Blogs > Liberty and Power > Follow up on the Schechters

Dec 3, 2008 11:28 am

Follow up on the Schechters

My entry on the Schechter Brothers from Monday generated a little bit of discussion elsewhere in the blogosphere, including at Reason and Volokh.  But the most interesting commentary was by historian Eric Rauchway, who saw my piece after it was linked by Jonathan Dresner at the December History Carnival.

Rauchway perceives me, rightly, as a New Deal critic and he is on a mission to combat what he sees as wrong-headed criticisms of the New Deal.  So in addition to taking me to task for my use of"fascist" to describe the NRA (which only echoes FDR's and other's explicit statements that they borrowed from the Italians - one might also consult Luigi Villari's"The Economics of Fascism" for a description of the Italian system and see the similarities for oneself), he presents some additional context to the Schechters' story that he seems to think undermines my argument.  The context comes from the historian Andrew Cohen's discussion of the Schechter case.  You can read the whole thing there, but the gist seems to be this:

The Schechters were not a small immigrant business, but rather a very successful corporation.  Moreover, they gained that success by out-competing (hence the points I raised in my original post) their unionized rivals by keeping prices lower due to lower labor costs.  This infuriated the unions, who responded at first by targeting the Schechters with violence: "The tough guys who ran these organizations tried to bully the Schechters into submission, on one occasion putting emery powder in the crankcase of their trucks."  Cohen then points out that when the NRA was created, it was the union leadership who was empowered to write the codes and they used that power to, presumably, get back at the non-union firms in the various industries, including the Schechters and poultry.  Cohen then reads the Supreme Court's rejection of the NRA not as a matter of such regulation in general being unconstitutional, but rather that it was being driven by the wrong people: " It’s not just the power the state possessed, but who wielded it."

I'm not enough of a constitutional scholar to say for sure, but I'm pretty confident that the decision was not decided quite so ideologically, after all as Ilya Somin points out, all nine justices signed on, including the very liberal Brandeis, to the claim that Congress had execeeded its ability to delegate power under Article I.  And nowhere in the actual Supreme Court decision are the issues Cohen raised ever mentioned.  (But of course historians with their own axes to grind can always find their own ideological views about anti-labor hatred lurking in the background if they search hard enough.) 

Bottom line, perhaps the Schechters weren't quite the small immigrant businessmen Shlaes and I portrayed them as.  But that doesn't change the underlying points at all:  they were targeted for specific reasons, including the fact that their observation of Kashrut and their skill as businessmen ran them, pun intended, afoul of the NRA, specifically the union organizers who helped write the codes.  The fact that they survived attempted union violence and they became targets of those very same unions only enhances the main point of the story, and, in my eyes anyway, their heroism.

It also puts a new twist on the complaints of them competing too hard and paying wages less than NRA code:  both of these were pissing off the union bosses in the rest of the industry.  Giving those unions the power to help write the codes (in good fascist worker-corporation cooperative fashion, I might add) gave them an opportunity to even the score.  Cohen and Rauchway perceive this as rough justice being served and thereby making the Schechters into the villians of the piece.  That's a value/ideological judgment on their part and to suggest my history is sloppy and ideological because I see it the opposite way is more than a bit ironic. 

Those who live in glass chicken coops....

UPDATE: According to a commenter at the Volokh Conspiracy: "A member of the Schechter family has told me that shortly after the ruling Schechter Poultry went bankrupt. The family claims that the Jews of New York found out that the Schechters has run afoul of their beloved President Roosevelt and therefore stopped giving their business to the company."  I have no idea if this is true, but if so, it only adds to the strange relationship between Jewish Americans and FDR.

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William J. Stepp - 12/5/2008


Surely you must know that defending the economic record of labor unions is like throwing red meat to a dog.
I note you didn't defend their record during the New Deal, writing instead that unemployment ranged from 4 to 7% during the 1950s, a decade when unions membership peaked at around 30% (the year Ike first set foot in the presidential golf cart, I think).
But unemployment might well have been lower during that time with a free labor market, like 3%.
If unions are so great, why have they steadily declined in membership since then, except in the "public sector"?
Could it be because in an increasingly globalized world, they are become less competitive and therefore less relevant to workers' welfare?

Andrew W. Cohen - 12/5/2008

Mark-- A legitimate point, though 1) the Klan defies left-right distinctions, 2) Klansmen in states like TX, IN, WV, TN, and NY voted GOP in 1928, 3)Klan-affiliated Democrats (Bilbo, Rankin) began opposing Roosevelt by 1940 and became extremely economically conservative as well.

William-- Too much to discuss here, but I'll just say: 1) I'd love to participate in any discussion of my book and I appreciate the proposal, and 2) organized labor did not raise unemployment significantly during the post-war period. In the 1950s, when around 30% of workers belonged to unions, the US unemployment rate hovered around 4% and only rose as high as 7% briefly in 1959.

Perhaps this was a historical fluke, but it helps explain why Jews remain dedicated to FDR today. They benefited significantly from the combination of post-war industrial boom and New Deal labor policies.

William J. Stepp - 12/4/2008

How did Jewish workers benefit from Franklin's labor policy? Labor unions cause unemployment to the extent they drive wages above market clearing levels. Those who were fortunate enough to be employed in union jobs might have benefited, but certainly those who were unemployed thanks in part to those policies were worse off.
Many Jews were employed in the New Deal bureaucracy, famously including many Jewish lawyers, who helped shape those policies. Hence the slur "Jew Deal."
A point Andrew Cohen overlooks I think is that, then as now, small business owners numbered disproportionately more Jews (like the Schlechters). If he thinks the New Deal benefited them, then to quote a famous tennis player, "you can't be serious."
(While there were more white collar workers by the 1980s, Jews were still disproportionately overrepresented among the ranks of small business owners.)

As for Social Security, some people like it. Some people don't. Guess which side libertarians are on?

Why was it necessary to fight Nazi Germany? They lost the Battle of Britain, so in what sense was Germany a threat to America, especially after their military miscue of invading Russia?
Some German strategists reminded Hitler of what happened to Napoleon when he did it.

Btw, since the blogosphere is alive with all things New Deal, and since Marginal Revolution is having an online shindig on Keynes next week, why not invite Andrew Cohen to lead an online confabinar in this space about his book? If nothing else, reading another side is a good antidote to complacency, as well as a learning method.

Jonathan Dresner - 12/4/2008

I wondered why so many Jews both then and now stuck with FDR.

I think you may have a correlation/causation problem. FDR is an icon for Democrats and liberals; Most Jews of that generation and since fall into those categories. I'm not sure that FDR is any less popular among non-Jewish liberal Democrats, especially the ones who lived through the Depression itself.

Mark Brady - 12/4/2008

Andrew, you write: "Finally, during the Depression, anti-Semitism was much, much more prevalent on the right."

What exactly do you mean? Of course, we can define anti-Semitism as "right-wing" but how does that really aid our understanding of the period? Some of the most virulent anti-Semitic opinions (and, for that matter, some of the most virulent anti-Catholic opinions) were held by members of the Ku Klux Klan -- and they voted hugely Democratic at elections. I can't imagine you'd want to say that the Democratic Party was therefore the more anti-Semitic party!

Andrew W. Cohen - 12/4/2008

You'd have to be more specific about why you (or your colleague) think FDR wasn't "good for the Jews."

1) As I suggest in the Schechter post, the majority of Jewish butchers profited from the code.

2) Jewish consumers were hurt by the code, but they benefited from FDR's labor policy, which allowed thousands of Jewish workers to make a decent living, own their own apartments, etc. In the 1930s, Jews were disproportionately laborers. By the 1980s, they were overwhelmingly white collar workers.

3) People like Social Security.

4) Though some historians (e.g. David Wyman) have subsequently criticized FDR's tepid response to the Holocaust, Roosevelt was in fact far in advance of most Americans in his desire to fight Nazi Germany.

5) The existence of antisemitism on the left-- whatever its extent-- has no bearing on popular memory of the Roosevelt Administration, which was comparatively philo-Semitic.

Steven Horwitz - 12/4/2008

To your last point Andrew: in my original post, I wondered why so many Jews both then and now stuck with FDR. I said I could offer "a few answers to that question, many of them obvious...". That there was lots of anti-Semitism on the right is certainly among those obvious ones. Nonetheless, the veneration with which many Jews hold FDR seems too willing to overlook the fact that, in the words of a very liberal Jewish colleague here, "he wasn't all that good for the Jews, you know." That there was more anti-Semitism on the right doesn't mean there wasn't any on the left (same thing today, I'd add).

I guess my point was that Jewish perceptions of FDR have always seemed to me overly generous, and the Schechter story gave me another reason to think that.

Andrew W. Cohen - 12/4/2008

Mr. Stepp--We're talking across one another. I'm not defending the policy as a whole. But I think few non-libertarians share your belief that bigness is irrelevant, which is why authors like Shlaes try to stress the Schechters' weakness and vulnerability.

Mr. Horwitz--The problem with the Jewish narrative is simple: the people with the actual authority to define Kashrut-- the Orthodox butchers-- wrote the poultry code. Now, perhaps the Schechters had the correct interpretation of Leviticus, but I think it's too facile to suggest they were the defenders of the faith. The other shochtim in NYC would have disagreed.

Finally, during the Depression, anti-Semitism was much, much more prevalent on the right. FDR, the Democrats, and unions were subjected to a continual assault during this period. This is one reason Jews remained very loyal to the Democratic Party and perhaps ignored any bigotry directed towards the Schechters.

Steven Horwitz - 12/4/2008

The funny part about all of this is that my main interest in this story was not as a libertarian, but as a Jew! Yes, I think the story makes a libertarian point, but it was hardly the one about the heroic small entrepreneur c. 19th century. If anything it was that the NRA stomped all over indigenous institutions that were reasonably functional in its haste to collaboratively plan.

I was much more interested in both the story of the role of the Kosher laws and what this case said about FDR and the Jews (including the fact that the Schechters continued to vote for FDR) than scoring libertarian debate points. But those who are on the prowl for supposed libertarian fables about the New Deal saw only one part of my story.

It's also frustrating to be accused of telling libertarian fables when the overwhelmingly accepted story in the mind of the public is that FDR and the New Deal saved us from a Great Depression brought on by unregulated capitalism. That story is perhaps the most damaging and widespread fable in circulation at the moment, especially as we stand in a place akin in some ways to 1929.

William J. Stepp - 12/4/2008

There are small businesses and there are small businesses. To be sure, the Schechter's business was larger than a pushcart or a corner deli, but considerably smaller than other businesses. But more to the point, why would its absolute (or relative) size matter? They were presecuted by the State, and that's what counts. Last time I checked, there was no law against being successful and having a million dollars in revenue, either during Ronnie's decade of greed or during Franklin's decade of fear itself. I know the great Progressive god FDR loathed "economic royalists" and all, but it's a stretch way too far to pin that label on the Schechters.
And I don't think Shlaes's point is that they were crushed on behalf of big business, as they had no big competitors who were pulling political strings to put them out of business, at least none of whom I'm aware.
I'm liberating a copy of your book from Amazon later, if they have it.

Andrew W. Cohen - 12/4/2008

I don't believe in conflating multimillion dollar firms with pushcart sellers. This reasoning allows corporations to appropriate the peculiarly American romance of the small business, even if the interests of the two are very different.

I admit I am responding to a particular libertarian narrative, concocted in the late 19th c. and resuscitated by Shlaes. This storyline attacks regulation not merely for its effects on the public, but for its impact on the struggling entrepreneur.

Of course, every court case about regulation engages with libertarian questions of property right and the public interest. But that's very different from claiming the New Deal crushed the little devout shopkeeper on behalf of big business. That story is not supported by the facts.

William J. Stepp - 12/4/2008

Mr. Cohen,

Thanks for the ref. and I will have a read of it.
A point I didn't make, but will now, is that these days for a business to be "big," it has to have international operations and/or sales (think Exxon, GE, Microsoft, P&G, etc.) Back in the 1930s, probably relatively few American businesses had an either of these, thanks in large measure to protectionism.
But a "big" business would have had to have had operations and/or sales in all (or most) parts of the U.S. (think GM and Ford, which have hit the skids thanks mainly if not only to the malign economic effects of every progressives' beloved labor unions).
I still don't understand your point about the Schechter case being a "libertarian fable." It strikes me as being the libertarian illustrration par excellance of Rothbard's point about the State being a criminal gang, and in this case at every level of our federalized state system. (The fact that the SCOTUS did the right thing in no way overturns this point. Even a stopped clock is right twice a day, and it doesn't require the care and feeding of taxpayers.)

Andrew W. Cohen - 12/4/2008

Mr. Stepp--

I suppose libertarians are welcome to construct a new parable around the Schechters, corporate property rights, and the consumer. But the facts disrupt the particular one Shlaes and Horwitz enunciate, which paints the Schechters as the defenders of the little guy and religious orthodoxy.

As to your question about the feds and the local police, I'd urge you to read my book, _The Racketeer's Progress_ (plug, plug). Sufficed to say, local police did arrest organized craftsmen, but this had the unintended consequence of increasing violence in the trade. Moley hoped NIRA would replace fisticuffs with the rule of law.

William J. Stepp - 12/3/2008

Andrew Cohen's additional details in the Schechter case not only fail to undermine what he calls Amity Shlaes's "libertarian fable," they actually buttress it.
He claims that the Schechter's were not small businessmen (and unfortunately Steve Horwitz agrees with this incorrect supposition), evidently because they grossed something over a million dollars annually and were the largest and most successful firm in their industry. They earned this because they were more competitive than their rivals, thanks mainly to having lower prices. They didn’t have the albatross of a union, so their lower costs enabled them to offer a better deal to consumers.
By no stretch of the imagination was the Schlecters’ business anything other than small, even if a million dollars than was considerably more than a million now. They operated in an intensely competitive commodity (literally and figuratively) business against some 500 competitors, and kept their prices lower than everyone else’s. In that sort of a business, the odds of them making more than a measly 3% net operating profit after tax were probably between slim and none.

But even if we accept the characterization of their business as “big” (which it most assuredly was not) so what? How would calling it a “big” business undermine Amity Shlaes’s case?

During the time they were under investigation and then involved in litigation (which they experienced three times), their costs would have been considerably higher, so it’s unlikely they made any money at all and might have operated at a loss. (And didn’t they go bankrupt eventually? How much money were they making?) Amity Shlaes points out, not unreasonably, that their competitors would have benefited from the fact that they were distracted from running their business. The Schechters probably lost market share during this time. Andrew Cohen ignores all this because it undermines his argument against her view that the case was a “libertarian fable.”

The Schlecters were also physically intimidated and indeed their property was attacked. The U.S. government responded, but my question is, where were the New York City cops? Taking an extended donut break? Why did the feds have to get involved in what one would think should have been an open and shut case of property destruction, with jail time being given to the perpetrators and making them pay restitution to the Schechters? This doesn’t strike me as inconsistent with a libertarian reading of the case.

Nothing in the legaI details cited by Mr. Cohen undermine the libertarian case against the persecution (and that’s what it was) of the Schechters.
If Mr. Cohen thinks that the alleged reversal of the Sherman Act of 1890 undermines the “libertarian fable,” what evidence can he muster for this? The Schechters, to repeat, operated in a competitive industry with some 500 players. They lowered their prices, and had nothing remotely approaching a monopoly. They exercised no “market power” of the sort that might have led the anti-trust regulators to invoke that Act with a straight face.

Finally, whether the NRA’s codes were enforced or not, to the extent that they contributed to “regime uncertainty,” there were certainly not equivalent to the “Whip Inflation Now” buttons that were worn during the Ford regime. On the contrary, they did a lot of damage to the economy, the fate of the Schechter’s business being a case in point. Also, to the extent that these codes aided and abetted labor unions, which Mr. Cohen claims they did, they would have contributed to the unemployment of workers who were disallowed from competing in labor markets by offering market-level wages.

Andrew W. Cohen - 12/3/2008

Did you actually read what I wrote?

I neither defended the NIRA, nor attacked the Schechters. My point is that their story is not susceptible to the libertarian fable you describe. I'd add that it does not conform to a progressive narrative either.

Second, as should have been plain, the bodies in question were not all unions; one was a small business trade association.

Finally, the court's decision was prompted by a number of legitimate legal questions. I'm merely suggesting one factor was the justices' distaste for the folks charged with the construction of the kosher chicken code.

Steven Horwitz - 12/3/2008

Fair enough Eric, I overstated it. But you did put "fascist NRA" in quotes and feature that as the first thing you mention about the piece when it was hardly the main theme and because, as Jonathan notes in the comments, my use was descriptive. The NRA *did* share features with the economic institutions of Fascist Italy.

I took the fact that you chose to emphasize that one phrase in one sentence of a piece that was more themed around the interesting role of the Kosher practices and the relationship between the Jews and FDR as evidence of your dislike of that particular phrase.

"Taking me to task" was too strong, and I apologize if you think it was unfair.

Eric Rauchway - 12/3/2008

Where did I take you to task for using the word "fascist"?