The list of prohibitions was extensive. Grocery stores could not remain open more than sixty-three hours a week, fulfilling a long-standing demand of independent grocers who stood behind the counter every moment their stores were open. For chains, however, the sixty-three-hour limit effectively mandated each store to close for a day and a half each week, reducing efficiency by requiring costly assets—store, furnishings, equipment—to sit idle. Premiums such as trading stamps were not permitted, a restriction that hardly affected independent stores, which rarely offered them, but did affect chains. Grocery stores could not hold two-for-the-price-of-one sales or give a discount on one product in return for the purchase of another. Separately, the codes for grocery manufacturers discouraged advertising and brokerage allowances and cash discounts, raising the effective prices manufacturers charged A&P and other big chains but leaving the prices for small grocers unaltered. The trucking code eroded A&P’s cost advantage in moving foodstuffs from warehouses to stores.
These rules, and many more, were enforced by 783 local code authorities, which were charged with monitoring compliance and investigating suspected violations. Complaints were frequent. Between November 1933 and May 1935, officials registered 3,327 alleged violations of the Food and Grocery Code. Only the trucking and construction industries generated more complaints than the grocery trade. The more complicated complaints ended up at the central code office, located a couple of blocks from the White House, where seven employees devoted to food retailing sorted out such issues as when markdowns of dented cans and rotting produce were legal and when not. Smaller firms often paid little attention: a survey of 181 grocery wholesalers in New York state found one-third of them in violation of the food wholesaling code, with smallest wholesalers the most common violators. In combination, New England Division executives estimated, the NRA codes increased expenses by an amount equal to 1.5 percent of sales, while “many of our competitors, particularly the smaller chains and independents, are not adhering to the Code as rigidly as we are … and we find them proving very stiff competition.”18
* * *
The Hartfords were slow to respond to the mounting threat. While the New Deal’s policies permitted competitors to enlist Washington in their fight against A&P, Roosevelt’s supporters continued their assault on chains at the state and local level. Before 1933, only a handful of states taxed chains. Between 1933 and 1935, fifteen states imposed new chain-store taxes, sometimes more than once. Minnesota, where A&P had only recently entered the market, passed a tax in 1933 that rose to $155 per year for each store in the state above fifty. Michigan, where A&P had done business for half a century, enacted an assessment that rose to $250 per year for each store over twenty-five. Florida’s state senate came within one vote of banning chain retailers altogether in 1935; instead of a total ban, the legislature enacted a “privilege tax” of $10 for one store, $400 for each chain-owned store over fifteen, along with a tax of 5 percent of the gross receipts of chain stores. The most onerous levy, in Huey Long’s Louisiana, taxed a chain with even a single store in the state according to the number of stores it owned nationwide, with the tax reaching $550 per store for chains with more than five hundred stores. The levy on A&P’s fifteen thousand stores came to $8.25 million—half the company’s total profits in 1934. Long, then a U.S. senator but still dominant in Louisiana politics, made no bones about the purpose of the tax. “I would rather have thieves and gangsters than chain stores in Louisiana,” he told his constituents.19
The anti-chain forces made imaginative use of the day’s most powerful communications medium, the talking picture. In 1934, a former NRA official, Frank Wilson, released Forward America, a film devoted to exposing “the anti-American business methods” of the chains. “The picture is dedicated to the American housewife,” the publicity proclaimed. “It shows her how by sending her money away from home she is trading her husband out of his job, destroying the value of her home, and adding to the national problem of unemployment.” Independent merchants arranged for local cinemas to show Forward America as the second film of double features and handed out free tickets to their customers to build support for further action against the chains.20
While chain-store taxation affected all chains, the Great Atlantic & Pacific was the main target. The Supreme Court had specifically ruled that a graduated per-store tax was constitutional, while taxes on chain stores’ revenues or profits were not. In 1935, A&P had four times as many locations as Kroger; ten times as many as J. C. Penney, a clothing and dry-goods chain; and eight times as many as Woolworth, the king of variety stores. Unlike Kroger, A&P had stores throughout the South, where chain-tax fever ran especially high. Its chain-store tax burden, never disclosed to the public, was $2.2 million in 1935, or one-seventh of its total profit. And to the burden of state taxes must be added the municipal taxes that sprang up from Hamtramck, Michigan ($25 for a company’s first local store, $1,000 for the fourth), to Fredericksburg, Virginia (up to $250 per store), to Little Rock, Arkansas, to Portland, Oregon.21
The proponents of state chain-store taxes were among Franklin Roosevelt’s strongest backers. According to the economist Thomas Ross, the single most important variable in predicting which states would tax the chains was politics. States in which the Democratic Party controlled the governorship and both houses of the legislature were much more likely to enact chain-store taxes than states where the Republican Party shared power. Although these taxes raised consumers’ costs, the pro-consumer New Dealers in Washington dared not criticize the small-town Democrats who led the anti-chain crusades. Nor did they object to the many other state laws that sought to protect small merchants and thereby raise the consumer price of food.22
John Hartford, standing aloof from politics, never opposed the New Deal’s efforts to cartelize the food sector under the Agricultural Adjustment Act and the National Recovery Act. At the onset, in 1933, he had told his executives that while the code for the food and grocery trade “will undoubtedly place certain restrictions and burdens upon our operation,” he thought “the industry as a whole” might benefit. The responsibility that came with running the nation’s largest retailer may have made him hesitant to criticize the New Deal. In July 1933, he agreed to join other executives on the Agricultural Adjustment Administration’s Food Industries Advisory Board, lending tacit support to the Roosevelt program, and two weeks later he publicly pledged his company’s support for the codes. Perhaps the fact that the codes would constrain the new discount supermarkets, which made heavy use of loss leaders, made him hesitant to condemn the new regime. But he also refused to speak out against the rapid spread of state and local taxes on chains, which affected his company enormously but touched the independently owned supermarkets hardly at all.23
* * *
Odd as it may seem, such reticence was not unusual among businessmen in 1933. In the fourth year of the Depression, no one thought it strange that a trade association executive would complain that business was “being crucified on the cross of competition” or that the Chamber of Commerce of the United States, the country’s leading business group, favored allowing the majority of firms in an industry to enforce price and production restrictions on their competitors. In a survey of New England manufacturers, 80 percent favored codes to eliminate unfair practices in business, and the NRA Business Advisory Committee spent much time discussing ways to end “unfair” practices such as price discrimination and below-cost selling. John Hartford must have shared some of those views, for in 1934 he agreed to join a committee to pass on loans to companies that wanted to borrow from the Federal Reserve Bank of New York, hardly a post that would have appealed to a rabid free marketer. Speaking to the board of the Central Western Division in June 1934, he “emphasized the desire of the Company to completely support all government policies and to conduct our operations in conformity with all of the codes affecting our business.” If he felt the New Deal’s policies were persecuting companies such as his, he never said a word to that eff
ect in public.24
John Hartford’s silence proved to be a profound mistake, for the New Deal dealt A&P serious damage. Unlike most of the NRA codes, which favored big businesses over little ones, the codes in the food and grocery sector favored small retailers over big ones such as A&P. “The decided price advantage we formerly held has been to a great extent lost,” executives of the Eastern Division lamented in September 1934. With the federal codes and the state chain-store taxes blocking the company’s low-price, high-volume strategy, customers fled. Physical volume per store fell 10 percent between 1932, the last year before the New Deal measures, and 1934. A&P’s share of national grocery-store sales dropped by three percentage points over those two years. Profits plummeted, and the company’s after-tax return on equity, 14.7 percent in 1932, fell to 10.3 percent in 1934. As government lawyers later explained the situation, “In 1934, A&P found that it had little advantage over independents and cooperative groups of retail grocers. Therefore A&P was unable to emphasize retail price advantage to consumers.”25
* * *
On May 17, 1935, the U.S. Supreme Court declared the National Industrial Recovery Act unconstitutional. The codes governing retailers, wholesalers, and food manufacturers were null and void. Congress, the Court found, had no power to delegate its authority to the industry groups that wrote the codes. Nor did it adequately define what those codes were meant to limit: the term “fair competition” had no meaning under law, the Court found, and the term “unfair competition” had a very narrow meaning related only to misrepresentation. The law’s direction as to how the codes should ensure fair competition and eliminate the unfair kind was thus unacceptably vague. Eight months later, the Court would invalidate the Agricultural Adjustment Act on very similar grounds.26
The extent to which federal policies had damped down competition in the food sector became clear almost immediately. Although the chain stores’ association warned members against “hasty changes in prices wages and hour of employment,” complaints about violations of the grocery code poured into NRA offices. Having lost their authority to enforce the codes, the agency’s officials spent their time documenting the effects of the codes’ demise. “There is considerable price cutting in this trade, which they blame on chain stores,” one wrote after surveying grocers in Arlington, Texas. In northwestern Arkansas, sixteen of thirty independent grocers lengthened work hours within two months of the grocery code’s abolition. “The average is probably about 60 hours a week instead of the 48 hours prevailing under the Code regulation,” the Kansas Retail Grocers Association reported. Wages fell as independent grocers slashed costs in the face of “the disastrous price war now raging here,” as one California groceryman described the situation. Grocery clerks tried to form unions after the code’s labor-protection provisions lapsed, because they feared price wars would lead to lower wages. In Los Angeles, the new Food and Grocery Bureau of Southern California, claiming to represent 90 percent of local grocers, put forth a “voluntary” code requiring the same 6 percent markups as the voided NRA grocery code, but without the law behind them they had no way to keep competitors in line.27
As the codes fell away, consumers were the clear winners. Eggs, thirty-one cents per dozen in Los Angeles under the NRA code, fell overnight to twenty-eight cents. Sugar, fifty-one cents for a ten-pound bag under the code, tumbled to forty-one cents, saving local consumers more than $1 million per month. Loss leaders and two-for-one sales returned with a vengeance. Margins at many stores were squeezed, as independents as well as chains sold with less than the code-mandated 6 percent markup simply to move merchandise. Customers returned to the discount-minded grocery chains. In 1936, the first full year after the National Industrial Recovery Act and the Agricultural Adjustment Act had been invalidated, A&P’s tonnage per store rose sharply, and its after-tax profit margin was the highest since 1933. John Hartford’s strategy of boosting profit by moving high volumes at low prices was back at work.28
For the moment, the consumerist forces in New Deal Washington had gained the upper hand over the producers. The Hartfords prepared for a return to business as normal. But the consumerist ascendancy would turn out to be short-lived.29
14
WRIGHT PATMAN
Politics abhors a vacuum, and early 1935 found a leadership vacuum atop the national movement against chain stores. W. K. Henderson, having sold his radio station in 1932, no longer filled the airwaves with anti-chain tirades or sold memberships in the Merchants’ Minute Men. Huey Long, now a U.S. senator from Louisiana, had moved on to other issues. Local activists such as William States Jacobs, a prominent Houston minister, made radio speeches and supported merchants’ committees, but they developed no wider following and had little political influence. At the national level, the fight had been taken over by the lobbyists for independent druggists, grocers, and wholesalers. These men were at home with the bureaucrats at the National Recovery Administration and the industry committees that wrote NRA codes, but galvanizing masses of supporters was not their forte. The anti-chain movement needed a dramatically different sort of leader. One appeared quite accidentally, in the person of a populist congressman from Texas.1
Wright Patman’s sympathy for humble men seeking opportunity was real, for he was one of them. Born in 1893 in a two-room log house in a railroad stop known as Patman’s Switch, in northeast Texas, Patman grew up on a farm and then in the nearby town of Hughes Springs, population seven hundred. He rode a horse six miles each way to high school, becoming the class valedictorian. He lived as a tenant cotton farmer, just as his parents had, while studying the law by correspondence. In 1915, he entered the one-year law school program at Cumberland University, a Presbyterian institution in Tennessee that was noted for producing influential political leaders. Returning home, he tried to build a law practice. For Patman, as for so many other small-town boys, being called to the Army in the world war was a life-changing experience, broadening his horizons and fueling his ambition. After serving as a machine-gun officer, he moved back to Texas in 1919, marrying and joining a law practice in Linden, a few miles from Hughes Springs. In 1920, he won a seat in the Texas legislature. His political ascent was swift. He was appointed district attorney in 1924 and made a name for himself arresting bootleggers in Prohibition-era Texarkana. In May 1928, he paid $11 in filing fees to enter the Democratic primary in the First Congressional District against Eugene Black, a seven-term incumbent. Patman’s platform was “Against monopolies, trusts, branch banking and excessive and discriminative freight rates,” and opposed to the “money barons of the East.” His upset victory in the primary was tantamount to election in his heavily Democratic district. In March 1929, Patman, aged thirty-five, moved to Washington to take the congressional seat he would hold for forty-seven years.2
Patman quickly identified a signature issue: bonuses for veterans of the world war. In 1924, Congress had voted payments for wartime service, with each individual’s entitlement depending upon length of service and amount of time overseas. Only small amounts, however, were paid immediately. The fiscally conservative administration of Calvin Coolidge insisted that the government set aside the money before making payments, so most veterans received not cash but certificates that could be redeemed, with interest, only in 1945. One of the largest veterans’ groups, the Veterans of Foreign Wars, demanded money right away, and Patman took up the cause. His first attempt, in 1929, failed in the House of Representatives, where the Republican Party had a large majority. Two years later, with the Depression devastating the country, he reintroduced the bill, drawing attention by arranging with the clerk of the House to have it designated H.R. 1. The House now had a Democratic majority, but after hearings in April 1932 the Ways and Means Committee reported out the bill with a negative recommendation. The following month, thousands of destitute veterans descended on Washington to demand passage of the Patman bonus bill, setting up a shantytown within sight of the Capitol and parading daily. Patman maneuvered carefully to bring his bill
to a vote on the House floor despite the committee’s rejection. Facing the specter of social unrest in the shadow of the Capitol, the House overruled the powerful Ways and Means Committee and approved the bill, with an appropriation of $2.4 billion, on June 14. The Republican-controlled Senate blocked it. When the Bonus Marchers refused to go home, the U.S. Army, under the command of General Douglas MacArthur, routed the veterans from their camps with bayonets and gas. Patman emerged from the uproar a hero, one of the few people in Congress dedicated to the veterans’ cause.3
A stocky man just under six feet tall, with curly brown hair and a receding hairline, Patman did not cut a particularly imposing figure in Washington. A teetotaler, he shunned the capital’s social scene—his wife, Merle, remained at home in Texas with their four sons—and did not have close relationships with other legislators. He spent seven days a week at his office, dictating endless letters to people back in his impoverished rural district. Given unimportant committee assignments, he decided to concentrate on high-profile issues that would resonate in eastern Texas, as he had with the veterans’ bonus bill. In 1931, he stunned Washington by demanding the impeachment of Andrew Mellon, the highly unpopular Treasury secretary, claiming that Mellon had cheated on his taxes and done favors for several major companies; Mellon was soon persuaded to become ambassador to Great Britain. In 1932, Patman called for an investigation into the Federal Reserve Board’s role in causing the Depression. In 1933, he was one of forty-nine congressmen who forced the House Democratic caucus to discuss what he called “a breakdown of the anti-monopoly laws,” and he also campaigned to curb the banking industry’s influence over the Federal Reserve. In 1934, he spent $1,771 to self-publish two books, Patman’s Appeal to Pay Veterans and Bankerteering, Bonuseering, Melloneering, expecting that the largest veterans’ organization, the American Legion, would buy copies in bulk for its posts throughout the country. Patman ended up losing money when too few people sent their quarters to Patman Publications in Paris, Texas.4
The Great A&P and the Struggle for Small Business in America Page 18
