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In Vessie Bank v. Fenne (8 Wall. 533), the Supreme Court held valid a Federal statute which required every national and State bank to pay a tax of 10 percent on the amount of notes of any person, State bank, or State banking association used for circulation and paid out after the first day of August 1866. This tax had been devised for the purpose of driving out of circulation all paper money issued by State banks in order to encourage the free use and circulation of notes issued by the Federal Government. This case is most significant in that it demonstrates that the power of Congress to protect its currency is virtually absolute and may be used to destroy, through a prohibitive tax, competing currencies issued by the States. It affords proof that the power of Congress to protect the currency and credit of the Federal Government will not be circumstanced by a balancing of power between the Federal Government and the States or private individuals. In this realm the Federal power is supreme.

A further illustration of the paramount authority of Congress to legislate concerning Federal credit and currency may be found in the Legal Tender cases (12 Wall. 457), where the Supreme Court upheld the power of Congress to make legal tender Treasury notes issued by the Federal Government.

The most compelling illustration of the Supreme Court's conception of the fiscal power of the Federal Government may be found in the recent case of Smith v. The Kansas City Title and Trust Co. (255 U.S. 180), in which the constitutionality of the Federal Farm Loan Act was in question. Under that statute Congress had provided for the creation of 12 Federal land banks and an indefinite number of joint-stock land banks to make loans to private individuals upon farm mortgages. The capital of the Federal land banks was subscribed in part by the United States Treasury, and the Secretary of the Treasury was authorized to purchase bonds issued by the banks. The joint-stock land banks were capitalized solely with private funds. The Farm Loan Act provided for a Federal Farm Loan Board to supervise the system, with members appointed by the President of the United States, with the advice and consent of the Senate.

Congress had made both the Federal land banks and the joint-stock land banks depositaries of public moneys, except customs receipts, and had authorized the employment of these banks as financial agents of the Government and had required them to perform such duties. Up to the time of the Smith case the banks had not in fact been used as depositaries by the Federal Government, and it was argued in the Supreme Court that the fact that the banks were made fiscal agents and public depositaries for the Government was but a pretext. The manifest purpose of the new system of banks had not been to create banking facilities for the Government, which existed in ample degree through the Federal Reserve System and the national banking system.

The banks had been established for the purpose of facilitating the making of loans to farmers at low rates of interest and for long terms. But the Supreme Court based the validity of the entire land-bank system upon the power of Congress to coin money and regulate the value thereof and to borrow money upon the credit of the United States, and the incidental power to create depositaries and fiscal agents.

In view of these precedents it would be unthinkable that the Supreme Court would deny the authority of Congress to make reasonable regulations of the securities markets of the country through which the Government borrows money, upon which the prices of its securities are quoted from day to day, and in the soundness and honesty of which the Government must be vitally interested.

It is clear that the fiscal system of the Government is profoundly affected by the activities of investors and speculators upon the securities exchanges of the country. Government bonds are freely dealt in and the prices of all issues are quoted hourly upon the principal securities exchanges. Such trading affects the very credit of the Government and should be kept free from artificail speculative influences.

The Government's ability to float new issues of bonds or short term notes is profoundly affected by conditions in the securities markets.

When money is being absorbed in exchange cities to finance the stock-exchange activities, and investors are being lured by the hope of speculative gains, the Government must sell its bonds at a price which will insure a high yield to the purchaser. The Government must compete directly with all securities listed upon the exchanges. It is true that the conservative investor will pay a high price for the safety of a Government obligation, but during a speculative boom conservative investors

are rare.

In a similar way the National Banking System and the Federal Reserve System, both of which are very closely connected with the Federal Treasury, are “The answer to both questions is clear. Congress has ample power to impose such prohibitions upon practically all corporations, including State banks, trust companies and life insurance companies; and evasion may be made impossible. While Congress has not been granted power to regulate directly State banks, and trust or life insurance companies, or railroad, public-service and industrial corporations, except in respect to interstate commerce, it may do so indirectly by virtue either of its control of the mail privilege or through the taxing power.

“Practically no business in the United States can be conducted without use of the mails; and Congress may in its reasonable discretion deny the use of the mail to any business which is conducted under conditions deemed by Congress to be injurious to the public welfare. Thus, Congress has no power directly to suppress lotteries; but it has indirectly suppressed them by denying under heavy penalty, the use of the mail to lottery enterprises. Congress has no power to suppress directly business frauds; but it is constantly doing so indirectly by issuing fraud-orders denying the mail privilege. Congress has no direct power to require a newspaper to publish a list of its proprietors and the amount of its circulation, or to require it to mark paid-matter distinctly as advertising; but it has thus regulated the press, by denying the second-class mail privilege, to all publications which fail to comply with the requirements prescribed.

“The power of Congress over interstate commerce has been similarly utilized. Congress cannot ordinarily provide compensation for accidents to employees or undertake directly to suppress prostitution; but it has, as an incident of regulating interstate commerce, enacted the Railroad Employers' Liability law and the White Slave Law; and it has full power over the instrumentalities of commerce, like the telegraph and the telephone.

"As such exercise of congressional power has been common for, at least, half a century, Congress should not hesitate now to employ it where its exercise is urgently needed. For a comprehensive prohibition of_interlocking directorates is an essential condition of our attaining the New Freedom."-Other People's Money, chapter IV.

III. THE FISCAL POWER

The constitutional authority of the Federal Government to regulate the securities exchanges may be rested upon specific grants of power to the Federal Government other than the power to regulate interstate commerce and the mails. Congress has been granted the power “to coin money and regulate the value thereof" and “to borrow money upon the credit of the United States.” These powers, together with the power to levy and collect taxes, are the bases of all financial operations of the Government. That the existence of the power to finance its activities is a vital need of the Federal Government cannot be denied.

In developing its interpretations of the limitations upon the power of Congress to exercise its fiscal prerogatives, the United States Supreme Court has resolved all doubts in favor of the power of Congress to take such action as it might deem necessary or desirable for the purpose of strengthening the financial position of the Federal Government. The Supreme Court unanimously ruled in McCulloch v. Maryland (4 Wheat. 416), that Congress had not transcended its powers in creating the United States bank and in subscribing to one fifth of its stock on behalf of the Federal Government, although the bank was a private corporation doing business for its own profit. Chief Justice Marshall based his opinion upon the power of Congress to enact such legislation as might be "necessary and proper" to carry out the general purposes of the Government, since the bank was used as fiscal agent by the Government. The Chief Justice pointed out that the necessity spoken of in the Constitution is not to be understood as an absolute one. “Let the end be legitimate; let it be within the scope of the Constitution, and all means which are appropriate, which are primarily adopted to that end, which are not prohibited, but consistent with the letter and spirit of the Constitution, are constitutional."

In Fisher v. Blight (2 Cranch 358), the Supreme Court upheld the power of Congress to declare debts due to the United States to be entitled to priority of payment over debts due to other creditors. The justification for such legislation was found in the inherent power of the Federal Government to pay its debts and to safeguard its financial operations from risk of loss, even though in doing so the Government created safeguards for itself which private individuals similarly situated could not obtain, and which were in fact adverse to the interests of such private individuals. But that inherent power was based upon the general fiscal power of the Federal Government granted by the clauses authorizing Congress to levy taxes, to coin money, and to borrow.

In Vessie Bank v. Fenne (8 Wall. 533), the Supreme Court held valid a Federal statute which required every national and State bank to pay a tax of 10 percent on the amount of notes of any person, State bank, or State banking association used for circulation and paid out after the first day of August 1866. This tax had been devised for the purpose of driving out of circulation all paper money issued by State banks in order to encourage the free use and circulation of notes issued by the Federal Government. This case is most significant in that it demonstrates that the power of Congress to protect its currency is virtually absolute and may be used to destroy, through a prohibitive tax, competing currencies issued by the States. It affords proof that the power of Congress to protect the currency and credit of the Federal Government will not be circumstanced by a balancing of power between the Federal Government and the States or private individuals. In this realm the Federal power is supreme.

A further illustration of the paramount authority of Congress to legislate concerning Federal credit and currency may be found in the Legal Tender cases (12 Wall. 457), where the Supreme Court upheld the power of Congress to make legal tender Treasury notes issued by the Federal Government.

The most compelling illustration of the Supreme Court's conception of the fiscal power of the Federal Government may be found in the recent case of Smith v. The Kansas City Title and Trust Co. (255 U.S. 180), in which the constitutionality of the Federal Farm Loan Act was in question. Under that statute Congress had provided for the creation of 12 Federal land banks and an indefinite number of joint-stock land banks to make loans to private individuals upon farm mortgages. The capital of the Federal land banks was subscribed in part by the United States Treasury, and the Secretary of the Treasury was authorized to purchase bonds issued by the banks. The joint-stock land banks were capitalized solely with private funds. The Farm Loan Act provided for a Federal Farm Loan Board to supervise the system, with members appointed by the President of the United States, with the advice and consent of the Senate.

Congress had made both the Federal land banks and the joint-stock land banks depositaries of public moneys, except customs receipts, and had authorized the employment of these banks as financial agents of the Government and had required them to perform such duties. Up to the time of the Smith case the banks had not in fact been used as depositaries by the Federal Government, and it was argued in the Supreme Court that the fact that the banks were made fiscal agents and public depositaries for the Government was but a pretext. The manifest purpose of the new system of banks had not been to create banking facilities for the Government, which existed in ample degree through the Federal Reserve System and the national banking system.

The banks had been established for the purpose of facilitating the making of loans to farmers at low rates of interest and for long terms. But the Supreme Court based the validity of the entire land-bank system upon the power of Congress to coin money and regulate the value thereof and to borrow money upon the credit of the United States, and the incidental power to create depositaries and fiscal agents.

In view of these precedents it would be unthinkable that the Supreme Court would deny the authority of Congress to make reasonable regulations of the securities markets of the country through which the Government borrows money, upon which the prices of its securities are quoted from day to day, and in the soundness and honesty of which the Government must be vitally interested.

It is clear that the fiscal system of the Government is profoundly affected by the activities of investors and speculators upon the securities exchanges of the country: Government bonds are freely dealt in and the prices of all issues are quoted hourly upon the principal securities exchanges. Such trading affects the very credit of the Government and should be kept free from artificail speculative influences.

The Government's ability to float new issues of bonds or short term notes is profoundly affected by conditions in the securities markets. When money is being absorbed in exchange cities to finance the stock-exchange activities, and investors are being lured by the hope of speculative gains, the Government must sell its bonds at a price which will insure a high yield to the purchaser. The Government must compete directly with all securities listed upon the exchanges. It is true that the conservative investor will pay a high price for the safety of a Government obligation, but during a speculative boom conservative investors

are rare.

In a similar way the National Banking System and the Federal Reserve System, both of which are very closely connected with the Federal Treasury, are directly and substantially affected by the activities of the securities exchanges. The securities markets compete with the banks for the funds of the investors. If those investors are lured by the hope of speculative gains, the banks will not have sufficient means with which to finance the needs of industry and their usefulness in this respect will be seriously impaired. The solvency of the banks is directly affected by fluctuations in the market values of the securities which they hold. In the very recent past many banks have been forced into receivership by depreciation in their bond accounts, although their other assets have not depreciated to any extent whatever. Furthermore, in times of speculative activity in the securities markets the funds of banks throughout the country are drawn to the exchange cities, to be invested in “call loans" at rates of interest so high that the borrowers could only hope to pay them with the profits of speculation. This accumulation of funds in the exchange cities is inconsistent with sound banking and has aggravated the seriousness of all financial crises in the past. The decentralized plan of the Federal Reserve System itself was devised for the purpose of preventing the concentration of the wealth of the Nation in a few financial centers. That sin of the Federal Reserve System has not been fully achieved and the call money market in the years prior to the depression attracted to the exchange cities the funds of banks throughut the countryIf the securities exchanges of the country are so regulated as to check speculative activity; then the financial resources of the Nation will not be absorbed in the exchange cities and the banking system will be stronger.

The effectiveness of control by the Federal Reserve Board over the lending policies of the member banks is seriously affected by the activities of the securities exchanges. A change in the rediscount rate has little effect where the banks can lend money on call loans at high rates of interest to finance stock market speculation. Similarly the open-market operations of the Federal Reserve banks may also be made ineffective by conditions in the securities markets. The selling of Government bonds in order to contract credit cannot check credit inflation during a speculative boom in the securities market.

We have demonstrated above the extent to which Congress can act to safeguard and make effective its power to coin money and to borrow. It can establish & semiprivate commercial bank and subscribe to a portion of its stock. It can assert a prior right upon the assets of an insolvent to satisfy its own claims. It can tax out of existence competing currencies issued under the authority of State governments. It can establish a land bank system if the banks forming that system are merely granted power to act as fiscal agents of the Government. That the great securities exchanges of the country are intimately connected with the fiscal system of the Government and the credit of the Government can hardly be denied. On this ground alone, it would therefore seem clear that the Congress has ample authority to regulate the securities exchanges, to check the flow of credit to the securities exchanges and away from industry, and to eliminate the evils of speculation.

IV. ADDITIONAL BASES FOR REGULATION

Regulation of the securities exchanges by the Federal Government may be justified as a means of protecting the taxing power of the Government. The quotations of the prices of securities upon the exchanges of the country are used as bases for determining taxes due to the Government. Capital gains and losses for income-tax purposes are computed according to securities market prices. In the same way the value of assets for inheritance-tax purposes is computed on the basis of current quotations for securities. It is important to the Government that prices quoted upon securities exchanges reflect true values rather than artificial values affected by speculation. Legislation to achieve this result would seem to be justified as a necessary and proper" means of protecting the taxing power.

The effect of securities market speculations upon the transportation system of the Nation may be disastrous. Market conditions, as a result of speculative activity, may be such that a railroad is forced to pay a high rate of interest for money which it borrows. As a result rates must be raised and the flow of interstate commerce impeded. If is is impossible for a railroad, because of adverse market conditions, to float a refinancing bond issue, it may be forced into receivership. The securities markets also afford opportunities for small groups to acquire control of a railroad or to consolidate a whole system of railroads against the interest of the general public.

The securities markets afford similar opportunities for small groups to acquire control of a public utility or consolidate a whole system of such utilities against the interest of the general public. In this connection it should be noted that Congress has power under the commerce clause to prevent monopolies in restraint of trade generally.

V. DELEGATION OF POWER

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The Supreme Court has never held an act of Congress unconstitutional on the ground that it made an invalid delegation of power to an executive agency. On numerous occasions the court has upheld delegations. Among the powers delegated by Congress which have been attacked on that ground and sustained by the Court are the following:

The power of the Interstate Commerce Commission to prescribe uniform methods of accounting, Interstate Commerce Commission v. Goodrich Transit Co. (224 U.S. 194); the power of the Federal Reserve Board to authorize a national bank to act in a fiduciary capacity, First National Bank v. Fellows (244 U.S. 416); the power of the President to adjust tariff rates on the basis of comparative cost, Hampton & Co. v. U.S. (276 U.S. 394); the power of the Secretary of Agriculture to prescribe maximum charges of commission men under the Packers and Stock Yards Act, Tagg Bros. & Moorehead v. U.S. (280 U.S. 420).

The requirement expressed in the cases is that there must be standards prescribed by Congress for the guidance of the administrative agency. The degree of definiteness required cannot, of course, be defined for all cases. But the attitude of the Supreme Court on this question has been very liberal, as is pointed out by Judge A. N. Hand of the United States Circuit Court of Appeals for the second circuit, in Frisher & Co. v. Elting (60 F. (20) 711, 713), involving section 316 of the tariff act.

“The contention that section 316 is unconstitutional because it delegates legislative power to the President is answered by such decisions as Butt field v. Stranahan, (192 U.S. 470, 24 S.Ct. 349, 48 L.Ed. 525), Field v. Clark, (143 U.S. 649, 12 S.Ct. 495, 36 L.Ed. 294), and Hampton, Jr., & Co. v. United States, (276 U.S. 394, 48 S.Ct. 348, 72 L.Ed. 624). By the last decision, section 315 (c) of the Tariff Act of 1922 (19 U.S.C.A. secs. 154-159) was sustained as a proper delegation of power.

This section authorized the President to increase or decrease duties so as to equalize differences which, upon investigation, he might find to exist between costs of production in this end in foreign countries. The only possible question about the validity of section 316 is whether Congress laid down an adequate standard for the President to apply, when it declared unlawful 'unfair methods of competition and unfair acts in the importation of articles or in their sale

the effect or tendency of which is to destroy or substantially injure an industry.

The terms are general and vague, but the Federal Trade Commission Act, which has uniformly been recognized as valid, declared “unfair methods of competition in commerce' unlawful and directed the Commission to prevent persons

from using' those methods. Federal Trade Commission Act, section 5 (U.S.C.A. sec. 45); Federal Trade Comm. v. Cratz (253 U.S. 421, 40 S.Ct. 572, 64 L.Ed. 993); Fed. Trade Comm. v. Eastman Kodak Co. (274 U.S. 619, 47 S.Ct. 688, 71 L.Ed. 1238). In similar vague terms the Shipping Board has been empowered to approve such agreements as it shall not find 'unjustly discriminatory or unfair

or to operate to the detriment of the commerce of the United States.

Congress could hardly have left the Shipping Board with more general powers or launched it with less definite sailing orders; yet its jurisdiction as a fact-finding body has been sustained in the broadest way. U.S. Nav. Co. v. Cunard S. S. Co., 281 U.S. 759, 50 S.Ct. 410, 74 L.Ed. 1169.

“We can have no doubt that section 316, which empowers the President to determine what acts in the importation or the sale of imported articles are unfair and to determine under what conditions these subjects of unfair trade should be exported, is entirely valid, and we so hold.”

The standards prescribed for the Federal Trade Commission in the FletcherRayburn bill make the grant of power to it well within the limits of permissible delegation as outlined above. Section 11, on registration statements, authorizes the Commission, in prescribing rules, to demand only such information as it deems necessary or appropriate in the public interest or for the protection of investors”; and the kind of information demandable is carefully described. Similar standards are fixed for the requirement of periodical and other reports, in section 12, and the regulation of the use of proxies, in section 13. Section 14, on overcounter markets, requires that the rules be “necessary or appropriate to insure to investors protection comparable to that provided by and under authority of this act in the case of national securities exchanges.” Similar standards are prescribed throughout the bill.

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