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question of fact and of administrative judgment whether and how far the regu. lation shall be extended beyond the exchanges themselves and applied to related and collateral activities.

I Regulation of security exchanges is a national problem.-The national character of the problem of the regulation of security exchanges is shown by the facts. Some of them are subject to judicial notice. Others have been brought out by the congressional investigations or have been gathered as a result of independent studies. A few of the broader aspects may be noted here as bearing on the national interest.

Transactions upon the security exchanges may have a direct effect upon the ability of the instrumentalities of interstate commerce to perform their functions. New security flotation is difficult if, because of manipulation or loss of public confidence, existing securities have shrunk to abnormally low values. With this should be considered the frequent refunding operations made necessary for the American railways by virtue of their heavy funded debt. The other carriers (air and motor transport, pipe lines) have in general a small funded debt but their stock distribution is more limited, making speculative movements more severe. No reason appears why the burden which may thus be imposed upon the efficient functioning of the interstate transportation system is any less direct or real than that of low intrastate passenger fares, Railroad Commission of Wisconsin v. Chicago, B. & Q. R. Co. (257 U.S. 563).

Interstate commerce in largest part consists of the movement of goods financed by credit. Without adequate credit facilities the physical instrumentalities of interstate commerce are near to useless. An unrestrained speculative activity absorbing, at times, billions of dollars of credit, at high interest rates, of necessity increases the cost of financing and, to a significant extent, diminishes the volume of credit available for the interstate transaction. An even more serious impediment to the continued functioning of this interstate shipment is found in the vulnerability of the commercial banking system to extreme fluetuations in the quoted values of securities. Through direct investment and through collateral required of the borrower, the commercial banks are so circumstanced that an abrupt decline from a speculative peak must reap a heavy toll in insolvency, with consequent attrition of the interstate movement of commodities. A congressional power which can reach the purchase of stock in competing businesses, Northern Securities Co. v. United States (193 U.S. 197), the charging of discriminatory prices, Van Camp & Sons v. American Can Co. (278 U.S. 235), and the publication of an “unfair" list, Loewe v. Lawlor (208 U.S. 274), because of a possible diminution of interstate commerce, hardly can be said to fall short of protecting the essential credit foundation from the dangers presented by an unrestrained speculative market for securities.

Since “commerce among the States is not a technical legal conception, but a practical one, drawn from the course of business”, (Swift & Co. v. United States, 196 U.S. 375, 399) one must take a practical view of the nature of interstate com

In commercial reality it is, in the largest part, the result of orders placed by businessmen hoping to resell at a profit. If their predictions of their markets fluctuate, so will fluctuate the volume of interstate commerce. The movement of securities on organized exchanges is an important matter in shaping the judge ment of business men as to the future. It seems clear that a power to regulate interstate commerce is incomplete if it cannot serve to guard the exchanges from manipulated movements and speculative hysteria. The words of Woolsey, J., are peculiarly appropriate in this regard (United States v. Brown, 5 F. Supp. 81, 85; D.C., S.D.N.Y. 1933):

When an outsider, a member of the public, reads the price quotations of a stock listed on an exchange, he is justified in supposing that the quoted price is an appraisal of the value of that stock due to a series of actual sales between various persons dealing at arm's length in a free and open market on the exchange, and so represents a true chancering of the market value of that stock thereon under the process of attrition due to supply operating against demand."

None but the brave could say that interstate commerce is more directly burdened by the exclusion of cooperative marketing associations from grain exchanges, Board of Trade v. Olsen (262 U.S. 1), than by speculative upheavals on the securities markets.

The marketing of securities in interstate commerce has recently been subjected to a large measure of congressional control. See The Securities Act of 1933 (33 Columbia Law Review 1220). This control is incomplete without control of the securities exchanges. “Market support” is an almost invariable corollary of


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security distribution and, in the case of stocks, is often accompanied by additional sales on the exchange made by the sponsoring banking house or syndicate.

The strength of the national interest in the proper functioning of the securities exchanges hardly can be questioned. Ours is a credit economy, dependent upon the exchanges for the liquidity of its fixed assets and for the solvency of its financial institutions. This national interest is a factor which of necessity colors any judicial consideration of the implications of the commerce clause. As Holmes, J., writing for the court in Missouri v. Holland 252 U.S. 416, 433, 435), sustaining an aet of Congress to carry out a treaty relating to the protection of migratory birds, said:

it is not lightly to be assumed that, in matters requiring national action, 'a power which must belong to and somewhere reside in every civilized government' is not to be found

Here a national interest of very nearly the first magnitude is involved

We see nothing in the Constitution that compels the Government to sit by while a food supply is cut off and the protectors of our forests and of our crops are destroyed. It is not sufficient to rely upon the States. The reliance is vain, and were it otherwise, the question is whether the United States is forbidden to act."

While the existence of a national problem does not prove the existence of a national power, it does at least provide a good place to begin the inquiry. In the same case from which we have just quoted in answer to the contention that the Migratory Bird Act constituted an invasion of power reserved to the States by the tenth amendment, Mr. Justice Holmes said (at 434):

“We must consider what this country has become in deciding what that amendment has reserved."


The scope of the commerce clause is largely a question of fact.-That the scope of the commerce clause is commensurate with the national interests and that in proper circumstances Congress may control situations normally considered intrastate, is a doctrine announced by John Marshall more than a century ago. In discussing the power of Congress in Gibbons v. Ogden (9 Wheaton 1) he attempted to indicate something of its range by suggesting what it could not reach:

The genius and character of the whole Government seem to be, that its action is to be applied to all the external concerns of the Nation, and to those internal concerns which affect the States generally; but not to those which are completely within a particular State, which do not affect other States, and with which it is not necessary to interfere, for the purpose of executing some of the general powers of the Government (at 195)."

Thus was the matter put in 1824. And it should not be forgotten that this case, with its wide suggestion concerning the extent to which the delegated power over commerce may reach intrastate, came shortly after M'Culloch v. Maryland (4 Wheaton 316), with its doctrine of implied powers written into the theory of delegated powers, and constitutes part of Marshall's general development of constitutional interpretation. Under the affirmative implications of the words just quoted, it is permissible for Congress to regulate the internal concerns of a State if they affect other States and if it is necessary to interfere with them for the purpose of executing some of the general powers of the Nation.

As a corollary of the general rule that Congress has the implied power to take such steps as may be necessary to make effective its exercise of an express power, the Supreme Court has established the authority of Congress to enact whatever legislation is appropriate to "foster, protect, control, and restrain" interstate commerce. Second Employers' Liability Cases (223 U.S. 1); Mobile County v. Kimball (102 U.S. 691, 697); The Daniel Ball (10 Wall. 557, 564). This power, when need arises, extends not only to strictly interstate matters, but also to intrastate matters whenever the two are so intertwined or related as to affect interstate commerce or its successful regulation by the Federal Government. This exertion of congressional power is not restricted in niggardly fashion, but is recognized to be a governmental necessity and a beneficent adjunct of Federal authority

But before examining the method by which the power may be extended to embrace intrastate affairs, it is well to note that, for the regulation of security exchanges, there is a core of interstate transactions around which the power of Congress may be built. For considerable proportions of the sales on the larger exchanges are made by interstate communication or contemplate physical delivery across State lines. That the transportation occurs before or after the sale does not serve to remove the transaction from he powter of Congress to regulate

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under the commerce clause. Dahnke-Walker Milling Co. v. Bondurant (257 V.S.
282); McDermott v. Wisconsin (228 U.S. 115). That the thing sold is not tan-
gible property but rather the evidence of indebtedness or of ownership does not
serve to remove the transaction from the scope of the commerce clause. Iniled
States v. Ferger (250 U.S. 199); Champion v. Ames (188 U.S. 321).

Interstate Commerce Commission v. Goodrich T. Co. (224 U.S. 194) is illustrative.
In that case the Commission, acting under a congressional mandate, ordered the
Goodrich Transit Co. and a number of other Great Lakes water carriers to file
with the Commission on prescribed forms a statement of their operating revenues
and expenses, their corporate organization and financial condition, and other
desired data. The required statements were to contain information not only
concerning joint rail and water business, which was the portion of the carriers'
business subject to Federal regulation under the then applicable statute, but
also concerning other aspects of the carriers' operations, both intrastate and
interstate. The Supreme Court held that the Commission's orders were valid.
Separation of the total business of the carriers into its component parts seemed
impracticable, and the accounting instructions were needed in order that the
Commission could inform itself so as to enable it properly to regulate the matters
within its authority. The decision is especially noticeable in view of the fact
that, in the case of one of the objecting carriers, the revenue drived from joint
rail and water traffic was less than 1 percent of its entire revenue.

Review of the decided cases indicates that the scope of congressional power is
ascertainable only by reference to the facts surrounding each application of it.
The problem and its treatment are strikingly similar to the procedure in cases
involving the due process clause. For example, in Stafford v. Wallace (258 U.S.
495) the Supreme Court sustained the Packers and Stockyards Act against attack
under the commerce clause, noting that the business regulated was interstate
commerce or so associated with it as to be within the Federal powers. The late
Chief Justice Taft there said (at 513):

"It was for Congress to decide from its general information and from such
special evidence as was brought before it, the nature of the evils actually present
or threatening, and to take such steps by legislation within its powers as it deemed
proper to remedy them.”

Some years later, in Tagg Bros. & Moorehead v. United States (280 U.S. 420)
the Court had before it a case arising under the same statute; in this instance com-
plaint was made that the act, in permitting the fixing of permissible charges of
market agencies, violated the due process clause. The Court again upheld the
act, saying (at 439) that fixing the commission merchants' fees was reasonable
because “the purpose of the regulation attacked is to prevent their (the mer-
chants') service from thus becoming an undue burden upon, and obstruction of
that (interstate) commerce.” In each case, the ultimate question was whether
there was a reasonable connection between the means adopted by Congress and a
permissible end. In each case the question was answered affirmatively.

The Supreme Court has often indicated its adherence to the doctrine that a
declaration of a legislative body, charged with the duty of knowing public condi-
tions, is of great weight in determining whether a particular statute is a reason-
able and necessary exercise of power. This rule, while originally applied in due
process cases (see, for example, Block v. Hirsh, 256 U.S. 135) has also been
utilized by the Court in commerce clause cases.

Of the latter class, Chicago Board of Trade v. Olsen (262 U.S. 1), sustaining the
Grain Futures Act, is of especial significance. And its significance becomes clear
when the case is compared with Hill v. Wallace (259 U.S. 44), holding the Future
Trading Act (a tax measure) unconstitutional. After the decision in the Hill
case Congress, as a result of an investigation, concluded that regulation of boards
of trade was necessary because trading in grain futures involved, or tended to
involve, a burden upon interstate commerce; and passed the Grain Futures Act.
Measured in terms of their objectives, there was no essential difference between
the two statutes. But the tax statute was invalidated, the commerce one sus-
tained. The difference in result turned on the finding by Congress as to the
effect of futures trading upon interstate commerce.

It is apparent, then, that regulation of intrastate transactions may be embraced
within the congressional authority over interstate and foreign commerce, if the
fact is that such regulation is related to regulation of interstate commerce and
implements or perfects the latter. A declaration by Congress, such as the declara-
tion in an introductory section of the proposed act to regulate security exchanges,
is affirmative evidence of the existence of the required relationship; the Supreme
Court will not lightly disregard it.


On foundations of fact, a wide expansion of the commerce power has been established.The application and results of the doctrine described in part II of this memorandum are illustrated by a long line of cases in the Supreme Court of the United States. They show a steady and significant expansion of the acknowledged power of Congress to foster, protect, control, and restrain" where interstate or foreign commerce is concerned. They make manifest, in particular, the reach of congressional power to remove or to prevent interferences with or burdens upon interstate commerce. Such interferences or burdens may arise from the violent actions of individuals (in re debs, 158 U.S. 534), or the peaceable activities of state corporations (Northern Securities Co. v. United States, 193 U.S. 197) or the duties imposed on public officers by State laws (Shreveport Rate cases, 234 U.S. 342). Whatever may be the source and whatever the kind of interference or obstruction, the subject matter is one for the consideration of Congress.

The cases have arisen under various statutes: The Interstate Commerce Act, antitrust laws, Federal Trade Commission Act, and others. They have covered a wide range. Aside from differences on the facts, however, all of them stand together on a common ground, namely, that they are concerned with the development and expansion of the auxiliary power of Congress to reach as far into the States as may be necessary affectively to foster and protect interstate commerce. They make an elaborate array of authority for the exercise of the power of Congress over affairs normally considered intrastate. In addition to those already cited, and sometimes by way of repetition in order to emphasize the development, the more significant cases follow.

Earliest in point of time, as the first important national development, are the railroad cases. In re Debs (158 U.S. 564) (removal of obstructions to interstate commerce caused by strikers); Southern Ry. v. United States (222 U.S. 20) (Federal Safety Appliance Act applied to intrastate equipment of interstate railroad); Shrevepori Rate cases (234 U.S. 342), and the Wisconsin Rate case (257 U.S. 563) (discontinuance of intrastate rates discriminating against interstate commerce); Colorado v. United States (271 U.S. 153), and Transit Commission of New York v. United States (284 U.S. 360) (discontinuance of intrastate branches under orders from Interstate Commerce Commission); and Texas & N. 0. R. Co. v. Brotherhood (281 U.S. 548) (compelling employers to grant free choice of arbitrators to employees).

Paralleling this expansion of Federal power over transportation facilities, has been the growth of supervision over commercial corporations. Powerful combinations threatening the welfare of commerce led successively to the Sherman Antitrust Act, the Clayton Act, and the Federal Trade Commission Act. Within the scope of these statutes, practices have been deemed restraints which concerned the organization and security structure of the corporation, not of themselves interstate commerce. Northern Securities Co. v. United States (193 U.S. 197) (consolidation of competing railroads by stock transfer to a holding company); Federal Trade Commission v. Western Meat Co. (272 U.S. 554) (acquiring stock in a competitor); Standard Oil Co. v. United States (221 U.S. 1) (formation of holding company out of stock of various petroleum corporations); United States v. Union Pac. R. Co. (226 U.S. 61) (purchase by one railroad of dominating stock interest in another); United States v. American Tobacco Co. (221 U.S. 106) (monopolizing tobacco industry by stock acquisition); United States v. Reading Co. (253 U.S. 26) (holding company controlling coal companies and their railroad facilities).

As coming closer to the present problem the following may be noted: Swift & Co. v. United States (196 U.S. 375) (combination of livestock commission merchants violates the Sherman Act); United States v. Patten (226 U.S. 525) (corner of the New York cotton market a restraint of trade); Stafford v. Wallace, supra (sustaining the Packers and Stockyards Act); Chicago Board of Trade v. Olsen, supra (upholding the Grain Futures Act); Binderup v. Pathe Exchange (263 U.S. 291) (“exchange” receiving interstate shipments of films and redistributing them to local exhibitors in the same State held to be a restraint on interstate commerce).

In the light of these cases alone, it is no longer open to question that Congress may reach and control intrastate affairs whenever such control is necessary to the effective exercise of its power over interstate commerce. Ample power exists; and, as the Supreme Court has said in Florida v. United States (282 U.S. 194), 'it becomes only a question as to the propriety of the exertion” of the power.






The exertion of Federal power is not restricted to the interstate transportation of commodities nor is it limited to persons engaged in interstate Commerce. It is not indispensable for the exertion of Federal power that it be directed to a specific interstate commerce transaction. No commodity need move from State to State. To be sure, where an actual interstate transaction is involved the exercise of power by Congress is more easily supported. But Congress is not so limited. Thus, in United States v. Ferger (250 U.S. 199), the question was whether the United States could impose punishment where a bill of lading had been fraudulently issued, no goods having been offered or delivered for shipment. The existence of power was vigorously objected to on the ground that there was no interstate commerce whatever but only a fraudulent scheme. Yet, the power was sustained. In regard to the objection the Court said:

“This mistakenly assumes that the power of Congress is to be necessarily tested by the intrinsic existence of commerce in the particular subject to commerce, and its effects upon it. We say mistakenly assumes, because we think it clear that if the proposition were sustained it would destroy the power of Congress to regulate, as obviously that power, if it is to exist, must include authority to deal with obstructions

and with a host of other acts which because of their relationship to and influence upon commerce, come within the power of Congress to regulate, although they are not interstate commerce in and of themselves (at

Probably no one would contend that the hatters (Loewe v. Lawlor, 208 U.S. 274) or the coal miners (Coronada Coal Co. v. United Mine Workers of America, 268 U.S. 295) or the lessors of shoe machinery (United Shoe Machine Co. v. United States, 258 U.S. 451) were engaged in interstate commerce. Still, because what they were doing had a certain relationship to and undesirable effect upon interstate commerce in a general sense they were held subject to congressional power.

Further illustrations may be found in cases having to do with transactions sometimes described as interstate contracts. Here the cases are chiefly those holding certain transactions immune from State regulation because of their interstate character, and invalidating State statutes as applied to them. To the extent that these decisions turn upon objections under the commerce_clause, they identify transactions to which congressional power may extend. Perhaps the most significant case in this group is Dahnke-Walker Milling Co. v. Bondurant (257 U.S. 282). In that case there was a contract, between a corporation of Tennessee and a person in Kentucky, under which certain quantities of grain were to be purchased by the corporation and delivered by the seller in Kentucky for transportation to l'ennessee. Default having occurred through nondelivery and the corporation having brought an action in the courts of Kentucky, a defense was interposed on the ground that the plaintiff had not complied with the State corporation laws.

The defense was disallowed, the Court holding this to be an interstate transaction which the corporation was entitled to enter into without complying with the State law. To a like effect are Lemke v. Farmers' Grain Co. (258 U.S. 50, State grain grading and inspection act invalid); Robbins v. Shelby County Taxing District, (120 U.S. 489, State tax on interstate soliciting agent invalid); International Text Book Co. v. Pigg (217 U.S. 91, correspondence school corporation not compelled to comply with conditions imposed by State). That the solicitation of orders for interstate shipment is part of the interstate transaction, see Weeks v. United States (245 U.S. 618, regulation sustained under the Food and Drugs Act); and see Hall v. Geiger Jones (242 U.S. 509) for the suggestion that a security, although a chose in action, is subject to Federal control as an object of interstate commerce. Nor should Champion v. Ames, popularly known as the Lottery Case", previously cited, be forgotten in considering the power of Congress over the interstate transportation of such documents as lottery tickets.


Cases sustaining State regulation of insurance and other subjects as not involving interstate commerce do not stand in the way of Federal power.-An array of cases in which various State statutes were sustained must be considered, for the reason that the cases are so much relied on in support of the contention that the transactions with which they had to do are beyond the power of Congress. Chief among them all is Paul v. Virginia (75 U.S. 168). An insurance contract was held * be not interstate commerce and a condition imposed by the State upon the

ir of the foreign insurance company was sustained.

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