Contemporary American History, 1877-1913

by Charles A. Beard

A few concrete illustrations[78] will show the lack of correspondence between the political system and the economic system. Each state bids against the others to increase the number of factories which adds to its wealth and increases the value of property within its borders, although it makes no difference to the total wealth of the nation and the happiness of the whole people whether a particular concern is located in New Jersey or in Pennsylvania. As the national government enjoys no power to regulate industries—even those which are national in character—the states use their respective powers under the pressure which comes from those who are interested in increasing the industry of the commonwealth. For example, it is stated "the glass workers of New Jersey oppose any attempt to prohibit night work for boys under sixteen years of age on the ground that such work is permitted in the neighboring state of Pennsylvania." In 1907, in South Carolina, Georgia, and Alabama, a ten year old child could, under the law, work for twelve hours a day; North Carolina had sixty-six mills where twelve year old children could do twelve hours' night work under the law. Although this situation was somewhat remedied later, the advocates of reform were resisted at every point by the interested parties who contended that in competing with New England, the southern states had to take advantage of every opportunity, even at the expense of the children.

The situation may be described in the language of the chief factory inspector of Ohio: "Industrially as well as geographically we of the Ohio Valley are one people and our laws should be uniform, not only that they may be the easier enforced, but in justice to the manufacturers who pursue the same industry in the several states and therefore come into close competition with one another." Moreover, if a state enacts an important industrial law, it may find its work in vain as the result of a decision of the national Supreme Court, or of the state courts, interpreting the Fourteenth Amendment.

Another example of a national interest which is wholly beyond the reach of the Federal government, under a judicial decision reached in the case of Paul v. Virginia in 1868, is that of insurance. Although Hamilton and earlier writers on the Constitution believed that the insurance business was a branch of interstate commerce whose regulation was vested in Congress, the Supreme Court in this case dealing with fire insurance declared that the act of issuing a policy of insurance was not a transaction of commerce. "The policies," said the Court, "are simple contracts of indemnity against loss by fire, entered into between the corporations and the assured for a consideration paid by the latter. These contracts are not articles of commerce in any proper meaning of the word; they are not subjects of trade and barter offered in the market as something having an existence and value independent of the parties to them.... Such contracts are not interstate transactions, though the parties may be domiciled in different states.... They are then local transactions and are governed by the local laws. They do not constitute a part of the commerce between the states any more than a contract for the purchase and sale of goods in Virginia by a citizen of New York whilst in Virginia would constitute a portion of such commerce."

As a result of this narrow interpretation of the commerce clause, the vast insurance business of the country, national in character, was put beyond the reach of Congress, and at the mercy of the legislatures of the several commonwealths. Under these circumstances, the insurance laws of the United States were in splendid chaos. "If a compilation of these laws were attempted," says Mr. Huebner, "a most curious spectacle would result. It would be found that fifty-two states and territories are all acting along independent lines and that each, as has been correctly said, possessed its own schedule of taxations, fees, fines, penalties, obligations and prohibitions, and a retaliatory or reciprocal provision enabled it to meet the highest charges any other state may require of the companies of any other states."

A still better example of confusion in our system is offered by the corporation laws of the several states. Great industrial corporations are formed under state laws. While many contend that Congress has the power to compel the Federal incorporation of all concerns doing an interstate business and thus to occupy the whole domain of corporation law involving interstate commerce, this radical step has not yet been taken. Congress has confined itself to the more or less fruitless task of forbidding combinations in restraint of interstate trade.

Under these circumstances, there appeared the anomalous condition of states actually advertising in the newspapers and bidding against each other in offering the corporations special opportunities and low fees for the privilege of incorporating. If the conscience of one state became enlightened and a strict corporation law was enacted, the result was simply to drive the irregular concerns into some other state which was willing to sell its privileges for the small fee of incorporation, and ask no questions. As might have been expected, every variety of practice existed in the forty-eight jurisdictions in which corporations might be located.

Not only was there the greatest diversity in these practices, but special discriminations were often made in particular states against concerns incorporated in other states; and on top of all this there was a vast mass of anti-trust legislation, frequently drastic in character or loose and futile. Often it was the product of a popular clamor against large business undertakings, and often it was the result of the effort of legislators to "strike" at corporations. Whatever the underlying motive, it was generally characterized at the outset by lack of uniformity and absence of any large view of public policy, and then it was glossed over by judicial decisions, state and Federal, until it was a fortunate corporation official, indeed, who knew either his rights or his duties under the law. Moreover, it was a particularly obtuse attorney who could not lead his client unscathed through this wonderland of legal confusion.

The position of railway corporations, if possible, was more anomalous still. Their interstate business was subject to the regulations of Congress and their intra-state business to the control of the state legislatures. Although there existed, in theory, a dividing line between these two classes of business, there were always arising concrete cases where it was difficult to say on which side of the line they would fall in the opinion of the Supreme Court. States were constantly being enjoined on the application of the railways for their "interference with interstate commerce"; and when far-reaching legislation was proposed in Congress, the cry went up that the rights of states were being trampled upon. If X shipped a carload of goods to Y within the borders of his state, he paid one rate; if he shipped it to Z, two miles farther on in another state, he paid a different rate, perhaps less than in the first instance. In a number of states companies owning parallel lines might consolidate; in others, consolidation was forbidden. According to a report of the Interstate Commerce Commission in 1902, the states were equally divided on this proposition as to the consolidation of competing lines. According to the same report, if a railway company was guilty of unjust discrimination in one state, it paid a fine of $50, and in other states it was mulcted to the tune of $25,000. At the same time, whoever obstructed a railway track in Mississippi was liable to three months in jail; for the same offense in New York he might get three years; if, perchance, after serving three years and three months in these two commonwealths, he tried the experiment again in Wyoming, he might in the mercy of the court be sentenced to death.

A further element of confusion was added by the intervention of the Federal judiciary in declaring state laws invalid, not merely when they conflicted clearly with the execution of Federal law, but on constitutional grounds which meant, for practical purposes, whenever the said laws were not in harmony with the ideas of public policy entertained by the courts at the time. The Federal judiciary in regard to state legislation relative to corporations was, therefore, a destructive, not a constructive, body. To use the language of the street, state legislation was simply "shot to pieces" by judicial decisions. That which was chaotic, disjointed, and founded upon no uniformity of purpose or policy to begin with was riddled and torn by a body which had no power for positive action.

As the Interstate Commerce Commission declared in 1903, "One of the chief embarrassments in the exercise of adequate government control over the organization, the construction, and the administration of railways in the United States is found in the many sources of statutory authority recognized by our form of government. The Federal Constitution provides for uniformity in statutory control, so far as interstate commerce is concerned, but it does not touch commerce within the states, nor, as at present interpreted, does it cover the organization of railroad corporations or the construction of railroad properties. These matters, as well as the larger part of that class of activities included under the police jurisdiction, are left to the states. Such being the case, the development of an harmonious and uniform railroad system must be attained, if at all, by one of two methods. The states must relinquish to the Federal government their reserved rights over internal commerce, or having first agreed upon fundamental principles, they must, through comity and convention, work out an harmonious system of statutory regulation."