FOOTNOTES:
[7] The following brief chronology of inventions illustrates the rapidity in the technical changes in the new industrial development:
1875—Bell's telephone in operation between Boston and Salem.
1879—Brush arc street lighting system installed in San Francisco.
1882—Edison's plant for incandescent lighting opened in New York City.
1882—Edison's electric street car operated at Menlo Park, New Jersey.
1885—Electric street railways in operation at Richmond, Virginia, and Baltimore.
[8] For the keenest analysis of this social transformation, see Veblen, Theory of the Leisure Class and Theory of Business Enterprise.
[9] See below, Chaps. VI and VII.
[10] See below, p. 234.
[11] Youngman, The Economic Causes of Great Fortunes, p. 75.
[12] By an act passed in August, 1912, Congress provided a territorial legislature for Alaska, which had been governed up to that time by a governor appointed by the President and Senate, under acts of Congress.
CHAPTER III
THE REVOLUTION IN POLITICS AND LAW
The economic revolution that followed the War, the swift and potent upswing of capitalism, and the shifting of political power from the South to the North made their impress upon every branch of the Federal Government. Senators of the old school, Clay, Webster, Calhoun, Roger Baldwin, John P. Hale, James Mason, and Jefferson Davis were succeeded by the apostles of the new order: Roscoe Conkling and Thomas Platt, James Donald Cameron, Leland Stanford, George Hearst, Arthur P. Gorman, William D. Washburn, John R. McPherson, Henry B. Payne, Matthew S. Quay, Philetus Sawyer, John H. Mitchell, and James G. Blaine. The new Senate was composed of men of affairs—practical men, who organized gigantic enterprises, secured possession of natural resources and franchises, collected and applied capital on a large scale to new business undertakings, built railways, established cities with the advancing line of the western frontier—or represented such men as counsel in the courts of law.
Not many of them were great orators or widely known as profound students of politics in its historical and comparative aspects. A few, like Blaine, Hoar, and Conkling, studied the classic oratory of the older generation and sought to apply to the controverted issues of the hour that studious, orderly, and sustained eloquence which had adorned the debates of earlier years; but the major portion cultivated only the arts of management and negotiation. Few of them seem to have given any thought to the lessons to be learned from European politics. On the contrary, they apparently joined with the multitude in the assumption that we had everything to teach Europe and nothing to learn. Bismarck was to them, if we may judge from their spoken words, simply a great politician and the hero of a war; the writings of German economists, Wagner and Schmoller, appear never to have penetrated their studies. That they foresaw in the seventies and eighties the turn that politics was destined to take is nowhere evident. They commanded respect and admiration for their practical achievements; but it is questionable whether the names of more than two or three will be known a century hence, save to the antiquarian.
Of this group, Roscoe Conkling was undoubtedly typical, just as Marcus A. Hanna represented the dominant politicians of a later time. He was an able lawyer and an orator of some quality, but of no permanent fame. He took his seat in the Senate in 1867 and according to his biographer "during the remainder of his life his legal practice was chiefly connected with corporations that were litigants in the district and circuit courts of the United States,"[13]—the judges of which courts he was, as Senator, instrumental in appointing. His practice was lucrative for his day, amounting to some $50,000 a year.[14] He counted among his clients the first great capitalists of the country. When he was forced to retire from New York politics, "the first person who came to see him on business was Mr. Jay Gould, who waited upon him early one morning at his hotel."[15] He was counsel for Mr. Collis P. Huntington in his contest against the state legislation which railway interests deemed unjust and unconstitutional.[16] He was among the keen group of legal thinkers who invoked and extended the principle of the Fourteenth Amendment to cover all the varieties of legislation affecting corporate interests adversely.[17]
Criticism of the Republican party, and particularly of the policies for which he stood, Mr. Conkling regarded as little short of treason. For example, when Mr. George William Curtis, in the New York state convention of 1877, sought to endorse the administration of President Hayes, whose independence in office had been troublesome to Mr. Conkling, the latter returned in a passionate attack on the whole party of opposition: "Who are these men who in newspapers and elsewhere are 'cracking their whips' over Republicans and playing schoolmaster to the Republican party and its conscience and convictions. They are of various sorts and conditions. Some of them are the man-milliners, the dilettanti and carpet knights of politics, men whose efforts have been expended in denouncing and ridiculing and accusing honest men.... Some of these worthies masquerade as reformers and their vocation and ministry is to lament the sins of other people. Their stock in trade is rancid, canting self-righteousness. They are wolves in sheep's clothing. Their real object is office and plunder. When Dr. Johnson defined patriotism as the last refuge of a scoundrel, he was then unconscious of the then undeveloped capabilities of the word 'reform.'"[18]
The political philosophy of this notable group of political leaders was that of their contemporaries in England, the Cobden-Bright school. They believed in the widest possible extension of the principle of private property, and the narrowest possible restriction of state interference, except to aid private property to increase its gains. They held that all of the natural resources of the country should be transferred to private hands as speedily as possible, at a nominal charge, or no charge at all, and developed with dashing rapidity. They also believed that the great intangible social property created by community life, such as franchises for street railways, gas, and electricity, should be transformed into private property. They supplemented their philosophy of property by a philosophy of law and politics, which looked upon state interference, except to preserve order, and aid railways and manufacturers in their enterprises, as an intrinsic evil to be resisted at every point, and they developed a system of jurisprudence which, as Senators having the confirming power in appointments and as counsel for corporations before the courts of the United States, they succeeded in transforming into judicial decisions. Some of them were doubtless corrupt, as was constantly charged, but the real explanation of their resistance to government intervention is to be found in their philosophy, which, although consonant with their private interests, they identified with public good.
Writing Laissez Faire into the Constitution
Inasmuch as the attacks on private rights in property, franchises, and corporate privileges came principally from the state legislatures, it was necessary to find some way to subject them to legal control—some juristic process for translating laissez faire into a real restraining force. These leading statesmen and lawyers were not long in finding the way. The Federal courts were obviously the proper instrumentalities, and the broad restrictions laid upon the states by the Fourteenth Amendment no less obviously afforded the constitutional foundation for the science of legislative nihilism. "No state," ran the significant words of that Amendment, "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 life, liberty, or property without due process of law; nor deny to any person within its jurisdiction the equal protection of the laws."
What unseen implications lay within these phrases the most penetrating thinkers divined at once. Protest was made by the New Jersey legislature against the Fourteenth Amendment in 1866 on the ground that it would destroy all the essential rights of a state to control its internal affairs; and such opinion was widespread. But the most common view was to the effect that the Amendment would be used principally to surround the newly emancipated slaves with safeguards against their former masters who might be tempted to restore serfdom under apprentice and penal laws and other legal guises. Still there is plenty of evidence to show that those who framed the Fourteenth Amendment and pushed it through Congress had in mind a far wider purpose—that of providing a general restraining clause for state legislatures.
The problem of how best to check the assaults of state legislatures on vested rights was not new when the Fourteenth Amendment was adopted. On the contrary, it was one of the first concerns of the Convention of 1787 which drafted the original Constitution of the United States, and it was thought by the framers that security had been attained by forbidding states to emit bills of credit and make laws impairing the obligation of contract. Under Chief Justice Marshall, these clauses were so generously interpreted as to repel almost any attack which a state legislature might make on acquired rights. However, in the closing years of Marshall's service, the Supreme Court, then passing into the hands of states' rights justices, rendered an opinion in the case of Ogden v. Saunders, which clearly held that the contract clause did not prevent the legislature from stipulating that future contracts might be practically at its mercy. When a legislature provides by general law that all charters of corporations are subject to repeal and alteration, such provision becomes a part of all new contracts. Marshall delivered in this case a vigorous and cogent dissenting opinion in which he pointed out that the decision had in effect destroyed the virtue of the obligation of contract clause.
The case of Ogden v. Saunders was decided in 1827. Between that year and the Civil War the beginnings of corporate enterprise were securely laid in the United States; and the legislatures of the several states began the regulation of corporations from one motive or another, sometimes for the purpose of blackmailing them and sometimes for the laudable purpose of protecting public interests. At all events, large propertied concerns began to feel that they could not have a free hand in developing their enterprises or enjoy any genuine security unless the legislatures of the states were, by some constitutional provision, brought again under strict Federal judicial control.
The opportunity to secure this judicial control was afforded during the Civil War when the radical Republicans were demanding Federal protection for the newly emancipated slaves of the South. The drastic legislation relative to negroes adopted by the southern states at the close of the War showed that even in spite of the Thirteenth Amendment a substantial bondage could be reëstablished under the color of criminal, apprentice, and vagrant legislation. The friends of the negroes, therefore, determined to put the substantial rights of life, liberty, and property beyond the interference of state legislatures forever, and secure to all persons the equal protection of the law.
Accordingly, the Fourteenth Amendment was adopted, enunciating the broad legal and political doctrine that no state "shall abridge the privileges or immunity of citizens of the United States; nor shall any state deprive any person of life, liberty, or property without due process of law; nor deny to any person within its jurisdiction the equal protection of the law."
Here was a restriction laid upon state legislatures which might be substantially limitless in its application, in the hands of a judiciary wishing to place the broadest possible interpretation upon it. What are privileges and immunities? What are life, liberty, and property? What is due process of law? What is the equal protection of the law? Does the term "person" include not only natural persons but also artificial persons, namely, corporations? That the reconstruction committee of Congress which framed the instrument intended to include within the scope of this generous provision not only the negro struggling upward from bondage, but also corporations and business interests struggling for emancipation from legislative interference, has been often asserted. In arguing before the Supreme Court in the San Matteo County case, on December 19, 1882, Mr. Roscoe Conkling, who had been a member of the committee which drafted the Fourteenth Amendment, unfolded for the first time the deep purpose of the committee, and showed from the journal of that committee that it was not their intention to confine the amendment merely to the protection of the colored race. In the course of his argument, Mr. Conkling remarked, "At the time the Fourteenth Amendment was ratified, as the records of the two Houses will show, individuals and joint-stock companies were appealing for congressional and administrative protection against invidious and discriminating state and local taxes. One instance was that of an express company, whose stock was owned largely by citizens of the State of New York, who came with petitions and bills seeking Acts of Congress to aid them in resisting what they deemed oppressive taxation in two states, and oppressive and ruinous rules of damages applied under state laws. That complaints of oppression in respect of property and other rights, made by citizens of Northern States who took up residence in the South, were rife, in and out of Congress, none of us can forget; that complaints of oppression in various forms, of white men in the South,—of 'Union men,'—were heard on every side, I need not remind the Court. The war and its results, the condition of the freedmen, and the manifest duty owed to them, no doubt brought on the occasion for constitutional amendment; but when the occasion came and men set themselves to the task, the accumulated evils falling within the purview of the work were the surrounding circumstances, in the light of which they strove to increase and strengthen the safeguards of the Constitution and laws."[19]
In spite of important testimony to the effect that those who drafted the Fourteenth Amendment really intended "to nationalize liberty," that is laissez faire, against state legislatures, the Supreme Court at first refused to accept this broad interpretation, and it was not until after several of the judges of the old states' rights school had been replaced by judges of the new school that the claims of Mr. Conkling's group as to the Fourteenth Amendment were embodied in copious judicial decisions.
The Slaughter-House Cases
The first judicial interpretation of the significant phrases of the Fourteenth Amendment which were afterward to be the basis of judicial control over state economic legislation of every kind was made by the Supreme Court in the Slaughter-House cases in 1873—five years after that Amendment had been formally ratified. These particular cases, it is interesting to note, like practically all other important cases arising under the Fourteenth Amendment, had no relation whatever to the newly emancipated slaves; but, on the contrary, dealt with the regulation of business enterprises.
In 1869, the legislature of Louisiana passed an act designed to protect the health of the people of New Orleans and certain other parishes. This act created a corporation for the purpose of slaughtering animals within that city, forbade the establishment of any other slaughterhouses or abattoirs within the municipality, and conferred the sole and exclusive privilege of conducting the live-stock landing and slaughterhouse business, under the limitations of the act, upon the company thus created. The company, however, was required by the law to permit any persons who wished to do so to slaughter in its houses and to make full provision for all such slaughtering at a reasonable compensation. This drastic measure, the report of the case states, was denounced "not only as creating a monopoly and conferring odious and exclusive privileges upon a small number of persons at the expense of the great body of the community of New Orleans, but ... it deprives a large and meritorious class of citizens—the whole of the butchers of the city—of the right to exercise their trade, the business to which they have been trained and on which they depend for the support of themselves and their families."
The opinion of the court was rendered by Mr. Justice Miller. The Justice opened by making a few remarks upon the "police power," in the course of which he said that the regulation of slaughtering fell within the borders of that mysterious domain and without doubt constituted one of the powers enjoyed by all states previous to the adoption of the Civil War amendments. After commenting upon the great responsibility devolved upon the Court in construing the Thirteenth and Fourteenth amendments and remarking on the careful deliberation with which the judges had arrived at their conclusions, Justice Miller then turned to an examination of the historical purpose which underlay the adoption of the amendments in question. After his recapitulation of recent events, he concluded: "On the most casual examination of the language of these amendments, no one can fail to be impressed with the one pervading purpose found in them all, lying at the foundation of each, and without which none of them would have been even suggested; we mean the freedom of the slave race, the security and firm establishment of that freedom, and the protection of the newly-made freeman and citizen from the oppression of those who had formerly exercised unlimited dominion over him. It is true that only the Fifteenth Amendment, in terms, mentions the negro by speaking of his color and his slavery. But it is just as true that each of the other articles was addressed to the grievances of that race and designed to remedy them as the Fifteenth. We do not say that no one else but the negro can share in this protection. Both the language and spirit of these articles are to have their fair and just weight in any question of construction.... What we do wish to say and what we wish to be understood as saying is, that in any fair and just construction of any section or phrase of these amendments, it is necessary to look to the purpose, which as we have said was the pervading spirit of them all, the evil which they were designed to remedy, and the process of continued addition to the Constitution until that purpose was supposed to be accomplished as far as constitutional law can accomplish it."
Justice Miller dismissed with a tone of impatience the idea of the counsel for the plaintiffs in error that the Louisiana statute in question imposed an "involuntary servitude" forbidden by the Thirteenth Amendment. "To withdraw the mind," he said, "from the contemplation of this grand yet simple declaration of the personal freedom of all the human race within the jurisdiction of this government—a declaration designed to establish the freedom of four million slaves—and with a microscopic search endeavor to find it in reference to servitudes which may have been attached to property in certain localities, requires an effort, to say the least of it."
In Justice Miller's long opinion there is no hint of that larger and more comprehensive purpose entertained by the framers of the Fourteenth Amendment which was asserted by Mr. Conkling a few years later in his argument before the Supreme Court. If he was aware that the framers had in mind not only the protection of the freedmen in their newly won rights, but also the defense of corporations and business enterprises generally against state legislation, he gave no indication of the fact. There is nowhere in his opinion any sign that he saw the broad economic implications of the Amendment which he was expounding for the first time in the name of the Court. On the contrary, his language and the opinion reached in the case show that the judges were either not cognizant of the new economic and political duty placed upon them, or, in memory of the states' rights traditions which they had entertained, were unwilling to apply the Thirteenth and Fourteenth amendments in such a manner as narrowly to restrict the legislative power of a commonwealth.
In taking up that clause of the Fourteenth Amendment which provides that no state shall make or enforce any law abridging the privileges or immunities of citizens of the United States, Justice Miller declared that it was not the purpose of that provision to transfer the security and protection of all fundamental civil rights from the state government to the Federal Government. A citizen of the United States as such, he said, has certain privileges and immunities, and it was these and these only which the Fourteenth Amendment contemplated. He enumerated some of them: the right of the citizen to come to the seat of government, to assert any claim he may have upon that government, to transact any business he may have with it, to seek its protection, share its offices, engage in administering its functions, to have free access to its seaports, subtreasuries, land offices, and courts of justice, to use the navigable waters of the United States, to assemble peaceably with his fellow citizens and petition for redress of grievances, and to enjoy the privileges of the writ of habeas corpus. It was rights of this character, the learned justice argued, and not all the fundamental rights of person and property which had been acquired in the evolution of Anglo-Saxon jurisprudence, that were placed by the Fourteenth Amendment under the protection of the Federal Government.
Within this view, all the ordinary civil rights enjoyed by citizens were still within the control of the organs of the state government and not within Federal protection at all. If the privileges and immunities, brought within the protection of the Federal Government by the Fourteenth Amendment, were intended to embrace the whole domain of personal and property rights, then, contended the justice, the Supreme Court would be constituted "a perpetual censor upon all legislation of the states, on the civil rights of their own citizens, with authority to nullify such as it did not approve as consistent with those rights as they existed at the time of the adoption of this Amendment.... We are convinced that no such results were intended by the Congress which proposed these amendments nor by the legislatures which ratified them."
In two short paragraphs, Justice Miller disposed of the contention of the plaintiffs in error to the effect that the Louisiana statute deprived the plaintiffs of their property without due process of law. He remarked that inasmuch as the phraseology of this clause was also to be found in the Fifth Amendment and in some form in the constitutions of nearly all of the states, it had received satisfactory judicial interpretation; "and it is sufficient to say," he concluded on this point, "that under no construction of that provision that we have ever seen or any that we deem admissible, can the restraint imposed by the state of Louisiana upon the exercise of their trade by the butchers of New Orleans be held to be a deprivation of private property within the meaning of that provision."
Coming now to that clause requiring every state to give all persons within its jurisdiction equal protection of the laws, Justice Miller indulged in the false prophecy: "We doubt very much whether any action of a state not directed by way of discrimination against the negroes as a class or on account of their race will ever be held to come within the purview of this provision." An emergency might arise, he admitted, but he found no such a one in the case before him.
Concluding his opinion, he expressed the view that the American Federal system had come out of the Civil War with its main features unchanged, and that it was the duty of the Supreme Court then as always to hold with a steady and an even hand the balance between state and Federal power. "Under the pressure of all the excited feeling growing out of the War," he remarked, "our statesmen have still believed that the existence of the states with powers for domestic and local government, including the regulation of civil rights—the rights of person and property—was essential to the perfect working of our complex form of government, though they have thought proper to impose additional limitations upon the states and to confer additional power on that of the nation."
Under this strict interpretation of the Thirteenth and Fourteenth amendments, all the fundamental rights of persons and property remained subject to the state governments substantially in the same way as before the Civil War. The Supreme Court thus could not become the final arbiter and control the social and economic legislation of states at every point. Those champions of the amendments who looked to them to establish Federal judicial supremacy for the defense of corporations and business enterprises everywhere throughout the American empire were sadly disappointed.
Nowhere was that disappointment more effectively and more cogently stated than in the opinions of the judges who dissented from the doctrines announced by the majority of the court. Chief Justice Chase and Justices Field, Bradley, and Swayne refused to accept the interpretation and the conclusions reached by the majority, and the last three judges wrote separate opinions of their own expressing their grounds for dissenting. The first of these, Justice Field, contended that the Louisiana statute in question could not legitimately come under the police power and was in violation of the Fourteenth Amendment, inasmuch as it denied to citizens of the United States the fundamental rights which belonged to citizens of all free governments—protection against monopolies and equality of rights in the pursuit of the ordinary avocations of life. In his opinion, the privileges and immunities put under the supervision of the Federal Government by the Fourteenth Amendment comprised generally "protection by the government, the enjoyment of life and liberty, with the right to acquire and possess property of every kind, and to pursue and obtain happiness and safety, subject, nevertheless, to such restraint as the government may justly prescribe for the general good of the whole." In other words, Justice Field would have carried the Amendment beyond the specific enumeration of any definitely ascertained legal rights into the field of moral law, which, in final analysis, would have meant the subjection of the state legislation solely to the discretion of the judicial conscience. The future, as we shall see, was with Justice Field.
In the opinion of Justice Bradley, the Louisiana statute not only deprived persons of the equal protection of the laws, but also of liberty and property—the right of choosing, in the adoption of lawful employments, being a portion of their liberty, and their occupation being their property. In the opinion of Mr. Justice Swayne, who dissented also, the word liberty as used in the Fourteenth Amendment embodied freedom from all restraints except such as were "justly" imposed by law. In his view, property included everything that had an exchange value, including labor, and the right to make property available was next in importance to the rights of life and liberty.
The Granger Cases
Three years after the decision in the Slaughter-House cases, the Supreme Court again refused to interpret the Fourteenth Amendment so broadly as to hold unconstitutional a state statute regulating business undertakings. This case, Munn v. Illinois, decided in 1876, involved the validity of a statute passed under the constitution of that state, which declared all elevators where grain was stored to be public warehouses and subjected them to strict regulation, including the establishment of fixed maximum charges. It was contended by the plaintiffs in error, Munn and Scott, that the statute violated the Fourteenth Amendment in two respects: (1) that the business attempted to be regulated was not a public calling and was, therefore, totally outside of the regulatory or police power of the state; and (2) that even if the business was conceded to be public in character, and therefore by the rule of the common law was permitted to exact only "reasonable" charges for its services, nevertheless the determination of what was reasonable belonged to the judicial branch of the government and could not be made by the legislature without violating the principle of "due process."
Both of these contentions were rejected by the Court, and the constitutionality of the Illinois statute was upheld. The opinion of the Court was written by Chief Justice Waite, who undertook an elaborate examination of the "due process" clause of the Fourteenth Amendment. The principle of this Amendment, he said, though new in the Constitution of the United States, is as old as civilized government itself; it is found in Magna Carta in substance if not in form, in nearly all of the state constitutions, and in the Fifth Amendment to the Federal Constitution. In order to ascertain, therefore, what power legislatures enjoyed under the new amendment, it was only necessary to inquire into the limitations which had been historically imposed under the due process clause in England and the United States; and after an examination of some cases in point the Chief Justice came to the conclusion that "down to the time of the adoption of the Fourteenth Amendment it was not supposed that statutes regulating the use or even the price of the use of private property necessarily deprived an owner of his property without due process of law." When private property "is affected with public interest" and is used in a manner to make it of public consequence, the public is in fact granted an interest in that use, and the owner of the property in question "must submit to be controlled by the public for the common good, to the extent of the interest he has thus created."
But it was insisted on behalf of the plaintiffs that the owner of property is entitled to a reasonable compensation for its use even when it is clothed with the public interest, and that the determination of what is reasonable is a judicial, not a legislative, matter. To this Chief Justice Waite replied that the usual practice had been otherwise. "In countries where the common law prevails," he said, "it has been customary from time immemorial for the legislature to declare what shall be a reasonable compensation under such circumstances, or perhaps more properly speaking to fix a maximum beyond which any charge made would be unreasonable.... The controlling fact is the power to regulate at all. If that exists, the right to establish the maximum of charge as one of the means of regulation is implied. In fact, the common law rule which requires the charge to be reasonable is itself a regulation as to price.... To limit the rate of charge for services rendered in a public employment, or for the use of property in which the public has an interest, is only changing a regulation which existed before. It establishes no new principle in the law, but only gives a new effect to an old one. We know that this is a power which may be abused; but that is no argument against its existence. For protection against abuses by legislatures the people must resort to the polls, not to the courts."[20]
The principle involved in the Munn case also came up in the same year (1876) in Peik v. Chicago and Northwestern Railroad Company, in which Chief Justice Waite, speaking of an act of Wisconsin limiting passenger and freight charges on railroads in the state, said: "As to the claim that the courts must decide what is reasonable and not the legislature, this is not new to this case. It has been fully considered in Munn v. Illinois. Where property has been clothed with a public interest, the legislature may fix a limit to that which shall be in law reasonable for its use. This limit binds the courts as well as the people. If it has been improperly fixed, the legislature, not the courts, must be appealed to for the change."
The total results of the several Granger cases, decided in 1876, may be summed up as follows:
(1) That the regulatory power of the state over "public callings" is not limited to those businesses over which it was exercised at common law, but extends to any business in which, because of its necessary character and the possibilities for extortion afforded by monopolistic control, the public has an interest.
(2) That such regulatory power will not be presumed to have been contracted away by any legislature, unless such intention is unequivocally expressed.
(3) That the exercise of such regulatory power belongs to the legislature, and not to the judiciary.
(4) And the dictum that the judiciary can grant no relief from an unjust exercise of this regulatory power by the legislature.
Although the denial of the right of the judiciary to review the "reasonableness" of a rate fixed by the legislature in the Granger cases had been dictum, a case was not long arising in which the issue was squarely raised. Had this case gone to the Supreme Court, the question of judicial review would have been decided a full decade or more before it really was. In this case, the Tilley case, a bondholder of a railroad operating in Georgia sought to restrain the railroad from putting into force a tariff fixed by the state railroad commission, on the ground that it was so unreasonably low as to be confiscatory. Judge Woods, of the Federal circuit court, refused to grant the injunction, basing his decision squarely upon the dictum in Munn v. Illinois, and declaring that the railroad must seek relief from unjust action on the part of the commission at the hands of the legislature or of the people.
It was not till seven years after the Granger cases that another case involving rate regulation was presented to the Federal courts.[21] The Ruggles case, brought to the Supreme Court by writ of error to the supreme court of Illinois, in 1883, involved a conviction of one of the agents of the Illinois Central Railway for violating a maximum passenger fare statute of that state, and raised substantially the same question as all of the Granger cases except the Munn case—the right of the legislature to regulate the rates of a railroad which was itself empowered by its charter to fix its own rates. The Court affirmed the doctrine of the Granger cases, Chief Justice Waite again writing the opinion. The case is noteworthy only for the opinion of Justice Harlan, concurring in the judgment, but dissenting from the opinion, of the Court, in so far as that opinion expressed, as he declared, the doctrine that the legislature of Illinois could regulate the rates of the railway concerned, in any manner it saw fit. Justice Harlan argued that inasmuch as the charter of the railroad had conferred upon it the right to demand "reasonable" charges, the legislature, when it resumed the power of fixing charges, was estopped from fixing less than "reasonable" charges; and should charges lower than "reasonable" be fixed, it would be within the province of the judicial branch to give relief against such an impairment of the obligation of contract.
Justice Harlan's opinion is interesting not only because it touches upon the possibility of a judicial review of the rate fixed by the legislature; but because the learned Justice bases his contention on the contract between the railroad and the state to the effect that rates should be "reasonable." This indicates plainly that not even in the mind of Justice Harlan, who later became the firm exponent of the power of judicial review, was there any clear belief that the Fourteenth Amendment as such gave the Court any power to review the "reasonableness" of a rate fixed by the legislature. In other words, he derived his doctrine of judicial review from the power of the Federal judiciary to enforce the obligation of contracts, and not from its power to compel "due process of law."
It is impossible to trace here the numerous decisions following the Ruggles case in which the Supreme Court was called upon to consider the power of state legislatures to control and regulate corporations, particularly railways. It is impossible also to follow out all of the fine and subtle distinctions by which the dictum of Chief Justice Waite, in the Munn case, to the effect that private parties must appeal to the people, and not to the courts, for protection against state legislatures, was supplanted by the firm interpretation of the Fourteenth Amendment in such a manner as to confer upon the courts the final power to review all state legislation regulating the use of property and labor. Of course we do not have, in fact, this clear-cut reversal of opinion by the Court, but rather a slow working out of the doctrine of judicial review as opposed to an implication that the Court could not grant to corporations the relief from legislative interference which they sought. There are but few clear-cut reversals in law; but the political effect of the Court's decisions has been none the less clear and positive.
The Minnesota Rate Case
It seems desirable, however, to indicate some of the leading steps by which the Court moved from the doctrine of non-interference with state legislatures to the doctrine that it is charged with the high duty of reviewing all and every kind of economic legislation by the states. One of the leading cases in this momentous transition is that of the Chicago, Milwaukee, and St. Paul Railway Company v. Minnesota, decided in 1889, which made a heavy contribution to the doctrine of judicial review of questions of political economy as well as law. This case involved the validity of a Minnesota law which conferred upon a state railway commission the power to fix "reasonable" rates. The commission, acting under this authority, had fixed a rate on the transportation of milk between two points.
The railroad having refused to put the rate into effect, the commission applied to the supreme court of the state for a writ of mandamus. In its answer the railroad claimed, among other contentions, that the rate fixed was unreasonably low. The supreme court of the state refused to listen to this contention, saying that the statute by its terms made the order of the commission conclusively reasonable; accordingly it issued the mandamus. By writ of error, the case was brought to the Supreme Court of the United States, which, by a vote of six to three, ordered the decree of the state court vacated, on the ground that the statute as construed by the supreme court of the state was unconstitutional, as a deprivation of property without due process of law.
The opinion of the Court, written by Justice Blatchford, has frequently been interpreted to hold, and was indeed interpreted by the dissenting minority to hold, that the judiciary must, to satisfy the requirements of "due process," have the power of final review over the reasonableness of all rates, however fixed. It is doubtful whether the language of the opinion sustains this reading; but the strong emphasis on the place of the judiciary in determining the reasonableness of rates lent color to the contention that Mr. Justice Blatchford was setting up "judicial supremacy." In the course of his opinion, he said: "The question of the reasonableness of a rate of charge for transportation by a railroad company, involving as it does the element of reasonableness both as regards the company and as regards the public, is eminently a question for judicial investigation requiring due process of law for its determination. If the company is deprived of the power of charging reasonable rates for the use of its property, and such deprivation takes place in the absence of an investigation by judicial machinery, it is deprived of the lawful use of its property, and thus in substance and effect, of the property itself without due process of law and in violation of the Constitution of the United States."
The dissenting members of the Court in this case certainly saw in Justice Blatchford's opinion an assertion of the doctrine that whatever the nature of the commission established by law or the form of procedure adopted, the determination of rates was subject to review by a strictly judicial tribunal. In his dissent, Mr. Justice Bradley declared that the decision had practically overruled Munn v. Illinois and the other Granger cases. "The governing principle of those cases," he said, "was that the regulation and settlement of the affairs of railways and other public accommodations is a legislative prerogative and not a judicial one.... The legislature has the right, and it is its prerogative, if it chooses to exercise it, to declare what is reasonable. This is just where I differ from the majority of the Court. They say in effect, if not in terms, that the final tribunal of arbitrament is the judiciary; I say it is the legislature. I hold that it is a legislative question, not a judicial one, unless the legislature or the law (which is the same thing) has made it judicial by prescribing the rule that the charges shall be reasonable and leaving it there. It is always a delicate thing for the courts to make an issue with the legislative department of the government, and they should never do it, if it is possible to avoid it. By the decision now made we declare, in effect, that the judiciary, and not the legislature, is the final arbiter in the regulation of fares and freights of railroads and the charges of other public accommodations. It is an assumption of authority on the part of the judiciary which, it seems to me, with a due reverence to the judgment of my brethren, it has no right to make.... Deprivation of property by mere arbitrary power on the part of the legislature or fraud on the part of the commission are the only grounds on which judicial relief may be sought against their action. There was in truth no deprivation of property in these cases at all.... It may be that our legislatures are invested with too much power, open as they are to influences so dangerous to the interests of individuals, corporations, and societies. But such is the Constitution of our republican form of government, and we are bound to abide by it until it can be corrected in a legitimate way."
The Development of Judicial Review
A further step toward judicial review even still more significant was taken, in the case of Reagan v. Farmers' Loan and Trust Company, decided by the Supreme Court in 1894. This case came up from the Federal circuit court of Texas which had enjoined the state railway commissioners from fixing and putting into effect railway rates which the Trust Company, as a bondholder and interested party, contended were too low, although not confiscatory.
The opinion of the Court, written by Justice Brewer, who, as Federal circuit judge, had already taken advanced ground in favor of judicial review, went the whole length in upholding the right of the judiciary to review the reasonableness, not only of a rate fixed by a commission, as in the case in hand, but even of one fixed by the legislature. The case differed in no essential way, declared the justice, from those cases in which it had been the age-long practice of the judiciary to act as final arbiters of reasonableness—cases in which a charge exacted by a common carrier was attacked by a shipper or passenger as unreasonable. The difference between the two cases was merely that in the one the rate alleged to be unreasonable was fixed by the carrier; in the other it was fixed by the commission or by the legislature. In support of this remarkable bit of legal reasoning, the opinion adduced as precedents merely a few brief excerpts, from previous decisions of the Court, nearly all of which were pure dicta.
The absence of any dissent from this opinion, in spite of the fact that Judge Gray, who had concurred in Justice Bradley's vigorous dissenting opinion in the Chicago-Minnesota case four years before, was still on the bench, indicates that the last lingering opposition to the doctrine of judicial review in the minds of any of the Court had been dissolved. Henceforth it was but the emphatic affirmation and consistent development of that doctrine that was to be expected.
If we leave out of account Mr. Justice Brewer's dicta and consider the Court to have decided merely the issues squarely presented, the Reagan case left much to be done before the doctrine of judicial review could be regarded as established beyond all possibility of limitation and serious qualification. Other cases on the point followed quickly, but it was not until the celebrated case of Smyth v. Ames, decided in 1898, that the two leading issues were fairly presented and settled. In this case the rate attacked was not fixed by a commission, but by a state legislature itself; and the rate was not admitted by the counsel for the state to be unreasonable, but was strongly defended as wholly reasonable and just. The Court had to meet the issues.
The original action in the case of Smyth v. Ames was a bill in equity brought against the attorney-general and the Nebraska state board of transportation, in the Federal circuit court, by certain bondholders of the railroads affected, to restrain the enforcement of the statute of that state providing a comprehensive schedule of freight rates. The bills alleged, and attempted to demonstrate by elaborate calculations, that the rates fixed were confiscatory, inasmuch as a proportionate reduction on all the rates of the railroads affected by them would so reduce the income of the companies as to make it impossible for them to pay any dividends; and in the case of some of them, even to meet all their bonded obligations. On behalf of the state, it was urged that the reduction in rates would increase business, and, therefore, increase net earnings, and that some at least of the companies were bonded far in excess of their actual value. Supreme Court Justice Brewer, sitting in circuit, on the basis of the evidence submitted to him, consisting mainly of statements of operating expenses, gross receipts, and inter- and intra-state tonnage, found the contention of the railroads well taken, and issued the injunctions applied for.
The opinion of the Supreme Court, affirming the decree of Judge Brewer, was, in the essential part of it—that asserting the principle of judicial review in its broadest terms—singularly brief. Contenting himself with citing a few short dicta from previous decisions, Justice Harlan, speaking for the Court, declared that the principle "must be regarded as settled" that the reasonableness of a rate could not be so conclusively determined by a legislature as to escape review by the judiciary. Equally well settled, it was declared, was the principle that property affected with a public interest was entitled to a "fair return" on its "fair" valuation. These principles regarded as established, the Court proceeded to examine the evidence, although it admitted that it lacked the technical knowledge necessary to a completely equitable decision; and sustained the finding of the lower court in favor of the railroads. There was no dissent.
With Smyth v. Ames the doctrine of judicial review may be regarded as fully established. No portion of the judicial prerogative could now be surrendered without not merely "distinguishing" but flatly overruling a unanimous decision of the Court.
The significance of Smyth v. Ames was soon observable in the activities of the lower Federal courts. Within the nine months of 1898 that followed that decision, there were at least four applications for injunctions against alleged unreasonable rates, and in three of these cases the applications were granted. During the years that followed Smyth v. Ames, Federal courts all over the country were tying the hands of state officers who attempted to put into effect legislative measures regulating railway concerns. In Arkansas, Florida, Alabama, Minnesota, Missouri, Illinois, North Carolina, Louisiana, and Oregon, rates fixed by statute, commission, or ordinance were attacked by the railways in the Federal courts and their enforcement blocked. In several instances the injunctions of the lower courts were made permanent, and no appeal was taken to the Supreme Court of the United States. With Smyth v. Ames staring them in the face, state attorneys accepted the inevitable.
The decision in Smyth v. Ames left still one matter in doubt. The allegation of the railroads in that case had been that the rates fixed were actually confiscatory—that is, so low as to make dividends impossible. In the course of his opinion, Justice Harlan had stated, however, that the railroads were entitled to a "fair return," an opinion that had been expressed also in the Reagan case, where indeed it had been necessary to the decision, and still earlier, but with little relevancy, in the Chicago-Minnesota case. In none of these cases, however, had any precise definition of the terms "reasonable" or "fair" return been necessary, and none had been made.
The first direct suggestion of the development of the judicial reasoning on this point that was to take place is found in the Milwaukee Electric Railway case, also decided in 1898. In that case Judge Seaman, of the Federal circuit court, found from the evidence that the dividends of the street railway company for several years past had been from 3.3 to 4.5 per cent, while its bonds bore interest at 5 per cent. Anything less than these returns, the judge declared, would be unreasonable, inasmuch as money loaned on real estate, secured by a first mortgage, was at that time commanding 6 per cent in Milwaukee.
Eleven years later, in 1909, the Supreme Court sustained virtually the same rule in the New York Consolidated Gas case, holding, with the lower court, that the company was entitled to six per cent return on a fair value of its property (including franchises and the high values of the real estate used by it in the business), because six per cent was the "customary" rate of interest at that time in New York City. On the same day the court decided that a return of six per cent on waterworks property in Knoxville, Tennessee, was also not unreasonable. In neither of these cases, however, did the Court attempt any examination or explanation of the evidence on which it rested its determination that six per cent was the "customary" rate in the places named; nor did it attempt to explain the principle on which such "customary" rate could be determined for other times and places. Plainly there is still room for a great deal of "distinguishing" on this point. The extreme vagueness of the rule was exemplified by the decision of Federal circuit Judge Sanborn in the Shephard case (1912), in which he decided that, for a railroad running through Minnesota, seven per cent was no more than a "fair" return, and that any reduction in rates which would diminish the profits of the road below that figure was unreasonable.
Equally important and of as great difficulty are the questions entering into the determination of a "fair" valuation. This point is both too unsettled and too technical to render any discussion of it profitable here. Attention may, however, be called to two of the holdings in the Consolidated Gas case. In arriving at a "fair" valuation of the gas company's property, the Court allowed a large valuation to be placed upon the franchises of the company—none of which had been paid for by the companies to which they had originally been issued, and which had not been paid for by the Consolidated Company when it took them over, except in the sense that a large amount of stock, more than one sixth of the total stock issued by the company, had been issued against them, when the consolidation was formed. The particular facts surrounding this case are such as to make it very easy for the Court to "distinguish" this case from the usual one, for the consolidation was formed, and its stock issued, under a statute that authorized the formation of consolidations, and forbade such consolidations to issue stock in excess of the fair value of the "property, franchises, and rights" of the constituent companies. This last prohibition the Court construed as indicative of the legislative intention that the franchises should be capitalized. Equally plain is it, however, that this particular circumstance of the Consolidated Gas case is so irrelevant that it will offer no obstacle whatever to the Court's quoting that case as a precedent for the valuation of franchises obtained gratis, should it so desire.
Another holding of great importance in the Gas case was that the company was entitled to a fair return on the value of real estate used in the business, that value having appreciated very greatly since the original purchase of the real estate, and there being no evidence to show that real estate of so great value was essential to the conduct of the business.
The importance of these two holdings is exemplified by the fact that in this particular case the combined value attributed to the franchises and the appreciation of real estate was over $15,000,000—more than one fourth of the total valuation arrived at by the Supreme Court. It will readily be seen that if these two items had been struck from the valuation by the Court, it would be possible for the state to make a still further substantial reduction in the rate charged for gas in New York City without violating the Court's own canon of reasonableness—a six per cent return.
The steps in the evolution of the doctrine of judicial review may be summarized in the following manner:
The Supreme Court first declared that the legislative determination of what was a "reasonable" rate was not subject to review by the courts.
The first departure from this view was an intimation, confirmed with increasing emphasis in several cases, that a rate so low as to make any return whatever impossible was confiscatory and would be set aside by the Court as violating the Fourteenth Amendment. For a time, however, the Court took the position (steadily undermined in subsequent decisions) that a rate which allowed some, even though an "unreasonably low" return, was not prohibited by the Fourteenth Amendment and could not be set aside by the Court.
Next in order came the holding that the determination of a commission as to what was reasonable could not be made conclusive upon the courts, at least when the commission had acted without the forms and safeguards of judicial procedure, and, probably, even when it had acted with them.
In the same decision appeared an intimation, which in subsequent decisions became crystallized into "settled law," that not only were totally confiscatory rates prohibited by the Fourteenth Amendment, but also any rates which deprived the owners of the property regulated of a return equal to what was "customary" in private enterprises.
This rule was applied by the Court for the first time against a rate fixed by a commission, and where the rate was admitted by the pleadings to be confiscatory. But it was shortly thereafter applied to a rate fixed by a legislature, and where the "reasonableness" (not the confiscatory character) of the rate was a direct issue on the facts and evidence.
Finally, the principle that what is a "fair" or "reasonable" rate is to be measured by the customary return in private enterprises under similar conditions, has been applied in several cases to warrant the requirement of a definite rate of interest; but no precise rules have been laid down for the determination of such rate in all cases.
The most striking feature, perhaps, of the development of the doctrine of judicial review here traced, as seen in the opinions of the Supreme Court, is the brevity and almost fortuitous character of the reasoning given in support of the most important and novel holdings. A comparison of the reasoning in Smyth v. Ames, for example, with that in Marbury v. Madison, in which Chief Justice Marshall first held a law of Congress unconstitutional, will forcibly exemplify this. The explanation is to be found largely in the fact that each step in advance in the building up of the doctrine had been foreshadowed in dictum before it was established as decision. It was thus possible for the judge writing the opinion in a case when a new rule was actually established, to quote, as "settled law," a mere dictum from a previous opinion. Justice Gray's citation, in this fashion, in the Dow case, of Chief Justice Waite's dictum in the Ruggles case (although he might, with equal cogency, have cited the Chief Justice's contrary dictum in the Munn or Peik cases), is a good instance of this curious use of "precedent"; and parallel instances could be adduced from virtually every one of the important subsequent cases on this subject.[22]
It is apparent from this all too brief and incomplete account of the establishment of judicial review over every kind and class of state legislation affecting private property rights that no layman can easily unravel the mysterious refinements, distinctions, and logical subtleties by which the fact was finally established that property was to be free from all interference except such as might be allowed by the Supreme Court (or rather five judges of that Court) appointed by the President and Senate, thus removed as far as possible from the pressure of public sentiment. Had a bald veto power of this character been suddenly vested in any small group of persons, there can be no doubt that a political revolt would have speedily followed. But the power was built up by gradual accretions made by the Court under the stimulus of skilful counsel for private parties, and finally clothed in the majesty of settled law. It was a long time before the advocates of leveling democracy, leading an attack on corporate rights and privileges, discovered that the courts were the bulwarks of laissez faire and directed their popular battalions in that direction.
Those who undertake to criticize the Supreme Court for this assumption of power do not always distinguish between the power itself and the manner of its exercise. What would have happened if the state legislatures had been given a free hand to regulate, penalize, and blackmail corporations at will during the evolution of our national economic system may be left to the imagination of those who recall from their history the breezy days of "wild-cat" currency, repudiation, and broken faith which characterized the thirty years preceding the Civil War when the Federal judiciary was under the dominance of the states' rights school. The regulation of a national economic system by forty or more local legislatures would be nothing short of an attempt to combine economic unity with local anarchy. It is possible to hold that the Court has been too tender of corporate rights in assuming the power of judicial review, and at the same time recognize the fact that such a power, vested somewhere in the national government, is essential to the continuance of industries and commerce on a national scale.
Thus far attention has been directed to the activities of the Federal Supreme Court in establishing the principle of judicial review particularly in connection with legislation relative to railway corporations, but it should be noted that judicial review covers all kinds of social legislation relative to hours and conditions of labor as well as the charges of common carriers. In 1905, for example, the Supreme Court in the celebrated case of Lochner v. New York declared null and void a New York law fixing the hours of work in bakeshops at ten per day, basing its action on the principle that the right to contract in relation to the hours of labor was a part of the liberty which the individual enjoyed under the Fourteenth Amendment. Mr. Justice Holmes, who dissented in the case, declared that it was decided on an economic theory which a large part of the country did not entertain, and protested that the Fourteenth Amendment did not "enact Mr. Herbert Spencer's Social Statics."
As a matter of fact, however, the Supreme Court of the United States has declared very little social legislation invalid, and has been inclined to take a more liberal view of such matters than the supreme courts of the states. The latter also have authority to declare state laws void as violating the Federal Constitution, and when a state court of proper jurisdiction invalidates a state law, there is, under the Federal judiciary act, no appeal to the Supreme Court of the United States. Consequently, the Fourteenth Amendment means in each state what the highest court holds it to mean, and since the adoption of that Amendment at least one thousand state laws have been nullified by the action of state courts, under the color of that Amendment or their respective state constitutions.
As examples, in New York a law prohibiting the manufacture of cigars in tenement houses, in Pennsylvania a law prohibiting the payment of wages in "scrip" or store orders, and in Illinois a statute forbidding mining and manufacturing corporations to hold back the wages of their employees for more than a week were declared null and void. Such laws were nullified not only on the ground that they deprived the employer of property without due process, but also on the theory that they deprived workingmen of the "liberty" guaranteed to them to work under any conditions they chose. In one of these cases, a Pennsylvania court declared the labor law in question to be "an insulting attempt to put the laborer under a legislative tutelage which is not only degrading to his manhood but subversive of his rights as a citizen of the United States."
Where the state court nullified under the state constitution, it was of course relatively easy to set aside the doctrines of the court by amending the constitution, but where the state court nullified on the ground of the Fourteenth Amendment to the Federal Constitution, there was no relief for the state and even no appeal for a review of the case to discover whether the Supreme Court of the United States would uphold the state tribunal in its view of the national law. Under such circumstances, the highest state court became the supreme power in the state, for its decrees based on the Federal Constitution were final. It was the freedom, one may say, recklessness, with which the courts nullified state laws that was largely responsible for the growth of the popular feeling against the judiciary, and led to the demand for the recall of judges.[23]