March 2026 Economic Theory Part VI -The turn around begins and why Labor Law came into being. By David Kowalski.

Disclaimer: These words are the author’s personal views and do not reflect the Labor Guild’s opinion.

By 1900 the Conservative Economic model could not have been working better. The blatant, obnoxious, symbiotic relationship between industrialists and politicians, regulators and judgeships were appalling. However, appalling as it was, America was getting bigger and stronger and nothing was to get in its way.

The conservative economic model was working perfectly. They owned it all, just as the model had worked when put in place over the 1600’s, 1700’s and 1800’s. The problem was that unrestricted capital could not control itself. When they ran into insolvency, unlike today, they did not have the government to bail them out. When key industries became insolvent no government assistance came, they simply failed and took with it the entire economy along with businesses, homes, banks and very high unemployment. In the 1820’s we first see the booms and busts of this cycle. After the Panic of 1821, President Andrew Jackson vetoed the Charter of the Second Bank of America because he feared it was causing instability of currency and during the Panic of 1837, President Martin Van Buren advocated and made efforts for an independent treasury, separating government funds from private banks. These are two of a very few Presidents that tried to set up some governance to protect the economy from such swings. Yet theirs and other efforts quickly withered. Unrestricted capital still thrived even in the face of monopoly breakups under the Sherman Act.

During this time, the Radical Economic model was coming into fruition. As Marx had predicted, the Conservative model would create an excess workforce, causing lower wages. Immigration set the stage for that. In 1850 there were 30,000 people living in Chicago and by 1870 there were 300,000. Also in 1850, New York, the third largest city in the world, had 1 million people in it and by 1900 more than doubled.

Then came the lighting of the fuse. The Pullman Strike in 1894. After the strike President Grover Cleveland, granted the Labor Day holiday as a peace offering for bringing in Federal Troops that escalated the fight over the protest of the State of Illinois and then Governor John Altgeld. The Pullman Strike polarized workers with the realization that nothing would change for workers unless they took control of the means of production, away from the industrialists. This is when you see the rise in anarchy in this country with the creation of the “Wobblies” International Workers of the World.

Marx’s view of Dialectic Materialism was in full swing. Owners were not paying living wages and as Marx said people don’t become mean, brutish and nasty until they are put into a position of their very survival. Thus, the battles become bloodier through the 1890’s and into the early 1900’s.  

With a diet of bread and molasses during the Bread and Roses Strike in Lawrence Mass. Mothers were compelled to send their children for proper care to families in New York and Philadelphia, with the help of the Wobblies and Planned Parenthood, arranged for medical exams of the children finding most malnourished. Reports and pictures of police clubbing mothers and tearing away their children and not allowing the children to board the trains to seek proper care, was more than enough for the President’s wife Mrs. Taft, which spurred a Senate Investigation and a Hearing followed which showed a mortality rate for children in Lawrence at 50% by age six and 36% of the men and women who worked in the mill died by the time they were 25—(36 out of 100). Which became a catalyst for ending the strike.

Two years later at a Rockefeller owned mine in Ludlow Colorado, striking miners lived in a tent city on land leased by the Western Federation of Miners were attacked with 50 caliber machine gun fire by Rockefeller mercenaries dressed in National Guard garb with the approval of Governor Elias M. Ammons including women and 10 children ranging between 11 years to 3 months of age.

In 1920 and 1921 the Massacre at Matewan, West Virginia led to the Battle of Blair Mountain. It was a case of open warfare where miners commandeered a train filled with former WWI veteran miners to take over the operation of a Rockefeller affiliated mine. In this case President Warren Harding approved the use of the militaries’ bombers to provide air reconnaissance and army surplus bombs to the mine owners. An unexploded bomb was used as evidence at the trial of the arrested strikers to which they were acquitted.

At this point the Industrialists were pretty nervous. Socialists were gaining popularity at the polling booths and things were changing. State legislatures were changing and it looked like the workers may indeed take over the means of production if changes were not made. Armed conflict was not working, nor was “Red Baiting”, which was backed up by the Espionage and Sedition Act of 1917 which fined, imprisoned and deported union anarchist wasn’t working.

With the ratification of the 18th Amendment to the Constitution in 1919, the prohibition of transporting and manufacturing alcohol ushered in the Roaring 20’s causing a proliferation of underworld activity thrown on top of a chaotic population. If that was not enough chaos in the population, Republican Presidents Calvin Coolidge and Herbert Hoover tax policies shifted in favor of the top 1%. Tax policy such as this enabled the top 1% to procure a combined income equal to the bottom 42%. In 1929 Henry Ford earned $14 million while the average worker earned $750 that same year. The problem was the wealthiest 1% owned too much of the economic pie, leaving not enough money to sustain the rest of the population.  

The top 1% received a 75% increase in their disposable income while the other 99% saw an average 9% increase in their disposable income. From 1923-1929 the average worker output increased 32% in manufacturing, however, their wages only reflected an 8% increase over that same period of time. The balance of wealth compared to the money available to buy goods to keep the economy running became skewed and unbalanced. For example: Henry Ford would not buy 1 million cars per year or a few million suits of clothing or 50 million loaves of bread per day to keep people working. This is a good example of trickle-down economic policy. In theory, the rich under trickle down, was to re invest and grow the economy. However, they did not re-invest enough and kept their excess profit. Neither could they personally contribute enough to the economy to make Adam Smith’s invisible hand to work. Of course, we must include the huge profits that were made on speculation as stock prices continued to rise because of it. It worked through buying on margin. Here is how it worked.

I could buy a share of stock from my broker for $75.00 by putting $10.00 down and borrow $65.00 from the broker. If I sold it at $420.00 a year later, I would turn that $10.00 into $341.00. $420.00 minus the $75.00 I owed the broker along with a 5% commission. That is a 3400% return. Not bad. The problem was it worked too well and was out of control. By 1929, brokers had lent out over $8.5 billion, and their loan rates were going as high as 20%. Unfortunately, prices began to drop in September and October of 1929. Then on Monday October 21, a selling frenzy started and then on Thursday, October 24 it crumbled. Causing the worst economic depression in the history of the United States.

Once again, big money left this country in turmoil. No one to consume because of the massive unemployment. Therefore, there was very little production of any kind and an economic system that left only a very few extremely rich. Adam Smith’s invisible hand really was invisible at this time. The economy pretty much ceased. The wealthy had most of the money. The poor could only buy basics. Industry could not produce because there were not enough buyers to sustain the industry.

It finally became obvious to the Republicans and the captains of industry that if something wasn’t done to satisfy Labor’s needs, the country was headed for a revolution. Knowing there was too much to lose they mitigated their potential losses. By the 1930’s it was finally recognized that guidelines were necessary to establish a stable environment for collective bargaining and a playing field to support a collective bargaining relationship.  

In 1932 Hoover finally came around in signing the Norris-La Guardia Act. It was an Act that specifically separated labor from the Sherman Anti-Trust Act and prohibited the use of injunctions in ordinary labor disputes and outlawed “yellow dog” contracts. In it the government recognized and admitted its bias toward capital and confirmed it in the preamble of the act. “That it had aided the right of capital to consolidate itself and because of this left the unions, members and those dependent on it, helpless to exercise their rights to negotiate the terms conditions of their employment free from the coercion of the employer.”

Franklin Delano Roosevelt won the Presidential election in 1932 and took office in 1933 and brought with him a slew of social reforms which included the National Industrial Recovery Act, which established among other things, Section 7(a) providing for many of the rights for Labor which still stand, such as: The right for unions to organize, bargain collectively, to engage in concerted activity without the coercion of the employer and the right not to join a company union to name a few. It also gave exclusive authority to the President to establish a code of ethics upon industry to prevent monopolistic action by the corporations and shift business away from those not compliant.

The Public Works Authority portion of NIRA was designed to stimulate the economy by building infrastructures like the Triborough Bridge, Grand Coulee Dam, Boulder Dam (later renamed the Hoover Dam) and the bridge to Key West. Under this Act the President was given the authority to regulate oil pipelines and the price of transportation of all petroleum products in it. If a company did not comply with the law, the President had the right to take it over. This kind of oversight would have been music to the ears of Karl Marx, however, even he would have questioned one person who had so much control. At this point you have to ask yourself. Would the industrialist have done these things if there was no profit to be made? Probably not, but the use of the roads and infrastructure made the access to raw materials and the transportation of commerce agreeable to them. These are just a few of the “externalities” that are excluded from the conservative economic model. Your money, tax money, is expected to pay for those externalities and not out of their profits for things like the pollution they create. In this case, the Supreme Court felt this Law gave overreaching power to the President and declared it unconstitutional. However, many of the features of the Act put enough people back to work and did enough in the short term to stimulate the economy. Other features of the Act like the portions regarding labor turned up again in the Wagner Act.

In 1935 Congress passed the Wagner Act also known as the National Labor Relations Act. It established the National Labor Relations Board for adjudicating disputes and implementing new law, which was one reason cited by the Supreme Court in striking down that portion of the NIRA. The Act was biased in favor of the Unions much the same way the NIRA and Norris – La Guardia was. It was seen that even though Unions were militant, compared to industry, unions were weak. Thus, the reason that the Section 7 rights guaranteeing labor rights was included in the Act. More importantly, Section 8 (a) under which unfair labor practices were adjudicated; there was no Section 8(b) where employers could file against labor unions. There was a Section 8(a) outlining the ways employers could not violate labor’s rights. However, there was no such language regarding labor. Unions could not commit an Unfair Labor Act under the law because there was no such provision to prosecute unions under.

Congress and the President knew, where the development of labor and capital bargaining law was so new, it could never even attempt to include all the problems that were sure to come. Congress put together a very loose law. A basic skeletal structure. The meat of the law would be the case law verdicts that would come as the law was used and establish precedence. And that is how Labor Law came into being. Next time I will talk about the legislation that was adopted to prevent another depression and the progression of the new Labor Law.