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Monday, June 1, 1981

A Reviewers Notebook: Economic Liberties and the Constitution

The first assignment I had from Fortune magazine in the mid-Nineteen Thirties was to do a story on the “nine old men” of the Supreme Court. The question of human rights versus property rights was then on everyone’s mind. If you were to suggest that the right to own property was pre-eminently a human right, you were obviously influenced by “reactionary” thinkers such as Irving Babbitt or Paul Elmer More. You were also, in Franklin D. Roosevelt’s phraseology, a “horse and buggy” thinker.

The judicial heroes of the day in the early Nineteen Thirties were the great “dissenters,” Holmes and Brandeis. Sometimes Harlan Stone went with them. The old stalwarts—Van Devanter, McReynolds, Butler and Sutherland—were considered anachronisms. When I visited Professor Felix Frankfurter at Harvard to talk about the court, he said sarcastically of Sutherland that you couldn’t get blood from a turnip.

Now, forty-five years later, Bernard H. Siegan, who teaches law and economics at the University of San Diego School of Law, comes along with a book, Economic Liberties and the Constitution (University of Chicago Press, 5801 S. Ellis Ave., Chicago, Illinois 60637, 383 pp., $19.50), that reverses the dictum of much “liberal” history. The old “reactionaries” turn out to be the true liberals. McReynolds in particular emerges as something more than the crusty “aginner” of the New Deal imagination.

What Siegan has done is to deal with Supreme Court history in the light of what the Founding Fathers intended. They believed in Natural Rights philosophy; they read Coke and Blackstone, and were cognizant of the claims of”natural law” theorists that “positive,” or enacted, law should go along with fundamentals that were ingrained in the universe and the nature of man.

Economic liberties were protected in the Constitution, with a guarantee that property could not be seized without just compensation. And, in accordance with the Common Law and traditions going back to Magna Carta, the deprivation of “life, liberty and property without due process of law” made judicial review an absolute necessity in a check-and-balance system. People believed in the “law of the land,” and felt safe from ex post facto rulings that would impair the obligation of contracts.

“Due process” was always a nebulous concept to the layman, and the phrase, “substantive due process,” doesn’t add much to clarification. But “due process” can be taken to mean that legal decisions should not depart from constitutional intention. Before the Civil War the Supreme Court held broadly to Chief Justice Marshall’s defense of freedom of contract. “Due process” was affirmed in the Fourteenth Amendment. The legal battles of the late Nineteenth and early Twentieth centuries involved conflicting interpretations of “public needs,” and some of the justices whose reasoning is analyzed by Siegan must seem inconsistent when questions of health in bakery shops, for instance, shade off into questions of mere unpleasantness.

The swing in sentiment that resulted in the “liberal” distinction between “human rights” that are more or less absolute and “economic rights” that need not be upheld can be charted by reference to two cases. In one, New State Ice Co. v. Liebman, the old dispensation hung on; in the other, Nebbia v. New York, we see what Siegan calls the “approaching end of economic due process.”

New State Ice Co. v. Liebman involved the liberty of businessmen to enter an established market. The Oklahoma legislature had declared that the manufacture and sale of ice was a “public business,” and hence subject to regulation. An agency was given wide discretion in issuing certificates to enter the ice business. When an independent ice man challenged the State of Oklahoma, the issue went ultimately to the Supreme Court. Sutherland, speaking for a majority of six, upheld the right of free market entry where there were no considerations of damage to the public health and safety. But Brandeis, in a famous dissent, argued that the Oklahoma statute was not arbitrary. There could be, he said, a natural monopoly in the ice-making business if competition were unchecked. There could be “needless waste.” Anyway, the State of Oklahoma should be accorded the right to “experiment.”

The importance of the Brandeis dissent was that it foreshadowed national policy in establishing the Civil Aeronautics Board and other agencies designed to control and license entries in a whole host of fields. In Nebbia v. New York the Brandeis “minority” view became the majority opinion. By a five-to-four decision the Supreme Court upheld the conviction of a small Rochester, New York, storekeeper for the “crime” of selling two bottles of milk and a loaf of bread for eighteen cents. This was in defiance of the milk control law. Justice Roberts, speaking for the majority, ruled that it was not unreasonable for New York to enact legislation that deprived Nebbia of the liberty to sell at prices of his own choosing. McReynolds, speaking this time for a minority that included Van Devanter, Sutherland and Butler, questioned the wisdom of interfering with the economic rights of little grocers—and also of “twelve million consumers to buy a necessity of life in an open market.”

Siegan says that the prose in “McReynolds’ dissent . . . is scarcely in keeping with the image of old-guard reactionaries and those who tread on the rights of the masses.” Why, so Siegan asks, “have so many legal commentators missed the point of economic due process? Were Holmes and Brandeis really the he-toes of that Court?”

Since the New Deal the Court has followed a general pattern of according “due process” protection to economic issues only when they affect the First Amendment. Beyond that, the Court has tended to reject judicial review of government restraints on economic liberty. Siegan thinks the time has come for a reversal of current policy. Judicial review, he says, is firmly rooted in the Constitution. The judiciary has “no authority to eliminate constitutional protection for economic liberties.” Congress and the State legislatures, being subject to pressures from small groups seeking ideological favors, can’t be trusted with the “final authority” in socio-economic matters. The Court should rehabilitate our Constitutional principles and bring an end to the substitution of political competition for the economic competition that protected the consumer before the world turned over on its axis in 1933.

  • John Chamberlain (1903-1995) was an American journalist, business and economic historian, and author of number of works including The Roots of Capitalism (1959). Chamberlain also served as a founding editor of The Freeman magazine.