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Economic liberties and the Constitution.

The author distinguishes between economic liberties involved in the production and distribution of goods and services and economic liberties relating to the ownership and use of tangible property. The original framers of the Constitution strongly believed in private ownership and enterprise as well as limits on governmental controls in the economic area. This view was supported by the Supreme Court until the late 1930s, when increased economic regulation by government was approved. A change in interpretation is needed, and the Court may be moving in that direction.

MY TALK TODAY is about economic liberties and the Constitution. In constitutional interpretation, economic liberties are those involved in the production and distribution of goods and services. Not included in the term are the liberties relating to the ownership and use of tangible property, which the U.S. Supreme Court treats differently. Please keep this distinction in mind as you listen to my talk.


As with the material liberties, the contemporary Court distinguishes between various liberties and safeguards them differently. In my view a more realistic interpretation of Constitutional purpose would secure all liberties on an equal footing. The promise of America means different things to different people. My point is set forth in a cartoon with which some of you may be familiar. It depicts a tall ship, perhaps the Mayflower, with two Pilgrims peering into the distance. One says to the other: "Religious freedom is my immediate goal, but my long range plan is to go into the real estate business."

Constitutional interpretation should not ignore either goal. Regrettably, it does. Contrary to its propensities in other states, the U.S. Supreme Court has not, since 1936, declared unconstitutional a federal or state law on the ground that it denied an individual or a corporation the liberty to engage in or pursue a business, trade or occupation.(1) Supporters of this policy conclude that as a result the Court has wisely steered a neutral role in the nation's economic affairs. They cite Justice Oliver Wendell Holmes's assertion that "a Constitution is not intended to embody a particular economic theory, whether paternalism and the organic relation of citizen to the state or of laissez-faire."(2)

I submit, however, that a more realistic interpretation of the current Supreme Court policy is that it has denied many people a fundamental liberty in a society dedicated to liberty - the opportunity to engage freely in economic activity. Our Constitution is not intended to be neutral in the conflict between liberty and authority. A major purpose of its framers was to limit governmental authority. When this objective is applied to economics, we usually refer to the result as capitalism. But, it should be recognized that the underlying basis for it is individual freedom.

The framers of the original Constitution were not, to be sure, innocent of the system they created, for they strongly believed in private ownership and enterprise. When the Constitution was framed in 1787, separation of powers, checks and balances and judicial review were political and economic ideas. They would safeguard the individual in his personal, business or professional life from governmental oppression. Society would benefit because liberty was the greatest encouragement to wisdom, productivity and creativity.


It is my position that the farmers of the original Constitution as well as of the Bill of Rights and of the Fourteenth Amendment sought to limit substantially governmental controls in the economic area. This conclusion is based not only on an interpretation of the Constitution's terms and provisions, but also as implementing the general Constitutional purpose set forth in its Preamble to "secure the blessings of liberty to ourselves and our posterity." Under both theories, the United States Supreme Court has provided great protection for the liberties of speech, press, religion, sexual privacy, travel, and voting. However, in the economic area, the Court defers to the Congress and state legislatures, no matter how coercive and capricious the legislation is, and regardless of the cost and consequences to the society.

This distinction is not set forth in the Constitution. To be sure, the Constitution doesn't mention the freedom of contract to produce and distribute goods and services. But the Fourteenth Amendment, by which the Court enforces these other liberties against the states, does not refer to them either. Nor, for that matter, does the Constitution mention abortion, bussing, school prayer or gender discrimination. Policy rather than text often determines the Court's priorities.

For a lengthy period in our history, the Supreme Court safeguarded economic activity from restraint by the state and federal governments. Between 1897 and 1937, under the doctrine of substantive due process, the Court invalidated many laws that needlessly or unnecessarily limited freedom of enterprise.(3)

Among the laws the Court struck down as violating the due process or equal protection clauses were a New York statute limiting the working hours of bakery employees, an Oklahoma law enabling a state commission to limit entry into the ice making business, a New York act imposing price controls on theatre ticket resales, a Nebraska statute prohibiting employment agencies from collecting fees from employees, and a Pennsylvania law that effectively banned chain drug stores from the state.(4) Today all of these laws would be upheld by the Supreme Court.


The evidence is most persuasive that the current policy is not consistent with Constitutional meaning. To understand the economic orientation of the U.S. Constitution framed in 1787, it is important to recognize that it was drafted by individuals who were committed to protecting the right to own property and to contract for economic purposes. The right to property - the freedom to acquire, use the dispose of it - was a major concern of the time. Thus, Gouverneur Morris of Pennsylvania, one of the more influential framers, described his concern for private ownership in this manner: "Life and liberty are generally said to be or more value, than property. An accurate view of the matter would nevertheless prove that property was the main object of Society.(5)"

James Madison, often referred to as the Father of the Constitution, and probably most others at the Convention were of similar mind. During the Convention, Madison said that in civilized communities the preservation of property, as well as of personal rights, was an essential object of the law.(6) Later, he wrote that the protection of the "faculties of man from which the rights of property originate," is the first object of government.(7) Madison voiced apprehensions about what would occur in the absence of such protections. He asserted:

"An increase of population will of necessity increase

the proportion of those who will labor under all the

hardships of life and secretly sigh for a more equal

distribution of its blessings. These may in time outnumber

those who are placed above the feelings of

indigence. According to the equal laws of suffrage,

the power will slide into the hands of the former.

. . . [S]ymptoms of a leveling spirit . . . have sufficiently

appeared in a certain quarters to give notice

of a future danger."(8)

For Madison securing economic freedom was not only important in preserving personal freedom but also for its benefit to society as a whole.

"I own myself the friend to a very free system of

commerce, and hold it as a truth that if industry

and labor are left to their course, they will generally

be directed to those objects which are the most

productive, and this in a more certain and direct

manner than the wisdom of the most enlightened

legislature could point out."(9)

Consistent with such thinking, there is a little question that the farmers of the original Constitution sought to curtail the economic powers of he states. The commercial barriers the states erected against each other were a major source of discontent with the existing Confederation. Although they are not as well documented, the regulatory abuses of the state legislatures probably contributed at least as much to the movement for a new plan of government.

Following the revolutionary period, the economies in some states deteriorated markedly, leading to what Chief Justice Charles Evans Hughes once described as "an ignoble array of legislative schemes for the defeat of creditors and invasion of contractual relations,"(10) Some states passed "stay laws," extending the due date of notes, and "installment laws," allowing debtors to pay their obligations in installments after they had fallen due. Some states were reluctant to pass legislation allowing the British to collect debts owed by Americans, payment of which had been suspended during the Revolutionary War. According to Alexander Hamilton, "creditors had been ruined, or in a very extensive degree, much injured, confidence in pecuniary transactions had been destroyed, and the springs of industry had been proportionately relaxed" because of the failure of the states to safeguard commercial rights."(11)

The experience of South Carolina exemplifies the problems creditors faced. In 1972, the state passed a stay law, and in 1785, a law terminating suits for debts. When the latter act expired, another act was passed allowing debts to be paid in installments. The state also issued public obligations that effectively increased the money supply.(12)

Those interested in preserving and expanding a national commercial market viewed events in Rhode Island and Massachusetts as ominous. The Rhode Island Assembly provided that, regardless of the agreement, if a creditor refused to accept the state's constantly depreciating paper currency at par, the debtor could discharge his debts simply by depositing the scrip with a local judge. As a result, some creditors were pursued by debtors eager to tender depreciated paper for use for full value of their debts. Sellers could not increase prices. "Rather than sell for worthless paper, merchants shut up shop, hid their stock, or loaded it on a vessel and escaped to New York or the West Indies."(13)

Massachusetts was the site of a relatively bloodless and unsuccessful insurrection by poor farmers under the leadership of Captain Daniel Shays. They protested both their high taxes and debts. The objective of Shays Rebellion was to prevent courts from sitting, and thereby to stop the collection of unpaid debts. Fortunately, the insurrection was put down by the state's armed forces.

These experiences alarmed many about the economic viability and stability of the states, if they remained largely autonomous. According to Madison, the laws that led most to producing the Constitutional Convention were those that infringed contractual obligations.(14) To the same effect, John Marshall, who later became Chief Justice of the Supreme Court, observed during the ratification debates that the Confederation took away "the incitements to industry by rendering property insecure and unprotected." The Constitution, on the contrary, Marshall explained, "will promote and encourage industry."(15)

Whoever was then in financial distress, it seemed (whether the small farmer, large planter, or merchant), sought and frequently obtained political aid to overcome his problems. Some used the process to acquire greater riches. Such a political climate obviously was not conducive to investment or other financial undertakings. Understandably, as Albert Beveridge, John Marshall's biographer, concluded, 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].(16)

To overcome these and other state obstructions to economic enterprise. Article I, Section 10, Subsection 1 of the Constitution contains protection for owners and entrepreneurs. It reads in part:

No State shall . . . coin Money; emit Bills of

Credit; make any Thing but gold and silver

Coin a Tender in Payment of Debts; pass any

Bill of Attainder, ex post facto Law, or Law

impairing the Obligation of Contracts. . . .(17)

In addition, Article IV, Section 2, Subsection 1 provides that "The Citizens of each State shall be entitled to all privileges and Immunities of Citizens in the Several States."

According to an early Federal Circuit Court decision authored by Supreme Court Justice Bushrod Washington, this provision guarantees citizens against abridgement of their natural and fundamental liberties by the states.(18) Included as protected. A great many in the legal community accepted rights are those relating to property and contract. A great many in the legal community accepted this meaning of that section for a lengthy period of time, but it is no longer the prevailing interpretation.(19)

The Fourteenth Amendment

Whatever deficiencies the original Constitution may have had with respect to guaranteeing economic liberty in the states were remedied with the ratification after the Civil War of the Fourteenth Amendment in 1868. Section 1 of the Amendment provides as follows:

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 law; nor deny to any

without due process of law; nor deny to any

person within its jurisdiction the equal protection

of the laws.

These are the three celebrated rights clauses - privileges and immunities, due process and equal protection - which, among other things, were intended to secure private ownership and enterprise. The framers of the Fourteenth Amendment, the Congress of 1866, were no less concerned about protecting property and economic liberties than were those who authored the original Constitution of 1787.

While opinion is divergent about the full meaning of the quoted language, commentators agree that it was primarily intended to make constitutional the guarantees of the Civil Rights Act of 1866. The chief purpose of this act was to provide federal protection to the blacks who had recently been emancipated from slavery, for the exercise of certain described liberties. The Civil Rights statute enumerated material rights and did not mention speech, press, religion or any other political or intellectual right, the major objective being to strengthen the economic position of the freed slaves by protecting their freedom to contract and to own and enjoy property. The Fourteenth Amendment enlarged the scope of the Act and extended this protection to all persons in the nation.(20)

Similar restraints exist on the federal government. In my opinion, the Constitution does not provide substantial authority to the federal government over the economy. Had the public in 1788-89 thought that the national government was anywhere near as powerful as it is now, the Constitution never would have been ratified. Few in that period thought the commerce or any other clause provided the federal government the enormous authority over the domestic economy that it now exercises.(21)

The conclusion that the national government is bereft of significant economic authority is strongly supported in the Bill of Rights, framed by the First Congress that was composed predominantly of Federalists as was the 1787 Convention. In the ratification debates of 1788 and 1789, supporters of the Constitution promised opponents that if it were ratified, they would quickly introduce in Congress amendments to safeguard individual rights against abridgement by the central government. The Federalist were true to their word, and in 1789 the First Congress submitted twelve amendments to the states, ten of which were ratified by 1791. These ten amendments constitute the Bill of Rights.

A substantial portion of these amendments is directed to the protection of property and economic rights. In addition to the requirements of the Fifth Amendment that private property could not be taken, except for public use, and then only with just compensation, the Bill contained six other economic guarantees: the prohibition on infringing the people's right to keep and bear arms (Amendment II); the prohibition on quartering soldiers on private property (Amendment III); the prohibition against unreasonable searches and seizure (Amendment IV); the prohibitions against depriving any person of life, liberty or property without due process of law (Amendment V); the right to trial by jury for controversies exceeding $20.00 (Amendment VII); and the prohibition against excessive bails and fines (Amendment VIII). These provisions shielded from federal intrusion those property and economic interests of most concern in that period.

Economic Regulation

Nevertheless, despite the massive evidence supporting a Constitutional interpretation protective of economic liberties, the U.S. Supreme Court has not been persuaded to revise the course prescribed by the New Deal Justices in the late 1930s. Existing judicial policy has allowed economic regulation to stand that is clearly harmful to the individual and society. Consider some examples since the end of economic due process in 1937:

The court has upheld a congressional ban on the interstate shipment of filled milk that is a blend of skimmed milk and a fat of oil; a Kansas statute throwing debt adjustors who were not lawyers out of business; a New Orleans ordinance outlawing in the French Quarter the peddling of foodstuffs by one who had been licensed and engaged in that business for about two years; an Oklahoma law forbidding opticians to fit old eyeglasses to new frames without prescription signed by an optometrist or opthamologist and also prohibiting department stores from renting space to optometrists; a North Dakota law effectively barring chain drug stores from the state; a Maryland law requiring oil companies to divest themselves of retail service stations; a California law requiring the state's new motor vehicle board's permission before one can establish an automobile dealership.(22)

All of these laws deprive individuals or corporations of their liberties to engage in legitimate economic activities, yet do not serve significant public interests. In fact, they harm society by limiting the production and distribution of goods and services, curtailing competition and raising prices. They constitute unnecessary regulation benefitting only the special interests of small groups. Were curbs on expression or sexual privacy involved, the Supreme Court would quickly terminate such laws.


The change in Constitutional interpretation that I propose to protect economic liberties is warranted as a technical matter. It is also fully in keeping with the legal tradition of Western Civilization to preserve individual freedom. As far back as 1765, the great English legal commentator, William Blackstone, wrote that "Constitution or frame of government, that system of laws, is alone calculated to maintain civil liberty, which leaves the subject the entire master of his own conduct, except in those points where in the public good requires some direction or restraint."(23) Blackstone's position is that governmental restraints on personal action are arbitrary and oppressive unless they serve as substantial public interest.

The U.S. Supreme Court has long recognized this principle in interpreting the due process guarantees of the Constitution and in establishing the clear and present danger to test for speech and press. This principle is no less appropriate or beneficial when applied to the material liberties.

What is the outlook for a change in Supreme Court policy in the economic area? Although no decision has been favorable to this, I would suggest the future is more promising in this respect than the past for two reasons:

First, the legal community now seems to understand the problems arising from limiting economic liberties. When I wrote Economic Liberties and the Constitution in 1980, most lawyers and legal commentators accepted with little question the then-existing policy. I was told on numerous occasions that the Constitution does not and should not protect profit making for it involves selfishness and has nothing to do with liberty. I don't think this position is taken seriously anymore. The controversy now focuses on original meaning - whether and what protection was intended for economic liberties. Were the issue decided on original meaning, I submit that economic due process would be restored.

Second, in two recent cases, the Court has provided substantially increased protection for the ownership of real property with likely spillover into other rulings. In First English Evangelical Lutheran Church v. County of Los Angeles (1987),(24) the Court held that government must compensate an owner when regulation deprives him of all use of his property, even for a temporary period. More important from the standpoint of economic liberties, the Court in Nollan v. California Coastal Commission (1987)(25) held that for a restraint on ownership to be upheld it must substantially achieve the purpose for which it was adopted Otherwise, it could be purposeless and irrational measure. These rulings will limit the authority of zoning and other land use commissions. They should eliminate much arbitrary and capricious regulations that serve little public interest.

These land use decisions indicate to me that a majority of the Supreme Court is cognizant of the importance of property and economic rights under our Constitution.(26) And, of course, like many other people throughout the world, the Justices must be aware of the enormous benefits emanating from a free economic system. This information and understanding should lead to judicial rulings providing for greater opportunities in the marketplace - and a more free and abundant society.

Apropos of the concern for the right of privacy shown during the Bork hearings, perhaps someday the U.S. Supreme Court will once again define liberty as it unanimously did in an 1897 decision:

The liberty mentioned in [the due process

clause of the Fourteenth Amendment] means

not only the right of the citizen to be free from

the mere physical restraint of his person, as

by incarceration, but the term is deemed to

embrace the right of the citizen to be free in

the enjoyment of all his faculties; to be free to

use them in all lawful ways; to live and work

where he will; to earn his livelihood by any

lawful calling; to pursue any livelihood or avocation

and for that purpose to enter into all

contracts which may be proper, necessary and

essential to [achieve those goals].(27)


(1) The sole exception was Morey v. Dowd, 345, U.S. 457 (1957), but it was reversed by New Orleans v. Dukes, 427 U.S. 297 (1976).

(2) Lochner v. New York, 198 U.S. 45, 75 (1905) (Holmes, J., dissenting).

(3) See generally Bernard H. Siegan, Economic Liberties and the Constitution (Univ. of Chicago Press, 1980).

(4) Id. at 110-203.

(5) I M. Farrand, The Records of the Federal Convention of 1787, 533-34 (rev. ed. 1937, 1966).

(6) Id. at 450.

(7) The Federalist No. 10 (J. Madison).

(8) 1 Farrand at 422-23.

(9) 12 The Papers of James Madison 71 (W. Hutchinson, R. Rutland et al, eds.) (1962).

(10) Chief Justice Hughes in Home Building and Loan Ass'n v. Blaisdell, 290 U.S. 398, 427 (1934).

(11) 25 The Papers of Alexander Hamilton 479 (H. Syrett ed. 1977).

(12) J. Main, The Antifederalists: Critics of the Constitution, 1781-1788 26 (1961).

(13) S. Morison, The Oxford History of the American People 302 (1965).

(14) 1 James Madison Letters 350 (1865).

(15) 1 A. Beveridge, The Life of John Marshall, 416-17 (1916).

(16) Id. at 242.

(17) Contrary to prevailing decisions, the evidence is persuasive that both the ex post facto and obligation of contracts guarantees were intended to protect freedom of contract. Seigan supra note 3, 16 60-82.

(18) Corfield v Coryell, 6 F.Cas. 546, 552 (C.C.E.D. Pa. 1823) (No. 3230).

(19) Bernard H. Siegan, The Supreme Court's Constitution: An Inquiry into Judicial Review and its Impact on Society, 68-69 (Transaction Books, 1987).

(20) Id. at 41-88.

(21) Id. at 1-7.

(22) Siegan supra note 3 at 184-203.

(23) 1 W. Blackstone Commentaries(*) 121-122.

(24) 107 S.Ct. 2378 (1987).

(25) 107 S.Ct. 3141 (1987).

(26) Former Justice Lewis Powell was part of the majority in each of these decisions. I believe his successor Justice Anthony Kennedy would also have been in the majority.

(27) Allgeyer v. Louisiana, 165 U.S. 578, 589 (1897).
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Author:Siegan, Bernard H.
Publication:Business Economics
Date:Jan 1, 1989
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