Property Rights Throughout much of American history the Supreme Court has defended property rights against legislative interference. In assuming this role, the justices have mirrored the values of the framers of the Constitution, who were strongly influenced by the natural law philosophy of John Locke. According to Locke, private property existed under natural law before the creation of political authority. Building on natural law theory, the eighteenth‐century Whig political tradition stressed the rights of property owners as a bulwark of freedom against arbitrary government. The framers also emphasized the economic utility of private property. They believed that security of property and contractual arrangements facilitated the development of investment capital and the emergence of a strong national economy. Although some state constitutions contained provisions to protect property rights, in the years immediately following the Revolution many became convinced that state governments could not be trusted to respect property ownership. Accordingly, the delegates to the Constitutional Convention were vitally concerned with the need to safeguard economic interests.

Numerous provisions of the Constitution pertain to economic interests. For instance, the Constitution prohibits Congress or the states from confiscating property through bills of attainder and limits the power of Congress to impose direct taxes (see Taxing and Spending Clause). The Constitution also contained several clauses that protected property in slaves (see Slavery). Foremost among the constitutional restrictions on state authority was the Contracts Clause, forbidding the states from enacting any law “impairing the Obligation of Contracts.” Even more important was the Fifth Amendment, which provided that no person should be “deprived of life, liberty, or property, without due process of law; nor shall private property be taken for public use, without just compensation.” The Fifth Amendment in effect incorporated into the Constitution, the Lockean idea that protection of property was a chief aim of government.

From the outset, federal courts signaled their intention to safeguard existing economic arrangements and to curtail state legislative interference with property rights. In Champion v. Casey (1792), one of the first exercises of federal judicial review, a circuit court held that a Rhode Island statute granting an individual debtor exemption from attachments for a period of time was an unconstitutional impairment of contract.

Property Rights and Natural Law

Looking to the precepts of natural law rather than any specific clause of the Constitution, some federal judges adopted the doctrine of vested rights to protect established property rights from legislative impairment. According to this doctrine, property ownership was a fundamental right. Laws that disturbed such rights were void because they violated the principles limiting all constitutional governments. Justice William Paterson articulated this view in the significant circuit court case Van Horne's Lessee v. Dorrance (1795). Observing that “the right of acquiring and possessing property, and having it protected, is one of the natural, inherent and inalienable rights of man” (p. 310), Paterson implicitly linked the doctrine of natural rights with the Contracts Clause.

Writing a separate opinion in Calder v. Bull (1798), Justice Samuel Chase reiterated the vested rights doctrine. “There are certain vital principles in our free republican governments,” he observed, “which will determine and overrule an apparent and flagrant abuse of legislative power” (p. 388). Chase maintained that the legislature could not “violate the right of an antecedent lawful private contract; or the right of private property” (p. 388).

The Marshall and Taney Courts

John Marshall, who became chief justice 1801, dominated the Supreme Court for three decades. As a Federalist, Marshall was sympathetic to property interests and business enterprise. He believed that property ownership both preserved individual liberty and encouraged productive use of resources. The Contracts Clause emerged as the centerpiece of Marshall Court jurisprudence. Drawing upon the doctrine of vested rights, Marshall fashioned the clause into a powerful bulwark to property interests. His initial step was to broaden the definition of contracts that were entitled to protection under the Constitution. In the landmark case of Fletcher v. Peck (1810), Marshall held that a state was constitutionally barred from breaching its contracts. At issue was an attempt by the Georgia legislature to rescind the huge Yazoo land grant. Marshall noted that the terms of the Contracts Clause “are general, and are applicable to contracts of every description” (p. 137). Likewise, in New Jersey v. Wilson (1812) the Marshall Court determined that a tax exemption was a contractual right and hence a state could not revoke such preferred treatment.

A more far‐reaching application of the Contracts Clause occurred in Dartmouth College v. Woodward (1819), which held that a corporate charter was a constitutionally protected contract. As corporations grew more numerous and powerful during the nineteenth century, public control of corporations became a major concern. The power of the state to repeal or alter the charter of incorporation suggested one avenue by which regulations might be imposed. The Dartmouth College ruling aided corporate enterprise by erecting a constitutional barrier against legislative infringement of existing charters. In a concurring opinion, however, Justice Joseph Story suggested that state legislatures could reserve the right to modify corporate charters when they were issued. The exercise of such a reserved power would not constitute the impairment of contract. (See also Private Corporation Charters.)

The Contracts Clause was also a major force in shaping debtor‐creditor relations. After ratification of the Constitution, many states continued the practice of enacting debtor‐relief measures (see Bankruptcy and Insolvency Legislation). Creditors vigorously attacked such laws, arguing that state debtor‐relief measures represented an unconstitutional impairment of contract. A challenge to New York's Bankruptcy Act of 1811 came before the Supreme Court in Sturges v. Crowninshield (1819). Marshall concluded that New York's law was void because it relieved debtors of the obligation to pay debts contracted before the measure was passed. States could not retroactively discharge contractual obligations. Spurred by economic distress in wake of the Panic of 1819, many states passed new bankruptcy laws covering only debts incurred after the date of enactment. By a narrow, 4‐to‐3 margin, the Supreme Court sustained New York's revised statute in Ogden v. Saunders (1827). The justices held that a law in effect when a contract was made formed part of the agreement. Consequently, the application of bankruptcy laws to posterior obligations did not impair any contract.

The Ogden decision marked a watershed in the history of the Contracts Clause's interpretation. Without retreating from early decisions, the Court was henceforth guided by a more cautious spirit in Contracts Clause cases. In Providence Bank v. Billings (1830), Marshall declared that surrender of a state's power of taxation could not be implied from the grant of a charter incorporating a bank. This ruling established the principle that grants of privileges to corporations must be expressly set forth in their charters.

Reflecting his commitment to economic nationalism, Marshall labored for broad protection of contracts in order to encourage investment capital. By any standard he achieved considerable success—indeed, the Contracts Clause figured in more Supreme Court decisions than any other section of the Constitution during the nineteenth century. Despite criticism of some rulings, there was little hostility to Marshall's core belief that the federal courts should safeguard established economic rights.

The political triumph of Jacksonian Democracy brought new attitudes to the Supreme Court. On Marshall's death, President Andrew Jackson named Roger B. Taney as chief justice in 1837. Under Taney's leadership the Court shaped constitutional law to harmonize with the Jacksonian tenets of states' rights (see State Sovereignty and States' Rights), hostility to special privilege, and strict construction of the Constitution. Despite a shift of emphasis, however, the Court did not fundamentally depart from the constitutional principles of the Marshall era. Taney shared Marshall's economic values, especially the need to protect private property and to promote economic growth. To be sure, there were differences between the judicial approach of Taney and Marshall. Taney limited the reach of the Contracts Clause and allowed the states greater flexibility to fashion economic policy. This was illustrated by Charles River Bridge v. Warren Bridge (1837), in which Taney rejected the notion of implied corporate privilege. He emphasized the principle that corporate grants must be strictly construed, a doctrine that affirmed legislative control over economic policy. Sensitive to the relationship between law and technology, Taney further asserted that recognition of implied corporate privileges would stymie economic progress. To Taney's mind, existing property rights could sometimes be destroyed to make room for innovations and improvements.

The power of eminent domain constituted another limit on the scope of the Contracts Clause. In West River Bridge Co. v. Dix (1848) the Court held that the Contracts Clause did not protect a corporation against the exercise of eminent domain. The justices reasoned that all contracts were subject to the state's paramount power of eminent domain.

The justices, however, enforced the Contracts Clause in cases involving debtor‐relief laws, exemptions from taxation, and banking regulations. In Bronson v. Kinzie (1843) the Court heard a challenge to two Illinois statutes that retroactively limited mortgage foreclosure sales and gave mortgagors broad rights to redeem foreclosed property. Writing for the Court, Taney found the Illinois statutes to be an unconstitutional abrogation of contract.

The use of eminent domain to take private property did not receive much attention from the federal courts before the Civil War. The Constitution makes no direct reference to the power of eminent domain, but the Fifth Amendment requires that private property be taken only for public use and upon payment of just compensation. In Van Horne's Lessee, Justice Paterson had concluded that the “despotic power” of taking private property “exists in every government” and that “government could not subsist without it” (p. 311). He stressed, however, that compensation must be paid to landowners and that determination of land value was a judicial, not a legislative, function.

In practice, the Takings Clause of the Fifth Amendment did not bulk large during the antebellum era. The most significant Supreme Court takings decision in this period was Barron v. Baltimore (1833), in which the city of Baltimore sought to increase the access of shippers by undertaking harbor improvements. The city diverted water from the plaintiff's wharf, greatly reducing its value, and the plaintiff claimed compensation for his loss under the Fifth Amendment. Rejecting this contention, the Court held that the Fifth Amendment restricted the federal government but did not apply to the states.

Like the Takings Clause, the Due Process Clause of the Fifth Amendment played almost no role in the constitutional protection of economic interests before the Civil War. By the mid‐nineteenth century, however, federal courts began to wrestle with substantive interpretations of due process. Substantive due process first appeared in federal jurisprudence in the controversial 1857 Scott v. Sandford decision. Chief Justice Taney interpreted the Due Process Clause as placing a limitation on the power of Congress to exclude slave property from the territories. The Dred Scott ruling was effectively superseded by the Civil War and the Fourteenth Amendment, but the concept of substantive due process was destined for a robust rebirth in a later generation. Hence, the property‐conscious jurisprudence of the antebellum era was a precursor of laissez‐faire constitutionalism later in the century.

Civil War and Reconstruction

The Civil War compelled the federal government to play an active role in managing the economy. Congress experimented with new methods of public finance. In 1861 it levied the first income tax, a flat tax of 3 percent on income over $800 a year. In addition, the government issued large amounts of paper money irredeemable in gold or silver, popularly known as greenbacks. The Legal Tender Act of 1862 declared such paper money to be lawful tender for all debts and the payment of taxes. The greenback dollars rapidly depreciated in value, and creditors resisted attempts to discharge debts with such currency. Further, in 1864 Congress organized the national banking system and established a uniform currency of national banknotes. A year later Congress placed a heavy tax on state banknotes, effectively driving them out of circulation as currency.

The Supreme Court sustained these fledgling moves toward national regulation of the economy. In Springer v. United States (1881) the Court upheld the Civil War income tax as applied to professional earnings. Also significant was the decision in Veazie Bank v. Fenno (1869), in which the Court affirmed the power of Congress to tax the notes of state banks (see Tax Immunities). Stressing the importance of securing a uniform currency, the Court refused to scrutinize the motives of Congress in levying such a prohibitive tax. Thus, Veazie Bank established that Congress could use the taxing power to regulate or even eliminate particular economic activities.

Far more controversial was the Court's handling of constitutional challenges to the legal tender legislation. In Hepburn v. Griswold (1870) the Supreme Court, by a vote of 4 to 3, declared the Legal Tender Act invalid as applied to contracts made before its passage. Speaking for the Court, Chief Justice Salmon P. Chase concluded that the act violated the Due Process Clause of the Fifth Amendment and impaired the obligation of contract in a manner inconsistent with the spirit of the Constitution. Many in business and government feared economic chaos as a result of this ruling. After reargument the Court, in Knox v. Lee (1871), overruled Hepburn and upheld the constitutionality of the Legal Tender Act with respect to both preexisting and subsequent contracts. The upshot of these Legal Tender Cases was judicial recognition of broad congressional power over currency and monetary policy.

Following the Civil War, America experienced an era of enormous economic growth. Spear‐headed by the railroads, industrial development and technological innovation proceeded rapidly. Rapid industrialization, however, produced economic dislocation, and not all segments of society benefited from unbridled operation of the market economy. Corporations and property owners looked to the judiciary for protection against governmental regulations. They sought to utilize the Fourteenth Amendment as a shield against state legislation that in their view represented arbitrary and unreasonable interference with economic rights.

The first interpretation of the Fourteenth Amendment came in the Slaughterhouse Cases (1873). During Reconstruction, the Louisiana legislature created a monopoly of the slaughterhouse business in New Orleans. Some New Orleans butchers challenged the Louisiana statute, arguing that the monopoly deprived them of the property right to pursue a trade in violation of both the Privileges or Immunities and Due Process Clauses of the Fourteenth Amendment. By a 5‐to‐4 vote, the Supreme Court rejected this contention and placed a narrow construction on the scope of the Privileges or Immunities Clause. According to the Court, no federally protected right to be free of monopoly existed. In sharp contrast, the dissenting justices saw the amendment as a substantive restraint on state power to regulate the rights of property owners. Attacking monopolies as an encroachment on the right to acquire property, Justice Stephen J. Field argued that the right to pursue a lawful occupation was protected by the Fourteenth Amendment.

The Supreme Court next considered the authority of the states to control private property in Munn v. Illinois (1877). At issue in Munn was an Illinois statute that set the rate for storing grain in Chicago elevators. The elevator managers assailed this measure as a deprivation of property without due process of law. Upholding the Illinois law, the Supreme Court again adopted a deferential attitude toward state authority to control the use of private property. Speaking for the Court, Chief Justice Morrison R. Waite ruled that “when private property is devoted to a public use, it is subject to public regulation” (p. 130). Whether this public‐interest doctrine applied to a particular enterprise was considered a matter for legislative judgment. Although recognizing that the owner of property “clothed with a public interest” was entitled to reasonable compensation, Waite declared that the determination of such compensation was a legislative, not a judicial, task (see Rule of Reason). The only protection of property owners against legislative abuse was resort to the political process. Field vigorously dissented, warning that under the Munn rationale “all property and all business in the State are held at the mercy of a majority of its legislature” (p. 140).

During the 1880s the Supreme Court adopted a more skeptical posture toward state regulation of property and business. In Stone v. Farmers' Loan & Trust Co. (1886) the Court upheld a Mississippi statute that empowered a commission to regulate railroad rates, but it cautioned that such authority was not unlimited. Chief Justice Waite added that “the State cannot require a railroad corporation to carry persons or property without reward; neither can it do that which in law amounts to a taking of private property for public use without just compensation, or without due process of law” (p. 331). In addition, the Court strengthened the legal position of corporations. The justices ruled in Santa Clara County v. Southern Pacific Railroad (1886), that corporations were persons within the meaning of the Fourteenth Amendment, and thus entitled to protection under the Due Process Clause.

Economic Due Process

In Mugler v. Kansas (1887) the Supreme Court went a step further, moving toward a substantive interpretation of the Due Process Clause to safeguard fundamental property rights. This step laid the foundation for the doctrine of economic due process. Although the Court sustained a state measure prohibiting the manufacture and sale of alcoholic beverages as a valid use of the police power to protect health and morals, Justice John Marshall Harlan emphasized that courts could scrutinize the purpose behind state regulation as well as the means employed to achieve the stated ends. Moreover, Harlan insisted that there were “limits beyond which legislation cannot rightfully go” (p. 661).

Economic due process soon became the most important judicial instrument safeguarding property rights and vindicating the principles of laissez‐faire constitutionalism. In the 1890s, the Court ruled that utilities were constitutionally entitled to charge reasonable rates and that the determination of reasonableness was a judicial question. This line of development culminated in Smyth v. Ames (1898), in which the Court unanimously held that a utility must be allowed a “fair return upon the value of that which it employs for public convenience” (p. 547). The Smyth formula required that rates be based on a company's present value and promulgated a complex text to ascertain such value.

In Allgeyer v. Louisiana (1897) the Supreme Court also developed an important corollary of economic due process, the liberty of contract doctrine. The Court reasoned that liberty, as protected by the Fourteenth Amendment, encompassed the right to “enter into all contracts which may be proper” to pursue an occupation or acquire property (p. 589). States could not interfere with this contractual freedom, a position that cast a deep shadow over legislative attempts to regulate the terms of employment.

Although laissez‐faire constitutionalism became predominant during the 1890s, the Court also recognized that states could lawfully restrict property and contractual rights in appropriate situations under the police power. The justices were usually sympathetic to laws that protected the health, safety, and morals of society. In Holden v. Hardy (1898), for instance, the Supreme Court by a vote of 7 to 2 upheld a Utah statute limiting work in mines to eight hours a day. Rejecting a challenge based on the liberty of contract doctrine, the Court stressed the unhealthy conditions of mine work and noted that mine owners and their employees did not have equal bargaining power (see Contract, Freedom of).

Takings

In addition to fashioning the doctrine of economic due process, the Supreme Court enlarged the protection available to property owners under the Takings Clause of the Fifth Amendment. The Court broadened the definition of a taking in Pumpelly v. Green Bay Company (1871), holding that a physical invasion that destroyed the usefulness of land was a taking even though title technically remained with the owner. Further, the Court gave an expansive reading to the just compensation requirement in Monongahela Navigation Company v. United States (1893), reiterating that the assessment of an indemnity payment was a judicial, not a legislative, task. Speaking for the Court, Justice David J. Brewer ruled that the owner must receive “a full and exact equivalent” (p. 325), and that the value of property was determined by its profitableness. Even more important, in Chicago, Burlington & Quincy Railroad Co. v. Chicago (1897) the justices unanimously held that the just compensation requirement constituted an essential element of due process as guaranteed by the Fourteenth Amendment. Accordingly, the just compensation rule became in effect the first provision of the Bill of Rights to be applied to the states.

At the same time, the Court was cool toward the claim that regulations limiting the use of property represented an unconstitutional taking without compensation. A Kansas law prohibited the manufacture or sale of liquor and ordered the destruction of liquor already in stock. By preventing the use of breweries for their intended purpose, the statute drastically reduced the value of land and equipment to the owners. Stressing that this legislation did not disturb the owner's use of property for lawful activities, the Court in Mugler v. Kansas (1887) stated that a restriction on the use of property could not be deemed a taking.

Declining Importance of Contracts Clause

After the Civil War, the Contracts Clause continued to figure in constitutional policy. Indeed, the Supreme Court expanded the reach of the Contracts Clause to encompass arrangements made in reliance on judicial interpretation of state law. In Gelpcke v. Dubuque (1864) the Supreme Court sustained the validity of a municipal bond issue as a contract that could not be impaired by a changed interpretation of state law. Nonetheless, the Supreme Court contributed to the decline of the Contracts Clause by diluting the protection afforded by this provision. In Stone v. Mississippi (1880), for example, the Court held that a state could forbid the sale of lottery tickets despite the fact that a previous charter granted the right to operate lotteries. This concept of inalienable police power opened the door for state legislatures to interfere with contracts in order to protect public health and morals.

Income Tax

The Supreme Court narrowly construed congressional taxing authority. Desiring to reduce concentrations of wealth and to enhance federal revenue, Congress in 1894 enacted a second income tax, placing a levy of 2 percent on individual and corporate income over $4,000 a year. Conservatives promptly arranged a challenge to the newly enacted levy in Pollock v. Farmers Loan & Trust Co. (1895). Writing for a 6‐to‐2 majority, Chief Justice Melville W. Fuller held that the tax on income from land was a direct tax not apportioned among the states according to population as required by the Constitution. In addition, the Court unanimously found that the tax on income from municipal bonds was unconstitutional because the federal government could not tax state bonds. The Court was divided 4 to 4 on the validity of the tax on general incomes, and the case was reargued when the absent justice could be present. In the second Pollock decision, a 5‐to‐4 majority overturned the entire income tax as an unconstitutional direct tax.

The income tax controversy sharply divided both the Court and the nation. As Justice Field's concurring opinion demonstrates, the majority was moved to safeguard property interests against perceived spoliation by the political majority. Field darkly warned of class struggle: “The present assault upon capital is but the beginning. It will be but the stepping‐stone to others, larger and more sweeping, till our political contests will become a war of the poor against the rich” (p. 607). The dissenters denied that the income tax discriminated against the wealthy and charged that the majority was frustrating political democracy.

(The authority of Congress to tax incomes was expressly established by adoption of the Sixteenth Amendment in 1913. Seeking to defeat a direct challenge to the Pollock decision, Senate conservatives in 1909 proposed a constitutional amendment enabling Congress to tax incomes. They mistakenly calculated that the proposal would fail to win ratification by the states. The Sixteenth Amendment voided the Pollock decision [see Reversals of Court Decisions by Amendment].)

Laissez Faire and Social Legislation

By 1900 a new industrial and urban society increasingly supplanted the older America of rural communities. Although many Americans prospered during the early decades of the twentieth century, the tremendous economic expansion caused social dislocation. The progressives worked to correct the imbalance of economic power associated with the new industrial order (see Progressivism). At the heart of the reform program lay the Progressive insistence upon a more active role for both state and federal governments in regulating the economy and meeting social problems.

Influenced by laissez‐faire values, the majority of Supreme Court justices remained leery of economic regulations that altered free‐market ordering or infringed on property rights. In the seminal case of Lochner v. New York (1905), the Court gave sharp teeth to economic due process by invalidating a statute that restricted working hours in bakeries. Speaking for a 5‐to‐4 majority, Justice Rufus W. Peckham held that the law violated the liberty of contract as protected by the Fourteenth Amendment (see Contract, Freedom of). He concluded that the statute exceeded the permissible bounds of state police power. Peckham also expressed broad disapproval of legislation protective of labor. Two dissenters attacked the majority's position from different perspectives. Justice Harlan accepted the legitimacy of the liberty of contract doctrine but argued that the Court misapplied it in this case. Emphasizing that contracts were subject to health and safety regulations, he maintained that long hours of work in bakeries endangered the health of employees. Justice Oliver Wendell Holmes went a step further and rejected the laissez‐faire interpretation of the Constitution. Holmes articulated a philosophy of judicial self‐restraint under which the Court should defer to the right of a political majority to govern.

The Lochner decision firmly established the authority of the Supreme Court to review the substance of economic regulations under the Due Process Clause. For the next thirty years the Court closely scrutinized the reasonableness of numerous statutes affecting property rights, treating liberty of contract as the general rule governing economic affairs. State interference with this right under the police power could only be justified in exceptional circumstances, and such restraint could not be arbitrary. To the discomfort of the Progressives, the Lochner decision became a symbol of the Supreme Court's commitment to property rights.

Despite the triumph of laissez‐faire constitutionalism, the Supreme Court was receptive to laws dealing with obvious health and safety risks even when such regulations imposed heavy costs on property owners or businesses. For instance, the justices upheld the regulation of safety in mines and workmen's compensation statutes that provided for a financial award to employees injured by industrial accidents. The Court also took a deferential view with respect to state supervision of public morals, readily approving laws restricting the operation of lotteries and pool halls and prohibiting the manufacture and sale of alcoholic beverages. Nor did the Supreme Court see any constitutional infirmity with laws to prevent fraudulent business practices.

In Muller v. Oregon (1908) the Supreme Court sustained a state law that limited working hours for women in factories and laundries. The Court stressed the special health needs of women and their dependent status as justifying disparate treatment under law. The justices did not see women as equal competitors with men in the marketplace and thus accepted the necessity for protective legislation. Although a qualified victory for reform, Muller did not challenge the dominance of economic due process. Moreover, the paternalistic assumptions behind legislation designed to protect women appear suspect to modern eyes (see Gender).

Notwithstanding this willingness to accommodate some regulation of economic life, the Supreme Court increasingly relied upon the doctrines of economic due process and liberty of contract to safeguard property rights. In general terms, the Court rejected those regulations that it deemed excessive or unwarranted. The contours of such review were imprecise, but the Court tended to look with disfavor on several types of economic legislation: labor laws, anticompetitive measures, and statutes fixing wages and prices.

A majority of the Court believed that government should not intervene in labor‐management relations. This attitude was illustrated by a line of cases that struck down both federal and state laws prohibiting so‐called yellow dog contracts, which made it a term of employment that employees not belong to labor unions. Although the justices may have held unrealistic notions about the bargaining position of individual employees, allegations of systematic favoritism to business are difficult to demonstrate. In actuality the Supreme Court was committed to the laissez‐faire norm of an unregulated market economy. Thus, the justices also invalidated laws that restricted the right to engage in business or that imposed barriers to new enterprises.

The decision in New State Ice Co. v. Liebmann (1932), confirmed the Supreme Court's devotion to free‐market competition. Oklahoma required a certificate to enter the ice business. The Court emphasized that the practical effect of the certificate provision was to shut out new enterprises and thus foster a monopoly in the existing ice companies. Accordingly, the Court found by a margin of 6 to 2 that the Oklahoma statute unreasonably curtailed the right to engage in a lawful private business in violation of Due Process Clause.

Legislative attempts to set minimum wages raised novel issues. The justices were loath to accept wage regulation or to expand the category of businesses in which wage or price fixing was constitutional. In Adkins v. Children's Hospital (1923) the Supreme Court by a 5‐to‐3 margin overruled a District of Columbia statute that established a minimum wage for women as an infringement of the liberty of contract. Speaking for the Court, Justice George Sutherland stressed that “freedom of contract is … the general rule and restraint the exception” (p. 546). He reasoned that the minimum‐wage law arbitrarily cast upon employers a welfare function that belonged to society at large.

The Supreme Court sometimes treated economic rights and other liberties as interdependent. For instance, judicial protection of property rights was instrumental in a successful assault on residential segregation laws (see Housing Discrimination). The Supreme Court in Buchanan v. Warley (1917) held that such an ordinance restricted the right to alienate property and constituted a deprivation of property without due process.

Congressional taxing powers were also strengthened in the early twentieth century. The Supreme Court approved the use of taxation to regulate or prohibit economic activity that could not be reached directly by Congress under the Commerce Clause. In McCray v. United States (1904) the Court upheld the imposition of a prohibitory tax on yellow oleomargarine. Since the taxing power was not limited to interstate commerce, the McCray decision seemingly permitted Congress to regulate all aspects of the economy.

Any expectations for the broad use of tax authority to achieve regulatory ends were soon dashed. To halt the use of child labor Congress placed a 10‐percent tax on the profits of companies employing children. In Bailey v. Drexel Furniture Co. (1922) the Court scrutinized the purpose behind the tax measure, and held by an 8‐to‐1 margin that child‐labor tax was an unconstitutional infringement on state authority to regulate manufacturing. The result of the Bailey ruling was to curtail the use of the taxing power for regulatory purposes.

Further, the Court faced novel questions concerning the protection of property rights under the Takings Clause of the Fifth Amendment. Urbanization and industrialization created serious land‐use problems in the years after 1900. Both the federal government and the states began more vigorously to control the use of land. In Pennsylvania Coal Co. v. Mahon (1922) the Court recognized the concept of a regulatory taking where the value of private property was unduly diminished by governmental action. A transfer of title or a physical incursion was unnecessary for a taking to occur. Justice Holmes formulated the crucial inquiry in Mahon: “The general rule at least is, that while property may be regulated to a certain extent, if regulation goes too far it will be recognized as a taking” (p. 415).

Another vexing issue was raised by the emergence of zoning as a land‐control technique. When traditional nuisance law proved inadequate to cope with urban land‐use problems, localities began to enact specific restrictions to safeguard public health and safety. But such regulations restricted an owner's dominion over his land and often impaired its value. Critics argued that zoning represented an unconstitutional interference with the right of owners to make use of their property.

In Euclid v. Ambler Realty Co. (1926) the Court, by a 6‐to‐3 vote, upheld the constitutionality of a comprehensive zoning ordinance that divided a locality into residential and commercial districts, restricting the type of building construction in each district. Reasoning that such limitations served the health, safety, and morals of the public, Justice Sutherland ruled that state police power included the authority to classify land and prevent the erection of commercial buildings in residential areas. The Court stressed, however, that zoning power was not unfettered. In Nectow v. Cambridge (1928) the Supreme Court struck down a particular application of a zoning ordinance as a deprivation of property without due process.

The regulation of rental practices was also a source of controversy. Citing emergency housing conditions growing out of World War I, a congressional measure established a commission to determine reasonable rents in the District of Columbia and protected a tenant's right of occupancy. In Block v. Hirsh (1921) the Supreme Court upheld the validity of the statute by a vote of 5 to 4. Justice Holmes concluded that under the circumstances of a wartime housing shortage, the rental business in the District was cloaked with a public interest justifying temporary regulation.

The New Deal and “Constitutional Revolution.”

Despite the Great Depression of the 1930s, the Supreme Court remained skeptical about regulation of the economy, particularly about attempts to adjust employment relationships or significantly alter the operations of the free market. Yet President Franklin D. Roosevelt's New Deal program was grounded on the notion that government had an affirmative duty to promote the general social welfare. New Deal liberals worked to remedy economic distress, manage the national economy, control corporate behavior, encourage labor unions, and actively promote the economic interests of the disadvantaged. This social‐welfare approach flatly contradicted the insistence on limited governmental activity, marketplace competition, and respect for property rights that were at the heart of laissez‐faire constitutionalism.

Among the problems spawned by the Depression was the wholesale loss of homes and farms through foreclosure of delinquent mortgages. At issue in Home Building & Loan Association v. Blaisdell (1934) was a Minnesota act imposing a limited moratorium on the foreclosure of mortgages. By a 5‐to‐4 margin the Supreme Court held that the moratorium did not violate the Contracts Clause. Chief Justice Charles Evans Hughes ruled that contracts were subject to the reasonable exercise of the state police power, which encompassed the authority to give temporary relief for extraordinary economic distress.

In Nebbia v. New York (1934), the justices by a 5‐to‐4 vote sustained a milk control law as a reasonable means of stabilizing milk prices. The Nebbia ruling signaled an important shift away from economic due process and judicial supervision of state regulatory legislation. Speaking for the Court, Justice Owen J. Roberts emphasized that a state could validly “adopt whatever economic policy may reasonably be deemed to promote public welfare” (p. 537). He added, “The Constitution does not guarantee the unrestricted privilege to engage in a business or to conduct it as one pleases” (pp. 527–528).

In 1935 and 1936 the Supreme Court struck down a series of important New Deal measures. In Schechter Poultry Corp. v. United States (1935) the justices unanimously overturned the National Industrial Recovery Act as an unconstitutional delegation of lawmaking power to the executive branch (see Delegation of Powers). In Carter v. Carter Coal Co. (1936) the Court by a vote of 6 to 3 invalidated the Bituminous Coal Conservation Act on grounds that the legislation exceeded the authority of the federal government under the Commerce Clause.

The Supreme Court also took a restrictive view of congressional power to levy taxes and appropriate money. The Agricultural Adjustment Act authorized the payment of subsidies to farmers in exchange for reducing the amount of their crops. To raise revenue for this scheme, Congress placed a “processing tax” on the first processor of such commodities. In United States v. Butler (1936) the justices struck down the processing tax. Writing for the Court, Justice Roberts concluded that the ostensible tax was in actuality a means of regulating agricultural production, a matter reserved for the states under the Tenth Amendment.

Yet another objection to the New Deal centered on the Takings Clause of the Fifth Amendment. To assist indebted farmers, the Frazier‐Lemke Act of 1934 compelled the holders of existing mortgages to relinquish farm property to mortgagors without full payment of the mortgage debt. In Louisville Bank v. Radford (1935) a unanimous Supreme Court found the act to constitute an unconstitutional taking of property without compensation.

Never before had the Supreme Court struck down so many acts of Congress in such a short period of time. These judicial setbacks dealt a blow to the New Deal program of economic revival and social reform. In their dogged adherence to laissez‐faire constitutionalism, however, the justices were unmindful of the constraints imposed on the Court by political realities. The Court's stubborn defense of property rights precipitated a constitutional crisis. The political climate, combined with the threat of President Roosevelt's court‐packing plan, dictated a judicial retreat. In the process, the Court undertook a wholesale reversal of landmark decisions. This abrupt change in the Court's thinking, known as the constitutional revolution of 1937, is best understood within a larger political context.

In West Coast Hotel Co. v. Parrish (1937) the justices sustained a Washington State minimum‐wage law for women and minors. Speaking for a 5‐to‐4 majority, Chief Justice Hughes overruled the Adkins precedent and effectively repudiated the liberty of contract doctrine. The decision in West Coast Hotel marked the virtual end of economic due process as a constitutional norm. Since 1937 the Supreme Court has not overturned any economic or social legislation on due process grounds.

The New Deal judicial revolution also had important implications for governmental regulation of utility rates. In Federal Power Commission v. Hope Natural Gas Co. (1944) the Supreme Court abandoned the fair‐value standard of Smyth v. Ames, ruling that rate‐making bodies were not bound to follow any single formula for determining charges. Judicial inquiry was directed only to the impact of the rate order on the regulated industry, not the method of calculation.

The lacerating struggle over the validity of the New Deal program engendered lasting hostility against judicial protection of property rights and had a profound impact on the course of American constitutional history. Once the Supreme Court accepted the New Deal, the justices abruptly withdrew from the field of economic regulation. This reflected a monumental change in the Court's attitude toward property rights and entrepreneurial liberty. The cornerstone of this new constitutional direction was a judicially created dichotomy between property rights and personal liberties articulated in 1938 in United States v. Carolene Products Co. (see Footnote Four). Henceforth, economic regulations would be found to violate the Due Process Clause only when such legislation did not rest “upon some rational basis within the knowledge and experience of the legislators” (p. 152). As a consequence, the Supreme Court virtually eliminated property rights from the constitutional agenda for several decades.

Late‐Twentieth‐Century Development

Judicial concern for the protection of economic rights, however, never entirely disappeared. By 1970 a more conservative Supreme Court gradually began to revitalize constitution protection of economic rights. This shift became apparent in the late 1970s, when the Supreme Court reinvigorated the long‐neglected Contracts Clause. In United States Trust Co. v. New Jersey (1977) the justices, for the first time in nearly forty years, applied the clause to strike down a state law. One year later, in Allied Structural Steel Co. v. Spannaus (1978) the Court relied on the Contracts Clause to void state interference with a private contractual arrangement. During the 1980s the Court seemed to revert to a more restrictive view of the Contracts Clause. In Keystone Bituminous Coal Association v. DeBenedictis (1987) the Court rejected a Contracts Clause challenge to a Pennsylvania law that prevented enforcement of contractual waivers of liability for surface damage caused by mining. Speaking for a 5‐to‐4 majority, Justice John Paul Stevens observed that “the prohibition against impairing the obligation of contracts is not to be read literally” (p. 502).

The Takings Clause of the Fifth Amendment has emerged as the principal bulwark of property rights in contemporary constitutional law. The Supreme Court has virtually eliminated the “public use” requirement as a check on the power of government to appropriate private property by eminent domain. In Berman v. Parker (1954) the Court equated the “public use” clause with the police power. The justices insisted that the “concept of the public welfare is broad and inclusive” (p. 33) and concluded that the judiciary should defer to legislative determinations of the need to use eminent domain.

The justices have protected landowners against physical intrusion onto their property by the government. In United States v. Causby (1946), for instance, the Court held that regular military flights at low altitude over private land destroyed its value as a farm and in effect appropriated the property. The justices went a step further in Loretto v. Teleprompter Manhattan CATV Corp. (1982), ruling that any permanent physical occupation of property, no matter how slight, amounted to a taking.

The justices have been reluctant to invoke the doctrine of regulatory taking and have allowed Congress and the states wide latitude to impose conditions on the use of land. The Court has permitted cities to enact land‐use regulations that enhance the aesthetic features of municipal life. In Penn Central Transportation Co. v. New York City (1978), the Court, by a 6‐to‐3 vote, sustained the designation of Grand Central Terminal as a historic landmark despite the fact that such action prevented the landowner from modifying the building without municipal permission, thereby causing a drastic reduction in its value.

Nonetheless, the Supreme Court took a fresh look at the question of regulatory taking in 1987 and strengthened the position of property owners against governmental authority to reduce the value of their property by regulation. In Nollan v. California Coastal Commission (1987) the Supreme Court struck down a land‐use regulation for the first time since the 1920s. The case arose when a state agency issued a permit to rebuild a beach house on the condition of the landowner's grant of a public easement across the beachfront. The Court held by a margin of 5 to 4 that the imposition of such a condition constituted a taking because the requirement was unrelated to any problem caused by the development. The Nollan decision signaled a heightened degree of judicial supervision of land‐use controls. Moreover, in First English Evangelical Lutheran Church of Glendale v. County of Los Angeles (1987) the justices ruled that a property owner may be entitled to compensation for the temporary loss of land use when controls are later invalidated. This decision raised the prospect of damage awards against excessive regulations.

This resurgent interest in property rights was also manifest in renewed judicial review of utility rate‐making under the Takings Clause. In Duquesne Light Co. v. Barasch (1989) the justices upheld a Pennsylvania rate order and reaffirmed that no particular rate‐making method was mandated by the Constitution. Yet the Court emphasized that “the Constitution protects utilities from being limited to a charge for their property serving the public which is so ‘unjust’ as to be confiscatory” (p. 307).

For a brief period in the 1970s, the Supreme Court flirted with the protection of various government benefits as a type of “new property.” The basic question was whether Social Security, welfare benefits, and public employment should be viewed as rights or as privileges subject to withdrawal. Critics charged that the “new property” notion was simply a subterfuge to constitutionalize the welfare state and protect the economic interests of political liberals. In Goldberg v. Kelly (1970) the justices, by a vote of 5 to 4, edged toward acceptance of the new property concept. They held that New York City violated due process procedural guarantees by terminating welfare benefits without a prior hearing. Ultimately, however, the Court declined to treat most entitlements under government programs as traditional property rights for the purpose of due process. Instead, the Court preserved a large measure of legislative authority to manage and even eliminate benefit schemes.

By the beginning of the twenty‐first century it was apparent that the Supreme Court continued to play a major role in safeguarding economic rights. A return to laissez‐faire constitutionalism, however, appears problematic. The Court will more likely strike a balance between popular democracy and the constitutional protection of private property ownership.

See also Capitalism.

Bibliography

James W. Ely, Jr. , The Guardian of Every Other Right: A Constitutional History of Property Rights (1991).
Kermit L. Hall , The Magic Mirror: Law in American History (1989).
Herbert Hovenkamp , The Political Economy of Substantive Due Process, Stanford Law Review 40 (1988): 379–447.
Alfred H. Kelly,, Winfred A. Harbison,, and and Herman J. Belz , The American Constitution: Its Origins and Development, 7th ed. (1991).
Paul Kens , Judicial Power and Reform Politics: The Anatomy of Lochner v. New York (1990).
R. Kent Newmyer , Supreme Court Justice Joseph Story: Statesman of the Old Republic (1985).
Joel Francis Paschal , Mr. Justice Sutherland: A Man against the State (1951).
Benjamin Fletcher Wright , The Contract Clause of the Constitution (1938).

James W. Ely, Jr.

Laissez‐faire Constitutionalism The term “laissez‐faire constitutionalism” refers to an ideological attitude that characterized some justices of the Supreme Court between the Civil War and the New Deal. The ideology reflected classical liberal economics, with its commitment to market control of the economy, a preference for entrepreneurial liberty, and a concomitant hostility to governmental regulation; social Darwinism, which extolled competition in the struggle for social existence and survival of the economically fittest; a formalist approach to adjudication, with a preference for abstractions and formal logic; traditional American values, including individualism, access to opportunity, and hostility to restraints on competition; and a fear of social unrest, spawned by immigration, industrialization, urbanization, and the struggles of organized labor.

The values of laissez‐faire constitutionalism were first articulated on the Supreme Court in the dissents of Justices Stephen J. Field and Joseph P. Bradley in the Slaughterhouse Cases (1873). These values produced the doctrine of substantive due process, which commanded a majority of the Court for the first time in Chicago, Milwaukee & St. Paul Railway Co. v. Minnesota (1890), and the derivative doctrine of freedom of contract, which achieved its first triumph in Allgeyer v. Louisiana (1897). The Court during the chief justiceships of Melville W. Fuller, Edward D. White, and William Howard Taft (1888–1930) was often receptive to these values, producing such specimens of laissez‐faire constitutionalism as the Income Tax Cases (Pollock v. Farmers' Loan & Trust Co., 1895) and Plessy v. Ferguson (1896). Allied with traditional concepts of federalism, the ideology led to decisions restrictive of federal regulatory power, including United States v. E.C. Knight Co. (1895) and the Child Labor Cases (Hammer v. Dagenhart, 1918, and Bailey v. Drexel Furniture Co., 1922). Laissez‐faire constitutionalism was marked by a virulent and unconcealed hostility to organized labor, which resulted in such decisions as In re Debs (1895) and Loewe v. Lawlor (1908). The high points of laissez‐faire constitutionalism's hold on the minds of Supreme Court jurists came in Lochner v. New York (1905), Coppage v. Kansas (1915), and Adkins v. Children's Hospital (1923). Various state supreme courts, including those of the leading industrial states (New York, Illinois, Pennsylvania, and Massachusetts) were receptive to laissez‐faire premises, producing such monuments of conservative jurisprudence as In re Jacobs (New York, 1885) and Ives v. South Buffalo Railway Co. (New York, 1911). (See State Courts.)

But the ideology never lacked for critics, foremost among them on the Court being Justice Oliver Wendell Holmes, whose Lochner dissent trenchantly rejected its assumptions. Louis D. Brandeis, then in private practice, struck a fatal blow at the doctrines of laissez‐faire constitutionalism through the “Brandeis brief,” acknowledged as persuasive by a majority of the Court in Muller v. Oregon (1908)—but rejected by a later majority in Adkins. Off the Court, academic critics like Roscoe Pound of the Harvard Law School and political leaders, including Theodore Roosevelt in his Bull Moose campaign of 1912, condemned the results of the doctrines. Moreover, the ideology was only intermittently dominant; the Court sustained most regulatory legislation, as in Muller and Holden v. Hardy (1898).

Laisser‐faire constitutionalism revived vigorously after World War I, dominating the Taft Court. Its grip weakened momentarily during the New Deal, enabling the Court to sustain some state and federal regulatory legislation. But its force recuperated powerfully in 1936 and 1937, producing the last great burst of antiregulatory decisions, including Carter v. Carter Coal Co. (1936) and Morehead v. New York ex rel. Tipaldo (1936). The constitutional revolution of 1937 swept it away completely, and the Court systematically repudiated its premises and the precedents that it had spawned (see Court‐Packing Plan).

Critics of the modern Court sometimes see a revival of laissez‐faire doctrines in the Burger and Rehnquist Courts. But differences far outweigh similarities between the turn‐of‐the‐century and the contemporary Court. Laissez‐faire constitutionalism was profoundly suspicious of democracy, as evidenced by the writings of its foremost academic apologists, including Christopher Tiedeman, whereas modern conservatives extol the power of democratic majorities. Further, modern judicial conservatism shares few of the values of its ancestor. It is too sophisticated to accept the crudities of social Darwinism as extolled by Justice Rufus Peckham. Nearly a century of experience has abated the visceral fears of organized labor and immigrants. Yet a preference for market control of the economy and private ordering by contract, rather than public ordering by regulation, displays some continuities with the past.

See also History of the Court: Reconstruction, Federalism, and Economic Rights.

Bibliography

William M. Wiecek , The Lost World of Classical Legal Thought: Law and Ideology in America, 1886–1937 (1998).

William M. Wiecek

Oliver Holden , 1765–1844, American composer and compiler of hymns, b. Shirley, Mass. His popular tune Coronation, to Edward Perronet's hymn All Hail the Power of Jesus' Name, first appeared in his Union Harmony (1793). With Samuel Holyoke and Hans Gram he edited The Massachusetts Compiler (1795), an important collection and study of sacred vocal music.