surrounding regulation, small business, and consumer rights, affirming the significance of competition and market choice in economic theory.