Pollution Rituals and the Birth of Financial Regulation in the U.S. during the Interwar Period (1918-1938)
Scholars in economic sociology and financial history often analyze the emergence of the first regulatory frameworks in the U.S. as a theoretical achievement. According to this (narrow) “intellectualist” view, the early history of financial regulation could be told as following the rise and fall of the influence of economic ideas in the hallway of government bureaucracies, with Keynes on one side, and Hayek on the other. In this paper, I depart from a classic history-of-ideas argument to focus on the infrastructure of legal justifications which played a key role in enabling the implementation of financial regulations. Drawing on a variety of documents (congressional hearings, journal and correspondence of law-makers, and a corpus of pamphlets), I highlight the significance of ecological frames and rituals as justificatory triggers for the successful implementation of proactive regulation in the financial sector. This paper proceeds in three acts.
First, I show that the regulatory state, albeit on the rise, did not grow homogenously, at the same “speed,” nor did it manifest a process devoid of frictions and contradictions. In the U.S., the growing dissatisfaction with the judicial process not only to right social wrongs but to prevent them is evidenced in a series of promulgations during the Progressive Era which constituted the basis for the U.S. modern regulatory state. The Sherman Antitrust Act (1890), the Pure Food and Drug Act (1906), and the Hepburn Act (1906), provided for the first time the Federal government with the authority to prohibit certain business activities deemed anticompetitive in the sector of commerce and transportation. The rise of the regulatory state in the financial sector proved more difficult as evidenced by the fact that no significant financial legislation was enacted during this period. Although the financial sector was subjected to problems similar to those experienced in the sectors of transport and commerce, talks about finance immorality did not provide a satisfactory basis for justifying regulatory interventions.
Then, centering on the Interwar period, I explain lawmakers’ successful enrollment of the ecological frame of purity to justify proactive regulatory interventions in the financial sector. My argument is two-fold. First, recalling Mary Douglas’ classical work, “purity” is often associated with “danger,” and the obligation of boundary maintenance. As my data shows, during the 1920s, the topic of purity and danger grew more acute in policy debates over speculative practices as regulators increasingly perceived financial wrongs as pollution rather than as a simple morality tale. Second, what I term “pollution rituals” foreshadowed the possibility that regulators could shift the dispensing of law from “innocence until proven guilty” to “presumption of guilt” and pursue a set of uniform rules destined to preserve the integrity of the banking system.
I conclude this paper by showing how an analysis of ecological frames and rituals of justification can complement previous studies of the New Deal, notably those which have focused predominantly on issues of instrumentation. I also suggest avenues forward by discussing the relevance of “pollution rituals” in debates surrounding financial regulation today.