2.6.1. The Mid-Atlantic States (1925-1965): Struggling With the Depression


 

Mortgage moratorium law

Unemployment compensation law

Fair competition code law

New York

1933

1935

1936

New Jersey

--

1936

1937

Pennsylvania

1933

1936

1935



Struggling with the Depression – mortgage foreclosures: 

East New York Savings  Bank v. Hahn – New York, 1944 (59 N.E.2d 625)

  • During the Depression, many Americans were unable to make their mortgage payments due to lost jobs and plummeting agricultural prices, and they soon faced loss of their homes and farms through foreclosure.  State legislatures reacted quickly by enacting “mortgage moratorium” laws.  The laws varied in their details, but all of them delayed foreclosure for periods of several years – enough time, lawmakers hoped, for debtors to ride out the Depression. 
  • Banks and other creditors challenged the moratorium laws, claiming that they had a constitutional right to foreclose under the shorter time periods in effect when the mortgages were made.  In Home Building & Loan Association v. Blaisdell (1933), the U.S. Supreme Court upheld Minnesota’s moratorium law; the court tacitly admitted the law impaired creditors’ rights but concluded that due to the national emergency, shortening foreclosure periods was a reasonable exercise of the state’s police power.  Blaisdell largely defused opposition  to the laws in the mid-Atlantic region and elsewhere. 
  • Throughout the Depression and even into World War II, state legislatures repeatedly extended the moratorium laws, claiming that the emergency was not over.  The courts were not inclined to interfere.  As late as 1944, in Hahn, New York’s highest court took the legislature at its word, noting also that a sudden end to the laws might open the way to a sudden flood of foreclosures which in turn might trigger a new economic crisis.

Struggling with the Depression – fair competition codes:

People v. Nebbia – New York, 1933 (186 N.E. 694), affirmed, 291 U.S. 502 (1934); Darweger v. Staats – New York, 1935 (196 N.E. 61); Rohrer v. Milk Control Board – Pennsylvania, 1936 (186 A. 336); Johnson & Johnson v. Weissbard – New Jersey, 1937 (191 A. 873)

  • It was an article of faith among New Deal-era economists that falling prices and rising unemployment were largely due to predatory competitive practices and that those problems could be solved by enacting fair trade practice codes for major industries.   Franklin Roosevelt implemented the theory in the National Industrial Recovery Act (NIRA), and many states followed suit with laws that required industries to enact and enforce their own fair competition codes or that imposed such codes on them. 
  • The laws were unsuccessful, and during their heyday they generated much legal controversy, but mid-Atlantic courts viewed them with a relatively uncritical eye.  Nebbia was a national test case for the validity of laws establishing minimum milk price standards, enacted in response to widespread “milk strikes” by desperate dairy farmers who had been driven to the brink of ruin when milk prices plunged early in the Depression.  New York’s highest court summarily upheld the state’s milk price law against a substantive due process challenge, reasoning that an adequate milk supply was essential to public health and that price controls were essential, in a time of emergency, to ensure an adequate milk supply. The U.S. Supreme Court agreed. 
  • In Pennsylvania, the issue was closer:  in Rohrer, a lower appellate court struck down the state’s milk pricing law, concluding that it was really an impermissible restrain on free enterprise and not a health or safety regulation, but on appeal but the state supreme court followed Nebbia and upheld the law.
  • Some trade regulation laws were struck down on the ground that the legislature had delegated too much regulatory power, without setting adequate guidelines and limits.  In Darweger, New York’s highest court struck down a law delegating power over the solid-fuel industry to a board for this reason; the court indicated that the legislature had crossed the line from liberal to uncontrolled delegation of power, and that it was not willing to go so far.  But in Weissbard, New Jersey’s supreme court upheld a trade law allowing manufacturers to fix resale prices of their products without restriction, based on its liberal interpretation of a recent U.S. Supreme Court decision that had upheld a more limited Illinois pricing law. 

Struggling with the Depression – unemployment compensation:

Commonwealth ex rel. Schnader v. Liveright – Pennsylvania, 1932 (161 A. 697); Commonwealth v. Perkins – Pennsylvania, 1941 (21 A.2d 45)

  • The idea of state unemployment compensation funds originated in Europe in the late 1800’s and was proposed in the U.S. as early as 1920, but it did not gain traction until the Depression.  Wisconsin was the first state to enact an unemployment compensation program (1932), and many other states, including all three mid-Atlantic states, quickly followed suit.
  • The only serious challenge to such laws in the mid-Atlantic region occurred in Pennsylvania, which was more socially conservative than its sister states during the early 20th century and whose constitution prohibited state funding for “charitable or benevolent” purposes.  At the beginning of the Depression, in Liveright, the Pennsylvania supreme court narrowly upheld (by a 4-3 vote) an emergency appropriation for unemployment relief.  The majority avoided the potential problem raised by the constitution’s no-charity clause by noting that the funding was to be distributed on the basis of need, not employment status and that care of the poor had long been a recognized state function.  Justice George Maxey, who provided the decisive vote, went further and defended the statute as a legitimate response to a public emergency. 
  • Perkins, decided at the end of the Depression, revealed how the suffering of the intervening years had affected the court’s thinking.  This time, the court summarily rejected all constitutional concerns regarding the state’s 1936 unemployment compensation law.  The court held that the no-charity clause did not apply because the state’s unemployment compensation system was funded by payroll taxes, not general taxes.  Citing Justice Maxey’s opinion in Liveright with approval, the court made clear that in any case, unemployment relief could not be considered a “charity.”
Federal relief camp for unemployed women, Pennsylvania (1934) - courtesy Wikimedia Commons

March of unemployed workers, Camden, New Jersey (1935) - courtesy Wikimedia Commons









“Doubtless the statute before us would be condemned by an earlier generation as a temerarious interference with the rights of property and contract …; with the natural law of supply and demand.  But we must not fail to consider that the police power is the least limitable of the powers of government and that it extends to all the great public needs; that constitutional law is a progressive science; that stats aiming to establish a std of social justice, to confirm the law to the accepted standards of the community, … are to be interpreted with that degree of liberality which is essential to the attainment of the end in view.”  - Justice Cuthbert Pound, in Nebbia

 “This is a commercial emergency, not involving public safety, health or morals.  [T]he Constitution … has yielded to reasonably flexible and prudent interpretations by conservatively progressive judges, but the time has not yet come when the courts of this state ought to surrender to the doctrine that governmental prefects, in times of peace and plenty, may supervise the rearing of cattle or the price of milk.” – Justice John O’Brien (dissenting), in Nebbia

           


“The greatest menace to the well-being and safety of the state is for it to have hundreds of thousands of its able-bodied and willing citizens suffering with their families, from hunger and lack of clothing and shelter because work is unobtainable.  An appropriation from a public treasury to relieve this suffering is no more a ‘charitable’ appropriation than an appropriation made to suppress an uprising, repel an invasion, or to combat a pestilence.”
  - Justice George Maxey (concurring), in Liveright