Posted: October 20th, 2022

THE RECOVERY of the American economy from the Great Depression finally began in the late summer of 1935. As the months passed the pace of recovery seemed to quicken, and more and more Americans began to hope that their country was returning to a more normal state. Although the Supreme Court had dealt a severe blow to the hopes of administration planners, other advisers were urging Roosevelt to change his tactics to break up big business and the concentration of wealth. As the president listened more closely to these advisers, a second New Deal took shape. By the beginning of 1937 there was a growing sense of optimism in the administration that the corner had been turned. All the indexes showed that the recovery was strengthening. Stock prices were finally rising, and unemployment appeared to be falling. With additional tax revenues from the new taxes that had been enacted and from the rising level of business activity, Roosevelt contemplated spending reductions in order to balance the federal budget. The world, indeed, seemed almost rosy at the start of 1937. In response to the Schecter decision, Roosevelt reduced the NRA to a minor bureau to collect statistics. He expected business activity to decline with the cessation of the NRA and for business then to call for a new NRA. What happened was the opposite. By August it was clear that business activity was increasing, not slowing, and it continued to rise and unemployment to fall until May 1937. The long-awaited recovery was finally occurring without the benefit of the NRA.

Released from the shackles of the NRA, American producers and consumers
combined to initiate a real recovery. Between August 1935 and May 1937 factory
employment in 25 manufacturing industries increased 24.4 percent. The
unemployment rate in July 1935 was 2 1.3 percent, little changed from the rate of
23.3 percent in July 1933. It changed little between July and October 1935 but then
began to fall. In the 14 months between October 1935 and December 1936 the
unemployment rate fell from 2 1.9 percent to 15.3 percent. By May 1937 it had
fallen to 12.3 percent. Production increased more rapidly. Nondurable
manufacturing production rose 24.8 percent in the 19 months between May 1935
and December 1936 and increased another 2.4 percent by May 1937. Durable
manufacturing production increased even faster, rising 49.3 percent in the 19
months between May 1935 and December 1936 and then increasing another 5.9
percent by May 1937. Stock prices also rose as the Standard and Poor s 500
industrial stock price index rose from 86 in May 1935 to 138 in May 1937.
Although Roosevelt could have been expected to be happy about these
developments, that was not the case. The president was angry about growing
criticism of his programs from business. And he was further outraged by the series
of Supreme Court decisions that went against his New Deal. In January 1935 the
Court had ruled against the NRAs oil industry rules. In May, j ust before the
Schecter ruling, the Railroad Retirement Act had been ruled unconstitutional. As
the case considering Roosevelts abrogation of gold clauses in contracts came to
the Court, he proposed to Secretary of the Treasury Morgenthau that the Treasury
take steps to throw the government bond market and the foreign exchange market
into turmoil. He hoped this might affect public opinion and the j udiciary and result
in a favorable ruling or a political setting more favorable to federal actions to
control the Supreme Court. With advice from Harvard law professor Felix
Frankfurter, Roosevelt began considering a constitutional amendment broadening
the power of the federal government as a way around the Court.

The result was to heighten the influence of those among his advisers who were
calling for an attack on the concentration of wealth and on big business. They were
protgs of Frankfurter.

Frankfurter and Supreme Court Justice Louis Brandeis held similar views on the
importance of small independent businesses and the federal governments role in
restoring and maintaining this idyllic vision. Even before the invalidation of the
NRA, Roosevelt had been influenced by the Brandeis/ Frankfurter anti-trusters.
Several of Frankfurter s studentsBenj amin Cohen, Thomas Corcoran, and James
Landishad been instrumental in writing the new securities and banking laws.
Generally these aimed at reducing the concentration of power by mandating the full
disclosure of information, outlawing many securities market practices, separating
investment and commercial banking, and controlling the power of the New York
Federal Reserve Bank (and therefore of the New York commercial banks) on
Federal Reserve decisions. Now sensing a greater opening, the anti-trusters pushed
harder on an agenda designed to restore a competitive society of small independent
businesses. The attack on wealth was under way.

One of the leaders of this group was Robert Jackson, a successful upstate New
York lawyer, who was brought in to revitalize the Justice Departments anti-trust
division. In 1938, Roosevelt appointed him solicitor general, and in 194 1 he was
named to the Supreme Court. When Jackson left the antitrust division, Roosevelt
named Yale Law School professor Thurman Arnold to head the division and further
expand anti-trust investigations. William O. Douglas was brought from the Yale
Law School to the Securities and Exchange Commission and eventually became its
chairman. Leon Henderson had j oined the NRA as the consumer representative and
had been a vocal opponent of the monopolization by big business that he saw there. He later j oined the Securities and Exchange Commission and headed the Office of
Price Administration during World War II.

In mid- 1935, Roosevelt proposed a tax bill that increased inheritance and gift
taxes and the progressivity of personal income taxes on higher-income taxpayers.
This was the so-called soak-the-rich tax bill. It also proposed a graduated scale of
corporate income taxes. All of these were designed to reduce the concentration of
wealth. The tax increases would have tended to decrease spending and slow the
recovery. Congress provided some offsetting stimulus when in 1935 it passed a bill
to provide additional early payments of World War I veterans bonuses. Roosevelt
promptly vetoed the bill. Similar to what had happened to Hoover s 1931 veto of a
comparable bill, Congress overrode Roosevelts veto. As a result, federal spending
increased by $1.4 billion in 1936 because of the early bonus payments. This action
tended to provide some stimulus to economic activity. But the Treasury had to
borrow funds in the capital markets in order to make these payments, and this
reduction of funds available for private investment reduced economic activity and
probably offset any stimulus provided by the bonus money.

Another measurethe Wheeler-Rayburn billwas intended as a death sentence
for public utility holding companies because of its requirement that, unless the
companies could prove that they were essential to the generation and distribution of
electricity, they be dissolved in five years. The final bill moved less aggressively
on this point but did provide greater federal control over the financial activities of
public utilities and greater regulatory control over utility rates. The Banking Act of
1935 also caused a furor. It reorganized the Federal Reserve System to give clear
control to the Board of Governors in Washington, D.C., and reduced federal
government influence by removing the comptroller of the currency and the secretary
of treasury from the governing board. But economists, bankers, and the American
Banking Association were outraged by Title II of the proposed bill. This section
gave the president the right to name and remove the chairman and vice chairman of
the Board of Governorsand was perceived as a clear attempt to put the Federal
Reserve System directly under the presidents control. The public outcry was so
intense that the section was dropped from the final bill.

The Frankfurter-Brandeis ideal of reducing the power of big business in order to
promote small independent businesses was also seen in two bills regulating retail
trade. The Miller-Tydings Act, or the fair trade act, exempted resale price-
maintenance contracts from the anti-trust laws. This allowed manufacturers to
require that retailers charge retail prices set by the manufacturers. It was expected
that this would reduce price-cutting and allow small retailers to compete with
larger retailers and chain stores. The Robinson-Patman Act, or anti-chain-store act,
stipulated that manufacturers could not price discriminate in favor of larger buyers.
In this way it intended to save thousands of small, independent retailers from
succumbing to the competition of large chain stores with their massive buyingpower.

The 1936 tax on undistributed corporate profits was another important initiative
of the anti-trusters. They believed that by retaining some corporate profits and using
these to finance internal investments, corporate managers were made less directly
answerable to stockholders and were freed from competing for funds from external
lenders, thus furthering the concentration of wealth and power. By forcing firms to
disburse all undistributed corporate profits and stopping firms from retaining
profits in the future, the wealthy (who owned most of the corporate stock) would
have to pay relatively large income taxes on the additional income and all firms
would then have to enter the capital markets to obtain expansion funds. This
leveling of the playing field would reduce the disadvantages that smaller firms
faced. The measure, as finally passed, was bitterly opposed and criticized by
nearly all business groups and by most Republicans.

Finally, the anti-trusters argued that the anti-trust laws needed to be revived and
applied after their suppression during the NRA. In 1937 Robert Jackson, the new
head of the anti-trust division, initiated several maj or cases. These included the
Madison Oil cases, to address complaints of independent j obbers that maj or oil
companies conspired to rig oil prices; the Alcoa case, charging Alcoa with
monopolizing aluminum ingot production; the case charging the automobile
manufacturers financing arms with monopolizing automobile financing; and the
Ethyl gasoline case, charging the Ethyl Corporation with a misuse of patents to
stabilize gasoline prices. In 1938, when Jackson was appointed solicitor general,
Thurman Arnolds appointment to head the anti-trust division was something of a
surprise: Arnold had written a biting satire on government anti-trust policy,
suggesting there was little chance of ever breaking up large business organizations.
But upon his appointment he insisted that, given sufficient money and manpower,
the anti-trust division could begin breaking up large businesses and restoring
competition in the economy. Arnold inherited the cases that Jackson had started and
initiated a number of new cases in order to make the antitrust laws more effective.
The counterpart to the attack on big business was the building of an expanded
welfare state. The centerpiece of this effort was the Social Security Act of 1935.
The bill had three parts. One section established unemployment insurance funded
by the federal government but administered by the states. It was to be financed by a
tax levied on employers. A second part established old-age insurance (what is now
called Social Security) so that the elderly would have some income when they
stopped working because of retirement or disability. This was funded by a
compulsory tax levied equally on employer and employee. The third part of the act
aimed to provide funds for the aged, the crippled and blind, and dependent mothers
and their children. The federal government would allocate matching funds to the
states for these welfare expenditures.

The Social Security tax had an unintended side effect: as the tax was phased in
between 1936 and 1938, it tended to reduce consumers and businesses purchasing
power, and thus economic activity. But because no one was eligible to begin
collecting Social Security payments, there was no offsetting increase in purchasing
power. The resulting decrease in net spending was a force working to contract
economic activity.
As early as 1934, Senator Robert Wagner had concluded that section 7a of the
NRA was not working and had written a new act to strengthen labor unions by
creating a National Labor Relations Board with enforcement j udicial powers.
Roosevelt did not support it in 1934, but the next year he did. The Wagner Act,
which is often called labor s Magna Carta, was passed in the summer of 1935.
Several other bills also proposed to aid labor. In 1936 the Walsh-Healey Act
required firms doing business with the federal government to observe the old NRA
wage and labor provisions. The 1938 Fair Labor Standards Act abolished child
labor, mandated a minimum wage in covered industries, and called for the payment
of overtime wages for work in excess of forty hours a week. It included provisions
to adj ust the minimum wage over time.

Despite the passage of the Wagner Act, the AFL continued to be reluctant to
recruit workers in unorganized industries for fear that multitudes of less-skilled
workers would overwhelm the organization. They were also unsure how to
organize workers who did not fit into existing skill classifications. In November
1935, John L. Lewis led several unions that were more industrial in structure (that
is, they included all the workers in an industry, whatever their skills) to form a
Committee for Industrial Organization to begin taking advantage of the new labor
law. The AFL strenuously opposed this move because it was forbidden dual
unionism (creating an organization that could rival the authority of the AFL), and
in November 1937 it expelled the unions in the CIO. The CIO unions then formed
the rival Congress of Industrial Organizations. Meanwhile, in late 1936 the CIO
finally moved to begin organizing under the Wagner Act. Financed largely by the
United Mine Workers (UMW), the Amalgamated Clothing Workers Union (ACWU),
and the International Ladies Garment Workers Union (ILGWU), the CIO began
organizing drives in a number of industries. In 1937, after the use of sit-down
strikes, the CIO organized all the automobile producers except Ford, which
successfully fought unionization until 194 1. In the steel industry, United States Steel
and most small steel producers were organized, but Little Steelthe six next-
largest firms of Bethlehem, Republic, Youngstown Sheet and Tube, Inland,
National, and ARMCOrefused to sign. Ford and Little Steel managed to stave off
unionization by granting the same hours and wages as the unionized firms and by
using a combination of propaganda, public relations, and force. Successful
organizing drives in 1937 also occurred among dockworkers, rubber firms,
electrical manufacturers, agricultural implement manufacturers, construction
equipment manufacturers, textile firms, and sawmills.
Most of the surviving planners who had been involved with the NRA moved into
the Department of Agriculture and scaled back their agenda. They continued to
believe in centralized, nationwide planning but no longer had much say in industrial
policy. They were limited to agriculture and piecemeal legislation in a few selected
industries. After the adverse Supreme Court decision, the Agricultural Adj ustment
Act was replaced by the Soil Conservation and Domestic Allotment Act. Although
ostensibly aimed at conserving soil and other natural resources, it was essentially
the AAA without the processing tax. In early 1938 the Soil Conservation Act was
updated into the second Agricultural Adj ustment Act. The second AAA included
Agriculture Secretary Henry Wallaces concept of an ever-normal granary to
smooth out the year-to-year carryover of agricultural surpluses through flexible
price supports.

The Guffey-Snyder Act of August 1935 brought planning to the bituminous coal
industry, but early the next year the Supreme Court invalidated it. The Guffey-
Vinson act, passed in early 1937, replaced it and installed price floors, marketing
agreements, and coal classifications. When NRA control over the crude oil industry
ended, the Federal Bureau of Mines began to provide a regular flow of information
on prices and production of crude oil to state agencies. These agencies then began
to allocate crude oil production within the industry to control overall production.
The planners were also able to make inroads into transportation by placing
interstate pipelines, interstate trucking, and interstate airline travel under federal
regulation and control.
The presidential campaign of 1936 almost became class warfare. Roosevelts
acceptance speech for the nomination of his party, written by Thomas Corcoran,
was widely regarded as essentially a formal declaration of war against the free
enterprise system. Roosevelt charged that economic royalists were attempting to
regain the power they had held until the depression and at every step were now
blocking the needed reforms he proposed.

The strategy behind the presidents campaign was to gain the support of
progressives and former socialists, workers, farmers, and blacks where they could
vote. Thus his tactics included attacks on big business, organized money, the forces
of selfishness, and the desire for power. Roosevelts campaign tended to be
divisive and to inspire fear. The Democratic candidates for president in 1924 and
1928, John W. Davis and Al Smith, both deserted Roosevelt and supported the
Republican candidate, the Kansan Alf Landon, because of the thrust of FDRs
campaign. Roosevelts first director of the budget, Lewis Douglas, also came out in
support of Landon.

The president took further steps to improve his reelection chances. Because the
WPA was running short of funds, he directed that additional funding be made
available so that thousands of people were not thrown off WPA payrolls on
October 1, 1936. He directed Secretary of Agriculture Wallace to do whatever was
necessary to ensure that cotton prices did not fall below twelve cents per pound.
Soil Conservation checks were sent to farmers shortly before election day.

Alf Landon was the weak candidate of a disorganized Republican party.
Roosevelts divisive campaign effectively brought out many voters. The result was
a huge victory for Roosevelt in the 1936 election. In his 1937 State of the Union
address, the president hinted at a resurrection of the NRA. Shortly after that he
unveiled his plan to pack the Supreme Court by appointing an additional j ustice
for each j ustice who was seventy years old and had served for at least ten years but
did not choose to retire. The proposal was clearly designed to allow Roosevelt to
load the Court with appointees favorable to his legislation, and was widely
denounced. In June the Senate Judiciary Committee reported out the bill with a
recommendation so negative that no attempt was made to resurrect it. The battle
over Roosevelts court-packing bill consumed an entire congressional session and
split the Democratic party. It cost the president some of his support and helped
destroy his aura of invincibility.
By early 1937 naysayers were pointing to a few nagging worries. Current prices
were showing signs of faster increase by late 1936 and early 1937. Both Leon
Henderson, who had moved from the NRA to the Securities and Exchange
Commission, and Federal Reserve Board Chairman Marriner Eccles sent memos to
Roosevelt expressing their concerns that monopolistic firms were excessively
raising prices and wages. Henderson thought that, if not checked, the price
increases could bring on a recession by the end of the year. In April 1937,
Roosevelt agreed that some prices were unj ustifiably high. He singled out several
industries and implied that monopolistic practices lay behind some of the price
increases. Wage rates had also begun to rise at a more rapid rate. A number of firms
had surprised the administration by using some of their undistributed corporate
profits to pay bonuses and raise wage rates for employees as well as to pay
additional dividends to stockholders instead of paying as much in the new
undistributed corporate profits taxes. An explosion of labor strife in 1937 brought
strikes for union recognition as well as higher wages, shorter hours, and other
benefits.

By mid- 1937 the economy had stopped expanding. The New York Herald-
Tribune index of business activity began declining in early 1937, and by April its
index showed that all of 1936s gains had disappeared. The Federal Reserve
Boards index of industrial production showed that economic activity peaked in
May 1937 and declined slowly through September. Most profit reports for the
second quarter showed disappointing results and were expected to be worse in the
third quarter. The Standard and Poor s index of industrial stock prices began falling
after March 1937 and was down 20 percent by September. On October 18 the stock
market crashed almost as severely as in 1929. Between August 1937 and April
1938 the Standard and Poor s index fell nearly 52 percent. For comparison, over
the period of September 1929 to May 1930 the index fell about 25 percent.

As the depression gathered momentum, industrial production plummeted. From
September 1937 to June 1938 durable manufacturing production fell more than 66
percent while nondurable manufacturing production fell almost 15 percent. Over
the course of the entire contraction from May 1937 to May 1938, durable
manufacturing production declined 67 percent. This extraordinarily rapid
contraction was more severe than over comparable periods in the 1920 192 1
depression or the 1929 1930 phase of the Great Depression. The stock market
collapse between August and December 1937 matched the severity of the
production decline; stock prices fell 4 1.5 percent between August and December,
and fell another 10 percent by the time they reached bottom in April 1938. The
unemployment rate rose from 12.3 percent in May 1937 to 20.1 percent in May
1938. Another estimate found that the number of unemployed workers rose from 5.1
million in August and September 1937 to 10.8 million in May 1938. Prices alsostopped rising. The Consumer Price Index declined by 1.9 percent between 1937
and 1938 and by another 1.4 percent between 1938 and 1939, even though the
economy began to recover after May 1938. Wholesale prices fell almost 9.5
percent between 1937 and 1938. Although wholesale prices had fallen at the same
rate between 1929 and 1930, consumer prices now fell at a slower rate than before.

The contraction cast a pall over the entire Roosevelt program. In the spring of
1937 many observers had argued that a contraction was remote because the
economy was still so far from full employment. Most did not expect a depression
within a depression, and certainly no one expected the ferocious decline that
occurred. But the new depression brought the economy back to where it had been in
1934 and shook everyones confidence in the economy and the New Deal.
Roosevelt and his advisers already knew whom to blame for the depression of
1937 1938. Leon Henderson and Marriner Eccles had suggested that excessive
price increases by monopolies could bring on a recession, and they now believed
that events had j ustified their concerns. In 1938, Roosevelt charged that monopolies
had brought on the new depression and called for a commission to study the growth
and nature of monopoly power in the United States. The Temporary National
Economic Commission was established and began commissioning various studies
of monopolies and their power. The full set of studies did not appear until 194 1,
when other events overshadowed the concern about the growth of monopoly power.

But the new depression was not brought on by monopoly businesses arbitrarily
increasing prices. There were, in fact, two different primary sources that were
j ointly responsible for this contraction: the actions of the Federal Reserve System,
and the rapid rise in wage rates and labor costs during the great unionization drives
in early 1937.

In mid- 1929 the nations banks had held $7.50 in reserves for each $100 in
deposits. By July 1936 they held $18.48 in reserves for each $100 in deposits.
Bank reserves were almost double what the law required. In addition, banks had
invested a much larger portion of their deposits in very safe but extremely low-
yield short-term securities. Three-month government bills had a rate of return of .14
percent in 1935, ninety-day stock exchange loans an interest rate of .55 percent,
long-term U.S. bonds a yield of 2.79 percent, high-grade municipal bonds a yield of
3.40 percent, and short-term bank loans to businesses in large cities an average
interest rate of 2.90 percent. Bank investments in securities had risen from 23.9
percent of liabilities in 1929 to 40.3 percent of liabilities in 1935.

Federal Reserve officials were concerned by the large buildup of banks excess
reserves following the end of the contraction. They reasoned that the accumulation
of excess reserves was chiefly due to a lack of demand for business loans, as
evidenced by low interest rates and a rise in bank investments as compared with
bank loans. If business loan demand recovered, the Fed reasoned, the large excess
reserves would allow banks quickly to increase their lending and, in the process,
the money supply would also quickly expand. A rapid expansion of the money
supply would result in inflation. And Federal Reserve officials were not about to
allow price inflation in the American economy.

The Banking Act of 1935 had given the Federal Reserve System new authority to
double reserve requirements. After studies that showed the excess reserves were
widely distributed geographically and across all sizes of member banks, the
Federal Reserve began to raise reserve requirements. They were confident that this
would do nothing except eliminate excess reserves and thereby remove a potentialsource of future inflation. Between August 16, 1936, and May 1, 1937, in three
steps, the reserve requirements for central reserve city banks in New York City and
Chicago were doubled, from 13 percent to 26 percent; the reserve requirement for
reserve city banks was doubled, from 10 to 20 percent; and the reserve requirement
for country banks was doubled, from 7 to 14 percent. The largest part of these
increases occurred on August 16.

If Federal Reserve officials had been correct, the only noticeable effect should
have been a decrease in banks excess reserves. Excess reserves did initially
decline, but, contrary to Fed expectations, by mid- 1937 they began to rise again,
and by mid- 1938 excess reserves had generally been restored to levels that
preceded the increases in reserve requirements. If banks wanted the excess
reserves, perhaps as a buffer against unexpected depositor demands, banks would
try to restore the excess reserves that the Fed had so carefully wiped out. To do so
they would have held fewer bonds and short-term securities, and reduced lending.
Reduced demand for bonds would cause bond prices to falland, indeed, bond
prices began falling by the end of 1936 and fell into the second quarter of 1937.
Interest rates on treasury bills began rising by the fall of 1936 and continued to rise
into the second quarter of 1937, and prime commercial paper rates rose sharply on
March 1, 1937. From December 1936 to December 1937, the money supply fell 5.7
percent. The powerful contractionary policy initiated by the Fed with its increase in
reserve requirements reduced the money supply and helped bring on the 1937 1938
depression.

The second maj or source of the new depression was a sharp rise in labor costs
from the end of 1936 through the first half of 1937. This was the result of the new
Social Security taxes that employers had to pay, the new tax on undistributed
corporate profits, and the rise in unionization. The new Social Security taxes began
to be collected in 1936 and 1937. For firms with employees subj ect to this tax,
labor costs increased because of the employer s share of the tax. At the end of
1936, many firms reacted to the new undistributed corporate profits tax by paying
bonuses, raising wage rates, and increasing dividends. The excess profits tax also
led businesses to begin reducing their investment spending, and this independently
helped bring on the depression. For twenty-five manufacturing industries for which
data is available, average money wage rates had risen very slowly, from 60 cents
per hour in June 1935 to 61.9 cents per hour in October 1936. In November 1936
this average wage rate rose to 62.4 cents and then to 63.9 cents in December 1936
an annual rate of increase of 19 percent over those two monthsand fell slightly
in January 1937.

The second factor in the wage rate increases were the unionization drives of
1937. After the successful sit-down strike forced General Motors to recognize the
United Automobile Workers (UAW) as a bargaining agent and sign a contract on
February 10, 1937, wage rates were immediately raised by five cents an hour, theworkweek was limited to five eight-hour days, and work in excess of forty hours a
week was to be paid time and a half. The automobile manufacturers Hudson,
Packard, and Studebaker, and the component suppliers Briggs Body, Murray Body,
Motor Products, TimkenDetroit Axle, and many others quickly followed with
contracts very similar to GMs. On April 6, Chrysler signed on terms identical to
GM. Ford refused to recognize the UAW but raised its wage rate to the GM level as
well as adopting the forty-hour workweek and overtime pay rate.

In the steel industry the key was United States Steel, the industrys largest firm.
U.S. Steel employed 50 percent more workers than the next three largest steel firms
combined. The steel industry had enj oyed a significant recovery after mid- 1935 and
appeared to be ready for organizing drives. In 1936 the Steel Workers Organizing
Committee, SWOC, began contacting employees at U.S. Steel. As its members took
over offices in the company unions, these unions at U.S. Steel and other steel firms
became more and more independent and adversarial. Responding in November
1936, firms in the steel industry increased their wage rates from 47 cents an hour to
52.5 cents an hour (an increase of 11.7 percent). In January and February, John L.
Lewis and Myron Taylor of U.S. Steel entered into negotiations and on March 2,
U.S. Steel recognized the union that became the United Steel Workers (USW). Wage
rates were increased to 62.5 cents an houra 19 percent increasethe workweek
was set at eight hours a day for a five-day week, and time and a half was to be paid
for overtime work. By May 1, similar contracts had been signed with 110 other
smaller steel firms. The next six largest steel firms, Little Steel (Bethlehem,
Republic, Youngstown Sheet and Tube, Inland, National, and American Rolling
Mill), refused to bargain with the SWOC but raised their wage rates to U.S. Steel
levels and offered the same hour and overtime provisions. Between October 1936
and May 1937 wage rates in the steel industry had increased from 47 cents to 62.5
cents an houran increase of 33 percent from the October wage rate.

Other large industries also were unionized in 1937. John Deere, International
Harvester, Caterpillar, and other firms in the agricultural and construction
machinery industry recognized the UAW. Goodyear, Goodrich, and other rubber
firms were organized in April 1937, and Westinghouse, General Electric, and other
electrical manufacturers somewhat later. In all these industries, wage rates
immediately increased with the signing of a union contract.

The result was an upward surge in wage rates in durable manufacturing
industries in the first part of 1937. Average wage rates for 25 manufacturing
industries increased from 63.8 cents in January 1937 to 71.1 cents in July 1937an
increase of 11.4 percent from the January base. By July 1937 this average wage
rate had risen 14.9 percent from the October 1936 rate of 61.9 cents an hour. The
increase in the wage rate understates the increase in labor costs because the
restriction of the workweek to five eight-hour days with time and a half for
overtime, and the initial implementation of union work rules, further increased labor costs. Wages in these durable manufacturing industries increased sharply with
no increases in demand for what the firms produced and no increases in labor
productivity. Firms faced a dilemma: if they raised prices, sales would fall, and
production and employment would decline; if they did not raise prices, their profits
would decline. Most firms began reducing employment and production.

At the same time labor cost increases were hitting these manufacturing firms, the
Federal Reserves restrictive monetary policy began to take effect. As banks began
to restore excess reserves, lending fell, interest rates rose, and aggregate demand
began to fallespecially for the durable business and consumer goods these
manufacturing firms produced. With falling demand, it was no longer an issue of
raising pricesin some cases prices were reduced as production and employment
began to fall. By the fall of 1937 the profits of manufacturing firms had fallen
sharply and were expected to fall even furtherand the stock market crashed. The
result was the severe but relatively short depression between May 1937 and May
1938.

Order | Check Discount

Tags: AI Plagiarism free essay writing tool, Australian best tutors, best trans tutors, buy essay uk, cheap dissertation writer