BUSINESS CODES, a term applied to principles or stand ards of fair and ethical practice agreed upon by particular groups engaged in the sale or exchange of goods or services. The business world, especially in America, because of rapid extension there, has, since about 191o, given them increasing attention; and this is in keeping with the history of commercial law. Thus the old law merchant, antedating and embodying a very important part of corn mon law governing mercantile transactions, arose during the great European fairs of the middle ages. The city laws were tempo rarily suspended and a special universal code called "law mer chant" used, which, during succeeding centuries, crystallized into modern mercantile law comprising negotiable instruments, part nership, trademarks, etc.
A similar evolution is now going on apace, particularly in America, where the conditions have given rise to similar situations that led up to the formation, during the fair days, of the code law merchant, namely, (1) inadequacy of exist ing law, (2) confusion and misunderstanding, (3) impediment to quick and fair trading, (4) abuse and dishonesty, (5) outcry and protest, (6) banding together of honest merchants for protection, (7) crude codification of the general consensus of opinion and fair practice, (8) efforts at enforcement, (9) refinement and general acceptance of code, (Io) crystallization into law. American and English courts have always recognized that merchants' customs or codes—if they were nearly universally known and long estab lished, and if transactions were made with knowledge of their ex istence—were an integral part of law merchant, which is now itself a part of common law; hence the increasing activity in setting up codes in America is significant, for it presages a modernization of mercantile law and custom to fit our "machine age" and large scale commerce. It is adapting commercial ethics and practice to present-day needs, hastening emergence from pioneering chaos, and achieving in the United States a socialization of the sharp individualism which was inevitable in a period of extremely rapid advance. Quite markedly, this took place during the 1929-39 de pression, the "New Deal" under Roosevelt attempting (admittedly too rapidly) to improve the standards and codes under which business operates.
Somewhat like law merchant, the first stage of present day business codes was styled "self -government" or "self-discipline" in business, administered by business itself. In this stage the professions set up, through their associations, codes of itemized practice standards, using group pressure and moral suasion. As has always proved to be the case, self-discipline of business could not accomplish firm enough control, and law followed.
Self-government in business, however, had a long, fair trial in America between 1911 and 1934. In 1911 the advertising clubs of America began a self-disciplining code movement to curb mis statement in advertising, a "Vigilance Committee" to secure volun tary code enforcement going into action in New York city in 1912 and nationally in 1913. This first code development in business arose, significantly, from the professional spirit in American business, following the examples of the medical and legal profes sions and their "codes of ethics." Thus professional men in busi ness acquired a social perspective, an ethical consciousness sep arate from the narrower interests of their own commodity line. Other business professions, such as purchasing agents and credit men, followed with codes, to combat long-standing purchasing agent bribes, fake bankruptcy conditions, and other trade evils and malpractices.
Trade associations, serving specific commodity lines, also be gan about 192o to develop a social consciousness concerning their line of goods; a collective appreciation of the problems of their industry as a whole. They began a career of is years of attempted self-government by codes, going through four distinct phases : (1) formulation of vague, idealistic, and very general code items; (2) more precise and exact phrasing of codes, and extension of the code items to more detail; (3) efforts to put "teeth" into the codes and to attach some form of penalty or loss of prestige or membership to persistent code violators; (4) disillusionment with all voluntary efforts at code enforcement. Highly organized, small membership associations succeeded with their codes, but the broader trade associations of wide-flung, highly competitive in dustries were usually unsuccessful in code making and code en forcement. Considerable progress, however, was made; but it was fairly widely agreed that code enforcement without the aid of Government was, in all but a few industries, impractical, due to a 2 to 1 o% "fringe" of non-co-operators. As a result business opinion underwent a change ; there was a more receptive attitude (about 1926) toward the use of the arm of Government to give authority to codes.
This body, (q.v.) organ ized in 1914, had not been received with marked favour by busi ness men but now was hopefully turned to, after some mildly suc cessful efforts, such as those of the Business Standards Council, which had undertaken for trade associations an effort to secure more effective, uniform legislation, State and national, to curb the worst type of business offenders. What was sought through the FTC was the Federal authority in helping to enforce the codes already adopted by trade associations. A plan was then formulated which has ever since worked effectively, to make the trade asso ciation codes law, through FTC "trade practice conferences." An industry's trade association code, after acceptance by the FTC, was adopted as the "law merchant" of that industry, enforceable on all in the industry, outside as well as inside the association membership (reviewable of course by the courts). The FTC meth od (following investigation of complaints) consists of "cease and desist" orders or "stipulations" issued against the offender, and hearings held. The plan proved popular in the '2os and gradually more and more industries set up FTC administered codes, as busi ness concluded that (in all but a relatively few cases) it could not regulate industry with codes without Federal authority.
Encouraged in the idea by busi ness itself, the New Deal in 1933 seized upon the accredited code device as one which might quickly help to lift business out of the depression doldrums. A gigantic project was conceived (National Industrial Recovery Act, later called NRA) which was to set wage minimums and hours of labour, as well as put into fully legal form and administered in co-operation with industry, very comprehen sive industry codes of fair trade practice for the entire business world; the anti-trust laws being suspended for the purpose of facilitating the plan. There followed a remarkably stormy, pro tracted period of conferences by industries to settle upon such codes, which when approved by the President were to become mandatory. Confusion, over-lapping, and criticism soon developed and a pandemonium of opposition and uncertainty, resulting from the fact that there appeared to be involved in the codes price set ting, centralized control of production, conflicts between interstate and intrastate trade, and other factors not originally contemplated. Some of these raised the question of constitutionality; in
(Schechter case) the U. S. Supreme Court invalidated the entire NRA as unconstitutional. Business considered the failure due to its interlocked double purpose: (1) wage and hour standards, (2) trade practice codes of too far-reaching a nature, too suddenly developed.
