The Supreme Court and Economic Freedom

Economic freedom is the ability to control our own resources free from government interference while respecting the rights of others to make their own decisions as well. In America, legislation or taxation passed by the legislative branch of government often impacts this freedom, as do the regulations or executive orders enforced by the executive branch. These are sometimes easy to see: a new tax that takes our resources, or a new regulation that limits how we can spend our money.

What is harder to see is how the judicial branch affects our economic freedom. They do not pass legislation or regulation, or impose taxation, but they do determine if the other branches have done so in accordance with our Constitution and other legal precedents. At least, that is what they are supposed to do; but too often the highest body in our judicial branch, the Supreme Court, has allowed the other branches to limit our economic freedom despite the protections in the Constitution.

There are many cases that we could highlight, and to get the discussion going we’ve picked a few that have had a great impact on our economic freedom. What cases would you add to this list?

The Slaughterhouse Cases (1873)

In 1869, the Louisiana Legislature gave the Crescent City Live-Stock Landing & Slaughter-House Company a monopoly for the New Orleans area. A group of local butchers sued the state on the grounds that in preventing them from having their own slaughterhouses within the New Orleans area, the law violated the 14th Amendment’s “privileges and immunities” clause. The case made it to the Supreme Court, which ruled in a 5-4 decision that the clause did not apply, and the state of Louisiana could grant a monopoly. In his dissent, Justice Stephen Field said:

And it is to me a matter of profound regret that its validity is recognized by a majority of this court, for by it the right of free labor, one of the most sacred and imprescriptible rights of man, is violated.

This case undermined economic freedom by essentially gutting the 14th Amendment’s privileges and immunities clause and ruling that it does not protect the right to own and operate a business. While this decision was a setback for economic freedom, Justice Field’s dissent and support of economic freedom set the stage for a period called the “Lochner Era.”

Lochner Era (ca. 1897-1937)

This era of the Supreme Court is generally characterized by decisions striking down legislation or regulations that infringed on economic freedom. It is generally accepted that this period began with the 1897 case Allgeyer v. Louisiana, in which the Supreme Court struck down a state law that prohibited state citizens from engaging in business with out-of-state insurance companies that had not complied with Louisiana state law. The Court unanimously ruled that the term “liberty” guaranteed by the due process clause of the 14th Amendment included economic liberty, as was stated in the opinion:

The “liberty” mentioned in that 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…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 his carrying out to a successful conclusion the purposes above mentioned.

The Lochner Era derives its name from the famous 1905 case Lochner v. New York. In this case, the Court ruled a New York state law that set maximum working hours for bakers unconstitutional because it interfered with citizens’ liberty to contract and therefore violated the 14th Amendment’s due process clause.

These cases prevented the states from imposing laws that would have restricted an individual’s economic freedom, such as Lochner, but the precedent didn’t last forever.

West Coast Hotel v. Parrish (1937)

In 1932, Elsie Parrish sued West Coast Hotel for not paying her enough according to a new law passed by the Washington Legislature. The hotel argued that the law was unconstitutional because it violated, without due process, their freedom of contract and therefore violated the 14th Amendment. The state court agreed, but the appellate court overturned its ruling.

The hotel appealed the decision to the Supreme Court, and the Court ruled against the hotel, claiming that freedom of contract isn’t specifically mentioned in the Constitution and therefore isn’t an absolute right. This essentially overturned Lochner v. New York and is considered the end of the Lochner era.

Up until this case, many of the New Deal and progressive reforms had been stopped by the Court as infringing on economic freedom. President Roosevelt was frustrated by these decisions, and devised a scheme to pack the court with justices that would rule in his favor. In leading up to the Parrish case, the Court was expected to continue in the Lochner tradition and strike down the California law. However, one member of the Court, Justice Roberts, unexpectedly ruled against the hotel, leading to the 5-4 decision. Afterwards FDR dropped his Court-packing scheme. While some historians aren’t certain how related those two events are, this case has been called the “switch in time that saved nine.” Since this case, many rulings have come down against economic freedom based on this precedent.

Wickard v. Filburn (1942)

In 1938, the federal government passed a law restricting the acreage farmers could allot to wheat. This restriction on economic freedom was meant to stabilize the price of wheat by reducing its supply. Farmer Roscoe Filburn ignored the law and planted more than he was allowed, but the Department of Agriculture came after him. Filburn argued that these limitations were in his case unconstitutional because the extra wheat he produced was for personal consumption and was not even intended for intra-state commerce, let alone inter-state commerce, therefore the Constitution’s commerce clause did not apply. In one of the most egregious cases the Court ever decided, the justices found that Filburn could not grow the extra wheat even for personal consumption. Their reasoning was that even though Filburn’s wheat was for personal consumption, it indirectly affected interstate commerce, which meant there were sufficient grounds for the federal government to step in.

This ruling meant that there were very few limits to what the federal government could do under the commerce clause. This state of affairs wouldn’t be seriously challenged for more than 50 years, but the 1995 case of United States v. Lopez did place some more reasonable restrictions on Congress’ use of the commerce clause.

Kelo v. City of New London (2005)

Not all of the cases infringing on economic freedom are more than a half century old. One of the worst cases came less than a decade ago.

In 1998, the city of New London, Connecticut, used eminent domain to take land from private citizens and give it to private developers on the basis that the new developments would create jobs and increase tax revenues. Susette Kelo, one of the citizens who had her land taken away, joined with others and sued the city, arguing that its actions violated their rights under the Fifth Amendment’s takings clause. That clause reads “nor shall private property be taken for public use, without just compensation.”

Kelo et al. argued that the private developers’ purpose was not “public use.” Surprisingly, the Supreme Court didn’t agree, holding that the concept of public included private development as long as there was some benefit to the broader community. This ruling places in jeopardy the entire concept of private property and allows the state to use eminent domain frivolously. Even worse, Susette Kelo’s property was taken from her, but never even developed. It is now a dump site for storm debris.

Fortunately, 43 states took notice of this case and its harm to economic freedom and enacted legislation to prevent this type of abuse from happening again.

Conclusion

The Supreme Court has a mixed history of protecting economic freedom. From the Slaughterhouse Cases to Wickard v. Fillburn to Kelo v. City of New London, the Court has all too often allowed states to take away people’s freedoms through legislation, regulation, or eminent domain. While there are a few exceptions, such as the Lochner Era, our Court has generally given free rein to the other branches of our government to restrict economic freedom.

A version of this blog originally appeared on EconomicFreedom.org, a project of the Charles Koch Institute. The Institute republished it here on July 31, 2015.

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