The Federal Trade Commission: An Experiment in the Control of Business 9780231893824

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THE FEDERAL TRADE COMMISSION

THE FEDERAL TRADE COMMISSION AN IN T H E

EXPERIMENT

CONTROL OF

BUSINESS

BY

THOMAS C. Β LAISDELL, JR.

NEW Y O R K :

MCMXXXII

COLUMBIA U N I V E R S I T Y PRESS

COPYRIGHT 1 9 3 2 COLUMBIA UNIVERSITY

PRESS

Published September, 1932

PRINTED IN T H E UNITED STATES OF AMERICA GEORGE BANTA PUBLISHING COMPANY, MENASHA, WISCONSIN

FOREWORD The development of the large business unit has been an outstanding characteristic of western society in the twentieth centuiy. Business men with responsibilities for these units have used their energies to accelerate the growth of "big business." They have frowned on governmental interference except in so far as it has made their own powers more effective. On the other hand numerous attempts have been made to hold back this flooding tide of concentration of control and ownership. Business men intimately related either with economic activities to which new machine and business technologies have not been applied, or with industries in which older technologies are dominant, have witnessed with foreboding the growing power of big business. In like manner the great mass of people as consumers have looked askance at the newer economic tendencies. Producers who are responsible for "small business" have endeavored to protect themselves against the superior power of the large corporations. In the course of their struggle they have used various weapons such as trade organizations, publicity, advertizing, and governmental force. It is this group in cooperation with the consuming public which has been primarily concerned with maintaining and strengthening the antitrust acts. By the first decade of the twentieth century certain inherent difficulties with the Sherman Act had already become apparent. In order partially to remedy these weaknesses the Bureau of Corporations was established. The Federal Trade Commission Act and the Clayton Act were further attempts to attain the same purpose. All of these acts were intended to preserve the

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FOREWORD

strength of small businesses and protect the consumer by preserving competition. The fundamental aim in establishing the Federal Trade Commission was to maintain competition and make more certain the results which competition supposedly produces. The study of the Commission pursued in the following pages is an attempt to weigh the results secured by the Commission's activities against this fundamental purpose. The most casual observer knows that, viewed from the standpoint of the original aim, the work of the Commission has had only limited success. Hence an attempt is made to discover the reasons for this failure. The analysis has been divided for convenience into the administrative activities of the Commission and its investigatory and publicity activities. Obviously, publicity results from administrative activities, and investigation is a prerequisite for administrative action. Likewise administrative activities may arise from investigations undertaken originally as fact-finding tasks. But this manner of dividing the Commission's work seems to yield fairly satisfactory results for the purposes in mind. The immediate causes for the failure of the Commission are found to lie in the inadequacy of the criteria by which the Commission must judge business activity, and the clash of the Commission's powers with those of the courts. Such standards as "unfair methods of competition," "lessened competition," "tendency to monopoly," or "maintaining competition" have been found to be too general to serve adequately. The Commission has had constant difficulty with the courts in interpreting and applying these criteria. Furthermore the courts and the Commission have been unable to agree on the extent to which the Commission may require private businesses to supply it with economic data. This study has not tried to answer the question "Why have the courts and the Commission clashed over these matters?" While this is a legitimate question, its answer would necessitate a much wider examination of social forces than was possible in

FOREWORD

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this investigation. No attempt has been made to give a broad survey of the trust and corporation problem such as Seager and Gulick's Trusts and Corporation Problems or Keezer and May's The Public Control of Business. The study is not an acute analysis of the administrative problems of the Federal Trade Commission such as that contained in R. D. Henderson's The Federal Trade Commission. It is not a detailed examination of business practices from the standpoint of the theory of price-making such as the National Industrial Conference Board's Public Regulation of Competitive Practices. It has tried to keep upper-most the questions "What was the purpose of establishing the Federal Trade Commission?" and "To what extent has the Commission accomplished these purposes?" *

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It is difficult to acknowledge the author's indebtedness to many persons. Little is one conscious of the real forces which shape his. ideas. However, I am peculiarly aware of the extent to which Professor R. L. Hale and Professor Karl N. Llewellyn, neither of whom has seen this manuscript, have stimulated my thinking. Professor R. G. Tugwell originally suggested the study. Dr. A. R. Bums, more than anyone else, has given time and thought t