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From Bureau to Trade Commission: Agency Reputation in the Statebuilding Enterprise1
Published online by Cambridge University Press: 18 June 2013
Abstract
When studying the formation of the Federal Trade Commission (FTC) in 1914, scholars have usually focused on interest groups and electoral politics. This essay, by contrast, suggests that the reputation and network influences of an existing federal agency, the Bureau of Corporations, also shaped the creation of its successor, the FTC. Building on the concept of bureaucratic autonomy, the essay examines the structure of the bureau, its connections, and its preferences. The bureau's leaders favored a clear separation from the Department of Justice and argued for a quasi-judicial process for antitrust, which they felt would be more effective than the courts. They advocated discretion in covering small firms and mandatory annual reports, while seeking to avoid being assigned authority to clear business agreements in advance. Well before the 1914 debates, leaders at the bureau directed substantial funds toward influencing trust legislation. They contacted academics and civic leaders, tracked existing legislative proposals, and analyzed key legal terms. Internal studies examined major questions, such as how to define and regulate unfair trade practices. Bureau officials came to argue Congress could never define these in legislation. Instead a bureaucracy with appropriate authority could adapt definitions of unfair practices to changes in business. When the bureau became the nucleus of the FTC, it received much of the discretionary power it sought.
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- Copyright © Society for Historians of the Gilded Age and Progressive Era 2013
Footnotes
1
An early version of this paper was presented in 2011 at the New England Political Science Association annual meeting and at the New York State Political Science Association annual meeting, where Beau Breslin in particular provided helpful comments. Thank you also to Dick Jankowski, Kirsten Nussbaummer, and Daniel Ernst for insights and suggestions. Perceptive critiques by the journal's anonymous reviewers significantly improved the final product.
References
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21 Carpenter, Forging Bureaucratic Autonomy, 29–30. The account here differs from Carpenter in one important respect. Presidents play a small role in Carpenter's theory. In this instance Theodore Roosevelt played a significant role in creating the Bureau of Corporations and in developing its internal culture and preferences. These influenced the bureau's position in crafting proposals for its expanded powers prior to 1912 and its analyses of the potential powers of a proposed interstate trade commission in 1913 and 1914. Carpenter, Daniel, “The Political Foundations of Bureaucratic Autonomy: A Response to Kernell,” Studies in American Political Development 15 (Spring 2001): 113–22CrossRefGoogle Scholar, esp. 114. This approach does require assessing the strength of an agency's network and reputation, which presents a measurement challenge. Any agency will have some network and a reputation of some sort. Further, there is the problem of reductionism: if the agency wins, it is autonomous; if it does not win, it is not. Nonetheless, we can trace network nodes that influenced the creation of the FTC and identify instances when the Bureau of Corporations was building or leveraging its reputation. Absent a comparative study across a variety of agencies, the assessment of autonomy must remain somewhat subjective. For measurements problems of a reputational approach, Carpenter, Daniel, Reputation and Power: Organizational Image and Pharmaceutical Regulation at the FDA (Princeton, 2010), 9–15Google Scholar; on facets and faces of reputation, see 43–65.
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23 According to Sklar, Corporate Reconstruction, 184–203, the bureau's major political battles were against the U.S. Supreme Court. But arguably these battles were in service of the president.
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28 These include the Elkins Act of 1903, the Hepburn Act of 1906, and the Mann-Elkins Act of 1910.
29 The formula derived from the influential decision Munn v. Illinois, 94 U.S. 113, 94 (1877).
30 A bureau survey asked each state for information on state constitutional provisions, legislative enactments, publications on reports or returns by corporations within the state, forms of returns required by the state, and also a list of corporations within the state, “giving the name, location, and character of the business of each, and such other facts as are published.” Iowa's secretary of state responded that it “would necessitate a compilation of the records of this office, as it can not be found in printed form.” He suggested that if bureau could provide an appropriation, Iowa could hire a clerk to put this together. W.B. Martin, Sec. Of State of Iowa, to James Rudolph Garfield, Apr. 11, 1903, file 2064-1, box 133, Records of the U.S. Bureau of Corporations, Record Group 122, National Archives, College Park, MD (hereafter RG122). The correspondence related to the attempted survey runs from box 132 to box 138. Childs, William R., “State Regulators and Pragmatic Federalism in the United States, 1889–1945,” Business History Review 75 (Winter 2001): 701–38CrossRefGoogle Scholar. Skowronek, Stephen. Building a New American State: The Expansion of National Administrative Capacities, 1877–1920 (New York, 1982)CrossRefGoogle Scholar, esp. ch. 5, 8, labels one of his case studies as business regulation, but he concentrates almost exclusively on railroads.
31 1913 Ann. Report, 176, 180. For example, the U.S. Senate passed three resolutions requesting investigations in 1913: on price increases of ammoniates and nitrates used in commercial fertilizers (Mar. 1, 1913); on persons or corporations that sold cotton bought by a pool in 1910 (May 27, 1913); and potential price fixing of oil in Oklahoma (June 18, 1913). Well-known examples of Bureau of Corporation reports include Report of the Commissioner of Corporations on the Beef Industry (Washington, 1905)Google Scholar; Report of the Commissioner of Corporations on the Petroleum Industry, 2 vols. (Washington, 1907)Google Scholar; Report of the Commissioner of Corporations on the Steel Industry Steel (Washington, 1913)Google Scholar; Report of the Commissioner of Corporations on the Lumber Industry, 3 vols. (Washington, 1913–14Google Scholar). For a complete list of Bureau of Corporation publications, see 1914 Ann. Report. On bureaucratic audiences and reputation, see Carpenter, Reputation and Power, 26, 58–61.
32 1914 Ann. Report, 223–32. Also “Federal Trade Commission” (1914), S rept. 597, 10–14.
33 Jack M. Thompson, “James R. Garfield: The Career of a Rooseveltian Progressive, 1895–1916” (PhD diss., University of South Carolina, 1958), 27–79.
34 Wiebe, Robert H., “The House of Morgan and the Executive, 1905–1913,” American Historical Review 65 (Oct. 1959)CrossRefGoogle Scholar: 58; Winerman, “Origins of the FTC,” 30.
35 Thompson, “James R. Garfield,” 82–88; E. Dana Durand, Memoirs (n.p., 1954), 132–35, 139–40; Leinwand, “History of the United States Federal Bureau of Corporations,” 52, 112–14. Fishbein, Meyer H., “Records Management in the Bureau of Corporations,” American Archivist 28 (Apr. 1955): 161–67CrossRefGoogle Scholar.
36 United States House Committee on Appropriations, Legislative, Executive, and Judicial Appropriation Bill for 1906 (Washington, 1904)Google Scholar, 211.
37 Ibid., 215. Also, United States House of Representatives, Hearings Before the Select Committee on Appropriations for the Prevention of Fraud in and Depredations Upon the Public Service Appointed Under H. Res. No. 480 (Washington, 1909)Google Scholar, 148; 1912 Ann. Report, 408.
38 Leinwand, “History of the United States Federal Bureau of Corporations,” 173–74; U.S. Bureau of Corporations, Report of the Commissioner of Corporations on the Beef Industry (Washington, 1905)Google Scholar.
39 Leinwand, “History of the United States Federal Bureau of Corporations,” 173–74, citing file 632, RG 122.
40 Report of the Commissioner of Corporations on the Beef Industry. Johnson, “Theodore Roosevelt and the Bureau of Corporations,” 578–80.
41 Leinwand, “History of the United States Federal Bureau of Corporations,” 182–86.
42 Ibid., 189–93. Roosevelt decried the decision, arguing it would nullify the Bureau of Corporations. He then induced Congress to pass a law in 1906 extending the immunity only to “natural persons who testified under oath.” Griffith, William, ed., The Roosevelt Policy: Speeches, Letters and State Papers, Relating to Corporate Wealth and Closely Allied Topics (New York, 1919)Google Scholar, 356.
43 Leinwand, “History of the United States Federal Bureau of Corporations,” 194–210; Johnson, “Theodore Roosevelt and the Bureau of Corporations,” 583–88.
44 Quoted in Leinwand, “History of the United States Federal Bureau of Corporations,” 297; citing file 4167-6, pt. 2, RG 122.
45 U.S. House Subcommittee on Legislative, Executive, and Judicial Appropriations, Legislative, Executive, and Judicial Appropriation Bill for 1913, Y4.Ap6/1:L52/913 (Washington, 1912)Google Scholar, 682.
46 The bureau used “efficient publicity” as a state-of-the-art term. See 1907 Ann. Report, 210; 1909 Ann. Report, 88; 1910 Ann. Report. 395; Sheingate, Adam D., “‘Publicity’ and Progressive-Era Origins of Modern Politics,” Critical Review 19 (May 2008): 461–80CrossRefGoogle Scholar, esp. 467–68.
47 Leinwand, “History of the United States Federal Bureau of Corporations,” 105.
48 1914 Ann. Report; Winerman, “Origins of the FTC,” 18. In 1911, Herbert Knox Smith remarked, “We had an enormous job on lumber. Congress asked us to find out the reasons for the high prices of lumber, and the lumbermen wanted to know how much timber there was standing in the country, something that was never known before. We sent our men into 900 counties, and we found within a margin of error of not more than 15 per cent the amount of standing timber in the country.” Legislative, Executive, and Judicial Appropriation Bill for 1913, 683.
49 House of Representatives, Committee on Interstate and Foreign Commerce, Interstate Trade Commission Hearings (Washington, 1916)Google Scholar, 228 [hereafter Adamson Hearings].
50 On Roosevelt's antitrust program and its implications for executive power, Sklar, Corporate Reconstruction, 195–201, 228–53. On the bureau's analysis of licensing, J. W. Mitchell, “Enforcement of Regulations of Interstate Commerce Based Upon a License System” (May 27, 1904), file 0-95-1, box 14, RG 122.
51 On Smith's evolving thought, Sklar, Corporate Reconstruction, 297–309.
52 Smith to Newlands, Aug. 4, 1911, in “Federal Trade Commission” (1914), S rept. 597, 28–31. By 1911, Brandeis was also advocating a government bureau. Louis Brandeis, “The Best Solution Is a Government Bureau” orig. 1911, repr. in The Curse of Bigness: Miscellaneous Papers of Louis D. Brandeis, ed. Frankel, O.K. (New York, 1934), 192–94Google Scholar, cited in Berk, Louis D. Brandeis, 81.
53 Adamson Hearings, 264–301. Rublee, George L., “The Original Plan and Early History of the Federal Trade Commission,” Proceedings of the Academy of Political Science 11 (1926): 114–20Google Scholar. James, Presidents, Parties, and the State, 183–86.
54 Smith to Newlands, Aug. 4, 1911, in “Federal Trade Commission” (1914), S rept. 597, 28–31.
55 Among scholars of law and economics, the same issues raised by Smith prompted a debate on whether common law systems are more economically efficient than civil law systems. Smith argued that an administrative law system could in fact be more efficient than a common law system due to administrative expertise. See Posner, Richard A., “A Reply to Some Recent Criticisms of the Efficiency Theory of the Common Law,” Hofstra Law Review 9 (1981): 775Google Scholar; and Markovits, Richard S., “Legal Analysis and the Economic Analysis of Allocative Efficiency: A Response to Professor Posner's Reply,” Hofstra Law Review 11 (1983)Google Scholar: 667. Smith's views anticipate Donald Horowitz's argument that as generalists, judges are poorly positioned to make decisions in areas that require extensive expertise. Horowitz, Donald L., The Courts and Social Policy (Washington, 1977), 33–56Google Scholar.
56 Adamson Hearings, 266. The Senate Interstate Commerce Committee repeated this argument in “Federal Trade Commission” (1914), S. rept. 597, 12.
57 Adamson Hearings, 264, 266, 268–69, 278. Also Davies, Trust Laws and Unfair Competition, 16–21.
58 Adamson Hearings, 270.
59 Ibid., 282–83, 295. A contemporary observer characterized the $5 million limitation as constraining the FTC, but this is at odds with Smith's comments just a year earlier. Young, Allyn A., “The Sherman Act and the New Antitrust Legislation, II,” Journal of Political Economy 23 (Apr. 1915)Google Scholar: 312.
60 “Federal Trade Commission” (1914), S rept. 597, 12, 28–31.
61 Adamson Hearings, 285–86. Berk, Louis D. Brandeis, 26, 95–99, identifies Brandeis as the principal exponent of uniform systems of accounting appropriate to each industry, as a vehicle for benchmarking and avoiding business strategies that maximize volume even when it undercuts profits.
62 Wiebe, “The House of Morgan and the Executive.” 49–60. Other corporations also sought prior approval of contracts and merger agreements. International Harvester (tied to Morgan) was upset when the Taft administration did not honor agreements made during the Roosevelt administration.
63 Woodrow Wilson, “Address on Antitrust Legislation to a Joint Session of Congress,” Jan. 20, 1914, in The Papers of Woodrow Wilson, ed. Link, Arthur S. (Princeton, 1979)Google Scholar, 29, 153–58. Brandeis, The Curse of Bigness, 135–36. For business testimony in favor of pre-clearance trade agreements, Adamson Hearings, 120, 226, 315, 440, 443, 461, 474.
64 Adamson Hearings, 287. 1903 Ann. Report, 11–12. On relations between the bureau and the Department of Justice, Leinwand, “History of the United States Federal Bureau of Corporations,” 290–309.
65 Joseph E. Davies, “Trust Legislation: Analysis of the Trust Question, Particularly as to Industrials, As Shown by Proposed Bills and Other Suggestions” (Dec. 9, 1913), file 1740-1, box 116, RG 122. Sanders, Roots of Reform, 291 (including table 8.3).
66 Adamson Hearings, 279, 287, 289. Brandeis also foresaw the FTC as having collaborative potential; Berk, Louis D. Brandeis, 95–99. “Interstate Trade Commission,” 63rd Cong., 2nd sess. (Apr. 14, 1914), H rept. 533, 6. A House minority report proposed granting the FTC broad powers while still instructing it to assist the Justice Department:“Interstate Trade Commission, Minority Views,” 63rd Cong., 2nd sess. (Apr. 20, 1914), H rept. 533, Part II, 2.
67 Theodore Roosevelt to James R. Garfield, Sept. 30, 1904; Garfield to Roosevelt, Oct 1, 1904, file 3161, box 186, RG 122.
68 Charles Earl, “In the Matter of Limitations upon the Use of Bureau Information,” Oct. 19, 1904, file 0-31-7, box 4, RG 122.
69 1912 Ann. Report, 405, 407, 409–11.
70 1913 Ann. Report, 70–71.
71 W.P. Sterns, memos of July 8 and July 28, 1913, file 1361-1, box 94, RG 122.
72 Frank Taussig to Joseph Davies, June 10, 1913, file 1360-2, box 94, RG 122; Brandeis had a conference with Davies on July 9, 1913, after which he suggested contacts to aid in the investigation. Brandeis to Davies, June 13, 1913, file 1360-3, box 94, RG 122.
73 Economists continued this debate off and on for decades, for example in the classic article, Stigler, George J., “Monopoly and Oligopoly by Merger,” American Economic Review 40 (May 1950): 23–34Google Scholar.
74 Berk, Louis D. Brandeis, 105. Hollis cited in Winerman, “Origins of the FTC,” 79–80. “Federal Trade Commission” (1914), S rept. 597, 10.
75 Sterns, memos of July 8 and July 28, 1913, file 1361-1, box 94, RG 122.
76 Data taken from Exhibit E, “Expenditures of the Bureau” 1914 Annual Report, 266–69. The bureau allocated $23,396 for the Efficiency Investigation by reducing its costs for other investigations, including lumber, steel, taxation, and tobacco. It spent $21,397 on a Trust Investigation. See 1914 Ann. Report, reprinted in Reports of the Department of Commerce, 63rd Cong., 2rd Sess. (1914), H doc. 1505, 51, 233–34, 265–67. A survey of state commissions is “Railroad, Public Service, and Corporations Commissions in the Various States of the United States: Preliminary Study” (May 13, 1913), box, 95, file 1409, RG 122; on surveying state practices, box 112, file 1503-1; on trust practices in Europe, box 112, file 1504-3.
77 1913 Ann. Report, 178–79.
78 Reports of the Department of Commerce, 63rd Cong., 2nd sess. (1913), H. doc. 812, 71-2. While no report on the efficiency investigation was ever published (the initial target date was late 1914, months after the eventual FTCA passage), some of its work was used in Davies, Trade Laws and Unfair Competition.
79 On the efficiency investigation, boxes 94–95, 115–16, RG 122. For correspondence with Newlands, file 1725-22-1, and Thomas, file 1735-32-1 box 116, RG 122.
80 Joseph E. Davies to Woodrow Wilson, Dec. 27, 1913, cited in James, Presidents, Parties and the State, 168–69.
81 Joseph E. Davies to Woodrow Wilson, Jan. 9, 1913, in Link, Papers of Woodrow Wilson, 29:78–85. According to Link, Davies’ letter was accompanied by the report “Analysis of the Trust Question, Particularly as to Industrials, as Shown by Proposed Bills and Other Suggestions,” Dec. 9, 1913, file 1740-1, box 116, RG 122. Also, E.J. McClintock, “More Detailed Summaries of Proposed Bills to Regulate Corporations and the Amend Sherman Law,” 1913, file 1740-1, box 116, RG 122. James, Presidents, Parties, and the State, 169, notes that by this time, Davies advocated a strong commission but does not attribute his adopting this position to his role at the bureau.
82 James, Presidents, Parties, and the State, 168–69.
83 New York Times, Feb. 17, 1914, quoted in ibid., 183. MacLean, “The Wisconsin Idea,” 262–68.
84 Davies, “Analysis of the Trust Question.” Carpenter, Reputation and Power, 15, lists “gatekeeping” as a category of power alongside “directive” and “conceptual.”
85 Wilson, “Address on Antitrust Legislation.”
86 Newlands reintroduced the bill on Apr. 13, 1913; “Federal Trade Commission,” (1914) S rept. 597, 5–6. On the Seven Sisters, Mahoney, “Backsliding Convert”; and James, Presidents, Parties, and the State, 162–65. Young, “The Sherman Act and the New Antitrust Legislation, II,” 309–10.
87 For summaries of House and Senate actions, see the following committee reports: “Control of Corporations, Persons, and Firms Engaged in Interstate Commerce,” 62nd Cong. 3rd sess. (Feb. 26, 1913), S rept. 1326; “Federal Trade Commission” (1914), S rept. 597; and “Interstate Trade Commission” (Apr. 14, 1914), H rept. 533. Also James, Presidents, Parties and the State, 170–83. James credits the poor economic conditions with abandoning the definitions bill, however the bureau's arguments put analytical weight behind this decision.
88 “Remarks at a Press Conference,” Mar. 15, 1914, in Link, Papers of Woodrow Wilson, 29:313, cited in James, Presidents, Parties, 180; on opposition to the definitions bill, 176–83. William Redfield to Leonard S. Smith, May 14, 1914, 116, file 1735-24-1, box 116, RG 122.
89 Worthy P. Sterns, “Trust Legislation: Arrangements and Practices in Unreasonable Restraints of Trade,” Feb. 19, 1914, file 1716-1, box 115, RG 122. Evidence from this memo was included in the final bureau publication: Davies, Trust Laws and Unfair Competition.
90 “Interstate Trade Commission, Views of the Minority” (1914), H rept. 533, pt. 2, 2; “Federal Trade Commission” (1914), S. rept. 597, 13. For a contemporary analysis of this general problem, Stevens, William S., “Unfair Competition,” Political Science Quarterly 20 (June and Sept. 1914): 282–306CrossRefGoogle Scholar, 460–90. Winerman, “Origins of the FTC,” 74–76, 84–87.
91 Young, “The Sherman Act and the New Anti-Trust Legislation, II,” 315–16.
92 Congressional Record, 63rd Cong., 2nd sess., (June 25, 1914), 11106–08.
93 United States Bureau of Corporations, Brief by the Bureau of Corporations Relative to Section 5 of the Bill (H.R. 15613) to Create a Federal Trade Commission (Washington, 1914)Google Scholar. Joseph Edward Davies to Woodrow Wilson, Aug. 21, 1914, Papers of Woodrow Wilson, 30:427–31. Winerman, “Origins of the FTC,” 90–91.
94 Sanders, Roots of Reform, 290–97.
95 Federal Trade Commission Act, 38 Stat. 717 (1914).
96 Newlands, Francis G., “The F.T.C. Bill,” Review of Reviews, Oct. 1914, 479Google Scholar.
97 Durand, E. Dana, “The Trust Legislation of 1914,” Quarterly Journal of Economics 29 (Nov. 1914): 72–97CrossRefGoogle Scholar.
98 Cornelius Lynde to Joseph E. Davies, Sept. 26, 1914, file 1735-19-1, box 116, RG 122. This file includes correspondence from the Chicago Association of Commerce.
99 James, Presidents, Parties, and the State, 198; Berk, Louis D. Brandeis, 90–111. Sklar, Corporate Reconstruction, 285–322, does credit Garfield and Smith for substantial policy development in consultation with Roosevelt.
100 Given these efforts, it is significant that the effectiveness of the bureau did not carry over to the FTC. The transition from a single chairman to a commission structure of the FTC caused unexpected problems. Davies, first chairman of the FTC, clashed with other commissioners, particularly Rublee. In the 1920s, newly appointed Republican commissioners reduced the agency's supervisory influence. Herring, E. Pendelton, “Politics, Personality, and the Federal Trade Commission I,” American Political Science Review 28 (Dec. 1934): 1016–29CrossRefGoogle Scholar; Davies, G. Cullum, “The Transformation of the Federal Trade Commission,” Mississippi Valley Historical Review 49 (Dec. 1962): 437–55Google Scholar; MacLean “The Wisconsin Idea,” 283. Berk, Louis D. Brandeis, 115–19, argues, by contrast, that despite the discord the FTC developed a sort of “cultivational governance.”