Published by EH.Net (August 2019)

Jason E. Taylor, Deconstructing the Monolith: The Microeconomics of the National Industrial Recovery Act. Chicago: University of Chicago Press, 2019. viii + 206 pp. $55 (hardcover), ISBN: 978-0-226-60330-8.

Reviewed for EH.Net by Chris Vickers, Department of Economics, Auburn University.

The National Industrial Recovery Act (NIRA) was in effect for only two years between 1933 and 1935 but has attracted interest from economists from a variety of subfields ever since. The law created the National Recovery Administration, a vast cartelization of the American economy under which individual industries were allowed to organize themselves under “Codes of Fair Competition” as an attempt to prevent “ruinous” competition. Macroeconomists have conjectured that it slowed the economy by reducing output (or, counterintuitively, accelerated the recovery by increasing inflation expectations), while industrial organization economists have used the program as an experiment in a near-suspension of antitrust law.

Jason Taylor (Central Michigan University) has spent much of his career documenting various aspects of this law, a program of research ably synthesized and expanded on in Deconstructing the Monolith: The Microeconomics of the National Industrial Recovery Act. The book takes a microeconomic approach to studying the NIRA, with the analysis generally performed at the level of individual industries. He goes to this level because, as he documents, the effects of the NIRA were wildly different across industries. Some of this heterogeneity was in terms of content of the codes, with some codes having contained far more serious restrictions on competition than did others. Another source of variation is in timing: Although President Roosevelt signed the NIRA in June 1933, the process of code adoption was slow, with some being approved weeks before the Supreme Court invalidated the law in May 1935. As the book makes clear, aggregate empirical specifications that, for example, have a binary variable for “NIRA in effect” are senseless.

Chapter 2 of the book lays out the intellectual underpinnings of the NIRA, with roots in the World War I experience. The NIRA strikes most modern economists as an odd way of trying to achieve “recovery.” Taylor carefully documents the intellectual history of the law, in particular the worries from the 1920s about “overproduction,” which helps explain how the law came to be structured as it was. Chapter 3 documents the process of code organization with various case studies.

The quantitative discussion starts in Chapter 4’s analysis of the often neglected “President’s Reemployment Agreement” (PRA) of August 1933. The basic idea here was to reduce unemployment by sharing work among individuals by reducing the length of the workweek. The organization of industry under codes was slower, and so the beginning of the cartelization of the economy was heterogeneous. The labor policies of the PRA, by contrast, fit much more into the framework of a “monolithic” shock, both in terms of timing, as the agreement came into force all at once, and in terms of policy, with (generally) constant standards for workweeks and minimum wages. The analysis at the macroeconomic level makes it clear that this policy “worked” in terms of lowering unemployment. The larger contribution of the book, however, is to take this argument apart at the level of the industry, and this task is performed particularly well in this chapter. Given the large variation in both average nominal earnings and workweeks across industries, the actual treatment effect of the PRA is heterogeneous as well, hitting low-earning and long-workweek industries more severely. Taylor convincingly uses this heterogeneity to show that the effects of the PRA on employment really were causal.

Chapter 5 lays out explanations for various dimensions of heterogeneity in codes, including the length of time to adoption and in provisions regarding both labor regulation and competitive conduct. The results are generally inconclusive with respect to the latter. The purpose here is not to establish a causal explanation for the heterogeneity, but rather to highlight the vast amount of differences in code content. In this area, industry level data may be insufficient to explain code composition, and further research at the level of individual firms or establishments may be a different avenue to explore why some industries were more collusive under the NIRA than others.

Chapters 6 and 7 are devoted to the gradually worsening level of compliance with the NIRA, with the former analyzing the mechanisms of compliance and the latter the effects of deterioration in efficacy. The most convincing part of the analysis here looks at the effects of various efforts at increasing compliance in particular areas and industries. After a mass drive in the boot and shoe manufacturing industry just prior to the invalidation of the NIRA, workweeks decreased relative to manufacturing as a whole as the industry moved closer to the code standard. Although the sketchiness of the available data (through no fault of Taylor) makes it somewhat more difficult to make precise statements about how strong compliance really was across industries at different times, the analysis here is good evidence that government efforts could have “saved” the NIRA from the compliance crisis, at least for a while.

Taylor concludes by asking if the invalidation of the law had lasting effects. The most straightforward part of the analysis finds that subsequent economic growth was larger in industries with longer, more complex codes. This analysis speaks more to the question of the efficacy of the codes than whether there were lingering effects per se. Taylor suggests that there mostly were not: The long run increase in real wages was more a function of technology than the law. While this is almost certainly correct as a whole, it is conceivable that one long lasting effect of the law was faster technological growth in these high wage industries, a possibility recently raised by Robert J. Gordon in The Rise and Fall of American Growth. Further work here could also analyze whether the NIRA period affected heterogeneity within industries, as opposed to industry-wide averages.

Although the book is emphatically oriented to the level of individual industries, Taylor concludes with some speculation as to how his results should shape macroeconomic debate over the effects of the program. This serves more as a direction for future research than as a summation of the evidence in the book, and it seems probable that subsequent research will leverage the work here to break new ground in understanding aggregates. While there is clearly work to be done in going to these higher levels of aggregation, as well as drilling down towards the levels of firms and establishments, Taylor has written the definitive word on how industries experienced the NIRA differentially, and anyone working in this period will need to be familiar with his arguments.

Chris Vickers is associate professor of economics at Auburn University. He is currently studying firm behavior during the Great Depression and income inequality during World War II.

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