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BOSTON PUBLIC LIBRARY 



3 9999 06542 011 7 



NATIONAL RECOVERY ADMINISTRATION 
DIVISION 0? REVIEW 



THE POSSIBILITY OE VARIATIONS IN TARIEE RATES 
TO SECURE PROPER STANDARDS OE WAGES AND HOURS 

BY 
James W. Irwin. 



WORK MATERIALS NO. 21 



WD 



Legal Research Section 
December, 1935 



9358 



CONFIDENTIAL 



MEMORANDUM TO: SECTION HEADS December 30, 

19 3 5 
SUBJECT: WORK MATERIALS NO. 21 

TEE POSSIBILITY OE VARIATIONS IN TARIFF RATES 
TO SECURE PROPER STANDARDS OF WAGES AND HOURS 



This preliminary draft of THE POSSIBILITY OF VARIATIONS 
IN TARIFF RATES TO SECURE PROPER STANDARDS OF WAGES AND HOURS 
"by James W. Irwin is made available for confidential use 
within the Division of Review "because of its usefulness in 
connection with other studies,, 

It is a -oreliminary draft — an exploration of the field 
as a basis for further work. Not all material in it has as 
yet been verified and checked, nor does it nresent a fully 
rounded treatment of the subject. 



L. C. Marshall 
Director, Division of Review 



13 My 35 g 



9358 



TABLE OF C ONTENTS 

Pages 
A. The Question 1 

I. Summary 1 

II. Logical Appropriateness of Plan 1 

III. Legislation Would Be Within Constitution 2 

IV. Scope of Legislation Required 5 

V. Method Could at Most be Auxiliary 6 

VI. Auxiliary Plan At Most 10 

VII. Obstacles Probably Barring Any Use 10 

AUTHORITIES 

Tariff Act of June 17, 1930 (4-6 Stat. 701, 

U.S.C.A., Title 19, par. 1336-A) 2,5 

Hampton v. United States, 276 U.S. 594, 72 

L.Ed. 624 3 

Senate Resolution 162, 69th Congress 3 

Fox River Butter Co. v. United States, 

2d C.CoPoA. Oust. 33, & 287 U.S. 628 3 

Child Labor Tax Case, 259 U.S. 20 3,6 

Norwegian Nitrogen Products Co. v. United 

States, 288 U.S. 294, 77 L.Ed. 796 4 

R.C.L. Vol. 23, Sec. 1008 4 

Pox y. Standard Oil Co., 294 U.S. 100 9 

Hill v. Wallace, 259 U.S. 44 6 

Trusler V. Crooks, 269 U.S. 475 6 

Linder v. United States, 268 U.S. 5 6 

Bailey v. Drexel Furniture Co., 259 U.S. 20 3,7 

Nigro v. United States, 276 U.S. 352 8 

Casey v. United States, 276 U.S. 332 8 

Magnano v. Hamilton, 292 U.S. 44 8,9 

Alaska Fish Co. v. Smith, 265 U.S. 44 9 

9353 -i~ 



-1- 



THE POSSIBILITY 0? VAR IATIONS IN TARIFF RAT ES 
TO SECURE PROPER STAHriHDS OF WAGES AMD HOURS 



Question 



Pursuant to direction received recently, I submit the following dis- 
cussion on the topic of possibility of the use of variations in tariff rates 
to secure and maintain adequate standards as to wages and hours of employees 
in industry. 

The thought presents itself that the flexibility of rates might be "based 
upon either of two lines of approach: First, upon whether the importer was 
maintaining proper wage and hour standards; second, upon whether the producing 
industry in America sought to be protected by the rates involved, was main- 
taining proper standards. The two could not both be iised because of inevitable 
conflict where the importer of a foreign product maintained an acceptable 
scale of wages and hours, and the American producer of the competing product 
did not conform to such acceptable standards, - or vice versa. Probably the 
second line of approach above referred to is the one which would ordinarily 
occur to a person considering the utilization of tariff regulations for the 
purpose above set forth. It would be the more promising, "because of the vastly 
greater number of those employed by manufacturers and producers as compared to 
those employed by importers. Therefore, it is from this point of view that the 
question will be considered. 

Discussion 



This report may be summarized as follows : 

The plan of varying tariff rates according to the maintenance of, or 
failure to maintain, acceptable standards as to hoiirs and wages of employees 
in the industry for the protection of which the tariff rates are fixed, from 
a standpoint of logic is peculiarly appropriate. Apparently, a constitutional 
law looking toward effectuation of such a plan could readily be framed. In 
fact, it might be said to "be already in effect. But it seems to be clear that 
this plan, in spite of its legal possibility and logical fitness, is practi- 
cally unsound. At the very most it could be lised only as an auxiliary 
scheme. There are better approaches and this one has too many "blocking 
obstacles. 

LI 

The logical appropriateness of the plan is obvious . 

Perhaps the most effective and the most vocally urged argument in favor 
of the protective tariff, has been that it is necessary to guard the alleged 
high living standards of the American Laborer against debasement resulting 
from competition between American goods and those which, without a tariff 
wall, would be dumped into this country at the low prices made possible 
through lower living standards of labor in the country of their origin. 



-2- 

Therefore, to the extent that any 'beneficiary industry is derelict in maintain- 
ing those favorafale lafaor conditions which it is alleged justify the protective 
tariff, to that extent justice would seem to demand that the tariff "be lowered. 

Ill 

There can "be little question that legislation for such a variation in 
tariff rates is within the confines of the Constitution , and of the rules of 
its interpretation already laid down fay the Supreme Court. 

The Tariff Act of June 17, 1930 includes the following provision (46 
Stat. 701, U.S.C.A. , Title 19, § 1336-a) : 

"In order to put into force and effect the policy of Congress fay this 
chapter intended, the commission (l) upon request of the President, or 
(2) upon resolution of either or faoth Houses of Congress, or (o) upon 
its own motion, or (4) when in the judgment of the commission there is 
good and sufficient reason therefor, upon application of any interested 
party, shall investigate the difference in the costs of production of 
any domestic article and of any like or similar foreign article. In 
the course of the investigation the commission shall hold hearings and 
give reasonable public notice thereof, and shall afford reasonafale op- 
portunity for parties interested to fae present, to produce evidence, 
and to fae heard at such hearings. The commission is authorized to 
adopt such reasonafale procedure and rules and regulations as it deems 
necessary to execute its functions under this section. The commission 
shall report to the President the results of the investigation and its 
findings with respect to such differences in costs of production. If 
the commission finds it shown fay the investigation that the duties ex- 
pressly fixed fay statute do not equalize the differences in the costs 
of production of the domestic article and the like or similar foreign 
article when produced in the principal competing country, the commis- 
sion shall specify in its report such increases or decreases in rates 
of duty expressly fixed fay statute (including any necessary change in 
classification) as it finds shown fay the investigation to fae necessary 
to equalize such differences. In no case shall the total increase or 
decrease of such rates of duty exceed 50 per centum of the rates ex- 
pressly fixed fay statute " 

Subsection (fa) provides that under certain conditions the Commission may 
recommend a change of "basis for tariff rates from the foreign market value or 
cost of the imported article to the American selling price of its domestic 
competitor. 

Subsection (c) vested the final power of action as to raising or lowering 
of statutory tariff rates in the President. 

"The President shall fay proclamation approve the rates of duty and 
changes in classification and in "basis of value specified in any re- 
port of the commission under this section, if in his judgment such 
rates of duty and changes are shown fay such investigation of the com- 
mission to fae necessary to equalize such differences in costs of 
■production. " 



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-3- 

The foregoing constitute the so-called "flexible tariff provisions." They 
have "been vigorously assailed, "both on grounds of policy and on grounds of 
constitutionality. In 1926 a Committee investigation was ordered pursuant to 
Senate Resolution 162, 69th Congress. A majority of the Committee advised that 
the flexible provisions "be repealed chiefly for the reason that the President 
was already overburdened with executive duties. 

In several cases the constitutionality of these provisions has "been "be- 
fore the Customs Court and the Court of Customs and Patent Appeals, where deci- 
sion was sometimes by a divided court. 

Doubt as to the constitutionality of this section of the statute was 
finally set to rest by the Supreme Court in the case of J. W« Hampton, Jr. & 
Company v. United States , 276 U.S. 394, 72 I. Ed. 624 (1923). This case chal- 
lenged the action of the President in having made a 50 per cent increase in the 
duty on a certain chemical product. The constitutionality of the statute was 
questioned, both on the ground that it made to the President an unauthorised 
delegation of legislative power, and on the ground that it involved an illegal 
levying of a. tariff, which it was contended could be levied only for revenue 
purposes. 

As a succinct answer to the first of these attacks, I quote the following 
from the opinion of the court at page 409 of 276 U.S. Reports: 

"... The same principle that permits Congress to exercise its 
rate making power in interstate commerce, by declaring the rule 
which shall prevail in the legislative fixing of rates, and en- 
enables it to remit to a rate-making body created in accordance 
with its provisions the fixing of such rates, justifies a simi- 
lar provision for the fixing of customs duties on imported mer- 
chand'.se. If Congress shall lay down by legislative act an in- 
telligible principle to which the person or body authorized to 
fix such rates is directed to conform, such legislative action 
is not a forbidden delegation of legislative power. ..." 

The answer to the attack on the delegation of power to the President "as 
extended in the case of Pox River Butter Co. v. United States , in which the 
Court of Customs and Tax Appeals sustained his right to vary classifications 
as well as rates, (2d C.CP.A. - Oust. - 38) The decision was approved ''oj the 
Supreme Court by refusal to grant a writ of certiorari (287 U.S. 628), 

Prom the reply to the second proposition of the alleged perversion of the 
use of the taxing power, the following passage from the Hampton Case (276 U.S. 
412) is quoted: 

"... Whatever we may think of the wisdom of a protective policy, 
we can not hold it unconstitutional. 

"So long as the motive of Congress and the effect of its legislative 
action are to secure revenue for the benefit of the general govern- 
ment, the existence of other motives in the selection of the subjects 
of taxes can not invalidate Congressional action. As we said in the 
Child Labor Tax Case , 259 U.S. 20, 38: 'Taxes are occasionally imposed 
in the discretion of the legislature on proper subjects with the pri- 
mary motive of obtaining revenue from them, and with the incidental 

9353 



-4- 

motive of discouraging them "by malcing their continuance onerous. 
They do not lose their character as taxes "because of the incidental 
motive.' And so here, the fact that Congress declares that one of 
its motives in fixing the rates of duty is so to fix them that they 
shall encourage the industries of this country in the competition 
with producers in other countries in the sale of goods in this 
country, can not invalidate a revenue act so framed. Section 515 
and its provisions are rn.th.in the power of Congress. The judgment 
of the Court of Customs Appeals is affirmed." 

In view of the opinion of the court, as summarized in the last quotation, 
it can not "be doubted that "flexible tariff rates" may legally "be applied for 
the protection of standards of American labor. 

Another case in which the "flexible tariff provisions" were sustained was 
Norwegian Nitrogen Products Co. v. United States , 288 U.S. 294, 77 L. Ed. 796. 
The issues were not so "broad as in the Hampton or the Fox River Cases , supra , 
"being concerned primarily as to methods of procedure. But there is one perti- 
nent paragraph which may he quoted: 

"No one has a legal right to the maintenance of an existing rate 
or duty. Neither the action of Congress in fixing a new tariff 
nor that of the President in exercising his delegated power, is 
subject to impeachment if the prescribed forms of legislation 
have been regularly observed." 

It may be remarked that the "flexible tariff provisions" involved in the 
cases cited were those of the Tariff Act of 1922. However, the distinctions 
between them and the corresponding sections of the present act are essentially 
different in form, and could not possibly affect the reasoning of the court. 

It may be further observed that although the first "flexible tariff pro- 
vision" were those of the 1922 Act, nevertheless, they were merely an exten- 
sion and development of well-established principles of law governing executive 
authority in relation to the tariff. The extent of this executive authority 
as already firmly established may be seen in the following passage from 23 
E.C.L. 1008, which was published in 1919, three years prior to the first 
"flexible tariff provisions" : 

"The President may be made the agent of Congress to determine the 
events of which the expressed will of Congress concerning duties 
should take effect and thereupon to proclaim such will. Thus, he 
may be authorized and instructed to suspend the free list as to 
countries which impose duties on products of the United States, 
whenever he deems such duties reciprocally unequal and unreason- 
able, provided Congress fixes beforehand the duties which will 
attach on such suspension." 

The foregoing quotation from E.C.L. omits reference to the broadest authority 
delegated to the President in relation to tariff rates prior to the 1922 Act, 
This was the provision of the Act of 1909 which set up a system of maximum 
and minimum rates with permission to the President to adopt one set or the 
other, 



9358 



-5- 
IV." 

Corollary to the problem of whether a system of tariff variations can 
be used to assure fair 1 . -wage and hour practices, is the question of what 
legislation would "be requ i red if suc h a policy were to "be pursued . Theo- 
retically, the answer night "be "none 1 '. The provisions of the Tariff Act of 
1930 hereinbefore quoted, give the President the* right to raise or lower 
tariff schedules to the extent of 50 per cent, if necessary to equalize 
costs of production abroad and here, therefore, it would seem to be within 
his power to say that satisfactory labor conditions constitute an essential 
element of the American production cost, and that the tariff schedules shall 
be high enough to render such labor conditions feasible; and to make a cor- 
rection of deficient standards of labor conditions in any industry a require- 
ment to ward off a drastic tariff reduction. 

But before there is an embarking on such an executive policy, the 
statute should be amended to make clearer a legislative policy to protect 
the interests of labor. 

At present, it could be contended that only existing costs of pro- 
ductions can be compared in determining whether the change in tariff rentes 
should be made. Assuming an American industry, where existing labor rates 
are inadequate, and production costs here and abroad are on a parity under 
present tariff standards, it might be contended no variation of customs 
schedules could be made to aid labor. 

Again, the amended Act should avoid implied requirement that before 
there is any tariff reduction because of unfairness of an industry toward 
labor there must be a mathematical demonstration that increased labor costs 
would leave the American industry on absolute equality of cost with its 
foreign competitor. It may be true that American tariff rates are uniformly 
high enough to protect labor, but it might be a complex undertaking to es- 
tablish this in a given instance. 

The clarification as to legislative policy hereinbefore referred to, 
I think can be accomplished by the following legislative changes: 

Where Section 1336 (a) (quoted at pages 3-4 of this memorandum) sets 
forth a duty of the Tariff Commission to "investigate the difference in the 
cost of production of any domestic article and of a like or similar foreign 
article", there should be inserted a provision similar to the following: 

"making due allowance in estimating the said domestic cost in the 
production of any domestic article, for maintaining a minimum wage 
and maximum hour scale for labor in the industry concerned con- 
sistent with reasonable standards of comfort, health and well- 
being of the employees in said industry." 

At the conclusion of said Section 1336 (2) there should be added a 
paragraph substantially as follows; 

"It is further provided that the duty of investigation by the 
said Tariff Commission shall extend to investigation of the extent 
to which any industry whose domestic product is favored by a pro- 
tective tariff, does not maintain a standard of wages and hours for 
labor as hereinbefore described, and the Commission shall report to 
the president what reduction in the tariff it believes would be just 

9358 



-6- 

on account of said failure to maintain wage and hour standards of 
labor; which reduction shall not he in ezcess of fifty per cent (50$) 
of the original statutory tariff rate, if any, as may have been made 
pursuant to order of the president." 

Probably there should be an enactment (in a separate act however) 
granting exemption from anti-trust laws in favor of any agreement among mem- 
bers of an industry relating solely to maintaining fair wage and hour stand- 
ards. The purpose of this would be to enable the members of an industry, 
if they saw fit, to band together in an agreement for the purpose referred 
to and for the ultimate purpose of maintaining such protective tariff rates 
as they deem necessary for their own welfare. 

V 

In considering the constitutionality of tariff legislation of the type 
under discussion, and the form it should take, it was necessary also to con- 
sider the general question of to what extent, and how, collateral purposes 
may be effected through tax laws . 

The danger signals of such cases as the Child Labor Tax Case (1922), 
259 U.S. 20; Hill v. Wallace (1922), 259 U.S. 44; Trusler v. Crooks (1925), 
269 U.S. 475, and Linder v. United States (1925), 268 U.S. 5, were regarded. 

In the last case cited, the Supreme Court, in an opinion delivered by 
Mr. Justice t'.cReynolds, set aside conviction of the defendant, a physician 
who had been charged with dispensing opium to an addict of the drug, not for 
the purpose of treating "any disease other than such addiction". The court 
said: 

"Congress cannot under pretext of executing delegated power, pass 
laws for the accomplishment of objects not entrusted to the Federal 
government and we accept as established doctrine than any provision 
of an Act of Congress ostensibly enacted under power granted by the 
Constitution not naturally and reasonably adapted to the effective 
exercise of such power but solely to the achievement of something 
wholly within power reserved to the States, is invalid and cannot 
be enforced. . . . Obviously, direct control of medical practice 
in the States is beyond the power of the Federal government. In- 
cidental regulation of such practice by Congress through a taxing 
act, cannot extend to matters plainly inappropriate or unnecessary 
to reasonable enforcement of a revenue measure. The enactment 
. . . says nothing of 'addicts'* and does not undertake to prescribe 
methods for their medical treatment. They are diseased, and proper 
subject for such treatment. ..." 

Hill v. Wallace , supra , involved the constitutionality of " an act 
taxing contracts for the sale of grain for future delivery and options for 
such contracts, and providing for the regulation of boards of trade and 
other purposes ." The opinion by Mr. Chief Justice Taf t , stated: 

"It is impossible to escape the conviction, from a full reading of 
this law, that it was enacted for the purpose of regulating the 
conduct of the business of boards of trade. . . . 



9358 



„7~ 

"Indeed the title of the act recites that one of its purposes is 
the regulation of "boards of trade. . . Hie manifest purpose of the 
tax is to compel hoards of trade to comply with regulations, many of 
which can have no relevancy to the collection of the tax at all . . . . " 

Trusler v. Cr ooks, supra, considered the sane act, the particular question 
heing whether Section 3, a taxing provision, was constitutional in spite of the 
unconstitutionality of those parts of the act directly involved in the case of 
Hill v. Wallace . The court held this section also unconstitutional, saying: 

"Section 3 was not intended to produce revenue hut to prohihit 
all such contracts as part of the described regulatory plan." 

The well known Child Lahor Tax Case ( Bailey v. Drexel Furniture Company ) 
ahove cited, held unconstitutional the Child Lahor Lav/ of 1919. This law 
attempted to impose an excise tax equivalent to ten per cent of the net profits 
of the "business of "any mine, quarry, mill, tannery, workshop, factory, or 
manufacturing estahlishment" which should, during any year, employ child lahor. 
It was immaterial whether one child or hundreds of children were employed 
(the ages at which the tax was to he effective heing specified). The statute 
provided exemption when minors under the specified ages were employed without 
knowledge that the age limits had "been infringed. 

It had heen attempted to assess a penalty of $6,312.79 against the 
Drexel Furniture Company "because it had employed a hoy under fourteen years 
of age to work in its factory. The court stated the fundamental question in 
the following words: 

"Does this law impose a tax with only that incidental restraint 
and regulation which a tax must inevitahly involve? Or does it 
regulate hy the use of a so-called tax as a penalty?" 

The court pointed out that the amount chargeahle was not one proportion- 
ate in any degree to the extent or frequency of departures from the standards; 
and also that the charge was not imposed, unless the age limits were knowingly 
infringed, stating that "scienter is associated with penalties, not with 
taxes." , It also emphasized that factories were made subject to inspection not 
only "by the taxing officer hut hy the Department of Lahor, the functions of 
which do not pertain to taxes hut to the protection of the welfare of workers. 
It said: 

"In the light of these features of the act, the court must he hlind 
not to see that the so-called 'tax' is imposed to stop the employment 
of children within the age limits prescribed. Its prohihitory and 
regulatory effect and purpose all others can see and understand. 
How can we shut our minds to it ? . . . 

"Out of a proper respect for the acts of a coordinate "branch of the 
Government, this court has gone far enough to sustain taxing acts as 
such, even though there has heen ground for suspecting from the 
weight of the tax it was intended to destroy its subject. But, in 
the act "before us, the presumption of validity cannot prevail, he- 
cause the proof of the contrary is found on the very face of its 
provisions. Grant the validity of this law, and all that Congress 



-8- 

would need to do, hereafter, in seeking to take over to its control any- 
one of the great number of subjects of public interest, jurisdiction of 
which the States have never parted with, and which are reserved to them 
by the Tenth Amendment, would be to enact a detailed measure of complete 
regulation of the subject and enforce it by a so-called tax upon de- 
partures from it. To give such magic to the word 'tax' would be to 
break down all constitutional limitation of the powers of Congress and 
completely wipe out the sovereignty of the states." 

Consideration of such cases as the foregoing influences this memorandum 
to the extent of making the suggested declaration of policy in Part IV less 
explicit and detailed than it would otherwise have been and in causing the 
suggestion that the exemption from anti-trust laws should be in a separate 
act, rather than being part of the tariff act. In other words, the memorandum 
recognizes the desirability of leaving no possibility for contention that the 
proposed tariff provisions are not in fact related to revenue raising, but to 
other masquerading purposes. 

But nothing in the foregoing cases seems sufficient to cast doubt upon 
the constitutionality of applying flexible tariff provisions to the purposes 
herein discussed. In the first place, there is a long line of cases which up- 
hold the right of legislative bodies to frame tax measures with other objects 
in view in addition to that of securing revenue. Several of these, beginning 
at an early date, are reviewed in the Child Labor Tax Case , supra . 

Among later cases sustaining legislative right to accomplish collateral 
purposes through tax legislation are: Nigro v. United States (1928), 276 U.S. 
332; Casey v. United States (1925), 276~U.S. 420; Magnona v. Hamilton (1934), 
292 U.S. 44; Fox v. Standard Oil Company (1935), 294 U.S. 100. 

The Nigro and Casey Cases sustained the Harrison Anti-Narcotic Act. It 
may be accepted as a matter of general knowledge that the primary purpose of 
this Act is not to raise revenue but to restrict traffic in narcotic drugs, 
and thus to advance the physical and moral welfare of the American people. 
This appears also from two quotations. The first is from the dissenting opin- 
ion of Mr. Justice McReynolds (who it has been observed wrote the opinion of 
the Court holding unconstitutional previous anti-narcotic tax law provisions), 
and is as follows: 

"I can discover no adequate ground for thinking Congress could have 
supposed that collection of the prescribed tax would be materially 
aided by requiring those who engage in selling surreptitiously to con- 
sumers to do an impossible thing - receive an order upon a blank which 
the purchaser could not obtain. The plain intent is to control the 
traffic within the States by preventing sales except to registered 
persons and holders of prescriptions, and this amounts to an attempted 
regulation of something reserved to the States. ..." 

From the majority opinion sustaining the Act which was written by Mr. 
Chief Justice Taft, the following is quoted as an answer to the foregoing 
argument of Mr. Chief Justice McReynolds and other dissenting Justices: 

"Congress does not exceed its power if the object is laying a tax and 
the interference with lawful purchasers and users of the drug is reason- 
ably adapted to securing the payment of the tax. Nor does it render 

9358 



-9- 

sucli qualification or interference with the original state right an in- 
vasion of it "because it may incidentally discourage some in the harmful 

use of the thing taxed." 

Magnano v. Hamilton , supra , was an action by a corporation of the State of 
Washington attacking a statute of that State which placed a tax of 15 cents per 
pound on oleomargarine. This company was the manufacturer of llucoa, admittedly 
a meritorious pruduct. Prior to the passage of the Act it had derived a large 
annual net profit from sales within the State, and since then it had made no 
intrastate sales. Its contention was that the tax was for "the sole purpose of 
burdening and prohibiting manufacture, importation, and sale of oleomargarine 
in aid of the dairy industry. 11 To this the court answered: 

"The collateral purposes of a legislature in devising a tax of a kind 
within the reach of its lawful purpose are matters beyond the scope of 
j udi c i al inc. ui ry . " 

Quoting Alaska Fish Co. v. Smit h, 255 U.S. 44, the court said: 

"Even if the tax should destroy the business, it would not be made in- 
valid. ..." 

In conclusion the opinion stated: 

"Prom the beginning of our government, the courts have sustained taxes, 
adthough imposed with the collateral intent of effecting ulterior ends 
which considered apart were beyond constitutional power of lawmakers to 
realize by legislation directly addressed to their accomplishment." 

Pox v. Standard Oil Co ., 294 U.S. 100 is a very interesting case decided 
during the present year, the opinion being by Mr. Justice Cardozo. It con- 
sidered an attack upon a state statute which provided a tax on stores begin- 
ning with $2.00 assessed against a single independent store, the levy against 
each store rapidly increasing according to the number of stores in the chain 
of which it was a part. It seems to have been conceded that where there were 
as many individual places of business as were conducted by the Standard Oil 
Company, the tax ree.ched a proportion which took the entire profit of many of 
the stores. The -:ourt said: 

"A chain ... is a distinctive business species with its own capacities 
and functions. . . . Broadly speaking its opportunities become greater 
with the number of compone?-_t links in the chain. Por that reason the 
state may tax the large chains more heavily than the small ones. Not 
only may it do this, but it may make the tax so heavy as to discourage 
multiplication of the units to an extent believed to be inordinate v and 
by the incidents of the burden develop other forms of industry. ... A 
motive to build up through legislation the quality of men may be as 
creditable in the thought of some as a motive to magnify the quantity of 
trade. Courts do not choose between such values in adjudging legislative 
powers. . . . The tax now assailed may have its roots in an erroneous 
conception of the ills of the body politic, or of the efficacy of such 
a measure to bring about a cure. We have no thought in anything we have 
written to declare it expedient or even just, or for that matter to de- 
clare the contrary. We deal with power only." 

9358 



/ 



-10- 

While it is interesting and instructive to consider the foregoing cases, 
pro and con , construing tax measures with collateral purposes, those cases 
most important to the subject of this memorandum are the ones directly invol- 
ving tariff provisions. Those already cited in Part III of this memorandum, 
it seems, conclusively sustain the proposition that tariff legislation may, "by 
provisions for flexible rates, protect wage and hour standards of labor. 

VI. 

Any method of maintaining wage and hour stan d ards through application of 
the principle of the "flexib le tar i ff" coul d at most be used, only as an 
auxiliary method of securing the end in view . There would be many industries 
not directly affected by the tariff. In such industries abuses as to wage and 
hour standards wouLd not be vulnerable to tariff regulations and would need 
to be reached by some other method. 

VII. 

furthermore, I shall state in conclusion the opinion already expressed in 
the summary (introductory paragraph 1) , that t he principle of securing or main- 
taining satisfactory standards for labor through "flexible tariff provisions" 
cannot be relied upon as an effective metho d, probably not even as an effective 
auxiliary method. This is because of two reasons: First, that there are 
better approaches, and second, there are inescapable obstacles in h erent in 
this plan . 

As to the better methods, it may not be too much to expect that ultimately 
the Federal Government will be vested with more adequate power to meet respon- 
sibility for social conditions through Constitutional amendment. In the mean- 
while, the simple expedient of bringing a large section of industry in line 
through requirements of Government contract, as sought under the Walsh Bill 
now pending before Congress, promises better results than could be accomplished 
■under the more pretentious plan which is the subject of this memorandum. Ap- 
plication of the taxing power, with taxes to be remitted in whole or in part 
to members of an industry maintaining acceptable wage and hour standards, 
after the fashion of the Guffey Coal Bill, also seems a much more practical 
undertaking (if it avoids constitutional pitfalls, suggested by the cases dis- 
cussed in Part V of this memorandum). Likewise, the licensing plan of the 
O'Mahoney 3ill would seem more effective (if, again, doubts as to constitu- 
tionality of such legislation can be resolved in its favor). 

The inescapable obstacles to the success of any plan for effectuating 
satisfactory wage and labor standards through means of tariff manipulation 
are numerous. In addition to the one referred to in Part VI, and to general 
administrative difficulties such as lead to the Senate Committee action re- 
ferred to in Part III of this memorandum, there would be strong protest a- 
gainst what would be alleged to be the indirection and subterfuge of the plan. 
But the foremost obstacle is that no American industry is a complete monopoly, 
however near the approach may be in some instances. Therefore, in every in- 
dustry there would inevitably be those members who would cooperate in main- 
taining proper conditions of labor, and those "chiseling" members who would 
not. Changes of tariff rates would affect both, according to the Scripturally 
announced principle that "rain falleth alike upon the just and the unjust." 



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