Chapter 7

CHAPTER 7

NATIONAL INDUSTRIAL RECOVERY ACT CASE

A.L.A. Schechter Poultry Corporation et al. v. United States

295 U.S. 495 (1935)

When President Roosevelt took office on March 4, 1933 he and his advisers had no plans for major industrial reforms, but by June 16th of the same year the National Industrial Recovery Act was law. What had occurred in the intervening months? On April 6th the Senate had approved a thirty-hour week bill sponsored by Senator Hugo Black and this had goaded the Administration into doing something. Black's bill was not only inadequate and required replacement by a more suitable measure; Footnote1 it also convinced the administration of the need for more general legislative action on industrial matters. For the next two months there was feverish activity in the Administration. A number of different groups were organized to develop ideas and draft bills. There was a group under Frances Perkins, the Secretary of Labor; there was another chaired by Raymond Moley, Assistant Secretary of State, and Hugh Johnson; and there was a further one organized by John Dickinson, Under-Secretary of Commerce, which had links with Senator Robert Wagner who was contemplating an industrial reform measure. Inevitably these various groups provided different answers and indeed identified different problems and it was no minor achievement that by early May there were only two major drafts of an industrial reform bill, although there were striking differences between them. Roosevelt himself did not appear to mind which of the two drafts was finally adopted as long as there was agreement between all the participants. He suggested that they lock themselves in a room until they were in broad agreement. As Hugh Johnson recalled in his memoirs, "we met in Lew Douglas's office. Lew, Senator Wagner, John Dickinson, Mr. Richberg and myself." And they sat there until they had a mutually satisfactory draft. It was this draft that emerged as the National Industrial Recovery Act.

The National Industrial Recovery Act was the outgrowth of a belief by many that in order to save our capitalistic system there was need for a unified governmental control to limit unrestrained competition and lend direction and form to our national effort to create and distribute the things of life. This control had to be exerted by the Federal Government, because the states had shown their innate incapability to deal with such a problem.

The House of Representatives left the Administration's proposal untouched and although the Senate did give the bill a rough passage, the Act was in essence the same as the Administration's bill. The National Industrial Recovery Act had three titles. Titles II and III dealt with public works and Title I with the nation's industrial structure. It was Title I that took the course of controversy, both political and legal. Under this Title, the President had the authority to approve codes of behavior drawn up by trade or industrial groups, but in the event that there was no agreement within an industry over a code, the President was empowered to impose one. In Section 1, the Congress issued a declaration of principles which established certain general goals, such as the elimination of unfair practices and the reduction of unemployment, to guide the code makers, although in Section 7 which dealt with labor standards the Act did give more precise instructions as to how the codes should be formulated in this respect. These codes were exempt from the anti-trust laws. Apart from the codes, Title I gave the President the power to license industries if he established that destructive wage-and-price cutting practices were taking place. The Act also granted the President the authority to approve collective bargaining agreements between unions and business organizations and give these agreements legal effect. The President was additionally empowered to limit imports, and finally in Section 9, he was given the power to regulate pipeline companies and prohibit the shipment of 'hot oil.' In summary, Title I was a break with the past on two fronts. Firstly, it delegated an extraordinary grant of power to the executive branch. Secondly, it involved the Federal Government in an unprecedented manner in the nation's peace-time economy.

It was the Supreme Court's task in Schechter v. U.S. to decide whether the National Industrial Recovery Act was constitutional.

The decision to use Schechter as the test case for the constitutionality of the National Industrial Recovery Act was to a certain extent forced on the government. It had been assumed until April 1, 1935 that the fate of the Act would be decided in United States v. Belcher Footnote2 which involved the code promulgated for the lumber industry. However, the Justice Department discovered an error in the government's brief which had been submitted before a lower court and consequently the Solicitor General, Stanley Reed, felt obligated to request a dismissal of the case, which was granted. This was a misfortune for the government for the facts in Schechter were particularly unfavorable to its cause. Nevertheless the Administration decided to press ahead as it was becoming increasingly concerned with the popular view that was gaining in the newspaper:

There can be but one inference, from this extraordinary conduct, that the Justice Department felt sure that the NRA was in its fundamentals unconstitutional, and that the Supreme Court was about to hold so. Footnote3

In order to avoid any further charges of bad faith or cowardice, the Administration decided to use the 'sick chicken' case as a test for the National Industrial Recovery Act. And so A.L.A. Schechter Poultry Corporation et al. v. United States Footnote4 was argued before the Supreme Court in early May 1935.

On May 27, 1935, the Supreme Court in an unanimous decision decided that Title I of the National Industrial Recovery Act Footnote5 was unconstitutional in that it was an unlawful delegation to the President of legislative power and the control of wages and hours in New York poultry slaughter-houses was an attempted invasion of the field of intrastate commerce.

The case had arrived before the Supreme Court on a writ of certiorari. It was on the attempted enforcement of the code provisions of Section 1 that the Act came before the Court.

The Schechter brothers and the A.L.A. Schechter Poultry Corporation were convicted in the Federal Court for the Eastern District of New York on 18 counts of an indictment charging violations of the "Live Poultry Code," and on an additional count for conspiracy to commit such violations. The defendants were charged in part with violations of such trade practice provisions as "straight killing" by permitting selections of individual chickens taken from particular coops and half coops, the sale of sick chickens, failure to comply with poultry inspection ordinances of the city, failure to make proper reports, sales to dealers who were without licenses required by the city, failure to comply with minimum wage and maximum hour provisions, and conspiracy to do the same. The Circuit Court of Appeals sustained the conviction on the conspiracy count and on sixteen counts for violation of the Code, but reversed on two counts charging violation as to minimum wages and maximum hours of labor, on the ground that the latter were not within the regulatory power of Congress. On appeal to the Supreme Court the defendants contended (1) that the code had been adopted pursuant to an unconstitutional delegation of legislative power; (2) that it attempted to regulate intrastate transactions which lay outside the power of Congress; (3) that in certain provisions it was repugnant to the "due process" clause of the Fourteenth Amendment.

The Supreme Court reversed the judgment so far as the Code had been upheld, and affirmed so far as the Code had been held invalid by the Circuit Court of Appeals. The opinion of the Court, was written by Chief Justice Hughes. Mr. Justice Cardozo delivered a concurring opinion, in which Mr. Justice Stone joined.

The facts in Schechter were that a code, the "Live Poultry Code," had been approved in an executive order by President Roosevelt on April 13, 1934, Footnote6 pursuant to authority conferred on him by Section 3 of Title I of the National Industrial Recovery Act. The Act authorized the President to approve "codes of fair competition" on application of one or more trade or industrial associations or groups, if the President finds (1) that they "impose no inequitable restrictions on membership therein and are truly representative," and (2) that such codes are not designed to promote monopolies or to eliminate or oppress small enterprises and will not operate to discriminate against them, and will tend to effectuate the policy of Title I. As a condition of approval, the President may "impose such conditions (including requirements for the making of reports and the keeping of accounts) for the protection of consumers, competitors, employees, and others, and in furtherance of the public interest, and may provide such exceptions to and exemptions from the provisions of such code as the President in his discretion deems necessary to effectuate the policy herein declared." Violation of any provision of a code "in any transaction in or affecting interstate or foreign commerce" was made a misdemeanor punishable by a fine of not more than $500 for each offense, and each day of continued violation is to be deemed a separate offense.

The "Live Poultry Code" established a code of fair competition and had eight articles which were applicable to the live poultry industry of the metropolitan area in and about New York City. These articles were entitled: (1) purposes, (2) definitions, (3) hours, (4) wages, (5) general labor provisions, (6) administration, (7) trade practice provisions, and (8) general.

The "industry" was defined to include "every person engaged in the business of selling, purchasing for resale, transporting, or handling and for slaughtering live poultry, from the time such poultry come into the New York metropolitan area to the time it is first sold in slaughtered form," and such "related branches" as may be included by amendment.

The Code fixed the number of hours for workdays. It provided that no employee, with certain exceptions, shall be permitted to work in excess of 40 hours of week, and that no employee, save as stated, shall be paid in any pay period less than at the rate of 50 cents per hour. The labor provisions prohibit employment of any one under 16 years of age, and declared that employees shall have the right of "collective bargaining," and freedom of choice as to labor organizations, in the terms of Section 7(a) of the Act. The minimum number of employees, who would be employed by slaughter-house operators, was fixed, the number being graduated according to the average volume of weekly sales.

In dealing with the questions raised as to the constitutional validity of the Code, Chief Justice Hughes first considered the Government's contention as to the appropriate approach to the important questions presented. As to this the opinion states:

"We are told that the provisions of the statute authorizing the adoption of codes must be viewed in the light of the grave national crisis with which Congress was confronted. Undoubtedly, the conditions to which power is addressed are always to be considered when the exercise of power is challenged. Extraordinary conditions may call for extraordinary remedies. But the argument necessarily stops short of an attempt to justify action which lies outside the sphere of constitutional authority. Extraordinary conditions do not create or enlarge constitutional power. The Constitution established a national government with powers deemed to be adequate, as they have proved to be both in war and peace, but these powers of the national government are limited by the constitutional grants. Those who act under these grants are not at liberty to transcend the imposed limits because they believe that more or different power is necessary. Such assertions of extra-constitutional authority were anticipated and precluded by the explicit terms of the Tenth Amendment, - 'The powers not delegated to the United Stated by the Constitution, nor prohibited by it to the States, are reserved to the States respectively, or to the people.'" Footnote7

Consideration was given also to the point that the national crisis demanded a broad and intensive cooperative effort in industry, which was to be fostered by permitting the initiation of codes. But this was answered by pointing out that the codes are not merely the embodiment of voluntary cooperation, but have the force of law, binding on all belonging to the industry affected:

"The codes of fair competition which the statute attempts to authorize are codes of laws. If valid, they place all persons within their reach under the obligation of positive law, binding equally those who assent and those who do not assent. Violations of the provisions of the codes are punishable as crimes." Footnote8

The Court then addressed itself directly to the contention of the defendants that the codes were adopted pursuant to an unconstitutional delegation of legislative power. Discussing this principle, and referring to the recent decision in the Panama Company case, the Chief Justice states:

"We recently had occasion to review the pertinent decisions and the general principles which govern the determination of this question. Panama Refining Company v. Ryan, 293 U.S. 388. The Constitution provides that 'All legislative powers herein granted shall be vested in a Congress of the United States, which shall consist of a Senate and House of Representatives.' Art. I, Sec. 1. And the Congress is authorized 'To make all laws which shall be necessary and proper for carrying into execution' its general powers. Art. I, Sec. 8, par. 18. The Congress is not permitted to abdicate or to transfer to others the essential legislative functions with which it is thus vested. We have repeatedly recognized the necessity of adapting legislation to complex conditions involving a host of details with which, the national legislature cannot deal directly. We pointed out in the Panama Company case that the Constitution has never been regarded as denying to Congress the necessary resources of flexibility and practicality, which will enable it to perform its function in laying down policies and establishing standards, while leaving to selected instrumentalities the making of subordinate rules within prescribed limits and the determination of facts to which the policy as declared by the legislature is to apply. But we said that the constant recognition of the necessity and validity of such provisions, and the wide range of administrative authority which has been developed by means of them, cannot be allowed to obscure the limitations of the authority to delegate, if our constitutional system is to be maintained. Id., p. 421.

"Accordingly, we look to the statute to see whether Congress has overstepped these limitations, - whether Congress in authorizing 'codes of fair competition' has itself established the standards of legal obligation, thus performing its essential legislative function, or, by the failure to enact such standards, has attempted to transfer that function to others." Footnote9

In searching the statute for the requisite standards, the term "fair competition" was scrutinized, to determine whether it refers to a category established in law, or is a convenient designation for whatever set of laws the formulators of a code and the President may prescribe as wise for the accomplishment of the board purposes of rehabilitation, correction and expansion referred to in Section 1 of Title I. It was pointed out in this connection that the Act did not define "unfair competition," and that although that is a limited concept defined in the law, nevertheless, "fair competition" cannot be regarded as antithetical to the "unfair methods of competition" condemned by the Federal Trade Commission Act. "The 'fair competition' of the codes had a much broader range and a new significance."

Furthermore, it was pointed out, that even if the establishment of codes is for the purpose of effectuating the general purpose of Section 1, including the elimination of "unfair methods of competition," and although that term is defined by law, it remains, however, only one of many objectives which the codes were intended to accomplish. Consequently, it was not accepted as a sufficient standard. With reference to this contention, the Court added:

"We think the conclusion is inescapable that the authority sought to be conferred by Section 3 was not merely to deal with "unfair competitive practices" which offend against existing law, and could be the subject of judicial condemnation without further legislation, or to create administrative machinery for the application of established principles of law to particular instances of violation. Rather, the purpose is clearly discloses to authorize new and controlling prohibitions through codes of laws which would embrace what the formulators would propose, and what the President would approve, or prescribe, as wise and beneficent measures for the government of trades and industries in order to bring about the general declaration of policy in section one. Codes of laws of this sort are styled 'codes of fair competition.'" Footnote10

The Government argued that the Codes would "consist of rules of competition deemed fair for each industry by representative members of that industry - by the persons most vitally concerned and most familiar with its problems." Instances were cited of cases in which Congress has availed itself of such assistance, as in the exercise of authority over the public domain, with respect to the recognition of local customs or rules of miners as to mining claims. This contention was answered with the following comment by the Chief Justice:

"But 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? And, could an effort of that sort be made valid by such a preface of generalities as to permissible aims as we find in Section 1 of Title I? The answer is obvious. Such a delegation of legislative power is unknown to our law and is utterly inconsistent with the constitutional prerogatives and duties of Congress." Footnote11

The Act was then examined to determine what limits were set to the exercise of the President's discretion. It was noted first that the Act required a finding that the groups proposing a code "impose no inequitable restrictions on admission to membership," and are "truly representative." These requirements, however, relate to the status of those initiating a code, and not to the scope of its provisions. The provisions against monopolies and monopolistic practices were also mentioned. "But," said the Court, "these restrictions leave virtually untouched the field of policy envisaged by section one, and, in that wide field of legislative possibilities, the proponents of a code, refraining from monopolistic designs, may roam at will and the President may approve or disapprove their proposals as he may see fit."

After referring to the findings which the President must make in approving a code, and observing that he may add his own conditions "in his discretion," the Court said:

"Such a sweeping delegation of legislative power finds no support in the decisions upon which the Government especially relies. By the Interstate Commerce Act, Congress has itself provided a code of laws regulating the activities of the common carriers subject to the Act, in order to assure the performance of their services upon just and reasonable terms, with adequate facilities and without unjust discrimination. Congress from time to time has elaborated its requirements, as needs have been disclosed. To facilitate the application of the standards prescribed by the Act, Congress has provided an expert body. That administrative agency, in dealing with particular cases, is required to act upon notice and hearing, and its orders must be supported by findings of fact which in turn are sustained by evidence. When the Commission is authorized to issue, for the construction, extension or abandonment of lines, a certificate of "public convenience and necessity," or to permit the acquisition by one carrier of the control of another, if that is found to be 'in the public interest,' we have pointed out that these provisions are not left without standards to guide determination. The authority conferred has direct relation to the standards prescribed for the service of common carriers and can be exercised only upon findings, based upon evidence, with respect to particular conditions of transportation." Footnote12

The powers delegated to the Federal Radio Commission and the "flexible tariff" provision of the Act of 1922 were both referred to and distinguished.

Concluding his discussion of this aspect of the case, the Chief Justice said:

"To summarize and conclude upon this point: Section 3 of the Recovery Act is without precedent. It supplies no standards for any trade, industry or activity. It does not undertake to prescribe rules of conduct to be applied to particular states of fact determined by appropriate administrative procedure. Instead of prescribing rules of conduct, it authorizes the making of codes to prescribe them. For that legislative undertaking, Section 3 sets up no standards, aside from the statement of the general aims of rehabilitation, correction and expansion described in section one. In view of the scope of that broad declaration, and of the nature of the few restrictions that are imposed, the discretion of the President in approving or prescribing codes, and thus enacting laws for the government of trade and industry throughout the country, is virtually unfettered. We think that the code-making authority thus conferred is an unconstitutional delegation of legislative power." Footnote13

Attention was then turned to the question whether the transactions in question were in interstate commerce. As to this, it was emphasized that the fact that almost all of the poultry coming into New York was sent from other states did not make the character of the defendant's transactions interstate commerce.

"Defendants held that poultry at their slaughterhouse markets for slaughter and local sale to retail dealers and butchers who in turn sold directly to consumers. Neither the slaughtering nor the sales by defendants were transactions in interstate commerce.

"The undisputed facts thus afford no warrant for the argument that the poultry handled by defendants at their slaughterhouse markets was in a 'current' or 'flow' of interstate commerce and was thus subject to congressional regulation. The mere fact that there may be a constant flow of commodities into a State does not mean that the flow continues after the property has arrived as has become commingled with the mass of property within the State and is there held solely for local disposition and use. So far as the poultry here in question is concerned, the flow in interstate commerce has ceased. The poultry had come to a permanent rest within the State. It was not held, used, or sold by defendants in relation to any further transactions in interstate commerce and was not destined for transportation to other States. Hence, decisions which deal with a stream of interstate commerce - where goods come to rest within a State temporarily and are later to go forward in interstate commerce - and with the regulations of transactions involved in that practical continuity of movement, are not applicable here." Footnote14

Next was considered the question whether the transactions "directly affect" interstate commerce so as to be subject to federal regulation, and it was observed that:

"The power of Congress extends not only to the regulation of transactions which are part of interstate commerce, but to the protection of that commerce from injury. It matters not that the injury may be due to the conduct of those engaged in intrastate operations." Footnote15

It was noted also that combinations in restraint of interstate commerce, or to monopolize any part of it, are within the reach of the federal Anti-Trust Act, although the parties seek to attain their end by means of intrastate activities. Local 167 v. United States, 291 U.S. 293, was cited as an illustration of this principle, where the subject of the conspiracy was the live poultry business in New York City. There it appeared that various classes of persons in the business had conspired to burden the free movement of live poultry in the area in and around New York City. Marketmen had organized an Association, had allocated retailers among themselves and had agreed to increase prices. To accomplish their purposes levies were made on poultrymen, men were employed to obstruct the business of dealers who resisted, wholesalers and retailers were spied upon, and by violence and intimidation were prevented from freely purchasing live poultry. The intrastate acts of the conspirators were enjoined to give effective protection to interstate commerce. Distinguishing that case, Chief Justice Hughes said:

"The instant case is not of that sort. This is not a prosecution for a conspiracy to restrain or monopolize interstate commerce in violation of the Anti-Trust Act. Defendants have been convicted, not upon direct charges of injury to interstate commerce or of interference with persons engaged in that commerce, but of violations of certain provisions of the Live Poultry Code and of conspiracy to commit these violations. Interstate commerce is brought in only upon the charge that violations of these provisions-as to hours and wages of employees and local sales- 'affected' interstate commerce.

"In determining how far the federal government may go in controlling intrastate transactions upon the ground that they "affect" interstate commerce, there is a necessary and well-established distinction between direct and indirect effects. The precise line can be drawn only as individual cases arise, but the distinction is clear in principle. Direct effects are illustrated by the railroad cases we have cited, as e.g., the effect of failure to use prescribed safety appliances on railroads which are the highways of both interstate and intrastate commerce, injury to an employee engaged in interstate transportation by the negligence of an employee engaged in an intrastate movement, the fixing of rates for intrastate transportation which unjustly discriminate against interstate commerce. But where the effect on intrastate transactions upon interstate commerce is merely indirect, such transactions remain within the domain of state power. If the commerce clause were construed to reach all enterprises and transactions which could be said to have an indirect effect upon interstate commerce, the federal authority would embrace practically all the activities of the people and the authority of the State over its domestic concerns would exist only by sufferance of the federal government." Footnote16

Other cases under the Anti-Trust Act were also cited as marking the distinction between direct and indirect effects on interstate commerce.

"The distinction between direct and indirect effects has been clearly recognized in the application of the Anti-Trust Act. Where a combination or conspiracy is formed, with the intent to restrain interstate commerce or to monopolize any part of it, the violation of the statute is clear. Coronado Coal Company v. United Mine Workers, 268 U.S. 295, 310. But where that intent is absent, and the objectives are limited to intrastate activities, the fact that there may be an indirect effect upon interstate commerce does not subject the parties to the federal statute, notwithstanding its broad provisions. This principle has frequently been applied in litigation growing out of labor disputes." Footnote17

Particular stress was placed on the fact that the wages and hours of those employed in the slaughter-house markets had no direct relation to interstate commerce. With respect to this the opinion states:

"The question of chief importance relates to the provisions of the Code as to the hours and wages of those employed in defendants' slaughterhouse markets. It is plain that these requirements are imposed in order to govern the details of defendants' management of their local business. The persons employed in slaughtering and selling in local trade are not employed in interstate commerce. Their hours and wages have no direct relation to interstate commerce. The question of how many hours these employees should work and what they should be paid differs in no essential respect from similar questions in other local businesses which handle commodities brought into a State and there dealt in as a part of its internal commerce. This appears from an examination of the conditions in the poultry trade. Thus, the Government argues that hours and wages affect prices; that slaughterhouse men sell at a small margin above operating costs; that labor represents 50 to 60 per cent of these costs; that a slaughterhouse operator paying lower wages or reducing his cost by exacting long hours of work, translates his savings into lower prices; that this results in demands for cheaper grade of goods; and that the cutting of prices brings about a demoralization of the price structure. Similar conditions may be adduced in relation to other businesses. The argument of the Government proves too much. If the federal government may determine the wages and hours of employees in the internal commerce of a State, because of their relation to cost and prices and their indirect effect upon interstate commerce, it would seem that a similar control might be exerted over other elements of cost, also affecting prices, such as the number of employees, rents, advertising, methods of doing business, etc. All the processes of production and distribution that enter into cost could likewise be controlled. If the cost of doing business is in itself the permitted object of federal control, the extent of the regulation of cost would be a question of discretion and not of power." Footnote18

In conclusion, the Court emphasized the limits of its province when it stated:

"It is not the province of the Court to consider the economic advantages or disadvantages of such a centralized system. It is sufficient to say that the Federal Constitution does not provide for it. Our growth and development have called for wide use of the commerce power over the federal government in its control over the expanded activities of interstate commerce, and in protecting that commerce from burdens, interferences, and conspiracies to restrain and monopolize it. But the authority of the federal government may not be pushed to such an extreme as to destroy the distinction, which the commerce clause itself establishes, between commerce 'among the several States' and the internal concerns of a State. The same answer must be made to the contention that is based upon the serious economic situation which led to the passage of the Recovery Act, - the fall in prices, the decline in wages and employment, and the curtailment of the market for commodities. Stress is laid upon the great importance of maintaining wage distributions which would provide the necessary stimulus in starting 'the cumulative forces making for expanding commercial activity.' Without in any way disparaging this motive, it is enough to say that the recuperative efforts of the federal government must be made in a manner consistent with the authority granted by the Constitution.

"We are of the opinion that the attempt through the provisions of the Code to fix the hours and wages of employees of defendants in their intrastate business was not a valid exercise of federal power.

"On both the grounds we have discussed, the attempted delegation of legislative power, and the attempted regulation of intrastate transactions which affect interstate commerce, only indirectly, we hold the code provisions here in question to be invalid and that the judgment of conviction must be reversed." Footnote19

Mr. Justice Cardozo, in his concurring opinion, also discussed separately the two principal questions, the delegation of legislative power, and the scope of federal regulatory power over commerce.

Agreeing that the delegation of power was without adequate standards, he said:

"The delegated power of legislation which has found expression in this code is not canalized within banks that keep it from overflowing. It is unconfined and vagrant, if I may borrow my own words in an earlier opinion.

"Here, in this case before us, is an attempted delegation not confined to any single act nor to any class or group of acts identified or described by reference to a standard. Here in effect is a roving commission to inquire into evils and upon discovery correct them.

"I have said that there is no standard, definite or even approximate, to which legislation must conform. Let me make my meaning more precise. If codes of fair competition are codes eliminating 'unfair' methods of competition ascertained upon inquiry to prevail in one industry or another, there is no unlawful delegation of legislative functions when the President is directed to inquire into such practices and denounce them when discovered. For many years like power has been committed to the Federal Trade Commission with the approval of this court in a long series of decisions. Delegation in such circumstances is born of the necessities of the occasion. The industries of the country are too many and diverse to make it possible for Congress, in respect of matters such as these, to legislate directly with adequate appreciation of varying conditions. Nor is the substance of the power changed because the President may act at the instance of trade or industrial associations having special knowledge of the facts. Their function is strictly advisory; it is the imprunctur of the President that begets the quality of law. When the task that is set before one is that of cleaning house, it is prudent as well as usual to take counsel of the dwellers.

"But there is another conception of codes of fair competition, their significance and function, which leads to very different consequences, though it is one that is struggling now for recognition and acceptance. By this other conception a code is not to be restricted to the elimination of business practices that would be characterized by general acceptation as oppressive or unfair. It is to include whatever ordinances may be desirable or helpful for the well-being or prosperity of the industry affected. In that view, the function of its adoption is not merely negative, but positive; the planning of improvements as well as the extirpation of abuses. What is fair, as thus conceived, is not something to be contrasted with what is unfair or fraudulent or tricky. The extension becomes as wide as the field of industrial regulation. If that conception shall prevail, anything that Congress may do within the limits of the commerce clause for the betterment of business may be done by the President upon the recommendation of a trade association by calling it a code. This is delegation running riot. No such plenitude of power is susceptible of transfer. The statute, however, aims at nothing less, as one can learn both from its terms and from the administrative practice under it. Nothing less is aimed at by the code now submitted to our scrutiny." Footnote20

Mr. Justice Cardozo also expressed the opinion that there was no grant of power to Congress to regulate the wages and hours of labor in the intrastate transactions that made up the defendants' business. This objection to the code he termed "far-reaching and incurable." Dealing with this aspect, he said, in part:

"As to this feature of the case little can be added to the opinion of the Court. There is a view of causation that would obliterate the distinction between what is national and what is local in the activities of commerce. Motion at the outer rim is communicated perceptibly, though minutely, to recording instruments at the center. A society such as ours 'is an elastic medium which transmits all tremors through its territory; the only question is of their size.' The law is not indifferent to considerations of degree. Activities local in their immediacy do not become interstate and national because of distant repercussions. What is near and what is distant may at times be uncertain. There is no penumbra of uncertainty obscuring judgment here. To find immediacy or directness here is to find it almost everywhere. If centripetal forces are to be isolated to the exclusion of the forces that oppose and counteract them, there will be an end to our federal system." Footnote21

WHAT WAS ROOSEVELT'S AND THE CONGRESSIONAL REACTION TO THE SCHECHTER DECISION?

On May 31, 1935, three days after the Supreme Court invalidated the National Industrial Recovery Act, Roosevelt held a White House press conference, to address his concern over the Court's refusal to allow the government to regulate nation-wide economic and social conditions in the United States. At this press conference Roosevelt stated the Schechter decision raised grave doubts as to the constitutionality of the Agricultural Adjustment Act, the Securities and Exchange Act, as well as the pending Social Security Bill.

Roosevelt termed serious the Supreme Court's expressed view on the delegation of Congressional powers to the Executive, but said the greatest question revolved around its interpretation of governmental powers over interstate commerce. Those powers, he emphasized, constituted the only weapon in the government's hands to fight conditions not even dreamed about 150 years ago.

Turning again and again to the implications of the decision, which quoted a previous decision designating building construction, manufacturing, mining and the growing of crops as local occupations, Roosevelt drew the deduction that not only business recovery efforts, but social security, including unemployment insurance and pending labor legislation, had been jeopardized by the Schechter decision.

When asked if he had a plan, Roosevelt declined to answer, but stated if the Constitution made his Federal program for regulating economic conditions impossible, the Constitution must be changed.

Roosevelt pleaded for public understanding of this dilemma of the government, which, he said, had attempted to cope with an economic problem only to have its action thrown back in its face because this was the only national government on earth that did not have clear authority to deal with such national situations.

Taking from his desk a sheaf of some twenty telegrams, Roosevelt said that he had been greatly impressed by the pathetic appeals addressed to him from all sections of the country, asking him to do something.

These were selected from 2,000 or 3,000 telegrams and letters which Roosevelt stated he himself had read, and these he interpreted as sincere in showing the people's faith in their government and an equally sincere feeling that in the long run something new must be done.

Roosevelt said he considered the decision more important than any laid down in the lifetimes of those present. He compared the Schechter decision with the Dred Scott decision, Footnote22 an important factor in the events that precipitated the Civil War. Footnote23

The decision on the National Industrial Recovery Act, Roosevelt added, might be deplored or otherwise considered, but he stated emphatically that if it resulted in future decisions carrying out the implications contained therein, without change in viewpoint or procedure, the government would be stripped of all authority in behalf of human welfare.

Roosevelt then picked up a copy of the text of the Schechter decision, and proceeded to analyze it part by part.

He briefed the first part of the decision by saying that it simply stated the facts of the case, and the contention that the chickens sold by the Schechter company ceased to figure in interstate commerce once they had been delivered to a Brooklyn warehouse.

At its next point, Roosevelt went on, the decision took up the question of the code governing this industry, pointing out that the code was the result of an act of Congress, passed in a great emergency, which sought to improve conditions immediately through the establishment of fair trade practices.

Roosevelt began emphasizing the points in the decision when he reached the statement to the effect that, even though an emergency existed, this made no difference because the law authorizing the code did not set forth in detail definitions covering the broad plan of the NRA.

Roosevelt emphasized also the Court's finding that the act was unconstitutional because it delegated powers that should have been written into the act by Congress itself.

The most important phrase of the decision, said Roosevelt, was that relating to interstate commerce and the dictum that the government could not deal with any problem not directly interstate commerce.

The Supreme Court, Roosevelt said, had gone back to the Knight case, Footnote24 which in 1895 set forth a thesis which in effect limited federal control over interstate commerce to goods in transit, with only a few minor exceptions.

Roosevelt told the gathered news reporters Congress was of the opinion, when it enacted the National Industrial Recovery Act, that interstate commerce and control over such commerce, invested in the government by the interstate commerce clause of the Constitution, applied not only to actual shipments of goods but to many things that affected commerce.

The whole tendency over many years, Roosevelt stated, had been to view the interstate commerce clause in light of present day civilization, although it was written into the Constitution in the horse-and-buggy days of the eighteenth century.

There was hardly any interstate commerce in that period, Roosevelt pointed out, and virtually all communities were self-supporting to a degree impossible in modern civilization. All that the government feared was the possible growth of discrimination between States.

The clause was written in a day when there was no problem relating to unemployment, no wage problem as in the current differential between textile mills operating in New England and those in the South; when no social questions disturbed the United States and when care of public health on a national basis had never even been thought about, let alone discussed.

Ethics too, were different in the early post-revolution days, Roosevelt observed, saying that if one man could skin another in a business deal it was perfectly all right.

However, the intervening 150 years had developed a completely different philosophy and practice in which the prospects of the farmer in the West directly affected the business of the manufacturer in Pittsburgh. The whole country had become completely interdependent.

Roosevelt declared that the country was facing a great national nonpartisan issue; that over the next five years or ten years it must decide whether it would relegate to the States control over national economic conditions and over social and working conditions, regardless of whether those conditions had a definite bearing on conditions outside of the different States.

The other side of the picture was whether we should restore to the government the right, held by all other national governments in the world, to legislate and administer laws having bearing on and control over national economic problems.

That was the biggest question ever faced by this country, outside of war itself, Roosevelt declared.

It was common knowledge to Roosevelt and to several key members in Congress that the Schechter decision jeopardized the passage of the Social Security Bill pending in the Senate at the time of Roosevelt's press conference. Those bent on seeing the passage of the bill felt that unless a major redraft of the social security legislation occurred, it would be likely that the legislation if enacted into law, would be found unconstitutional by the Supreme Court, if the right challenges were presented. Roosevelt's social legislation must conform to the interstate commerce clause of the constitution, since Congress had no power to regulate directly activities which are intrastate in nature. Several groups outside the government who supported the Social Security Bill also recognized the danger of an adverse court decision, if the legislation was not redrafted to conform to the standards set down by the Supreme Court in the Schechter case. One group The American Association for Social Security, declared on June 1, 1935, that unless the Social Security measure was altered considerably in its unemployment insurance and old age contributory insurance provisions to meet objections of unconstitutionality, it was in danger of being nullified.

Many in Congress also expressed their anger with the Supreme Court and its decision in Schechter. Representative O'Connor, Democrat, of New York, said:

"The course is for Congress to enact a law extending the NRA for interstate business and to authorize States to make compacts on regulation of business within State borders."

Other Democratic members of Congress suggested a constitutional amendment in order to validate Roosevelt's New Deal legislation. Republicans were inclined to believe that the only concrete implication in Roosevelt's discussion of the NRA decision was that he might favor an amendment of the Constitution. Some Republicans said that they would gladly accept the issue and fight for keeping the Constitution as it is.

Representative Bacon, a member of the Republican Congressional Committee, said:

"If the Democrats, as was intimated by the President today, wish to write the New Deal legislation into the Constitution through a constitutional amendment, I feel sure that the Republican party will accept the issue.

"I am strongly convinced that the President is wrong if he feels he can get his plan adopted through a constitutional amendment.

"I think the real issue for the people to decide is whether it is not time to stop the New Deal and not whether we should set up a dictator to carry out the program decided as contrary to law."

Mr. Shouse, in speaking for the Liberty League, proposed that the issues related by Roosevelt be brought immediately before the country. In his statement he said:

"In his very remarkable statement to newspaper men today the President has renounced entirely the theory of States' rights to which the Democratic party is traditionally committed and takes the view that all economic and social problems should be controlled by the Federal Government, regardless of the clear limitations of the Constitution. Otherwise, according to the President, we are relegated 'to the horse and buggy days.'

"Thus there is presented a clear issue. On the one side those who believe in the Constitution, who believe in orderly government, who believe in American institutions, who believe that the nine members of the Supreme Court who unanimously rendered their decision performed courageously and patriotically the clear duty assigned them.

"On the other side, a President who condemns that decision which upset one of his pet plans to assume unwarranted power and who would seek to abolish our dual form of government and the system of checks and balances between the legislative, executive and judicial branches.

"The President says that the American people must make an important decision. But it is not one that can wait, as he suggests, for five or ten years. It should be made at the earliest opportunity."

Former Governor Joseph B. Ely of Massachusetts declared that a constitutional amendment was necessary if New Deal policies were to be carried out and that such an amendment would "spell the doom of American representative government." Speaking at a quarterly meeting of the New England council he said:

"No American statesman of any earlier age, would for one moment undertake to transform the whole theory of this government in any other way than by submitting to the people this question of fundamental change. If the New Deal policies are to be supported and sustained, Mr. Roosevelt must ask a constitutional amendment. Not otherwise can Federal domination of business and agriculture be placed in the hands of the executive authority.

"It is too apparent to be controversial that such an amendment to the Constitution furnishes the self perpetuating power of a monarch and a dictator and in the course of events spells the doom of American representative government."

The Supreme Court decision emasculating the NRA ended the last hope of economic reforms in the United States without revolutionary changes in the basic law of the land, Dean Howard Lee McBain of Columbia University said in an address before the conference on Canadian-American affairs at the St. Lawrence University on June 22, 1935.

Dean McBain intimated that only a constitutional amendment could validate the reform aspects of the New Deal. As a means of winning support for such an amendment, he said, it would be shrewd strategy for President Roosevelt to drive through Congress as many bills of "doubtful constitutionality" as possible and "hasten these laws to an early judicial decision."

"The more toes that are trod upon by the firm but gentle feet of the Supreme Court," said the authority on constitutional law, "the larger will be the number of those who will be prepared for constitutional amendment."

Dean McBain conveyed the impression that he believed the reform phases of the New Deal were plainly unconstitutional. Without saying so directly, he intimated that he thought the Wagner-Connery Labor Disputes Bill was as vulnerable as the National Industrial Recovery Act and that the Agricultural Adjustment Act and the Securities Control Commission could be toppled over by any one who cared to make a legal assault upon them.

Under the present Constitution, in view of the Supreme Court's interpretation of interstate commerce, Dean McBain said, the Federal government was powerless to regulate capitalism. To look to the several States to do this, he said was futile. At the same time, he asserted it was "arrant nonsense" to confuse the issue with that of States' rights.

"The real issue," he asserted, "is an issue of national power versus the power of relatively unrestricted capitalism."

In the discussion that followed the delivery of Dean McBain's formal paper, Professor S. F. Bemis of Yale suggested an amendment to the Constitution to nullify the Tenth Amendment and give the Federal Government the power without which, the Columbia professor held, the New Deal was powerless.

"Suppose," asked Professor Bemis, "that we had an amendment to the Constitution reading roughly that the Tenth Amendment is hereby repealed and all powers not specifically reserved to the States shall reside in the Federal Government?"

Dean McBain indicated that he would regard this as an effective means of meeting the problem but he expressed doubt that such a repealer would be adopted by the people. The Tenth Amendment to the Constitution, which would be nullified if Professor Bemis's idea was adopted, reads:

The powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States respectively, or to the people.

Georgia Governor Eugene Talmadge in a message celebrating the 4th of July, termed the Roosevelt administration policies "pure communism" and predicted that the "real Americans" will rise up in the polls in 1936 against "bureaucratic control."

"The government can't give you anything," Talmadge said. "The government can't support the people. The people have to support the government. The government can and is robbing Peter to pay Paul."

Asserting that Washington bureaus by assuming the functions of State government are dragging the Constitution in the dust, Governor Talmadge said:

"When the time ever comes for us to placidly obey the orders of seventy-two bureaucracies in Washington that override the Constitution of the United States, we forfeit our rights to be a free and independent American citizens.

"When the time ever comes for the sovereignties of the several States of this Union to be ignored and forgotten, then this Union is ready for dissolution.

"Get back to the Constitution. The Supreme Court of the United States is our greatest friend -our greatest protector."

Perhaps the best statement which typified the attitude felt by those who were disciples of the Roosevelt vision, came from Democratic Senator Pope of Idaho. Senator Pope criticizing the Supreme Court and the Constitution declared:

"The public welfare is first. If the Constitution gets in the way it must yield. If the Supreme Court gets in the way, it must yield."

The battle lines were drawn, Roosevelt was not going to let the Supreme Court or any other court stand in his way. Three options were opened to him. First, convince the courts to see the errors of their ways; second, Change the makeup of the courts; third, change the Constitution. Roosevelt knew that if he could get the majority of the people on his side this battle would be swift and glorious.

Footnote1

See Chapter 11

Footnote2

300 Ct.Cl 400.

Footnote3

New York Herald Tribune, April 3, 1935.

Footnote4

295 U.S. 495 (1235).

Footnote5

Act of June 16, 1933, c. 90, 48 Stat. 195, 196.

Footnote6

U.S. Statutes at Large