Economic Liberties and the Constitution

4/17/2007

By Bernard Siegan

Transaction Publishers 2005 Edition: Second Paperback Buy here

Book Review
Reviewed by Madison Kitchens

When Economic Liberties and the Constitution was first published in 1980, it marked a watershed event in constitutional interpretation.  Its author, University of San Diego law professor Bernard Siegan, unabashedly asserted that the Supreme Court had abdicated its Article III responsibility to invalidate onerous, unconstitutional economic legislation.  The work quickly became an influential element in the resuscitation of the property rights movement.  In due course, President Reagan nominated Prof. Siegan for a judgeship on the Ninth Circuit Court of Appeals, though he would ultimately be voted down along highly partisan lines.  Published shortly before his death in 2006, the Second Edition of this classic work provides an ideal opportunity to revisit the book that shifted the parameters of debate regarding the judiciary’s role in protecting economic freedom.

While it is perhaps unfair to reduce his expansive thesis to one main point, Siegan seems most intent on reviving the largely-moribund doctrines of substantive due process and separation of powers.  This assertion may prove disquieting to grade-school civics classes, where students are taught that the three-branch system of government is alive and well.  Nevertheless, Siegan makes a compelling case that the concept of a triune government was greatly attenuated by the revolution of the New Deal Court, which granted significant deference to legislative bodies with respect to economic rights.  Since the legislative branch is most susceptible to special-interest pleadings, economic liberties are more likely to be jeopardized under such an unconstitutional regime, as corroborated by a modern progression of governmental incursions on private property.     

The Second Edition is really comprised of two separate, but complementary elements: a legal and historical analysis of economic freedoms, on the one hand, and an empirical defense of the primacy of free markets on the other.  This latter component buttresses the arguments of the First Edition with a wealth of economic data, persuasively documenting the positive correlation between market freedom and economic growth.  Thus, the Second Edition supplements the deontological approach of the First Edition by providing the consequentialist fruits:  a legal system that respects property rights results in higher GDP, lower unemployment, and a more stable rate of inflation.  Siegan gleans most of his evidence from economic case studies, ranging from an analysis of New Deal economic growth (or lack thereof) to discussions of the Irish Miracle and the German Wirtschaftswunder.  He depicts the resurgence of the Asian Tigers as an antipode to the post-WWII stagnation of Western Europe’s planned economies.  While the research here is derivative, it nevertheless provides an important reminder that legal institutions matter and economic liberties must be jealously defended against governmental usurpations.  His interdisciplinary approach successfully straddles areas of expertise, making legal theory accessible to economists and the economic ideas manageable for legal scholars. 

Siegan begins his historical examination by tracing the protection of economic liberties in English common law from Henry I’s Charter of Liberties (1101) to King John’s Magna Carta (1215) and beyond.  These charters functioned as an important restraint on royal power and heralded the emergence of legal doctrines that would provide the foundation for the U.S. Constitution: due process, separation of powers, proportionality, non-discrimination among similarly-situated persons, trial by jury, and prohibitions against retroactive punishment and public seizures of private property without just compensation. 

From an American perspective, possibly more important than the charters themselves were the commentaries of English legal luminaries Edward Coke and William Blackstone.  Siegan marshals evidence from the Founders’ writings to demonstrate the influence these thinkers bore on the drafting of the Constitution.  He quotes one commentator who contends that it is useless to quibble over whether Coke misinterpreted the common law, because his mistakes have become the common law.  Of particular note is Coke’s holding in Dr. Bonham’s Case (1610), where he presided over an occupational licensing dispute in which the London College of Physicians barred a qualified (albeit unlicensed) doctor from practicing medicine.  Ruling this act an illegal restraint of trade, Coke asserted that the common law bound not only the king but also Parliament: “when an Act of Parliament is against the common right and reason, or repugnant, or impossible to be performed, the common law will controul it, and adjudge such Act to be void.”  What mattered was the oppression itself, not its source. 

This ruling contained enormous implications for substantive due process, the notion that individuals retain inviolable rights of life, liberty, and property (such as speech, religion, and freedom of contract) that extend beyond mere procedural protections.  To generalize, whereas procedural due process determines the scope of how governments may intervene, substantive due process determines the boundary of what governments may intervene in.  Hence, a due process standard enforcing only procedural rights ensures form but not body.  Siegan posits that “indictment, presentment, and writ originals relate to procedure, but they would not fully secure personal liberty.  Requiring these procedural observances would not be very meaningful if courts could thereafter proceed to implement the will of government.  It would be a case of providing a fair trial before hanging the subject.”  Consequently, when courts apply a disembodied definition of due process, they sanction government abuses of property and concomitantly hamper economic development. 

Interestingly, Siegan singles out Justice Scalia for particular censure on this matter, perhaps surprising given his reputation (in tandem with Justice Thomas) as the Court’s greatest bulwark of economic liberties.  Scalia dismisses the notion of substantive due process, which he has dubbed “an oxymoron” (see U.S. v. Carlton, 512 U.S. 26 (1994)).  Siegan rebuts this position by invoking chapter 39 of the Magna Carta: “no freeman shall be arrested, or detained in prison, or deprived of his freehold, or in any way molested; and [the king] will not set forth against him, nor send against him, unless by the lawful judgment of his peers or by the law of the land.”  Siegan reasons that if by “law of the land” King John meant “any law I might decree,” then the charter itself is a nullity.  In such a case, “Life, liberty, and property would then truly be at the discretion of the lawmaker and the judiciary would simply be a conduit to implementing it.”  As stated above, due process is not just a procedural guarantee but a recognition of fundamental rights upon which the state may not trammel.

The doctrine of substantive due process reached its apex during the so-called Lochner Era (1905–1937), a period in which an emboldened Supreme Court struck down numerous economic regulations ushered in during the Progressive Era.  Lochner v. New York, 198 U.S. 45 (1905), involved a statute limiting the number of hours bakery employees could work.  New York contended that the law was a valid exercise of its police powers to regulate health, but the Court rejected this argument and invalidated the statute, declaring the law an unreasonable violation of an individual’s right to work and contract freely.  Siegan rightly maintains that the law 1) unfairly capped the potential earnings of impoverished employees and 2) had the anti-competitive effect of favoring large bakeries, which could better comply with the new standards than smaller operations. 

An examination of other cornerstone cases of the period reveals similar attempts to price rivals out of the market. For instance, in Adkins v. Children’s Hospital, 261 U.S. 325 (1923), the Court invalidated a statute mandating a minimum wage for women and minors, a law that effectively placed this group at a competitive disadvantage and spurred unemployment.  Meanwhile, New State Ice Co. v. Liebmann, 285 U.S. 262 (1932), encompassed an ice manufacturer’s attempts to enjoin a man from producing ice without a permit, a monopoly-fostering regulation.  Siegan persuasively shows that wage, price, and hour controls distorted market signals at the behest of rent-seeking groups, resulting in less competition, higher prices for consumers, and lower levels of production.  The Lochner Court was merely taking its separation of powers duties seriously by nullifying these flagrant legislative excesses.

Siegan is at his best when dissecting the New Deal Court’s about-face after FDR’s court-packing scheme, an attempt to appoint eight new justices to make the Court more acquiescent to New Deal policies.  Though the ploy proved a failure, a series of deaths and retirements managed to change the makeup of the Court after all, rendering it more conducive to Roosevelt’s interventionist aims.  The interpretational shift first surfaced in West Coast Hotel Co. v. Parrish, 300 U.S. 379 (1937), which overturned Adkins.  Siegan asserts that this majority had “altered the prevailing presumptions from one that favors individual liberty to one that favors government power.”  In his estimation, New Deal Court decisions became increasingly result-oriented, granting support for favored FDR policies in absence of constitutional authorization.

Yet Siegan reserves the bulk of his rebuke for U.S. v. Carolene Products Co., 304 U.S. 144 (1938), a case upholding the constitutionality of the “Filled Milk Act.”  The law was an effort by Congress to prohibit the interstate shipment of skimmed milk compounded with non-milk fat.  This represents yet another example of special interest legislation run amuck, with dairy industry lobbyists attempting to drive out low-cost substitutes.  However, the Court refused to declare that the measure infringed the Fifth Amendment’s Due Process Clause, adopting a presumption of constitutionality for legislative public health judgments.  In other words, the Court effectively claimed it was not their business to decide the issue. 

Ultimately, Carolene’s most enduring legacy would be its notorious Footnote 4, which reads in part, “There may be narrower scope for operation of the presumption of constitutionality when legislation appears on its face to be within a specific prohibition of the Constitution.”  By introducing varying levels of judicial scrutiny, Footnote 4 ensured that noncommercial freedoms would be accorded privileged status over economic liberties, establishing a hierarchy of rights never countenanced by the Framers.  The infirmities of the New Deal Court’s jurisprudence are largely a consequence of this false dichotomy, with opinions hued by the ideological biases of Roosevelt-appointed justices, who viewed capitalism with suspicion.  Additionally, Footnote 4 rendered the Ninth Amendment a dead letter by applying a lesser standard of judicial scrutiny to laws affecting unenumerated rights, even though the Amendment states that such rights shall not be denied or disparaged.  The Carolene Products opinion accordingly eschewed the constitutionally-mandated amendment process to create a new document of legal interpretation out of whole cloth.

In a similar vein, Siegan challenges the sacred cow of conservative jurisprudence: judicial restraint.  He views this principle as the embodiment of courts renouncing their rights-protecting duties.  Under rational basis review, for instance, the government need only prove that its legislation is “reasonable” to pass constitutional muster, a hopelessly vague criterion that opens the discretionary floodgates.  Here, Siegan is worth quoting at length:

Many of the Supreme Court’s statements of the rational basis test render it less a judicial standard than an excuse to avoid judgment altogether.  This approach to law erodes confidence in our judicial system…When courts refuse to scrutinize laws at all, they end up attaching their reputations to whatever absurdity a legislature is willing to embrace.  (A rubber stamp is just as damaging to judicial credibility as a sledgehammer.)…Extreme deference to legislatures prevents the courts from enforcing constitutional limits and places legislatures in charge of determining the extent of their own power.  A basic rule of the common law is that no man may be a judge in his own cause.

To paraphrase Barry Goldwater, judicial activism in defense of liberty is no vice; judicial restraint in the face of legislative tyranny is no virtue. 

While the post-New Deal diminution of substantive due process and separation of powers reigns paramount in emphasis, Economic Liberties and the Constitution competently tackles topics ranging from eminent domain, federalism and the incorporation doctrine, the Commerce Clause, the origins of judicial review, and public choice theory.  In one of the more unique features of the book, Siegan supplies the opinion of a 1994 case before the Constitutional Court of Hungary involving licensure laws for taxi cabs.  In striking down the statute as an encroachment upon an individual’s right to work, the opinion echoed Lochner’s espousal of vocational freedom. Siegan attributes the economic revival of Hungary in the post-Soviet era to such judicially-enforced economic protections, suggesting that the United States should, paradoxically, follow the new lead of nations who have followed its lead.   In the last chapter of the book, Siegan points to recent federal court decisions vindicating the rights of casket sellers, hairdressers, jitney operators, shoe shiners, and wine merchants to ply their trade in opposition to economic protectionism—perhaps an indication that the tide is indeed turning in favor of due process and equal protection.  Yet, decisions such as the much maligned takings case of Kelo v. City of New London, 545 U.S. 469 (2005), call into question the extent of the Court’s commitment to protecting private property against the depredations of government. 

Unfortunately, I cannot commend this revised edition unreservedly.  My problems with this expanded version do not extend to the ideas themselves, but rather to its slapdash editing, which too often detracts from Siegan’s lucid analysis. Perhaps due in part to Prof. Siegan’s declining health, the book reads too much like a work in progress.  It is larded with frequent typographical errors and plagued by a lack of cohesion, resulting in a sloppy presentation of facts and figures in the empirical sections and superfluity in the others (98 pages are devoted to full-text opinions of five comparably minor Supreme Court cases, with virtually no auxiliary commentary provided).  Factual blunders include misstating the number of amendments to the Constitution (undoubtedly a remnant of the 1980 edition) and exaggerating the West German economic recovery (he states that the German GDP was “probably the highest in the world by 1960,” when in fact it was roughly one-quarter that of the United States).  However, these caveats should not prevent the reader from digesting this material—the meat here is well worth putting up with the gristle.  Hopefully, subsequent printings will correct the misspellings, factual inaccuracies, and structural inconsistencies in order to present this landmark work in the manner it richly deserves. 

Addressing Parliament in 1628, Edward Coke declared that “Magna Carta is such a Fellow, that he will have no sovereign.”  When the judiciary shirks its duties as a co-equal branch of government, it enables the legislative and executive departments to serve as sovereigns over the Constitution, thus jeopardizing individual rights and economic freedoms.  Ambition no longer checks ambition, as James Madison intended; rather, judicial apathy lets ambition do whatever it pleases.  Bernard Siegan’s Economic Liberties and the Constitution is an impassioned attempt to correct this error and awaken the judiciary from its jurisprudential stupor.  Only when the courts are freed from the manacles of minimum scrutiny standards and “rational basis tests” can economic liberties once again assume their rightful prominence in constitutional interpretation.   

Madison Kitchens received his B.A. in Economics from Duke University, where he was editor-in-chief of New Sense Magazine.  In addition, he spent a year studying in the General Course Programme of the London School of Economics, contributing to the Hayek Society’s journal Ama-gi.  He served for two years as a research assistant at the Cato Institute’s Center for Constitutional Studies.  Currently residing in Atlanta, Madison will be attending Harvard Law School in the fall.