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CRS Annotated Constitution

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The Danbury Hatters Case.—In this respect, the Swift case only states what the Shreveport case was later to declare more explicitly, and the same may be said of an ensuing series of cases in[p.185]which combinations of employees engaged in such intrastate activities as manufacturing, mining, building, construction, and the distribution of poultry were subjected to the penalties of the Sherman Act because of the effect or intended effect of their activities on interstate commerce.709

Stockyards and Grain Futures Acts.—In 1921, Congress passed the Packers and Stockyards Act710 whereby the business of commission men and livestock dealers in the chief stockyards of the country was brought under national supervision, and in the year following it passed the Grain Futures Act711 whereby exchanges dealing in grain futures were subjected to control. The decisions of the Court sustaining these measures both built directly upon the Swift case.

In Stafford v. Wallace,712 which involved the former act, Chief Justice Taft, speaking for the Court, said: “The object to be secured by the act is the free and unburdened flow of livestock from the ranges and farms of the West and Southwest through the great stockyards and slaughtering centers on the borders of that region, and thence in the form of meat products to the consuming cities of the country in the Middle West and East, or, still as livestock, to the feeding places and fattening farms in the Middle West or East for further preparation for the market.”713 The stockyards, therefore, were “not a place of rest or final destination.” They were “but a throat through which the current flows,” and the sales there were not merely local transactions. “They do not stop the flow;—but, on the contrary” are “indispensable to its continuity.”714

In Chicago Board of Trade v. Olsen,715 involving the Grain Futures Act, the same course of reasoning was repeated. Speaking of the Swift case, Chief Justice Taft remarked: “That case was a milestone in the interpretation of the commerce clause of the Constitution. It recognized the great changes and development in the business of this vast country and drew again the dividing line between interstate and intrastate commerce where the Constitution in[p.186]tended it to be. It refused to permit local incidents of a great interstate movement, which taken alone are intrastate, to characterize the movement as such.”716

Of special significance, however, is the part of the opinion devoted to showing the relation between future sales and cash sales, and hence the effect of the former upon the interstate grain trade. The test, said the Chief Justice, was furnished by the question of price. “The question of price dominates trade between the States. Sales of an article which affect the country–wide price of the article directly affect the country–wide commerce in it.”717 Thus a practice which demonstrably affects prices would also affect interstate trade “directly,” and so, even though local in itself, would fall within the regulatory power of Congress. In the following passage, indeed, Chief Justice Taft whittled down, in both cases, the “direct–indirect” formula to the vanishing point: “Whatever amounts to more or less constant practice, and threatens to obstruct or unduly to burden the freedom of interstate commerce is within the regulatory power of Congress under the commerce clause, and it is primarily for Congress to consider and decide the fact of the danger to meet it. This court will certainly not substitute its judgment for that of Congress in such a matter unless the relation of the subject to interstate commerce and its effect upon it are clearly nonexistent.”718

It was in reliance on the doctrine of these cases that Congress first set to work to combat the Depression in 1933 and the years immediately following. But in fact, much of its legislation at this time marked a wide advance upon the measures just passed in review. They did not stop with regulating traffic among the States and the instrumentalities thereof; they also essayed to govern production and industrial relations in the field of production. Confronted with this expansive exercise of Congress’ power, the Court again deemed itself called upon to define a limit to the commerce power that would save to the States their historical sphere, and especially their customary monopoly of legislative power in relation to industry and labor management.

Securities and Exchange Commission.—Not all antidepression legislation, however, was of this new approach. The Securities Exchange Act of 1934719 and the Public Utility Company Act (“Wheeler–Rayburn Act”) of 1935720 were not. The former cre[p.187]ated the Securities and Exchange Commission and authorized it to lay down regulations designed to keep dealing in securities honest and aboveboard and closed the channels of interstate commerce and the mails to dealers refusing to register under the act. The latter required the companies governed by it to register with the Securities and Exchange Commission and to inform it concerning their business, organization and financial structure, all on pain of being prohibited use of the facilities of interstate commerce and the mails; while by Sec. 11, the so–called “death sentence” clause, the same act closed after a certain date the channels of interstate communication to certain types of public utility companies whose operations, Congress found, were calculated chiefly to exploit the investing and consuming public. All these provisions have been sustained,721 Gibbons v. Ogden furnishing the Court its principle reliance.

Congressional Regulation of Production and Industrial Relations: Antidepression Legislation

In the words of Chief Justice Hughes, spoken in a case decided a few days after President Franklin D. Roosevelt’s first inauguration, the problem then confronting the new Administration was clearly set forth. “When industry is grievously hurt, when producing concerns fail, when unemployment mounts and communities dependent upon profitable production are prostrated, the wells of commerce go dry.”722

National Industrial Recovery Act.—The initial effort of Congress to deal with this situation was embodied in the National Industrial Recovery Act of June 16, 1933.723 The opening section of the Act asserted the existence of “a national emergency productive of widespread unemployment and disorganization of industry which” burdened “interstate and foreign commerce,” affected “the public welfare,” and undermined “the standards of living of the American people.” To affect the removal of these conditions the President was authorized, upon the application of industrial or trade groups, to approve “codes of fair competition,” or to prescribe the same in cases where such applications were not duly forthcoming. Among other things such codes, of which eventually more than 700 were promulgated, were required to lay down rules of fair dealing with customers and to furnish labor certain guarantees respect[p.188]ing hours, wages and collective bargaining. For the time being, business and industry were to be cartelized on a national scale.

In A.L.A. Schechter Poultry Corp. v. United States,724 one of these codes, the Live Poultry Code, was pronounced unconstitutional. Although it was conceded that practically all poultry handled by the Schechters came from outside the State, and hence via interstate commerce, the Court held, nevertheless, that once the chickens came to rest in the Schechter’s wholesale market, interstate commerce in them ceased. The act, however, also purported to govern business activities which “affected” interstate commerce. This, Chief Justice Hughes held, must be taken to mean “directly” affect such commerce: “the distinction between direct and indirect effects of intrastate transactions upon interstate commerce must be recognized as a fundamental one, essential to the maintenance of our constitutional system. Otherwise, . . . there would be virtually no limit to the federal power and for all practical purposes we should have a completely centralized government.”725 In short, the case was governed by the ideology of the Sugar Trust case, which was not mentioned in the Court’s opinion.726


Footnotes

709 Loewe v. Lawlor (The Danbury Hatters Case), 208 U.S. 274 (1908); Duplex Printing Press Co. v. Deering, 254 U.S. 443 (1921); Coronado Co. v. United Mine Workers, 268 U.S. 295 (1925); United States v. Bruins, 272 U.S. 549 (1926); Bedford Co. v. Stone Cutters Assn., 274 U.S. 37 (1927); Local 167 v. United States, 291 U.S. 293 (1934); Allen Bradley Co. v. Union, 325 U.S. 797 (1945); United States v. Employing Plasterers Assn., 347 U.S. 186 (1954); United States v. Green, 350 U.S. 415 (1956); Callanan v. United States, 364 U.S. 587 (1961).
710 42 Stat. 159 , 7 U.S.C. §§ 171 –183, 191–195, 201–203.
711 42 Stat. 998 (1922), 7 U.S.C. §§ 1 –9, 10a–17.
712 258 U.S. 495 (1922).
713 Id., 514.
714 Id., 515–516. See also Lemke v. Farmers’ Grain Co., 258 U.S. 50 (1922); Minnesota v. Blasius, 290 U.S. 1 (1933).
715 262 U.S. 1 (1923).
716 Id., 35.
717 Id., 40.
718 Id., 37, quoting Stafford v. Wallace, 258 U.S. 495, 521 (1922).
719 48 Stat. 881 , 15 U.S.C. Sec. 77b et seq.
720 49 Stat. 803 , 15 U.S.C. §§ 79 –79z–6.
721 Electric Bond Co. v. SEC, 303 U.S. 419 (1938); North American Co. v. SEC, 327 U.S. 686 (1946); American Power Co., v. SEC, 329 U.S. 90 (1946).
722 Appalachian Coals v. United States, 288 U.S. 344, 372 (1933).
723 48 Stat. 195 .
724 295 U.S. 495 (1935).
725 Id., 548. See also id., 546.
726 In United States v. Sullivan, 332 U.S. 689 (1948), the Court interpreted the Federal Food, Drug, and Cosmetics Act of 1938 as applying to the sale by a retailer of drugs purchased from his wholesaler within the State nine months after their interstate shipment had been completed. The Court, speaking by Justice Black, cited United States v. Walsh, 331 U.S. 432 (1947); Wickard v. Filburn, 317 U.S. 111 (1942); United States v. Wrightwood Dairy Co., 315 U.S. 110 (1942); United States v. Darby, 312 U.S. 100 (1941). Justice Frankfurter dissented on the basis of FTC v. Bunte Bros., 312 U.S. 349 (1941). It is apparent that the Schechter case has been thoroughly repudiated so far as the distinction between “direct” and “indirect” effects is concerned. Cf. Perez v. United States, 402 U.S. 146 (1971). See also McDermott v. Wisconsin, 228 U.S. 115 (1913), which preceded the Schechter decision by more than two decades.
The NIRA, however, was found to have several other constitutional infirmities besides its disregard, as illustrated by the Live Poultry Code, of the “fundamental” distinction between “direct” and “indirect” effects, namely, the delegation of uncanalized legislative power, the absence of any administrative procedural safeguards, the absence of judicial review, and the dominant role played by private groups in the general scheme of regulation.
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