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This book shines a powerful light on a fundamental constitutional right that the Supreme Court abandoned more than 70 years ago-the freedom of individuals to bargain over the terms of their own contracts. Vital to economic and personal liberty, this right has been continuously diminished by the country's regulatory and welfare state. Beginning in 1897 with the Supreme Court's historic Lochner decision, the Court safeguarded this right for 40 years by declaring that laws that interfered with the freedom of people ...
This book shines a powerful light on a fundamental constitutional right that the Supreme Court abandoned more than 70 years ago-the freedom of individuals to bargain over the terms of their own contracts. Vital to economic and personal liberty, this right has been continuously diminished by the country's regulatory and welfare state. Beginning in 1897 with the Supreme Court's historic Lochner decision, the Court safeguarded this right for 40 years by declaring that laws that interfered with the freedom of people to bargain over the terms of their own contracts were unconstitutional. Then in 1937, as part of the New Deal, the Court abandoned its protection for the liberty of contract. This book rediscovers this lost right, identifying the foundations and nature of the Court's Lochner-era legal theories and decisions and shatters myths that scholars have created about this era and subject.
Roscoe Pound, one of the Progressive-Era scholars who criticized courts for protecting liberty of contract, did not accept the prevalent view that this practice arose from individual judges projecting their "personal, social and economic views into the law." He observed that "when a doctrine is announced with equal vigor and held with equal tenacity by courts of Pennsylvania and of Arkansas, of New York and of California, of Illinois and of West Virginia, of Massachusetts and of Missouri, we may not dispose of it so readily." He nevertheless asserted that liberty of contract was a "new" doctrine that appeared suddenly in late 19th-century jurisprudence, and he identified seven "causes" for the doctrine's appearance in American jurisprudence—among them, the prevalence of "an individualist conception of justice" and of "mechanical" legal reasoning in late 19th-century legal thought.
Contrary to Pound's assertion, however, liberty of contract did not suddenly emerge, as a "new" doctrine, at the end of the 19th century. Rather, it originated in two lines of precedents well established in early American constitutional law. The first was the protection of economic liberty and property rights through substantive use of the U.S. Constitution's due process clauses or equivalent provisions in state constitutions. The second was the limitation of state police powers through the enforcement of certain constitutional rules, both written and unwritten. What was new in the late 19th century was judicial identification of these doctrines, taken together, as the right of "liberty of contract" and the protection of this right through the due process clause of the Fourteenth Amendment.
Substantive Due Process in Early American Law
Constitutional protection of individual liberty in all its aspects, including economic liberty and the protection of property rights, did not suddenly appear in American law in the late 19th century, the result of classic liberal, laissez-faire ideology. Rather, high regard for economic liberty and property as fundamental rights of the individual was well established in American constitutionalism quite early in the nation's history—indeed, even predating the Constitution itself. "Liberty was the most cherished right possessed by English-speaking people in the eighteenth century," observes one preeminent legal historian:
It was both an ideal for the guidance of governors and a standard with which to measure the constitutionality of government; both a cause of the American Revolution and a purpose for drafting the United States Constitution; both an inheritance from Great Britain and a reason republican common lawyers continued to study the law of England.
The concept of liberty thus was central to Anglo-American constitutional thought during the era of the American Revolution; indeed, it was central to early American law.
The Patriot leaders of the Revolution were influenced profoundly by English radical Whig opposition thought, which departed from mainstream English legal theory in its understanding of both liberty and constitutionalism. Radical Whigs conceptualized liberty apart from the rule of law, seeing it as something more than merely freedom to do what the law permitted or even freedom from arbitrary government. Rather, believing that liberty was a natural right, they saw it as the freedom of individuals to do what they will, provided they do not violate the equal right of others. In their constitutional thought, radical Whig philosophers—like the framers of early American constitutions who implemented their ideas—understood two critically important foundational principles: first, that the essential function of government was to protect the rights of individuals (including their right to liberty); and second, that the essential function of a constitution was to limit or control government power, which both protected and threatened individual rights. Constitutionally speaking, what was truly radical about the American Revolution was that it made the protection of individual rights (including liberty in this broader sense as well as property rights) the test for government's legitimacy.
As historian Gordon Wood has shown, the American Revolution was far more radical than commonly believed. Indeed, Wood maintains that it was "as radical as any revolution in history" as well as "the most radical and most far-reaching event in American history," one that altered not only the form of government—by eliminating monarchy and creating republics—but also Americans' conception of public or state power. "Most important," he adds, "it made the interests and prosperity of ordinary people—their pursuits of happiness—the goal of society and government." Scholars, particularly legal historians who have focused on the constitutional arguments advanced by American Patriot leaders, have overlooked the extent to which the Revolution transformed not only the form of American government but also Americans' view of government and the law. By rejecting the British monarchical system, the Founders also rejected the paternalism through which the British system operated in the realms of law and politics. The rejection of paternalism was manifest in many developments in Revolutionary-era society, among them the rise of contract law and even the growing popularity of laissez-faire economics, perhaps best illustrated by the Philadelphia merchants' opposition to price controls in 1777–78. Moreover, Wood notes, "[t]he Revolution did not merely create a political and legal environment conducive to economic expansion; it also released powerful popular entrepreneurial and commercial energies that few realized existed and transformed the economic landscape of the country."
The far-reaching social changes that came into being with the American Revolution also were accompanied by correspondingly significant changes in law and constitutionalism. Although early American law fell short of the ideal envisioned by late 19th-century classical liberals or by modern libertarians, it nevertheless departed radically from the British paternalistic system by the degree to which it explicitly protected and promoted individual freedom. To some extent, the uniquely individualistic premises of the American legal system did not suddenly appear in 1776; as legal historians have shown, the so-called Americanization of the English common law was a long, evolutionary process that had begun well before the Revolution. With independence, however, the American legal system—particularly the constitutional system—was free to depart dramatically from its English roots. "We have it in our power to begin the world over again," wrote Thomas Paine, succinctly describing the unprecedented opportunity Americans had after 1776 to frame new forms of government.
When the Second Continental Congress adopted Thomas Jefferson's draft of the Declaration of Independence, it declared "life, liberty, and the pursuit of happiness" to be inherent and unalienable rights that government was created to secure. In drafting the Declaration, Jefferson sought, as he later described it, to express the "harmonizing sentiments" of American Whigs. Those sentiments included the "self-evident" truth of the theory of natural rights as expounded by English radical Whigs, Enlightenment philosophers, and legal theorists such as Jean Jacques Burlamaqui, the Swiss jurist whose treatise on natural law not only influenced Jefferson and his contemporaries but remained influential with Americans well into the 19th century. A detailed exposition of the early American understanding of natural rights theory is beyond the scope of this book; however, in essence, one can summarize it by noting that rights such as life, liberty, and the pursuit of happiness are possessed by persons by their nature, or status as human beings, and that therefore these rights are "inalienable." As Mark Hopkins, president of Williams College, observed in a lecture he gave in Boston in 1862, "Inalienable rights are those of which a man cannot divest himself by contract; which he may not, under any circumstances, lawfully demit; but he may forfeit them by crime, and be wrongfully deprived of them by others."
Both "liberty" and "pursuit of happiness," as the terms were understood by the Founders, were rather broad concepts. Although some scholars have asserted that the Founders' conception of liberty was quite narrow, limited only to "freedom from physical restraint of the person," the concept as understood in early American political thought, on the contrary, was quite broad, encompassing economic liberty as well as other forms of liberty less tangible than mere freedom from physical restraint.
Cato's Letters, the great radical Whig tract of the 1720s that continued to be quoted in American newspapers well into the later 18th century, defined liberty comprehensively as "the Power which every Man has over his own Actions, and his Right to enjoy the Fruits of his Labour, Art, and Industry, as far as by it he hurts not the Society, or any Members of it, by taking from any Member, or by hindering him from enjoying what he himself enjoys." Liberty included
the Right of every Man to pursue the natural, reasonable, and religious Dictates of his own Mind; to think what he will, and act as he thinks, provided not to the Prejudice of another; to spend his own Money himself, and lay out the Produce of his Labour his own Way; and to labour for his own Pleasure and Profit, and not for others who are idle, and would live and riot by pillaging and oppressing him, and those that are like him.
More succinctly, "Liberty is, to live upon one's own Terms," the opposite state of "Slavery," which is "to live at the mere Mercy of another."
While the authors of Cato's Letters acknowledged that this "natural and absolute Liberty" must be restrained by civil government, they emphasized that the restraint must be partial, or limited, consistent with the purpose for which government was established. "The entering into political Society, is so far from a Departure from this natural Right, that to preserve it, was the sole Reason why Men did so; and mutual Protection and Assistance is the only reasonable purpose of all reasonable Societies." If the power of government were to go beyond this legitimate purpose—that is to say, if the restraint put on natural liberty were to become unlimited—then tyranny would result. "Free Government is the protecting the People in their Liberties by stated Rules; Tyranny is a brutish Struggle for unlimited Liberty to one or a few, who would rob all others of their Liberty, and act by no Rule but lawless Lust." Cato's Letters also acknowledged the danger of majority tyranny, calling it "a mistaken Notion in Government" that the interest of the majority was alone to be consulted, "since in Society every Man has a Right to every Man's Assistance in the Enjoyment and Defence of his private Property; otherwise the greater Number may fell the lesser, and divide their Estates amongst themselves; and so, instead of a Society where all peaceable Men are protected, become a Conspiracy of the Many against the Minority."
Burlamaqui's influential treatise on natural law similarly defined liberty quite broadly and emphasized that in civil society, positive law supplemented but did not supplant natural law and the rights held thereunder. Following an analysis reminiscent of the "state of nature" posited by English radical Whig philosopher John Locke, Burlamaqui defined "natural liberty" as essentially synonymous with individuals' freedom to do as they please provided they do not interfere with the equal freedom of others:
Natural liberty is the right, which nature gives to all mankind, of disposing of their persons and property, after the manner they judge most convenient to their happiness, on condition of their acting within the limits of the law of nature, and of their not abusing it to the prejudice of their fellow men. To this right of liberty there is a reciprocal obligation corresponding, by which the law of nature binds all mankind to respect the liberty of other men, and not to disturb them in the use they make of it, so long as they do not abuse it.
He then compared natural liberty to "civil liberty." Beginning with the basic definition that civil liberty was "nothing more than natural liberty, so far restrained by human laws (and no further) as is necessary for the preserving of human rights, and the maintenance of peace and order in society," Burlamaqui noted that this state had two advantages over natural liberty: first, "the right of insisting that the magistrate shall confine himself within the limits of the power conferred upon him, and use it agreeably to the purposes for which he was entrusted with it"; and second, "the security which the people should reserve to themselves for the preservation of the right above named." From these corollary principles of limitations on government power and the people's right of self-defense against the government itself, Burlamaqui derived his final definition: "ivil liberty is natural liberty, regulated by such laws as are necessary for the maintenance of justice, and attended with the right of insisting that the government shall make the proper use of its authority, and a security that this right shall be respected."
Liberty so conceptualized encompassed the right to property. Indeed, liberty and property were so interconnected in early American political thought that they were almost impossible to separate. Historian Edmund S. Morgan has observed, "For eighteenth-century Americans, property and liberty were one and inseparable, because property was the only foundation yet conceived for security of life and liberty: without security for his property, it was thought, no man could live or be free except at the mercy of another." An essayist in a New York newspaper observed in 1735 that both the full enjoyment of liberty and full protection for property rights were essential in a well-ordered society: "As for liberty, it cannot be bought at too great a rate; life itself is well employed when 'tis hazarded for liberty. ... As for property, it is so interwoven with liberty that whenever we perceive the latter weakened, the former cannot fail of being impaired." And as a modern legal historian has noted, "liberty in the eighteenth century was personal property"; indeed, "it was the concept of property that bestowed on liberty much of its substance as a constitutional entity.... [f]or, as everyone then appreciated, liberty existed through security of property and yet, as John Dickinson said, liberty itself was the only security of property."
"Pursuit of happiness," as used in the Declaration of Independence and in many early state constitutions, also encompassed economic liberty and property rights; it included the right to acquire, possess, and dispose of property. The bill of rights for the Virginia state constitution, written by George Mason and adopted on June 12, 1776, noted "all men are by nature equally free and independent, and have certain inherent rights ... namely, the enjoyment of life and liberty, with the means of acquiring and possessing property, and pursuing and obtaining happiness and safety." Virtually identical provisions identifying property rights as natural and inalienable appeared in the Pennsylvania constitution of 1776, the Massachusetts constitution of 1780, and the New Hampshire constitution of 1783, as well as in many state constitutions adopted in the early 19th century. Indeed, a leading scholar of the early state constitutions has concluded from these provisions that "the acquisition of property and the pursuit of happiness were so closely connected with each other in the minds of the founding generation that naming only one of the two sufficed to evoke both."
Further evidence of the interrelatedness of liberty and property rights in early American thought can be found in James Madison's 1792 essay on property. The essay was written for the National Gazette, the Republican Party newspaper published by Philip Freneau in Philadelphia and launched with Madison's support. Madison was an occasional contributor to the paper, writing 19 unsigned essays, of which this essay is perhaps the most famous.
According to Madison, the term "property" can be understood not only in the narrow sense, such as "a man's land, or merchandize, or money," but also in a broader sense, as "every thing to which a man may attach a value and have a right; and which leaves to every one else the like advantage." In this "larger and juster" sense,
[One] has a property of peculiar value in his religious opinions, and in the profession and practice dictated by them. He has a property very dear to him in the safety and liberty of his person. He has equal property in the free use of his faculties and free choice of the objects on which to employ them.
In short, "as a man is said to have a right to his property, he may be equally said to have a property in his rights." Madison then followed Locke in maintaining that the essential function of government is to protect property in both the narrow and broad senses—to protect all the rights of individuals:
Government is instituted to protect property of every sort; as well that which lies in the various rights of individuals, as that which the term particularly expresses. This being the end of government, that alone is a just government, which impartially secures to every man, whatever is his own.
If government exercises "an excess of power," then "property of no sort is duly respected," he added. "No man is safe in his opinions, his person, his faculty, or his possessions."
Excerpted from LIBERTY OF CONTRACT by DAVID N. MAYER Copyright © 2011 by Cato Institute. Excerpted by permission of Cato Institute. All rights reserved. No part of this excerpt may be reproduced or reprinted without permission in writing from the publisher.
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