Imagining the Administrative State: Legal Pragmatism, Securities Regulation, and New Deal Liberalism

After more than two decades of "bringing the state back in," law persists as a neglected stepchild in the history of American state-building. Legal historians have identified a profound transformation in jurisprudence that took place during the late nineteenth and early twentieth centuries, but they have said relatively little about how radically new conceptions of law influenced public policy during the 1930s.¹ Conversely, historians of public policy have written extensively about American political development, the nature of bureaucratic autonomy, and the uses of economic knowledge in upholding the administrative state, but the role of law and jurisprudence in recasting state power has remained elusive.² Moreover, as William J. Novak has observed, both groups of scholars remain hamstrung by the inherited wisdom of Progressive historiography, and they continue to subscribe to a familiar litany of cases from Lochner to Schechter that undergirds a grand narrative about law's sole function as an impediment to state-building. As a corrective, Novak has urged historians to consider more carefully the "massive amount of everyday lawmaking" and "structural sociolegal changes" rendered invisible by the court battles of the first third of the twentieth century. Although largely unacknowledged in public discussion and debate, such developments ultimately provided critical support for the consolidation and legitimation of the modern American state.³

This essay examines the place of law in the making of the New Deal state by focusing on three of the early chairmen of the Securities and Exchange Commission (SEC)—James M. Landis, William O. Douglas, and Jerome N. Frank—and the key role jurisprudence played in their efforts to regulate the securities market and uphold the administrative state. General histories of the New Deal devote little attention to the SEC, but in the 1930s the commission emerged as one of the Roosevelt administration's most robust, creative, and successful agencies, and its reputation for energetic and effective oversight of the nation's securities markets extended well into the postwar years.⁴ Its very vigor and success attracted powerful opposition, and as the intense political and legal struggle over administrative power and the threat of statism came to a head during the New Deal years, a considerable portion of the enmity toward the New Deal's expansion of administrative government targeted the SEC. In response, Landis, Douglas, and Frank invoked novel developments in jurisprudence, especially a redefinition of legal science that integrated knowledge production with state functions, in order to justify and defend the prerogatives of the New Deal state. All three had previously achieved academic renown as advocates of innovative approaches to law, and these new currents in jurisprudence, which I will refer to as "legal pragmatism," profoundly influenced their public defense of the administrative state during the 1930s and early 1940s. The history of securities regulation thus provides significant insight into previously unrecognized aspects of New Deal liberalism's intellectual underpinnings, as well as the general place of law in the history of American state-building.

My narrative begins in the realm of legal thought, where competing notions of law as science broached hard questions about the nature of knowledge, the realities of social life, and the purpose of law amid the upheaval of American industrialization during the late nineteenth and early twentieth century. From the broader "revolt against formalism" emerged two intellectual movements within academic law—first sociological jurisprudence, and subsequently legal realism—that together defined a new legal pragmatism. This profound rethinking of knowledge and scientific truth as contingent upon social realities sought answers to the problems of the modern political economy in the ongoing exploration and creation of social facts.⁵ Many of the New Deal lawyers, including the three SEC chairmen discussed here, came from universities permeated with the intellectual and political excitement of pragmatic jurisprudence, and they brought their enthusiasm for policy experimentation to federal agencies in the 1930s...