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Joseph E. Davies: The Wisconsin Idea and the Origins of the Federal Trade Commission1
Published online by Cambridge University Press: 08 November 2010
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In response to an enormous growth of trusts in the late nineteenth century, demands for reform among a wide spectrum of interest groups culminated in the Federal Trade Commission Act of 1915. Playing an influential, though little-recognized role in framing this legislation was Wisconsin progressive Democrat Joseph E. Davies. As Commissioner of Corporations, Davies served in a unique, dual capacity as both politician and regulator, giving him access to President Woodrow Wilson and influence on the antitrust legislation. Davies used his position to promote a vision of administrative regulation based on the nationally recognized “Wisconsin Idea.” In so doing, he intensified conflicts among Wilson's policy advisers that, in turn, had a critical impact on the antitrust legislation and on the potential effectiveness of the first commission. In the long run, however, Davies' approach to regulatory policy, based on the Wisconsin Idea, would become standard operating procedure for successful regulatory commissions of the twentieth century.
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References
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109 Davies to Wilson, Aug. 21, 1914, in , Link, Wilson Papers, 30: 427–31.Google Scholar Based on the assumption of broad business support for narrow review, Davies' enthusiasm for the concept led revisionist critics to charge later that he was motivated primarily by a desire to promote the interests of big business. See , Kolko, Triumph, 266–67.Google Scholar His true intent, however, had more to do with his effort to institutionalize the principles of commission government. Davies favored narrow review because he hoped to enlarge the power and scope of the new administrative agency relative to the judiciary. In Corporate Reconstruction, 422Google Scholar , Sklar argued that “by subjecting all [of the commission's] actions, orders, and procedures to judicial review, [the FTC Act] maintained judicial supremacy over executive administration, and with it the supremacy of society in its market relations over the state, in accord with time-honored liberal principles.” On the negative consequences of broad review, see also McFarland, Carl, Judicial Control of the Federal Trade Commission and the Interstate Commerce Commission: 1920-1930 (Cambridge, MA, 1933), ch. 3Google Scholar ; and Blaisdell, Thomas C. Jr, The Federal Trade Commission: An Experiment in the Control of Business (New York, 1932), chs. 2, 3, 8Google Scholar.
110 Wilson's wife died on August 6, and Davies probably understood that the president would have only begun to resume an active correspondence. Nevertheless, only five days later, Wilson tried to convert Newlands to his position on judicial review. See Wilson to James Harry Covington, Aug. 27, 1914, in , Link, Wilson Papers, 30: 454–55.Google Scholar See also , Link, New Freedom, 441, note 80Google Scholar.
111 Davies to Charles A. Culberson, Sept. 23, 1914, File No. 1737–1, General Records of the Bureau of Corporations, Federal Trade Commission Records, RG 122. Referring to the phrase “to substantially lessen competition,” Blaisdell commented that the qualifying phrase threw “a burden of proof on the Commission to determine just how much the competition [had to] be lessened in order to be substantially lessened.” See , Blaisdell, Federal Trade Commission, 44.Google Scholar
112 Davies to House, June 22, 1914, House Papers; Davies' 1915 Chamber of Commerce Speech; Wilson's Jan. 1914 Message on Trusts and Monopolies.
113 , Moore, “Federal Trade Commission,” 59–60.Google Scholar See also Rublee, George, “The Original Plan and Early History of the Federal Trade Commission,” Proceedings of the Academy of Political Science 11 (1924-1926): 119Google Scholar ; and “Statement of Mr. Arthur Eddy before the Federal Trade Commission,” May 4, 1915, File No. 40–2-25-1, GRDS, RG 122.
114 Statement of Louis Brandeis before the Federal Trade Commission, Apr. 30, 1915, 4, Document 163 of A Microfilm Edition of the Public Papers of Ljmis Dembitz Brandeis in the Jacob and Bertha Goldfarb Library of Brandeis University, Waltham, MA.
115 , Kolko, Triumph, 262, 266, 271–72.Google Scholar
116 Davies to House, June 22, 1914, House Papers; Davies' 1914 Williams College Speech. For “cupidity,” see 1918 FTC Conference with Untermyer, 32. For “contrary” and “no protection” see Eddy's 1915 Statement before Trade Commission, 26, 41.
117 Sharfman, I. L., The Interstate Commerce Commission: A Study in Administrative IMW and Procedure (New York, 1931), 2:357–85Google Scholar ; , McCraw, Prophets, 153, 159, 213–16.Google Scholar See also Landis, James, Administrative Process (New Haven, 1938)Google Scholar.
118 , McCraw, Prophets, 129.Google Scholar
119 Benedict, “Law and Regulation”; Wilson's Jan. 1914 Message on Trusts and Monopolies.
120 , McCraw, Prophets, 129–30Google Scholar ; McCraw, Thomas K., “The Progressive Legacy” in The Progressive Era, ed. Gould, Lewis (New York, 1974), 189, 199.Google Scholar For Davies' later career, see MacLean, Elizabeth K., Joseph E. Davies: Envoy to the Soviets (Westport, CT, 1992)Google Scholar.
121 For “combat” and “kill,” see , Urofsky, Brandeis and Progressive Tradition, 6, 12–13.Google Scholar For “holy crusade” and a critique of Brandeis' approach, see , McCraw, Prophets, 85-89, 94Google Scholar.
122 President Van Hise, for instance, supported advance advice and advised Davies on the subject. See Charles Van Hise to Davies, Aug. 23, 1915, File No. 8006–16, Federal Trade Commission Central Files, RG 122. See also Van Hise, Concentration and Control.
123 , Strum, Justice, 139-40, 145.Google Scholar The different approaches to the Wisconsin Idea brought out its implicit central contradiction between democracy and centralized bureaucracies run by experts. See , Buenker, History of Wisconsin, 4:603–05Google Scholar.
124 Brandeis to Norman Hapgood, Oct. 2, 1912, in , Urofsky and , Levy, Letters of Brandeis, 2:694–96.Google Scholar For “practically framed,” see Brandeis to Wilson, Sept. 30, 1912, in Ibid., 686. See also Brandeis's 1912 Suggestions on Trusts; and , Margulies, Decline of Progressive Movement, 131–32.Google Scholar Though critical of Van Hise's views, Brandeis also respected him and even had recommended him to Wilson in 1913 to serve as chief of Wilson's Industrial Commission. See Brandeis to Wilson, May 19, 1913, in , Urofsky and , Levy, Letters of Brandeis, 3: 87Google Scholar.
125 , Margulies, Decline of Progressive Movement, 124-25, 135-37, 142–51.Google Scholar “Complete repudiation” quoted in , Thelen, Insurgent Spirit, 118Google Scholar.
126 , Thelen, Insurgent Spirit, 102-04, 113–16.Google Scholar So disappointed was La Follette in ICC policies and Wilson's ICC appointments, moreover, that by late 1914 he was touting the benefits of government ownership of railroads in place of regulation.
127 Ray Stannard Baker, interview with Louis D. Brandeis, Mar. 23, 1929, Ray Stannard Baker Papers, Manuscript Division, Library of Congress.
128 For the texts of the Clayton and FTC Acts, see Kintner, Earl W., ed., The Legislative History of the Federal Antitrust Laws and Related Statutes, Part I: The Antitrust Laws (New York, 1982), 2:1061–70, 5:3721-27.Google Scholar
129 For contemporary analyses of the new powers of the trade commission, see Young, Allyn A., “The Sherman Act and the New Antitrust Legislation II,” Journal of Political Economy 23 (May 1915): 429–36Google Scholar ; and Durand, E. Dana, “The Trust Legislation of 1914,” Quarterly Journal of Economics 29 (Nov. 1914): 90–97CrossRefGoogle Scholar.
130 Neither the Clayton nor FTC Act entirely satisfied Davies' objectives. The Clayton Act, for instance, contained the phrase “to substantially lessen competition” after the proscribed prohibitions, seriously weakening them, while, as stated above, the court would exercise broad review of the commission's decisions.
131 Brandeis to Rublee, Oct. 9, 1914, in , Urofsky and , Levy, Letters of Brandeis, 3:320.Google Scholar
132 On the hampering effects of the FTC legislation, the failure to resolve crucial issues, and the need for advance advice, see, for instance, , Moore, “Federal Trade Commission,” 41, 47, 49–51Google Scholar ; Henderson, Gerald C., The Federal Trade Commission: A Study in Administrative Law and Procedure (New Haven, 1924), 49-104, 327–42Google Scholar ; , McCraw, Prophets, 124–33Google Scholar ; Stone, Alan, Economic 'Regulation and the Public Interest: The Federal Trade Commission in Theory and Practice (Ithaca, NY, 1977), 59Google Scholar ; and Herring, E. Pendleton, “Politics, Personalities and the Federal Trade Commission,” American Political Science Review 28 (Dec. 1934): 1017–18.CrossRefGoogle Scholar Because the power to define unfair methods gave the commissioners the equally crucial power to select which cases were in “the interest of the public” and thus subject to cease and desist orders, some agreement on the definition of unfair practices was crucial to the successful functioning of the new agency.
133 According to the Federal Trade Commission Act, Wilson's original appointments would have staggered terms of three to seven years. All subsequent appointees would serve for seven years. The chairman would be chosen by the commissioners themselves. See Kintner, , ed., Legislative History, 5:3721.Google Scholar
134 Davies to Tumulty, Feb. 18, Wilson to Davies, Feb. 20, 1915, series 2, Wilson Papers.
135 The two Democrats were Edward N. Hurley, a businessman from Illinois, and William J. Harris, a politician from Georgia. The Western Progressive recommended by Davies was Will H. Parry, a Seattle businessman. See Davies to James T. Gregory, Jan. 6, Gregory to Davies, Jan. 12, Davies to Wilson, Jan. 13, 1915, series 2, Wilson Papers. Republicans, “angry that no regular Republican was named,” interpreted the Rublee and Parry nominations as an effort to gain support among Progressives for 1916. See New York Times, Feb. 23, 1915.
136 On the connection that Wilson saw between Rublee's confirmation and, in light of the 1916 election, the critical need to “gain the confidence of the independent voters,” see Wilson to Adee Pomerene, May 12, 1916, in , Link, Wilson Papers, 37:25.Google Scholar
137 On the origins of Rublee's “religiously inspired interest in public service,” see McClure, Marc Eric, Earnest Endeavors: The Life and Public Work of George Kublee (Westport, CT, 2003), 5, 13, 15.Google Scholar For quotations concerning Rublee's temperament, see Davis, George Cullom, “The Federal Trade Commission: Promise and Practice in Regulating Business, 1900-1929” (Ph.D. diss., University of Illinois, 1969), 123.Google Scholar For “teamwork,” see Davies to House, Mar. 23, 1915, House Papers. For differing perspectives on the conflict between Davies and Rublee, see , Moore, “Federal Trade Commission,” ch. 3Google Scholar ; and , McClure, Earnest Endeavors, 112-15, 126Google Scholar.
138 For an analysis of Davies' role on the FTC from 1915 to 1918 and the evolution of his approach to commission policy in the years following, see the author's forthcoming manu-script, “Joseph E. Davies: Wilson's White Haired Boy.”
139 , Moore, “Federal Trade Commission,” chs. 9–11.Google Scholar In September, 1917, Davies recom-mended that Victor Murdock, well-known progressive and newest member of the commission, take over supervision of the investigation as a means of dividing more equally the FTC work load. It is unclear if Davies had other, unstated motives for his proposal. Nevertheless, the commissioners ultimately agreed that Davies should continue supervising the investigation. See Minutes of Meetings of the Federal Trade Commission, Sept. 26, 27, 28, 1917, FTC Minutes, The Early Years: Sept.-Oct. 1917, http://ftc.gov/os/minutes/sep-oct1917.pdf.
140 Although the 1921 Packers and Stockyards Act provided “stricter government control over meatpackers,” it nevertheless “exempted the meatpackers from future FTC investigation or regulation.” See , Davis, “The Federal Trade Commission,” 225.Google Scholar For the Supreme Court decision, see F.T.C. v. Warren, Jones and Gratz 258 Fed. 314 (1919)Google Scholar , 253 U.S. 421 (1920). Despite those setbacks, the FTC managed to continue an activist policy until the mid-twenties, when Republican appointees came to dominate the commission.
141 “Davies: Resignation as Federal Trade Commissioner–Addresses,” March 4, 1918, 4-5, File No. 40–2-28-1, GRDS, RG 122.
142 On the significance of the election and Davies' candidacy, see Breckinridge Long, Diary, March 13,1918, Breckinridge Long Papers, Manuscript Division, Library of Congress; and Wilson to Davies, March 18, 1918, in , Link, Wilson Papers, 47: 52–53.Google Scholar
143 Livermore, Seward W., “The Sectional Issue in the 1918 Congressional Elections,” Mississippi Valley Historical Review 35 (June 1948): 29–32.CrossRefGoogle Scholar La Follette's old colleagues at the university cut him even more deeply as they severed their last ties in a devastating critique of his anti-war position. See , Thelen, Insurgent Spirit, 144Google Scholar.
144 Combining political acumen with a new career in diplomacy, Davies would reestablish his position as a policy analyst for Franklin Roosevelt. As ambassador to the Soviet Union and unofficial liaison to Soviet officials, he would apply the principles of mediation, advocated years earlier by Wisconsin Idea enthusiasts, to promote Roosevelt's policy of cooperation with the Soviet Union. See , MacLean, Envoy to the Soviets, chs. 1-9.Google Scholar
145 Baker, interview with Brandeis, March 23, 1929, Baker Papers. Rublee, who played a critical role in Davies' demotion from the chairmanship in 1916, directed many of his complaints about Davies to Brandeis. See Rublee to Brandeis, Mar. 6, 22, Oct. 1, 1915, Louis D. Brandeis Papers, University of Louisville, Louisville, KY. See also , Rublee, “Reminiscences,” 124-26, 130, 132-33, 135-37, 144, 146–47.Google Scholar For references to Brandeis' comments in his 1929 interview with Baker, see, for instance, Link, Arthur S., Woodrow Wilson and the Progressive Era: 1910-1917 (New York, 1954), 74Google Scholar ; and , McCraw, Prophets, 126.Google Scholar Other historians blamed the ineffectiveness of the commission and its alleged pro-big-business bias on Davies. See, , Kolko, Triumph, 257–78Google Scholar ; and Urofsky, Melvin I., Big Steel and the Wilson Administration: A Study in Business-Government Relations (Columbus, OH, 1969), 60, 175.Google Scholar Most scholars simply ignored Davies or relegated him to a few comments in the footnotes. See, for instance, , McCraw, Prophets, 337Google Scholar , note 100; and , Sklar, Corporate Reconstruction, 94, note 6.Google Scholar For a different perspective on Davies' role on the FTC, see Herring, E. Pendleton, “The Federal Trade Commissioners,” George Washington Taw Review 8 (Jan.-Feb. 1940): 345Google Scholar ; and Moore, “Federal Trade Commission.”
146 Davies, “The Federal Trade Commission” in Freund et al., Growth of Administrative Taw, and “Federal Trade Commission” in Florida State Bar Association. For an analysis of the evolution of the administrative-judicial relationship in the twentieth century, see Breyer, Stephen G. and Stewart, Richard B., Administrative Law and Regulatory Policy: Problems, Text, and Cases, 2nd ed. (Boston, 1985).Google Scholar
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