What’s the Administrative State’s Date of Birth?

I’m thrilled to be guest blogging this month, and looking forward to discussing the administrative state, political parties, and other topics. For my first post I want to bring up an interesting question that emerged in a review by Ted McAllister (and in the comments) from last week, regarding the origins of the modern regulatory/administrative state. Scholars often trace the birth of the administrative state to the 1880s, especially in two critical episodes: the passage of the Pendleton Act in 1883 which created the modern civil service, and (more importantly) the passage of the Interstate Commerce Act in 1887, which created the Interstate Commerce Commission. This history of the administrative state makes the late nineteenth century the critical turning point in American history.

This is a plausible, but ultimately I think a mistaken history. The regulatory initiatives of the late 19th Century were much more consistent with an earlier view of American constitutionalism that they appear at first glance. They were not necessarily harbingers of the modern administrative state. Tracing the birth of the administrative state to the 1880s is somewhat misleading.   

Certainly if we are simply tracing the evolution of the regulatory state by the creation of administrative agencies, 1887 stands as a watershed moment. Aside from the 1852 Steamboat Safety Act, no statute prior to 1887 established a modern regulatory commission as an administrative body. But if we examine the nature of the powers granted to the ICC in 1887, it is clear that the ICC did not serve as a prologue to the modern agencies we have today.

The ICC was not established as an independent regulatory commission. It was situated within the Interior Department, and was likely moved out of that Department (a few years later) only because Congress wanted to eliminate presidential control of the commission once it became clear that Benjamin Harrison (a pro-railroad politician) would become President. It was given quasi-judicial powers rather than rulemaking or ratesetting powers. In other words, it acted as a court rather than an agency: specific complaints regarding rate discrimination, pooling, and rebating could be brought to the ICC for resolution, but the Commission could not set rates prospectively. And further, the right to bring suits at common law was explicitly preserved by the Act. So parties could bring complaints to either a court, or the commission. Both options were left open. Finally, the ICC had no enforcement power. It could merely ask the appropriate U.S. Attorney to file suit in federal court for enforcement.

Why would Congress set up such a weak regulatory commission? The answer is that there was no consensus in favor of a modern regulatory state, such as the one the Progressives would attempt to build a generation later. To oversimplify a complex legislative debate, the pro-commission forces in Congress (led by Shelby Cullom) wanted to set up an expert commission because they were concerned that rigid prohibitions would be more harmful than good, due to the complexity of circumstances surrounding the industry. The anti-commission forces were Populists led by “Judge” John Reagan, and they labeled any grant of administrative discretion as tyrannical. Reagan lambasted the Interstate Commerce Act, saying that Americans were “not accustomed to the administration of civil law through bureau orders.” The lack of a strong Progressive presence in Congress, in other words, combined with strong resistance to the idea of an administrative state, combined to establish a very modest regulatory institution. The ICC was not the birth of the modern regulatory state – it was something else altogether.

This raises an important point.  There were not two, but three camps that emerged from 1877-1930 regarding the role of regulation in a free society post-Industrial Revolution.  One approach, the laissez-faire Social Darwinist approach, said that historical progress could be achieved by eliminating government control and letting the strongest rise to the top.  Another approach, associated with the Progressives, emphasized the need to alter our constitutional system to establish a new type of regulatory institution — and thus create a modern administrative state.  The third approach wanted to establish new regulatory programs to meet new conditions, but it sought to do so within the traditional constitutional system.  I think that the ICC was created with significant input from this third approach.

An administrative state must contain several features, including delegation of legislative power to agencies and the notion of separating politics and administration. The ICC contained neither of these features at its inception. Thus I would argue that it was not until Theodore Roosevelt’s emergence as a national force that America moved towards a modern regulatory state combined with the stewardship theory of the presidency. (If we are in search of a “birthdate” for the administrative state, I might suggest the passage of the Hepburn Act in 1906, with TR using the bully pulpit to take leadership of the Congress.) The Interstate Commerce Act and the Sherman Antitrust Act were attempts to establish a very different kind of regulatory institution, and were animated by a much more traditional view of American constitutionalism than most Progressives embraced.

Speaking of the stewardship theory of the presidency, Frank Buckley has offered some very important challenges to the conventional view of how the Framers thought about executive power and the separation of powers, both in his recent book The Once and Future King and in his posts here on this site. In a post later this week I will raise some questions about his interpretation of the Founding, and will defend the call for stronger political parties and party leadership (which I think is implicit in his argument).

Reader Discussion

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on June 02, 2014 at 15:35:32 pm

Nice post and, I think, on point with respect to the very different nature and objectives of the "pre - Bully Pulpit" administrative state and the later blessings bestowed upon us by Woodrow Wilson and the Progressives.
Within the past year Claremont Review of Books had an essay in which the author claimed that the nation has always been partial to administrative dominion or, perhaps leanings would be fairer, and further argued that even prior to the Steamboat Act, which he marks as the birthdate, there were sufficient agency powers to cast doubt upon those who credit the Proggies with propr parentage.
I suspect that he missed the point that you make that the very nature of the administrative grant(s) are really at issue here and that what was to follow was impelled by completely different motivations and visions - not to mention a much more cowardly legislature enamored with its own sense of self preservation.

Look forward to your later posts.
take care

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on June 03, 2014 at 20:36:36 pm

The Transition

While Dr. Postell is addressing the establishment point of the presently existing *centralized* “Federal” Administrative State, it is worth keeping in mind that the political organization of the nation was, and has been, based on the embodiment of authorities which constituted the several states and commonwealths, all of which were, and have been, to some degree “administrative” in their operating principles and to some extent in their basic functions. That has been basic to their “sovereignty.” The mechanisms employed for that administration, while similar, have varied in ubiquity and acceptance by the polity impacted.

Perhaps, rather than a “birthdate,” what we may define is a “transition point” in an era of various forms of transition, not only in the centralization of what had been distributed sovereignty, but in other more subtle factors that may have contributed to the acceptance of this particular transition by the national polity, but certainly with some regional resistance.

Dr. Postell identifies particular dates of acceleration in the transition. In them he places particular federal legislative action. In that same era other factors, equally, perhaps more, compelling, for that acceleration came into play. All of those factors, as well as those noted by Dr. Postell, gave rise to the need for “management.”

The rapid changes, improvements, and extensions of technologies, particularly in large-scale industrial, transportation, fuels and communications enterprises which occurred in the latter portion of the 19th century required forms of operational procedures that differed from the earlier periods of industrialization when ownership and control also extended into operational responsibilities. The maturation of the railroad operations required mid and upper level operational management which differed in motivations and objectives from financial ownership and control. The larger metallurgical industries encountered the same operational necessity for managers who differed in social sources, motivations, and objectives, from those having (or representing) financial control.

Railroads, in particular represented the initial phases in that transition, particularly as they were among the first to pass into “public ownership,” albeit chiefly through the larger trust companies in the era identified. The nation was then experiencing the end of the era of industrial capitalism, which had been succeeded by financial capitalism in terms of the forms of economic development and expansion. With the beginning and expansion of “public ownership” of large business enterprises coincident with that transition period, with its requisite increasing dominant role of managers, the decline of financial capitalism began.

It was from the “financial crisis of 1907” that the Federal Reserve system was created to manage the monetary system of the United States. Originally, that management was “privatized” and distributed within the banking industry (as one of the residuaries of declining financial capitalism), but was held within bounds of legislative authority and accountability.

The noted alteration of the ICC from a quasi-juridical function to functions requiring management and managers was also indicative of a “transition point.” Here, the managerial structure evolving in the railroad industry was being matched by a politically constructed managerial system.

In all events, the transition has involved (or possibly resulted from?) the emergence of a “managerial class,” engineers, technicians, accounting specialists, statisticians and the ubiquitous managers of record-keeping and reporting. As this transpired in larger business enterprises with extensive effects upon economic power (coming increasingly into the hands of a managerial class) there was growing acceptance of a political development drawing upon the same managerial class as an extension of the political authority of the legislative bodies. But, as with the case of the separation of beneficial ownership from operational functions of businesses (due to fragmentation of ownership and the development of intermediate management of that beneficial ownership), the true operational controls of the politically created, or adopted, managements (derived from separate sources with motivations and objectives that differ from those of the political class) moved from the firm control of legislative ownership of sovereignty. The political class was transitioning to dependence upon the managerial class as it contended with the rising social power of the managerial class in the private sector.

Effective management generally requires planning. Planning requires centralization of information and application of procedures. The transition has led us to an era in which managers of large enterprises determine the deployment or sequestration of surpluses in accordance with their motivations and objectives. This can be fairly called “managerial capitalism.”

Because any administrative state requires managers for its operations and functions, the managerial class is predominant in the Federal Administrative State. We may be well into the development of a managed society with substantial areas of vicarious relationships replacing former interpersonal relationships.

Legislative and judicial milestones along the transitional route may be no more than passing indicators of the transition as it has occurred. Other factors may give us better clues as to the *reasons* and social forces for the transitions.

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R Richard Schweitzer

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