No Free Lunch [ the Schechter brothers ]

In the 1930s, the Schechter brothers ran a chicken business in Brooklyn. The name Schechter is derived from the Yiddish word for "butcher," and this is what the brothers did: they slaughtered chickens and sold them to shops. The brothers seemed to be typical immigrants, at once struggling and succeeding. But in 1934, they became famous thanks to Schechter Poultry Corp. v. United States. Only months after Franklin Roosevelt had signed a code regulating the chicken business, the brothers were accused of violating it. Prosecutors said they had sold an unfit chicken, one with an egg lodged inside it, and had also tried to undercut their competitors' prices. It was the latter charge that cut to the core of the new law. With the Great Depression under way and deflation causing economic ruin, the Roosevelt administration had outlawed "destructive price cutting." The brothers were found guilty, given a harsh fine ($7,425) and sentenced to between one and three months in jail. They fought back, however, all the way to the Supreme Court, and they won. In a unanimous ruling the court found the code to be an unconstitutional expansion of federal authority. On the day of the ruling, Justice Louis Brandeis took aside one of Roosevelt's aides and told him, "This is the end of this business of centralization." The National Recovery Administration, the agency that had gone after the Schechters, soon dropped hundreds of similar cases and closed its doors. The story of the Schechters remains a powerful one, even if it did not mark the end of centralization. By outlawing chicken discounts, Roosevelt overreached, much as he later did in trying to pack the Supreme Court (motivated by decisions like Schechter). But beyond that, his economic meddling failed to accomplish his larger goal of ending the Depression.

Schechter Poultry Corp. v. United States

A.L.A. Schechter Poultry Corp. v. United States, 295 U.S. 495 (1935), was a decision by the Supreme Court of the United States that invalidated regulations of the poultry industry according to the nondelegation doctrine and as an invalid use of Congress’ power under the commerce clause. Notably, this was a unanimous decision that declared unconstitutional the National Industrial Recovery Act, a main component of President Roosevelt’s New Deal.

In retrospect, America had some serious problems during the Great Depression that need to be seen at the grand stage, because they are still with us. These are not often examined as such, but should be.

To begin with is American agribusiness. Most Americans cannot grasp its scope, which rivals that of the equally immense “military industrial complex”.

Before the Great Depression hit, much of central America was devastated by the Dust Bowl, a ruinous disaster that went all the way from Texas to Canada. Tens of thousands of farmers were wiped out, and driven from their lands. Yet even with this devastation and loss of farmland, America still had a crushing overabundance of food.

Those farmers not wiped out in the Dust Bowl still produced so much food that its price was rock bottom. Corn was so cheap it was burned for fuel. The pork market was so decentralized that most farms had at least some pigs if they could. Millions more that were needed.

At the same time, people were starving. So this was the first problem presented to FDR: reduce food production, and get food to starving people. In this, the free market had utterly failed.

This is why even today, American agribusiness is tightly controlled by the government. Mostly to prevent overproduction from crashing food prices, with food in stores wildly fluctuating in price.

Another product was the stock market crash and related dramatic deflation. Stock then was like virtual money today, in that there was and is far more than is supported by real money. As such, it is like gambling.

Then, as now, the government has allowed people to wager money they didn’t have, which works great until bets are called. And then as now, if the gamblers won, they got to keep their winnings, but if they lost, the taxpayers have to pick up the tab. See the problem?

As long as we keep up the pretense that gambled money is real money, our economy will be unstable. More than anything else, we have to stop the gamblers from gambling with money they don’t have. From making debts they can’t pay, and promises they can’t keep.

And it will take an economic collapse to remind everybody that nobody should spend more than they make.

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