ECONOMIC LIBERTIES AND THE CONSTITUTION

Contrary to its existing practice, the United States Supreme Court was once a strong guarantor of economic liberties. This was the period (1897–1937) of "economic due process." The Fifth Amendment and fourteenth amendment provide that neither the federal nor state governments shall deprive any person "of life, liberty, or property, without due process of law." The Court interpreted these prohibitions to mean that government could not, except in specified or extraordinary circumstances, prevent individuals or corporations from freely engaging in the production and distribution of goods and services.

However, since 1936 the Supreme Court has abandoned this interpretation; economic regulations now are subject to a very low level of review pursuant to which they are upheld whenever rationally related to the achievement of legitimate state purposes. Supporters of the more recent policy conclude that as a result, the Court has wisely steered a neutral role in the nation's economic affairs. Another interpretation of this policy, however, is that it has denied many people a fundamental liberty in a society dedicated to liberty—the opportunity to engage in economic activity. Our Constitution, it is argued, was not intended to be neutral in the conflict between liberty and authority, especially in the economic area.

There is little question that the Framers of the Constitution sought to limit greatly the commercial powers of the states. The tariffs and other economic barriers erected by the states against each other were a major source of discontent with the existing confederation. The regulatory abuses of the state legislatures are not so well detailed, but probably were no less responsible for such sentiments. According to alexander hamilton, writing in 1801, "creditors had been ruined or in a very extensive degree, much injured, confidence in pecuniary transactions had been destroyed, and the springs of industry have been proportionately relaxed" because of the failure of the states to safeguard commercial freedoms.

The deterioration of the economy that followed the revolutionary period led the states to what charles evans hughes once described as "an ignoble array of legislative schemes for the defeat of creditors and invasion of contractual relations." Among other things, the states passed stay laws extending the due dates of notes and installment laws allowing debtors to pay their obligations in installments after they had fallen due. (See Debtors' Relief Legislation.)

john marshall, later Chief Justice, said in Virginia's ratification convention that economy and industry were essential to happiness, but the articles of confederation took away "the incitement to industry by rendering property insecure and unprotected." The Constitution, on the contrary, would "promote and encourage industry." james madison stated that the passage of laws infringing contractual obligations "contributed more to that uneasiness which produced the convention … than those which accrued … from the inadequacy of the Confederation to its immediate objectives." During the constitutional convention of 1787 Madison said that an important object of the Union was "the necessity of providing more effectively for the security of private rights, and the steady dispensation of justice.… Was it to be supposed that Republican liberty could long exist under the abuses of it, practiced in [some of the] states?" albert j. beveridge, Marshall's biographer, understandably concluded that the "determination of commercial and financial interests to get some plan adopted under which business could be transacted, was the most effective force that brought about [the Philadelphia convention]."

Several provisions of the Constitution appear to have been intended to curtail the economic regulatory authority of government. These are the prohibitions on the passage of ex post facto laws which affect both the state and federal governments, and the ban on state laws impairing the obligation of contracts. At the time the Constitution was framed and ratified, the term "ex post facto law" was applied to both penal and civil retroactive laws. In the criminal law, it was accepted that an ex post facto law was one that rendered an act punishable that was not punishable when it was committed. The term also described civil laws that operated retroactively to the detriment of a private owner of an iterest acquired or existing under prior law. Justice joseph story of the marshall court asserted that "every statute, which takes away or impairs vested rights acquired under existing laws, or creates a new obligation, imposes a new duty, or attaches a new disability, in respect to the transactions or considerations already passed, must be deemed retrospective."

Newspapers and judges of that period considered that stay and installment laws operated ex post facto. Members of Congress used the term in the broad sense. Some leading constitutional scholars held similar views on the meaning of the clauses. Although accounts of the constitutional convention do not disclose precisely how the Framers defined the term, they are consistent with the view that ex post facto included retroactive civil laws. Nevertheless, a 1798 Supreme Court decision, calder v. bull, interpreted the ex post facto clauses as applying solely to penal laws, thereby removing them as an important restraint on the regulatory powers of the federal and state legislatures.

In Chief Justice Marshall's opinion, the contract clause was intended to safeguard freedom of contract—which made it, under this view, a severe curb on state economic regulation. According to the Chief Justice, if a law limited the written understanding of the parties, it impaired their contractual obligation whether it was enacted before or after execution of the agreement.

However, the Supreme Court, in a 4–3 decision in ogden v. saunders (1827), ruled that the clause did not cover contracts executed subsequent to the adoption of a law: that is, it applied only to retroactive and not to prospective laws. The case involved a New York bankruptcy law, adopted prior to the execution of the promissory obligation in issue. In his only dissent on a constitutional issue in his thirty-four years as Chief Justice, Marshall vigorously contended that the New York law, although passed before the execution of the note, changed the understanding of the parties, and therefore impaired the obligation of their contract. The majority decision in the case followed a quarter of a century of failure to obtain a national bankruptcy law. Marshall's interpretation would have greatly limited the operation of state bankruptcy laws, and the majority rejected this outcome.

The bill of rights also evidences constitutional concern for material rights. The takings clause of the Fifth Amendment states that private property shall not be taken for public use without just compensation. The Fifth Amendment also states that no person shall be deprived of life, liberty, or property without due process of law. The second amendment prohibits the confiscation of arms. The third amendment restricts the quartering of troops. The fourth amendment prohibits unreasonable searches and seizures, and the Eighth Amendment prohibits excessive bail and fines.

Those who doubt that the Constitution protects the material rights from infringement by the states should consider section 1 of the Fourteenth Amendment, the second sentence of which reads: "No state shall make or enforce any law which shall abridge the privileges or immunities of citizens of the United States: nor shall any State deprive any person of life, liberty, or property, without due process of law; nor deny to any person within its jurisdiction the equal protection of the law." The framers of this amendment, the Congress of 1866, were concerned about protecting property and economic liberties as well as other personal rights.

While opinion is divergent as to the full meaning of the quoted language, commentators generally agree that it was primarily intended to make constitutional the civil rights act of 1866, placing it beyond the power of any subsequent Congress to repeal. The chief purpose of this act was to provide federal protection for the freed blacks in the exercise of certain described liberties.

The 1866 law was not confined to the protection of blacks. It was also intended to secure equality of rights for most other citizens. Thus Senator Lyman Trumbull, who wrote the original bill, viewed it as affecting state legislation generally, quoting in his introductory statement from a note to william blackstone's commentaries: "In this definition of civil liberty it ought to be understood, or rather expressed, that the restraints introduced by the law should be equal to all, or as much as the nature of things will admit." The statute emphasized material, and not political or intellectual, considerations. It protected against discriminatory treatment the rights of most native-born citizens "to make and enforce contracts … and to inherit, purchase, lease, sell, hold and convey real and personal property."

The debates on section 1 of the Fourteenth Amendment further spell out Congress's commitment to preserving the material rights. Frequently quoted in the debates was Justice bushrod washington's definition in corfield v. coryell (1823), stating that privileges and immunities included "the right to acquire and possess property of every kind." For the thirty-ninth Congress, Sir William Blackstone and Chancellor james kent were highly authoritative on the powers and purposes of government. Both strongly emphasized the importance of economic and property rights in a free society.

There should be little doubt that the values of foremost importance to the Framers of many provisions of the Constitution encompassed the protection of economic and property rights.

Bernard H. Siegan
(1986)

Bibliography

Corwin, Edward S. 1948 Liberty Against Government. Baton Rouge: Louisiana State University Press.

Mc Closkey, Robert G. 1962 Economic Due Process and the Supreme Court. Supreme Court Review 1962:34–62.

Siegan, Bernard H. 1981 Economic Liberties and the Constitution. Chicago: University of Chicago Press.

——1984 The Economic Constitution in Historical Perspective. In Richard M. McKenzie, ed., Constitutional Economics. Pages 39–53. Lexington, Mass.: D.C. Heath.