The ‘Mother of Fair Trade’ was an Unabashed Price Protectionist

 
 
Historian Laura Phillips Sawyer unearths the story of little-known drug store owner Edna Gleason who, in a man’s world, helped fire a progressive movement to protect small-business owners from price-slashing chains.
 
 
by Dina Gerdeman

As Harvard Business School professor Laura Phillips Sawyer sifted through historical documents to trace the history of competition policy in the United States, an interesting figure emerged: Edna Gleason, who became known as the “mother of fair trade” in the late 1920s.

Gleason, a widow, was a California pharmacist and drugstore owner who balked at the price-slashing practices of chain store competitors and spearheaded a local price-control movement to protect her own bottom line—a crusade that would ultimately gain such widespread support, it would alter both state and national antitrust policy.

“You have to acknowledge that [Gleason] was trying to fix prices. This is antithetical to how most Americans think of the US market operating”

“I thought, who is this plucky woman amongst men?” Sawyer recalls after seeing Gleason’s name and image pop up repeatedly in trade association publications and meeting minutes of pharmacist groups. “She was known as Mrs. Thomas Gleason until about 1934, when she begins to get introduced by her first name. In the story of California ‘fair trade’ I found this exceptional state jurisdiction for antitrust law and also this exceptional woman, who was a fascinating character to animate sometimes dry legalese.”

Gleason’s quest for fair trade, or price protection, would not be easy. First off, the term “fair trade” in the 1930s had a different meaning than it does today when we use it to describe a social movement that helps producers in developing countries improve trade conditions and build sustainable practices. Back then, fair trade essentially referred to a system of price-fixing, using Resale Price Maintenance contracts to help smaller businesses and associations compete against larger companies.

“You have to acknowledge that [Gleason] was trying to fix prices. This is antithetical to how most Americans think of the US market operating,” says Sawyer, an assistant professor in the Business, Government and the International Economy unit who previously held the Harvard-Newcomen Fellowship in Business History at HBS.

“To be clear,” Sawyer adds, “Gleason and others argued that their version of fair trade—albeit domestic oriented—offered higher wages, better services, and quality guarantees.”

Prior to Gleason entering the scene, fair trade efforts had fallen flat. Americans had long been wary of corporate monopolies, as evidenced by the federal Sherman Antitrust Act of 1890, which was designed to protect competition by outlawing monopolistic business practices. This fear of monopoly power made Americans leery of business agreements that smacked of price-fixing.

Yet Gleason, in her efforts to control pharmacy prices to protect small businesses like her own, succeeded in pushing the boundaries of antitrust legislation.

Edna Gleason, known as the
“Mother of Fair Trade.” Courtesy of the journal Pharmacy in History.
The photo first appeared in American Druggist,
May 1931, p. 35.

Sawyer discusses Gleason and the fair trade crusade in her working paper The U.S. Experiment with Fair Trade Laws: State Police Powers, Federal Antitrust, and the Politics of “Fairness,” 1890–1938, forthcoming in the Business History Review.

Gleason, a self-trained and California-certified pharmacist who was the second woman ever to pass the state pharmaceutical licensing exam, opened a drugstore with her husband in Stockton in 1915. Following his death, she became the sole proprietor and later opened two additional drugstores in town.

Gleason emerged as a stalwart defender of traditional pharmaceutical practices and community activism. “She also offered medical advice, delivery services, and prescription compounding—services not offered by department stores,” writes Sawyer. “Gleason also cultivated a reputation for providing indigent community members with medical advice and services.”

It was a time in which the retailing revolution was beginning to take hold in the 1920s. Chains and department stores opened across America, using volume sales to offer lower prices on a variety of goods.

Gleason encountered competition from these chain stores as well as “pineboards,” discount outlets that sold overstocked brands at bargain prices. These stores kept their costs down partly by moving into low-rent commercial spaces and hiring unskilled, low-wage workers, rather than trained pharmacists.

Against predatory pricing

Although these competitors didn’t sell prescription compounds or provide medical advice as traditional pharmacists did, their cut-rate prices on popular brand-name packaged goods posed a major threat to mom-and-pop businesses like Gleason’s. So she and other traditional retailers began arguing that pineboards practiced predatory pricing, selling products below cost in an attempt to force independent stores out of business.

In 1927, R.L. McMaster opened Kut-Price drug outlets in Fresno and Modesto—as well as in Stockton. Gleason went on the offensive, coordinating Stockton’s Independent Merchants’ Association to open the town’s first cooperatively owned discount drugstore, Bed Rock Drug Store, which copied the sales approach of Kut-Price. Gleason ultimately bought out the Kut-Price store and liquidated its merchandise, but only after McMaster had left town.

To further the cause, in 1929 Gleason found an ally in W. Bruce Philip, a San Francisco pharmacist and lawyer. Together, they led a statewide effort to strengthen “reasonable price” provisions in California law, pushing for standardized prescription compounding and pricing, as well as price schedules set by manufacturers.

“The history of American capitalism has always been about experimentation and compromise within a changing legal framework”

Pharmacists would pressure manufacturers to enforce fair trade sales contracts that followed set price schedules and service guarantees. In turn, retailers would police one another and report violators to their local associations and to manufacturers. Manufacturers were expected to strong-arm pineboards and department stores to follow these guidelines or face being blacklisted.

At one meeting, Gleason confronted a wholesaler who was selling below cost. She was initially dismissed as being “hysterical,” as trade journals reported. But Gleason wouldn’t back down. Instead, she presented her ideas for how the distribution chain should be managed, and several men rose to defend her position.

“She’s endlessly fascinating as an outspoken advocate for this campaign, and as an outspoken woman at a time when there were very few women to stand next to her,” Sawyer says.

Yet Gleason and other fair trade activists were aware that these provisions lacked enforcement power. They needed the government on their side.

So Gleason and Philip conducted a statewide survey of more than 1,200 California druggists, which tracked falling prices, sales, and employment in independent drugstores. Based on the survey results, Gleason, Philip, and their association of pharmacists lobbied the state legislature to toughen its policing power to set minimum price provisions advised by manufacturers and overseen by a state agency.

Their efforts paid off.

In 1931, the California legislature passed the Fair Trade Act, which people widely believed was approved as a result of lobbying by the pharmacists. Gleason later said of working on the survey, “I left my store one day with only a toothbrush for baggage. I didn’t get back for six weeks. I talked to druggists and grocers in every county in the state. And they talked to their legislators. … We got the law!”

The California Fair Trade Act of 1931 allowed for price protections through contracts between local producers and local distributors. It mimicked national proposals that exempted fair trade agreements from antitrust prosecution, yet it relied on state policing powers rather than intrastate trade.

Aided by the Great Depression

The Fair Trade Act brought businesses to California and led to other states enacting similar legislation.

The Great Depression, with its widespread price deflation, business closings, and unemployment, had many industries looking for ways to manage markets. Many states in the early 1930s created administrative boards to control competitive practices, wages, and retail prices industry by industry.

“The crisis of the Great Depression played a major role in making these [fair trade] laws look appealing to businesspeople as well as to legislators,” Sawyer says. “They were looking for profit-sharing plans that would enable even less efficient firms to weather the downturn.”

In 1933, California approved two additional laws to strengthen fair competition: an amendment to the Fair Trade Act that extended fixed prices beyond those included in the original contract; and a statute that allowed for code-making authority in intrastate commerce. California’s codes included maximum working hours, minimum wages, and the outlawing of secret rebates and discounts.

The new laws built upon the National Industrial Recovery Act, one of President Franklin Roosevelt’s signature New Deal programs that looked to create “partnership in planning” between government and organized private industry. A year later, however, it was struck down by the Supreme Court, which called it unconstitutional, partly because the court found it to be an overreach of constitutional commerce powers.

Yet the fair trade movement later won some victories in the Supreme Court, including a decision to uphold a New York state law that fixed milk prices for farmers, dealers, and retailers. Says Sawyer in the paper: “The Court’s approval of state police powers to control competitive practices and price outcomes for ordinary goods and services was nothing less than a constitutional revolution, which would also affect labor standards, wage legislation, and consumer prices.”

The fair trade movement also gained ground at the national level with the passage of two bills: the Robinson-Patman Act of 1936, which prohibited sales below cost and secret rebates; and the Miller-Tydings Act of 1937, which made fair trade contracts enforceable in interstate commerce when made between fair trade states.

For fair trade activists, these victories were huge, particularly since fair trade legislation had been proposed and defeated in almost every US congressional session since 1912.

Fair trade networks continued post—World War II, although the concept began to come under considerable fire.

“Many people think of America as being a free market economy, and consider the 1930s as an exception to that conventional history,” Sawyer says. “To be sure the 1930s presented an extraordinary juncture, but the history of American capitalism has always been about experimentation and compromise within a changing legal framework.

“What I find fascinating is how state and federal law has acted to both facilitate and constrain political movements. The fair trade movement cannot be dismissed as nostalgic or simply pro-business because their efforts contributed to a progressive movement to expand state powers into economics activities previously unregulated.”

A big vision for American capitalism

And behind this kink in the US competitive landscape stood Edna Gleason, who kept her pharmacy business running profitably until her death in the mid-1950s.

Gleason wouldn’t be the only woman to push for change in the early twentieth-century; others played important roles in the passage of child labor laws, union labor campaigns, and City Beautiful movements, for example. But Sawyer notes that Gleason is exceptional in that she didn’t participate in issues considered maternal or those limited to a local jurisdiction; instead, she was laser-focused on large-scale changes to business practices and legal reform.

“Through the 1930s, she remained the only woman pictured in the all-male leadership council of the Fair Trade Committee,” Sawyer says. “She traveled throughout the states, campaigning for state fair trade laws, and supported strengthening federal laws to monitor competitive practices. Ultimately, her vision for American capitalism bridged a populist preference for proprietary ownership and a progressive impulse toward the modern regulatory state.”

Currently, Sawyer is working on a book on the topic, American Fair Trade: Proprietary Capitalism, Networks, and the “New Competition,” 1890–1940, to be published by Cambridge University Press.

About the Author

Dina Gerdeman is a senior writer for Harvard Business School Working Knowledge

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