State price-fixing regulation transformed functional gangster enforcement into criminal racketeering

Evidence

States and racketeers have even competed on the same terrain. In the 1920s, for instance, the clothing industry in New York made use of Louis (“Lepke”) Buchalter’s and Jacob (“Gurrah”) Shapiro’s persuasive power to encourage compliance with regard to prices and wages. But then “the first act of the New Deal (something which people forget or do not know) was to set up through the National Recovery Administration (NRA) industry codes and price fixing to provide stability to the markets. Thus what had before been a ‘functional’ role of the gangsters now became simple ‘racketeering’ and shakedowns. As a result of this, ambitious prosecutors moved against the gangsters … Lepke and Gurrah were convicted of murder and finally executed in Sing Sing” (Daniel Bell, personal communication; see also Bell 1960). — Diego Gambetta, The Sicilian Mafia The Business of…, 513

Categorization

• XREF: Powerful evidence for the reader’s Gambetta/Schelling framework: the state and mafia compete as substitute suppliers of the same market-ordering service — when the state enters the market, the gangsters’ function becomes illegal. Directly extends the reader’s private-protection market model.
• SEED: Angle: the NRA episode as proof that ‘racketeering’ is defined by who holds the enforcement monopoly, not by the act itself — the same price-fixing function flips between legitimate and criminal purely by who provides it.
• CANDY: A compact, striking fact for conversation: the New Deal’s first act was effectively to make legal what gangsters had been doing — mafia-style price enforcement — and it retroactively criminalized them.