Mr. PettengilL. Well, you disagree with the draft of the bill as to the authority to govern the stock exchange; matter of representation; the segregation of dealer and broker; rigidity as against elasticity; the specialist, as I understand; and also the matter of unlisted securities and borrowings only from member banks of the Federal Reserve System. When I spoke about rigidity, I intended to cover the margin requirements.

I think your statement has been very helpful to us.

Mr. DICKINSON. Thank you, very much.

Mr. COOPER. Mr. Chairman

The CHAIRMAN. Mr. Cooper.

Mr. COOPER. Mr. Dickinson, I appreciate your coming before the committee this morning and making this statement. It is the best explanation, clearest explanation, of what I think the bill does that we have heard.

Now, if I get your position rightly, you believe that the stock exchanges themselves should be required to set up rules and regulations against unfair practices and bad dealings and then some governmental authority should be set up to see that the regulations and rules of the stock exchanges are rigidly enforced?

Mr. DICKINSON. Yes, sir; exactly; and hold them to it.

And, I should say that that was the unanimous opinion of the members of the Roper committee.

Mr. PETTENGILL. May I ask how long did your committee study it; over how long a period did your studies cover?

Mr. DICKINSON. Why, sir, we had, I suppose, a dozen or fifteen sessions of 3 to 12 hours each, beginning last July, I should say, or certainly a good way back into the summer.

Mr. PETTENGILL. Did you have witnesses appear before you?

Mr. DICKINSON. No, sir; we did at one time receive a committee of the stock-exchange people who asked to see us and we did not want them to get the impression that we were conducting any star-chamber proceedings, so we had a pleasant afternoon's conference with them. Mr. HUDDLESTON. Mr. Chairman

The CHAIRMAN. Mr. Huddleston.

Mr. HUDDLESTON. Mr. Dickinson, the Roper committee was a committee composed of yourself and four other persons?

Mr. DICKINSON. That is correct, sir.

Mr. HUDDLESTON. By what title is that committee known? It has been referred to here as the Roper committee.

Mr. DICKINSON. Well, sir, we have generally been referred to as either the Roper committee or the interdepartmental committee. Mr. HUDDLESTON. By whom was it appointed?

Mr. DICKINSON. Appointed by Secretary Roper at the request, as he informed me, of the President.

Mr. HUDDLESTON. For the purpose of doing what?

Mr. DICKINSON. For the purpose of studying the whole matter of stock exchange regulation and making to Secretary Roper a report, which I suppose the President asked him to transmit to him, because that is what the Secretary did with the report when we made it to him.

Mr. HUDDLESTON. I have before me the report of the committee referred to and would like to call your attention to a paragraph on page 4.

Mr. DICKINSON. Yes, sir.

Mr. HUDDLESTON. Which relates to the power of Congress to deal with this subject.

Your committee believes that under a realistic interpretation of the Constitution, stock-exchange operations and transactions may be constitutionally regulated by the Federal Government through the use of the postal power and the power to regulate interstate commerce and its incidents. On this assumption, a statute would, we believe, be valid which would provide that unless an exchange operated under a license issued by the Federal Government, no quotations of prices on such exchange, no offers to buy or sell, no contracts or communications relating to the transactions on such exchange, could be transmitted through the mails or by means of the instrumentalities of interstate commerce. In the event of such requirement of a Federal license, there would be attached to the license as conditions of issue and continued enjoyment, compliance with the regulatory requirements outlined by the statute. This is analogous to the system of Federal regulation applied to grain exchanges by the Grain Futures Act, and held constitutional by the Supreme Court. (Board of Trade v. Olsen, 262 U.S. 1.) Other possible sanctions are discussed below.

I have not had an opportunity to study this report as carefully as I shall. Will you tell us what are the other possible sanctions referred to?

Mr. DICKINSON. Mr. Huddleston, I am frank to say that for the moment I do not know what that phrase refers to. I do not think of any sanctions that are referred to here other than the power to deny the privileges of the mail or the instrumentalities of interstate commerce to transactions on an exchange which does not comply with the terms of its license or submit to the disciplinary measures which its license provides for. I am sorry that I am at a loss about helping you on that point.

Mr. HUDDLESTON. I did not find any others.

Mr. DICKINSON. No, sir; I do not think of any. I rather wonder whether that is not one of those tag-end sentences which get put on in the idea of perhaps an extension of the report, or something of that kind, and then nothing ever happened.

Mr. HUDDLESTON. Now, I find in section 2 of the bill

Mr. DICKINSON. Section 2?

Mr. HUDDLESTON. Of the bill.

Mr. DICKINSON. Yes, sir.

Mr. HUDDLESTON. What I am compelled to refer to is a very labored effort to find a basis of the constitutional authority for the provisions of the proposed statute. Apparently everything is dragged in upon which it might be conceived that such a power could be founded, but in trying to analyze those various grounds, it seems to me that they all come back to the regulation of the mailsMr. DICKINSON. And of interstate commerce.

Mr. HUDDLESTON. And the commerce clause of the Constitution. Mr. DICKINSON. It seems so to me.

Mr. HUDDLESTON. Now, this is a point that I am very definitely concerned about. Assuming the power to require that a stock exchange be licensed, is there no limit to the conditions which may be attached to such a license?

Mr. DICKINSON. Why; yes, sir; I should say that there was a limit. Mr. HUDDLESTON. What is the limit?

Mr. DICKINSON. I should say that it was the limit imposed by the due process clause of the fifth amendment. It seems to me, sir, that Congress exercises a regulatory power through one of the specially

granted powers, when it makes use of the taxing power to regulate, as it frequently does, or when it uses the interstate commerce power to regulate, there is precisely the same limitation upon that power to regulate which there is, in the case of State regulation, upon the State police power, namely, the limitation of due process, that the regulation must be reasonable; that it must be directed to some end which can appropriately be called a desirable public end and that it must be reasonably adapted to the attainment of that end.

Mr. HUDDLESTON. May I ask as a sort of foundation, what is your idea of the purpose of the commerce clause?

Mr. DICKINSON. Well, sir, that is a very broad question and books have been written upon it. It seems to me that the purpose of the commerce clause is to grant the power to Congress over certain subject matters which power shall be exercised for the public welfare and in the interest of the public.

You remember what Judge Tawney's definition of the police power is. He said it was the general power to make wise laws for the good of the whole people, or something of that sort.

Now, the purpose of the commerce clause is to empower Congress to regulate certain subject matter for some end that is in the interest of the public welfare.

Mr. HUDDLESTON. Only as the public welfare relates to commerce between the States; is not that correct?

Mr. DICKINSON. No, sir; I do not hink I would accept that limitation.

Mr. HUDDLESTON. May Congress, under the guise of that power, accomplish some other end than the regulation of commerce?

Mr. DICKINSON. It does not seem to me that the power is circular and exists only for itself. The power to regulate commerce is like the power to regulate a clock. You do not necessarily regulate the clock only for the welfare of the clock, and similarly, you do not necessarily regulate commerce only for the welfare of commerce.

Mr. HUDDLESTON. You regulate the clock for the purpose of causing the clock to keep time.

Mr. DICKINSON. Which is the only purpose that the clock is good for; but you regulate the commerce in connection with whatever commerce is good for and therefore you can accomplish these public. ends that are affected by the particular subject matter, by the regulation of the subject matter.

Mr. HUDDLESTON. You do not agree then with the narrow construction that the purpose of the commerce clause was to facilitate intercourse and trade between the people of the several States?

Mr. DICKINSON. No, sir; I do not think it is limited to the facilitation of trade. I think that as a matter of fact we have very frequently used it for other purposes, where the end seemed one that was desirable in the public interest and where that end could be accomplished by the regulation of commerce.

Mr. HUDDLESTON. The courts have held that under that clause we cannot "prohibit" commerce in legitimate objects.

Mr. DICKINSON. Precisely. There is the test, the word "legitimate. In other words, it is the test of the fifth amendment. You cannot exercise this power which you have to accomplish an end that is unreasonable. If Congress had a police power, which it has not, just as the States have a police power, it could not exercise that police

power for the prohibition of legitimate objects of commerce and neither can it exercise the expressly granted commerce power for the prohibition of commerce in legitimate objects.

Mr. HUDDLESTON. I assume that you do agree that the regulation must be a real "regulation"?

Mr. DICKINSON. Yes, sir.

Mr. HUDDLESTON. And that it must be nothing more than a "regulation"?

Mr. DICKINSON. Well, it would be rather difficult to say what would be a regulation.

Mr. HUDDLESTON. Whatever the definition of "regulation" is, it must be done.

Mr. DICKINSON. Yes.

Mr. HUDDLESTON. Then, I ask whether any conditions could be attached to licensing which are not properly, rightfully, and raesonably a regulation?

Mr. DICKINSON. Well, sir, I do not think that any conditions could be attached to the licensing which would be unreasonable under the fifth amendment, but I think that the conditions

Mr. HUDDLESTON. If I might ask

Mr. DICKINSON. (continuing). Might I just add one sentence?
Mr. HUDDLESTON. Go ahead.

Mr. DICKINSON. But, I do think conditions could be attached which would not themselves be regulation of commerce; that in other words, you can regulate commerce, for example, by regulating the kind of examination that an engineer must have made of his eyes.

Now, that examination of the engineer's eyes is not commerce; but you are effecting it through your exercise of the power to regulate

commerce.

Mr. HUDDLESTON. It has a direct relation to commerce.

Mr. DICKINSON. It has a direct relation to commerce; yes, sir.

Mr. HUDDLESTON. Now, by this bill, we undertake to require exchanges to obtain a license, and as a condition, we have attached certain requirements, which have no direct relationship to and are not reasonably necessary

Mr. DICKINSON. For the regulation of commerce?

Mr. HUDDLESTON. Nor incidental.

Mr. DICKINSON. Yes, sir.

Mr. HUDDLESTON. Can that be done?

Mr. DICKINSON. That is my understanding.

Mr. HUDDLESTON. May we do that?

Mr. DICKINSON. It seems to me that we may.

Mr. HUDDLESTON. Can we do more under a licensing system than we could do by the direct regulation of the commerce? Can we make a licensing system an excuse to reach out and grasp other powers? Must it not be a licensing system in good faith, and a reasonable and fair system? Is it to be a cloak under which we may advance on an activity to thrust it with some spear of regulation that has nothing to do with the stock exchange?

Mr. DICKINSON. I should think, sir, if we could reach it with the spear of the commerce power, why, we could pierce it with that spear. Mr. HUDDLESTON. Well, that, of course, comes right back to where we started.

I interrupted you a moment ago because of the fact I was a little impatient to ask concerning your reference to the fifth amendment. Pardon me.

Mr. DICKINSON. Not a bit.

Mr. HUDDLESTON. You have referred the second time to the fifth amendment as a block to regulation, and I want to ask, right on that point, whether it is necessary that when Congress exercises its power under the commerce clause it may reach on until it beats up against a stone wall of some constitutional prohibition? Is not the commerce clause merely enabling? Does it not merely carry so far and no farther? Is it a license to Congress to proceed to the ends of the earth unless we come up against a constitutional provision that prohibits us from going further?

Mr. DICKINSON. Mr. Huddleston, I realize, sir, that we are in a realm of disputed constitutional interpretation here, and I realize that the courts have spoken in different senses; but it seems to me that the current of their decisions has been-and this is only my own interpretation in the direction of holding that a power granted may be used on all the subject matters that fall within that power until it meets the barrier of some constitutional provision.

There is one line of cases that might be thought to stand in the way of what I am saying, and I refer to two or three tax cases, where the Supreme Court held that a tax which was used as a bludgeon, so to speak, to compel compliance with an elaborate scheme of regulation, was unconstitutional. I refer to the child-labor tax case, Bailey v. Drexel Furniture Co. (259 U.S. 20). But it seems to me that that was based on the ground that that was not a real tax at all, because it did not come into operation except when some one or more of the regulatory provisions of the statute were violated, and then the violator had to pay a tax.

Now, that kind of a tax really is not a tax. That is a penalty. But, on the other hand, I do not think anyone can say that a denial of the use of the facilities of interstate commerce is not a regulation of interstate commerce.

Mr. HUDDLESTON. As I understand the Bailey case, the essence of it was that although Congress was ostensibly exercising the taxing power, what it was really doing, as found by the courts, was attempting to regulate commerce which was not interstate commerce.

Mr. DICKINSON. And yet, you know, Mr. Huddleston, there was a very interesting decision handed down at the last term of the court, in the case of the regents of the University of Illinois versus The Collector, where the University of Illinois, which is a State institution, claimed that it was immune from having to pay a tariff on its imports, because the tariff was a tax, and levied under the taxing power, and that Congress could not tax a State instrumentality, and the court got around it by saying, "Well, it is true that the tariff is a tax, yet it is really a regulation of foreign commerce and not a tax at all, and yet it is all right as a regulation of foreign commerce."

Now, there a tax is upheld as a regulation. And, of course, there is a whole line of cases like that, the Veazie Bank case (Veazie Bank v. Fenno, 8 Wall. 533), and the first oleomargarine case, and so on, where it was held that if a thing was a tax, the fact that it was imposed for the purpose of accomplishing a police-power object by driving some commodity out of the market, or by driving State