REAGAN v. FARMERS' LOAN & TRUST CO. 154 U.S. 362 (1894)

In a grotesque opinion the Supreme Court unanimously held unconstitutional a rate schedule fixed by a state railroad commission. Justice david brewer for the Court had no doubt that the economic validity of rates was subject to judicial review, and he found that these rates were "unjust and unreasonable," meaning too low in the estimate of the Court. They resulted, he said with exaggeration, in "a practical destruction to rights of property." Four years later, in smyth v. ames (1898), the Court finally adopted substantive due process as the basis for such a ruling, but in this case the Court seemed unready to embrace such an extravagant position, despite previous flirtations with it. Here the Court cast about for something more familiar and found it in the concepts of equal protection and just compensation, which it united. The difficulty was that the just compensation clause of the Fifth Amendment bound only the national government, not the states, and it applied only in cases of eminent domain, when private property was taken for a public purpose. Nothing of that sort had happened here. Brewer, however, declared that the commission's rates denied "equal protection which is the constitutional right of all owners of other property," and then he ruled that the equal protection clause "forbids legislation … by which the property of one individual is, without compensation, wrested from him for the benefit of another, or of the public." Thus the Court incorporated the substance of the just compensation clause of the Fifth Amendment into the Fourteenth for the benefit of railroads, though the Court refused in other cases of this period to incorporate into the fourteenth amendment the rights that protected accused persons or victims of racial discrimination. (See incorporation doctrine.) Moreover, this was not a case of eminent domain and the property of the railroad was not "wrested" without compensation. More rationally, Brewer sought to devise an economic test for determining the reasonableness of a rate schedule: whether the rate was equivalent to the market value of the use of the property. That economists found such a test to be unsound was not so significant as the Court's arrogating to itself the power to determine reasonableness by economic criteria that thrust it into judgments better suited to legislative and administrative agencies.

(See economic regulation and the constitution.)

Leonard W. Levy
(1986)