The principles are simple to enumerate: No income taxation (except during the Civil War), Social Security, Medicare, Medicaid, welfare, economic regulations, licensure laws, drug laws, immigration controls, or coercive transfer programs, such as farm subsidies and education grants.  —  Jacob G. Hornberger, “Liberal Delusions about Freedom“

He notes, too, the lack of regulatory agencies like the EPA and OSHA, and the right for everyone “to pursue an occupation or trade without seeking the permission of the government.”

The first, and simplest response to this, of course, is “who is ‘everyone’”? African-Americans were mostly enslaved until after the Civil War — were they free “to pursue an occupation or trade”? Did the Jim Crow laws of the late nineteenth-century South provide extra liberty for those former slaves?

Women could not vote and were — at various times, more or less — the property of their husbands. Were they “free”? (See David Boas, “Up from Slavery,” for more on this.) Thus, any nineteenth-century libertarian “utopia” is immediately undermined by the lack of freedom for so many.

But beyond this simplistic and obvious critique lies a deeper reality: Americans in the nineteenth century did not live without rules, regulations, and laws, and did not rely strictly on private contract and personal responsibility to conduct business or to handle social relations.

William J. Novak, in The People’s Welfare: Law and Regulation in Nineteenth-Century America, writes:

[It] was a public society in ways hard to imagine after the invention of twentieth-century privacy. Its governance was predicated on the elemental assumption that public interest was superior to private interest. Government and society were not created to protect preexisting private rights, but to further the welfare of the whole people and community.[2]

I have previously written, for example, about the extensive use of the state police power (which has little to do with modern “police”) to impose coercive quarantine requirements in colonial America:

Quarantine … was state-sponsored. It would be applied to incoming ships if smallpox was suspected, but there was no articulated provision for allowing any particular to leave quarantine early. The concept was to protect the public as a whole, not to preserve individual liberties.  —  Kristopher Nelson, “Smallpox inoculation and quarantine in colonial America.”

Novak lists the variety of New York laws passed between 1781 and 1801, all focused on regulating life in the young state. Regulations focused on “lotteries; hawkers and peddlers; the firing of guns; usury; … rents and leases; … counselors, attorneys, and solicitors; … strong liquors; … debtors and creditors; poor relief” and much more.[3] This was not Hornberger’s nineteenth century, free of “welfare, economic regulations, licensure laws, [and] drug laws.”[4]

Again under the aegis of “police power”, Novak notes, “railroads were ordered to reconstruct bridges for the public welfare … and private dwellings were summarily destroyed when found inimical to the public health or safety” — and without compensation to the owners.[5]

Still, this was different than modern regulation in a key sense: it was local and state-based, not federal and nationwide. The reach of an individual law was typically only as far as the city, county, or state line. But they were small, localized invasions, not national ones. And as the federal reach grew, so the importance of the federal Constitution and its protections grew too.

The failure of this local jurisdictional model (which is not equivalent to the “small government” call of modern conservatives) came with the explosion of interstate commerce towards the end of the nineteenth century, when corporations (led by railroads) grew beyond the jurisdictional reach of any individual locality or state. Thus, by the late nineteenth century, robber barons set their own rules, and monopolies grew more powerful than governments.

The coalescing of economic — and thus effective political — power in the hands of a few monopolists set the state for the twentieth-century growth of the modern, federal, nationwide regulatory and administrative state that libertarians rail against.

The big twentieth-century shift was not from an unregulated life to a regulated one, but rather from thousands of local rules that differed across the country to concentrated, interstate rules that applied everywhere — all in response to problems that themselves crossed state lines and jurisdictions.

The nineteenth century was different than the twentieth, but it was not a libertarian utopia of liberty and freedom from rules and regulations — those were everywhere, and could easily be more invasive (laws regulating morals, like forced Sunday closers of business are a good example) than anything the twentieth century brought us.

Porter quotes Richard Hammond’s observations:

In a country where mistrust of government is rife, the temptation to substitute supposedly impersonal calculation for personal, responsible decisions … cannot but be exceedingly strong. (195)

Porter goes on to refer to Sheila Jasanoff‘s observation that “Americans fear expertise … yet insist that administrative decisions be depoliticized” and thus “oscillate ‘between deference and skepticism toward experts’” (195). The United States — which “continues to nourish a distinguished tradition of anti-intellectualism” — paradoxically seeks “experts who are not intellectuals or men of culture at all” (195). Porter writes:

Procedures have become as important as outcomes, and rules may be maintained even though they are unable to accomodate new kinds of relevant scientific information (197).

The Courts

American courts generally emphasize process, too, encouraging the application of rules by courtroom experts: “science should mean the straightforward application of general laws to particular circumstances” (195). Attorneys attack courtroom experts for having personal opinions and unique approaches to their studies. “General acceptability” was the core component of Frye, and the modern standard for acceptance of expert testimony (Daubert) emphasizes this factor too (though it expands beyond it).

The Supreme Court’s “hard look” doctrine emphasizes this, too. That doctrine requires judicial review of agency decisions are “arbitrary and capricious.” It requires administrative agencies to maintain a proper record of evidence and actions, adequately consider evidence and various analyses, and explain their reasoning. The doctrine is not intended to emphasize outcomes, but rather to encourage objective process. Even this doctrine, aimed as it is at process and not outcomes, has been attacked as too political (i.e., not objective enough):

Administrative law doctrines for reviewing agency rulemaking currently give judges a significant amount of discretion to invalidate agency rules. Many commentators have recognized that this has politicized judicial review of agency rulemaking, as judges appointed by a president of one political party are more likely to invalidate agency rules promulgated under the presidential administration of a different political party. Unelected judges, though, should not be able to use indeterminate administrative law doctrines to invalidate agency rules on the basis that they disagree with the policy decisions of a presidential administration. Keller, Scott A., “Depoliticizing Judicial Review of Agency Rulemaking,” 2009.

United States vs. Europe

The American approach — the way agencies make decisions and the way courts review those decisions — is distinctly different from how it’s done in Europe. Although they vary in their details, in general, all European approaches “are capable in some measure of formulating policies and determining how to apply them through negotiation with the interested parties, behind closed doors” (197). For good or ill, European states tend to institutionally trust their elite experts and the agencies they staff — but American agencies today lack this kind of citizen trust:

American regulatory agencies are forced to seek refuge in ‘objectivity,’ adopting formal methodologies for rationalizing their every action (197).

It hasn’t always been this way in the United States. American administrative agencies really only grew as outgrowths of the New Deal’s attempt to rationalize, control, and improve the economy during the Great Depression. These agencies — and the few that preceded them — were staffed by experts, driven by numbers, and depended on expert judgment and expertise in ways that are quite similar to their modern European counterparts (198).

Citizen Standing and Openness

The 1960s brought a new focus on citizen involvement in agency decisions. “Openness” was the “antidote to self-interest and to corruption masquerading as expertise” (198). The 1966 case, Office of Communication of United Church of Christ v. FCC, 359 F. 2d 994, exemplified this trend:

This was the case that began the process of opening the regulatory and judicial processes to everyday citizens by granting legal “standing” to citizens. The expansion of standing enabled regular citizens to be heard before regulatory agencies and to bring actions in court, amplifying the amounts and types of political issues taken up in the public arena. Horwitz, Robert, “Broadcast Reform Revisited: Reverend Everett C. Parker and the ‘Standing’ Case,” The Communication Review, Vol. 2, No. 3 (1997), pp. 311-348.

Problems and Contradictions

The attempt to bring openness and greater democracy to agency decision-making succeeded in bringing greater citizen scrutiny and input to the exercise of expertise. It came as a reaction to behind-the-scenes decisions that appeared to favor established interests. Thus, citizen-activists fought against agencies that appeared too close to the companies they regulated — and often succeeded in opening up their processes.

But this didn’t necessarily result in better decisions.

Agencies responded with a greater use of, in Porter’s terms, “mechanical objectivity” in place of expert judgment. Additionally, the critiques used to attack agency expertise began to be turned against scientific and medical expertise more generally. Thus, anti-vaccination campaigners accuse medical experts of profiting from vaccines and acting as “willing conspirators cashing in on the vaccine fraud’ or pawns of a shadowy vaccine combine.” What was once an attack on an FCC that consisted of former broadcast executives has become an attack on doctors who favor broad public-health mandates and on climate scientists who warn about the dangers of human-induced climate change.

"Cornwall School House Nº 3 (1830)" by Flickr user Don Shall. CC BY-NC-ND 2.0.

In the twentieth century, the general move in regards to Fourth Amendment jurisprudence — one prong of privacy — has been away from a focus on property, and towards a view that focuses on people instead. (See, e.g., The Fourth Amendment: from property to people.) This move gave us warrant requirements for wiretaps even when a physical trespass had not occurred, for example, because it protected people’s “reasonable expectations of privacy.” But as I noted in a previous article, an alternative approach to creating an entirely new right would be to extend property rights to cover information or personal data, rather as copyright, patents, trademarks, and other forms of intellectual property extended physical rules into the realm of the intangible.

While there are undoubtedly benefits to this, there are limitations as well. Pamela Samuelson, in “Privacy As Intellectual Property,” discusses several of them:

First, the infrastructure necessary for enabling a privacy market to flourish is not insubstantial, and would likely require government oversight anyway, especially given the disparity between individuals and data companies (1136-37).

Second is the problem Samuelson characterizes as “free alienability”: normally, once sold, the buyer can resell a product to a third party. But this is likely to be a problem with privacy, since individuals may well be comfortable selling to one company but not to another. Limiting alienability undermines a core part of a property system. (1137-38, 1145)

Third, it is unclear if a property market is really the most efficient way to allocate resources: “What is scarce is information privacy, not personal data,” but Samuelson argues that it is personal data that is being bought and sold. The goal of the market, then, unlike most others, is to limit availability, not increase it. (1138-39) One might counter by re-conceive of the market as one where privacy is what is bought and sold, but I’m not sure this fixes the market issue.

Fourth, but relatedly, the market for intellectual property exists because of a bargain: the law grants temporary monopoly rights (patents, copyrights) to encourage creation and to benefit the public as a result. Everyone benefits from the system. Without it, creators may not have sufficient incentive to invest in, for example, research and development in the face of potential free riders who might undercut them without investing themselves. In the case of privacy rights, though, there is no similar incentive: “Property rights are not needed to bring them [personal data] into being, nor to achieve widespread distribution of them.” In short, what incentives does creating property rights in personal data create? (1140-41)

Additionally, if a core reason that copyright has always been compatible with the First Amendment is that it is a property right, then perhaps a way out of the conflict between privacy and freedom of speech and the press is to conceive of privacy in the same way — as a property right. Certainly it is already on its way there, as the “right of publicity” in many jurisdictions already implicitly does so, since it provides control over unauthorized commercial use by others.

What follows are three approaches the outline some of the benefits of doing exactly this.

Dissolving the Inkblot: Privacy as Property Right

Unsurprisingly, this is an approach libertarian thinkers have already explored. In a 1993 report for the Cato Institute, Sheldon Richman argues for a vision of privacy “that derives privacy rights from a Lockean framework based on each person’s property in his own life, liberty, and estate.” Richman grounds his vision of the right to privacy as a property right embedded in the Constitution:

That the propertarian model of privacy has the full force of the Constitution behind it is evident in the purposes listed in the preamble to the Constitution, in the recurring express references to property, and in the protection of unenumerated rights in the Ninth Amendment.

He additionally argues that viewing privacy as property is supported by older case law as well:

[I]n Boyd v. United States (1886), a search and seizure case involving a businessman, Justice Joseph Bradley wrote that the constitutional guarantees securing people in their persons, houses, papers, and effects transcend the concrete case and “apply to all invasions on the part of government and its employes of the sanctity of a man’s home and the privacies of life. It is not the breaking of his doors, and the rummaging in his drawers, that constitutes the essence of the offense; but it is the invasion of his indefeasible right of personal security, personal liberty and private property.”

Richman argues that “propertarian privacy” provides a consistent philosophical and moral grounding for property rights that protects privacy without giving judges too much leeway:  ”To determine whether one has a right of privacy with respect to some act, a judge need only ask what the property rights are.” As a result, contraceptive use is protected through his right to privacy because “each party owns himself or herself. … The same is true … for persons who engage in consensual homosexual sodomy.” Child abuse — even in one’s own home — is not protected “because the child is a self-owner.” Abortion is generally protected because “the fetus comes into existence inside the body of a self-owner.” On the other hand, employers may ban smoking — even in an employee’s home — without violating their right to privacy because the “prospective employee can turn down the job.”

In regards to data privacy legislation, Richmond’s approach would generally not protect privacy unless contractual obligations were violated (this might be seen as protecting confidentiality):

A private firm compiles a computer data base on consumers in order to rent it to direct marketers. Privacy violation? Not if the information was originally provided freely by the consumers (or otherwise lawfully obtained) and all contractual restrictions are observed. But if information was given confidentially, divulgence should be actionable. To be sure, data can be misappropriated, stolen by computer hackers, or used in ways that violate contractual obligations. That is why there are criminal and civil courts.

The Property Rights Origins of Privacy Rights

In The Property Rights Origins of Privacy Rights, Mary Cholpecki explores the historical connections between property and privacy. She points to two English cases as examples of this. First, in Yovatt v. Winyard (1820), what I might call an early trade-secrets case, the court “extended property rights protections to cover personal secrets,” namely, secret formulas for medicines used by a competitor. Cholpecki writes:

Yovatt brings to light the interesting and important fact that “what we now call ‘unfair competition’ and ‘plagiarism’ and ‘privacy’ were all wrapped together, in Yovatt’s time, under the principle of ‘property.’” It was only later that these concepts were separated.

She then discusses Prince Albert v. Strange, a case from 1849 in which Strange is prohibited from selling copies of etchings he had catalogued for Prince Albert:

According to one commentator, the most significant aspect of this case and its underlying philosophy is that it rested on a right of privacy, which the court considered a type of property right. In fact, it appears that until 1890, no English court recognized the right to privacy independent of property rights.

Cholpecki blames Samuel Warren and Louis Brandeis’ 1890 law review article for “divorcing privacy from its historical and intellectual partner, property rights.” Because of this, she argues, in subsequent cases the courts have “muddled the parameters of the right and allowed critics to argue that the right to privacy does not exist in the Constitution.”

She sees hope in the 1977 case of Moore v. City of East Cleveland, where a plurality of justices united in the ruling, some of the basis of a right to privacy and some on the basis of property rights:

The Moore case illustrates the interconnectedness between privacy and property rights. Given the same set of facts, four members of the Court believed privacy rights were jeopardized, while another believed property rights were threatened. Ultimately, the two segments came together to protect the rights at stake. … The most enduring protection for both rights is to view each as indispensable to the other.

Privacy As Intellectual Property?

In “Privacy As Intellectual Property?,” Pamela Samuelson explores the potential benefits and pitfalls of adopting a property-based approach to privacy protections.

First, she writes, viewing data about oneself as private property matches an intuition many of us already have. Since people already have the legal right to exclude people from access (journals locked in a desk drawer, papers stored at home in a file cabinet, etc.), “they may have a sense that they have a property right in the data as well as a legal right to restrict access to it” (1130). Data protection laws reinforce this intuitive sense.

This intuitive sense of property persists even though ownership of data is not the core legal framework in American law for dealing with privacy: “Indeed, the traditional view in American law is that information as such cannot be owned by any person” (1131). Although property rights are involved with Fourth Amendment protections, it is not a property right in the information per se, but rather a property right against trespass. The Fifth Amendment (against self-incrimination) protects a liberty interest in a kind of privacy right, but it is not a property right. If a doctor reveals confidential medical information to a newspaper, a patient’s rights “would arise under contract or privacy law, not from the existence of any property rights in this information” (1131).

Samuelson suggests that granting individuals property rights in their own data might force companies to internalize the costs of privacy — if individuals retain property rights over their own information, even if gathered without their intervention, the companies would need to compensate them (and get permission) for the use by buying the rights, or forgo using the personal data. It would also have the side benefit of potentially increasing the quality of data collected, since individuals and companies would each have an incentive to make sure data is accurate (1133).

Perhaps most importantly, taking a property rights approach would allow market forces and market efficiencies handle privacy concerns, without neglecting the particular desires of individual people, and without extensive (and potentially expensive) government regulations (1135-36).

Conclusions

Both Cholpecki and Richmond write from a libertarian perspective, and both believe that connecting the right to privacy with property rights will helps unify conservative and liberal positions into one that can have positive outcomes for everyone. Samuelson approaches the issue from a critical perspective, but outlines many of the important benefits that a “privacy as property” approach might give — and notes that, especially as many American today dislike government-run anything, a system of privacy rights that leverages and extends existing property rules and regulations would likely achieve significant support.

"Property of the Hess Estate" by Flickr user Jason Eppink. CC BY-NC-SA 2.0.

In Copyright and the First Amendment: The Unexplored, Unbroken Historical Practice, Terry Hart does an excellent job of exploring why the First Amendment has never been held to interfere with the enforcement of copyright, including pre-publication injunctive relief. A few quick highlights:

• Until the late 1960s, the idea that there exists any tension between the First Amendment’s prohibition on government restrictions of expression and copyright law’s encouragement of expression was nearly nonexistent.
• There were some who noted, at the least, a prior lack of recognition of the potential conflict, as in this Columbia Law Review note from 1913 on “Freedom of the Press and the Injunction.”

The main reason Hart identifies as to why legal thinkers did not consider there to be a conflict?

The first reason is that legal thinkers primarily conceived of copyright as a property right. Property is on the same footing as life and liberty. Freedom of speech, or freedom of the press, ends where deprivation of property begins.

Hart points out that the earliest (1839) case — Brandreth v. Lance, from New York — ruling on the constitutional grounds of free speech noted the following when denying an injunction for potential libel:

There is, perhaps, but one instance in the books, of any judge having maintained the existence of a power in the court of chancery of restraining publications on any other ground, but that of property and copyright.

(Note: there is another key ground on which judges — including the Supreme Court — have said that injunctions can be granted in regards to copyright: the fact that copyright is granted in the Constitution itself. See New York Times v. U.S., from 1971.)

"Michigan House of Representatives Floor" by Flickr user "lincolnblues." CC BY-NC-ND 2.0.

An MSNBC report by liberal journalist Rachel Maddow strongly condemned the current Republican leadership in Michigan for not following the state constitution. Instead, Republicans have passed bills subject to “immediate effect” without the required constitutionally required two-thirds majority vote in both houses of the legislature.

After more than a year of this, House Democrats have filed for a preliminary injunction and a writ of mandamus in state court, demanding that House Republicans actually count votes (that would be a mandamus order) and demanding an injunction against laws passed for “immediate effect” without the required two-third majority vote. They won. (Remember, this is just preliminary, and the Republicans have already appealed even this. Also note that I am not licensed to practice law in Michigan. Finally, one of the laws at immediate issue deals with graduate students unions — and I am an uneasy member of the graduate student union here in San Diego.)

Should a state legislative body be insulated from judicial scrutiny of its “internal” processes? Is ignoring actual vote counts, and simply declaring something to have “immediate effect” sufficient to make it so in the state of Michigan? What is the relationship between the three branches of government?

The Role of the Courts in the Legislative Process

The extensive Republican appeal (filed by the State Attorney General’s Office, an interesting intervention of the executive branch in the matter) argues that state courts have no business interfering with the legislature at all: “The circuit court’s enjoining of the immediate effect given Public Acts 45 and 53 of 2012 is unprecedented, and was an unprincipled decision barred by separation of powers principles and court precedents.”

Although I am not a Michigan lawyer, I find it hard to believe that the separation of powers principle in Michigan truly prohibits a court from ruling on legislative actions. In fact, in less than five minutes of searching, I found court precedent in favor of my belief — on the Michigan Legislature’s own website, in their own description of Article IV § 27, in case called Frey v. Department of Management and Budget.

First, what does Article IV § 27 of the Michigan Constitution say?

No act shall take effect until the expiration of 90 days from the end of the session at which it was passed, but the legislature may give immediate effect to acts by a two-thirds vote of the members elected to and serving in each house.

Frey v. Department of Management and Budget

In 1987, the Supreme Court of Michigan ruled that two-thirds rule of Article IV § 27 must be followed, and then proceeded to delay a law until ninety days had passed (note that this dealt with an initiative combined with legislative action, which is arguably different):

We hold that art 4, § 27, does apply to initiated laws enacted by the Legislature. Therefore, since the initiative was not given immediate effect by a two-thirds vote of each house of the Legislature, 1987 PA 59 may not go into effect until ninety days after the end of the session at which it was enacted. We affirm the decision of the Court of Appeals. Frey v. Department of Management and Budget, 429 Mich 315; 414 NW2d 873 (1987).

The Republican appeal dismisses all of Frey as essentially meaningless to the current fact pattern, focusing on its relevance only to the issue of referendums, and ignoring entirely the core argument above (presumably deciding the referendum language was binding, but the immediate effect language was merely dicta).

I find it difficult to ignore the language in Frey that a “two-thirds vote of each house” is required. Frey assumes the power of the Michigan courts to rule on legislative issues like two-third majorities, and Frey affirms the power of the courts to say when a law goes into effect. The Republican appeal fails to deal effectively with Frey.

Other Cases

Whatever the detailed reasoning of other cases cited by the Democratic response to the Republican appeal, it is at least clear that the circuit judge’s order is not “unprecedented.”

Thus, for example, Michigan Taxpayers United, Inc. v. Governor, 600 NW2d 401 (1999), where the Court of Appeals of Michigan upheld as “proper” the state legislature’s granting “immediate effect” the law in that case — but affirmed the right of the courts to rule on the properness of legislative process:

Whether the Legislature properly gave immediate effect to the bill is a question of law that we review de novo. (403)

The Role of the Courts and the Rule of Law

Marbury v. Madison, 5 U.S. 137 (1803) succinctly stated the role of the judiciary in the American system: “It is emphatically the province and duty of the judicial department to say what the law is.”

Without the check of the judiciary, there would be no true rule of law. The judicial branch exists because the legislative and executive branches — regardless of their own agreement, and regardless of the size of their majorities — must be checked. The solution to a court ruling on the constitutionality of an act is to change the constitution (but it’s hard to do that, unless you’re running an initiative in California).

Arguing the merits of their process before the courts is proper. Telling the courts to “leave us alone,” and accusing a judge of acting “improperly” for interfering with the legislative process — that’s not the rule of law. Violating your own state constitution just because you’re the Republican majority is also not the “republican form of government” guaranteed under Article IV of the United States Constitution, either.

The Elephant in the Room: The Federal Guarantee Clause, Due Process, and Equal Protection

“The United States shall guarantee to every state in this union a republican form of government,” reads Article IV, Section Four. The Supreme Court has held that this guarantee is given to the United States Congress, who affirms a state’s “republican form of government” every time it seats new members from that state. (Note that a “republican form of government” means a representative democracy, not rule by the Republican Party.)

More powerful in practice than Article IV, the Fourteenth Amendment prohibits the denial of individual rights by state governments. If the federal government were to be involved in the Michigan situation, it would likely involve arguments that House Republicans have denied “due process” and “equal protection” of the law to the citizens of Michigan.

Additionally, the Voting Rights Act of 1965 — which considers parts of Michigan to be subject to extra scrutiny due to a history of civil rights violations — would give additional weight to federal intervention in Michigan.

The Justice Department has the power to investigate under the Voting Rights Act. Citizens may also sue in federal court to enforce the Act. So far, this issue seems confined to Michigan state courts — but it may not stay that way.

Conclusions

The Republican appeal — written by the state’s Attorney General — argues that the court’s preliminary injunction ought to be reversed as an “unreasonable and unprincipled decision barred by separation of powers principles and court precedents.”

I argue, instead, that there is nothing “unreasonable” or “unprincipled” in the lower court’s decision, even if a more complete analysis of the law supports the actions of House Republicans.

Each branch of government has its purpose in the American system, and it is, as Marbury stated so long ago, the purpose of the judiciary to rule on law. Thus, a judge doing so is necessary to maintain the rule of law and a republican form of government — it is certainly not “unprincipled.”

Legislatures should not be — even if they sometimes are — insulated from judicial scrutiny. Ignoring one’s own constitution is illegal and morally wrong. A judge ordering a preliminary injunction while a trial investigates that possibility is both reasonable and principled. And an order of mandamus essentially requiring legislators to follow their own constitution does not appear to be much of a burden — unless that isn’t already happening.

More Resources

Some important primary source documents:

• The Democratic request for an injunction and writ
• The preliminary court order
• The Republican appeal
• The Democratic response

Allgeyer v. Louisiana

As I discussed earlier, Allgeyer v. Lousiana, 165 U.S. 578 (1897) expressed the unanimous opinion of the Supreme Court that freedom of contract was a fundamental right protected by the due process clause of the Fourteenth Amendment. While this case itself was applied to limitations of out-of-state businesses operating in Louisiana, its valorization of the “liberty of contract” was extended to employment regulations as well (Hall 398).

Holden v. Hardy

Still, despite this valorization of contract as liberty the year before, hints emerged of limitations on contract that would emerge more fully in the twentieth century. In Holden v. Hardy, 169 U.S. 366 (1898), Justice Henry Billings Brown “accepted the idea that employer and employee do not stand on an equal bargaining footing” (Hall 399):

the proprietors of these establishments and their operatives do not stand upon an equality, and … their interests are, to a certain extent, conflicting. … In other words, the proprietors lay down the rules and the laborers are practically constrained to obey them.

As regulations limiting children’s working hours in factories are a valid exercise of a state’s police power — which also includes enforced vaccination, quarantine, and other protections of the public’s general welfare — so too is an act that seeks to protect workers in a particularly dangerous occupation (mining).

Lochner v. New York

At the turn of the century, the “triumph of contract” was effectively constitutionalized: Lochner v. New York, 198 U.S. 45 (1905) held that the “liberty of contract” was a fundamental right protected by the Fourteenth Amendment. Lochner invalidated legislation limiting the workweek to 60 hours on the theory that

the general right to make a contract in relation to his business is part of the liberty of the individual protected by the Fourteenth Amendment of the Federal Constitution.

The Lochner Court construed the law as an absolute interference “with the right of contract between the employer and employees,” then declared that “the general right to make a contract in relation to his business is part of the liberty of the individual protected by the Fourteenth Amendment of the Federal Constitution.” The Fourteenth Amendment’s Due Process Clause — originally intended to overturn Dred Scott and to prohibit so-called “Black Codes” — prohibits states from depriving any person of life, liberty, or property without due process of law. To the Lochner Court, the right to buy and sell labor through contract was a “liberty of the individual,” and was thus constitutionally protected.

The end of Lochner

Lochner was finally challenged successfully during the Depression, in West Coast Hotel Co. v. Parrish, 300 U.S. 379 (1937), which finally allowed for a general minimum wage in Washington State — and thus overturned the maximalist version of freedom of contract.

The black codes often required “persons of color” to sign year-long labor contracts, with wages payable at the end of the year, and punished “vagrants” found in public with mandatory labor. Newly freed slaves were often prohibited from working in many occupations and from acquiring land. But even when not forced by law or force to sign such contracts, many African-Americans — with limited options — signed such contracts voluntarily.

Despite their unfair terms and limited voluntariness, Southern courts enforced these contracts. (It was, in truth, extremely difficult for African-Americans to challenge their terms, since the codes also limited access to the courts by former slaves.)

The Freedmen’s Bureau, established by Congress in 1865 as part of the Department of War, tried to mitigate the black codes. It attempted to “provide food, shelter, education, and legal protection to the recently emancipated slaves” (Hall 266), and even heard cases where the state judicial system was inadequate or lacked due process (266). According to Paul Cymbala, the Bureau also supervised contracts — although that might well have reinforced the power of “contract slavery” by encouraging freedmen to voluntarily sign such contracts.

Regardless of the racial basis of such contracts, the law continued to pretend, at least into the twentieth century, that labor contracts were the result of free bargaining between equal parties. In Allegeyer v. Louisiana, 165 U.S. 578 (1897), the Supreme Court explained that the Fourteenth Amendment guaranteed “liberty of contract” — 

the term is deemed to embrace the right of the citizen to be free in the enjoyment of all his faculties; to be free to use them in all lawful ways; to live and work where he will; to earn his 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.

Thus, the Fourteenth Amendment had shifted from a device to free enslaved labor, to one that consigned laborers to effective enslavement and terrible working conditions — provided there was a contract to that effect.

No State shall … pass any Bill of Attainder, ex post facto Law, or Law impairing the Obligation of Contracts.

In Law in America: A Short History, Lawrence Friedman explains that “the clause was probably intended to make it impossible for states to interfere with the rights of creditors [or] to go too far in helping out debtors” (53). Legislatures had been known to pass laws relieving influential persons of debt, for example, a practice that was both unfair to those less influential and potentially ruinous to the overall economic system:

There was a shortage of hard money in the country, no real banking system in the modern sense; yet the whole structure of enterprise floated on a sea of credit. Businesses sold on credit and bought on credit. … When one link in the chain began to weaken, there was trouble up and down the line. (53)

Aside from the appearance of this clause in 1787, the law of contracts before the nineteenth century was minimal, especially as compared to it’s more developed cousin, the law of property. But the nineteenth century — which Friedman called “the golden age of contract law” — saw contract law in the United States become the pre-eminent form of private law.

The common law before the nineteenth century required contracts to be fair and reasonable: a “sound price warrants a sound commodity.” But by mid-century, William Wetmore Story’s famous treatise on contracts recognized that this basic understanding had radically altered. Contracts now required only “mutual assent of the parties” and “valuable consideration.” Fairness — roughly defined as similar levels of benefit for each party — was now irrelevant. Kermit Hall‘s American Legal History: Cases and Materials puts it this way:

the law of the nineteenth century recognized and supported the belief that unfair bargains were necessary for the commercial and industrial development of the day.

Martin Horwitz, in The Transformation of American Law, 1780-1860, adds that

judges and jurists finally reject[ed] the longstanding belief that the justification of contractual obligation is derived from the inherent justice or fairness of the exchange. In its place, they asserted for the first time that the source of the obligation of contract is the convergence of the wills of the contracting parties.

Put another way, “the law of the nineteenth century recognized and supported the belief that unfair bargains were necessary for the commercial and industrial development of the day” (Hall 197).

Seixas and Seixas v. Woods

The shift to a caveat emptor model of contract — distinct from the earlier common law and also from then-current European civil law — emerged early in the newly formed United States.

In 1804, a court in New York rejected the idea of an “implied warranty” absent intentional fraud, and required that, “without a warrant by the seller, or fraud on his part, the buyer must stand to all losses arising from latent defects.” Judge Kent argued that this was unlike civil law, but was indeed “well and elegantly vindicated … as most happily reconciling the claims of convenience with the duties of good faith.”

The New York court argued — as courts often did (and do) that this articulation was long-standing, and nothing new at all — even though Martin Horwitz explains that this was not the case in the seventeenth country at all:

[A]s late as 1792 Blackstone’s successor in the Vinerian Chair at Oxford, Richard Wooddeson, proclaimed the “sound price” doctrine to be good law (167).
Nonetheless, the trend away from the “sound price” interpretation of contracts continued.

McFarland v. Newman

A Pennsylvania case from 1839, McFarland v. Newman, Watts (Pa.) 55, argued that any adoption of the “civil law maxim … that a sound article is warranted a sound price” by the common law was a mistake:

The [common-law] judges, in pursuit of a phantom in the guise of a principle of impracticable policy and questionable morality, broke away from the common law.”

Instead, Judge Gibson argues, the “maxim caveat emptor, disposes of all,” unless there is “willful misrepresentation.” Gibson goes on to explain the principle:

the naked averment of a fact is neither a warranty itself, nor evidence of it. … [I]t certainly may be taken into consideration … but the jury must be satisfied from the whole that the vendor actually, and not constructively, consented to be bound for the truth of his representation.”

Seymour v. Delancey, et al.

Back in New York, the highest court of appeals rejected a lower-court opinion finding that equity forbid ordering specific performance of contracts with very unequal levels of consideration. The lower-court judge had argued that there was a

“very great weight of authority against enforcing a contract, where the consideration is so inadequate as to render it a hard bargain, and an unequal and an unreasonable bargain.”

On the contrary, wrote the higher-court majority in Seymour v. Delancey, et al., 3 Cow. (N.Y.) 445 (1824), “mere inequality in value” was “not sufficient … in withholding a decree for specific performance.” As in Pennsylvania, contracts had to be enforced, “where thee is no fraud, misrepresentation, imposition, or concealment of facts.”

Kermit Hall suggests that this New York opinion “anticipates a modern marketplace” where “purchases are constantly made upon speculation” (202). The court prefers to support this new marketplace of “risky investments,” even “at the expense of those who might enter into blatantly unfair bargains out of ignorance” (202).

Fletcher v. Peck

As I noted above, unlike most other areas of non-criminal law, contracts have a constitutional component. As a result, state legislatures cannot “impair” existing contracts.

The implications of this clause were felt early in United States history, when the 1795 Georgia legislature sold land for less than market value — benefitting many legislators and other government officials. The 1796 Georgia legislature then attempted to rescind the sale because of the blatant corruption involved, but in Fletcher v. Peck, 10 U.S. 87 (1810), the Supreme Court held this rescission by the legislature unconstitutional:

The state of Georgia was restrained, either by general principles which are common to our free institutions, or by the particular provisions of the constitution of the United States, from passing a law whereby the estate of the plaintiff in the premises so purchased could be constitutionally and legally impaired and rendered null and void.

Justice Marshall added that, if this were not the case, then “[a]ll titles would be insecure, and the intercourse between man and man would be very seriously obstructed.”

(The issue was eventually handled by an act of Congress in 1814 that indemnified purchasers with a buyout, instead of rescinding the contract of sale.)

Antebellum Conclusions

If it’s fair to say, as Kermit Hall does, that before the nineteenth century “a legally enforceable contract had to be fair,” then it’s also fair to say that caveat emptor — ”let the buyer beware” — triumphed early on the 1900s:

[C]ontract law generally favored sellers over buyers and employers over laborers and served as an instrument that aided the industrial and commercial entrepreneurs of the nineteenth century. This led to the “triumph of contract” over property, tort, and equity, as the law came “to ratify those forms of inequality that the market system produces.” (196-97)

The Civil War did little to change contract law, even if contracts to own persons were no longer enforceable. (Note that the Contracts Clause does not apply to the federal government, so there was no Contracts Clause problem with Abraham Lincoln’s Emancipation Proclamation.)

Modern contract law has added some complexity to the doctrine of caveat emptor. Many states have added statutory provisions that create “implied warrantees of merchantability,” for example, and the United Kingdom has moved away from it for consumer purchases. Still, in general American courts have not strayed too far from the rule (except Louisiana, which continues to follow the civil-law doctrine of “redhibition”: “a sound price warrants a sound commodity”).

Breaking the Vicious Cycle, Stephen Breyer

In Breaking the Vicious Circle, Justice Stephen Breyer tackles the problem of regulation and risk in the American context:

Justice Breyer identifies several systemic problems that plague the regulatory process in the United States. He discusses how public (mis)perceptions, congressional (over)reaction, and technical (un)certainty create a “vicious circle” that increasingly undermines the legitimacy of the regulatory process.  —  Eric J. Gouvin, A Square Peg In A Vicious Circle: Stephen Breyer’s Optimistic Prescription For The Regulatory Mess

Breyer complains that the current approach to risk regulation is irrational. Because the perception of risk drives voters, and therefore public officials, to focus on specific potential harms, there is little appropriate “risk-benefit” assessment employed.

For example, regulators may seek to clean up every aspect of a potential agent — like asbestos — while neglecting to consider whether the benefit of complete cleanup is worth the risk, either monetary or physical:

For example, “cleaning up” asbestos in public buildings causes asbestos fibers that would have remained harmlessly in place to become airborne, increasing significantly the chance of those fibers lodging in workers’ lungs and creating medical problems. (Gouvin, n. 11, 475)

Breyer puts together a table showing that some regulations with costs of $10 million to $5.7 trillion per life saved. In short, the “marginal cost of extra health may daunt all but the most zealous” (Stephen F. Williams, “Risk Regulations and its Hazards,” 1499).

1995′s approach is also uncoordinated. Breyer points out that regulations on space heaters cost $100,000 per life saved, while bans on DES in cattle feed cost roughly $125 million “per statistical life” (22). Stephen Williams explains that Breyer sees this as a “wasteful allocation of resources” that over invests in certain areas and neglects others (1498). In other words, with limited resources available, such uncoordinated and disconnected spending fails to save the maximum number of possible lives per available dollar — and little has changed in 2012.

Regulations also overlap in unanticipated (but likely not unanticipatable) ways:

Proposed rules concerning disposal of sewer sludge, designed to save one statistical life every five years, would encourage waste incineration likely to cause two statistical deaths annually (22).

In other words, disparate agencies assessing and regulating risk tend to focus on their own peculiar zones of risk, and fail to appreciate the big picture of interacting regulations.

In summary, Breyer categorizes the various regulatory failures like those described above as (1) tunnel vision, (2) random agenda selection, and (3) inconsistency.

The Source of the Problem

Irrational regulations emerge from a triumvirate of sources: (1) inaccurate public perceptions; (2) congressional action and reaction, instead of planning; and (3) uncertainties in the regulatory process.

First, even if lay people do think rationally about possible risks — and Breyer thinks they tend to — they “are unlikely to acquire a full grasp of the relevant facts” (Williams, 1500). The lay public typically gets its information from press sources, and the press focuses on the dramatic. A focus on toxic-waste dumps, for example, along with a presentation of higher-than-average cancer rates in nearby areas, may conflate causation with correlation and lead to an irrational (if viewed from a societal perspective, anyway) demand to regulate toxic-waste dumps to reduce the incidence of cancer.

Second, Congress tends to be reactive to what they perceive as voter’s current demands — since these demands are what get them re-elected. (The House, which its short, 2-year election cycle, is even more prone to this than the Senate, which grants 6 years between elections). And with changing Congressional representation, agencies may receive vastly different, and potentially incompatible, regulatory missions.

Third, the regulatory process itself is uncertain, because the science of risk is uncertain. It is essentially impossible to set up a double-blind, controlled study of the effects of small amounts of benzene on humans over a 60-year period. Instead, researchers use short-term, high-dose animal studies and then extrapolate to the long-term effects on humans.

But rats are not humans, and high-doses of chemicals do not necessarily cause the same effects as low-doses. As Breyer observes, there is “no consistent scientific rational for assuming a linear relation between dose and response” (44).

Statistical and epidemiological studies can get around these particular problems, but introduce their own potential issues — especially around the problems of distinguishing between causation and correlation. Also — impossible to isolate all variable. Variables are never truly independent. Best to look for lots of study — meta-studies — an rather inductive science.

Breyer’s Solution

Breyer has no real solution to the technical problems of the science, other than to let technically trained people — those who understand the problems with the science — make the decisions. He does have many suggestions about how to structure a bureaucracy/technocracy that can better weigh, assess, and decide on policies based on the data that can be generated with today’s science.

His overall solution is quintessentially technocratic, and very much reminiscent of a more European model of regulatory authority. He wants, in the words of Todd Zubler, “an elite and insulated cadre of civil servants” (244) — experts in both science and government — to “unite[] political power with wisdom.” (Breyer, x) This Socratic unity, as opposed to the voting booth, is what creates trust; it “must be central in any effort to create the politics of trust” (81).

More specifically, Zubler says,

Breyer wants to establish a new and prestigious career path by which civil servants could develop regulatory expertise across a number of different governmental agencies. These experienced bureaucrats could then form a small, centralized administrative group that could coordinate and rationalize the nation’s regulatory agenda. Such an organization, according to Breyer, would combine the expertise, broad vision, political insulation, and interagency jurisdiction which are all so lacking in the current system. (244)

Issues

Zubler worries that Breyer’s new centralized bureaucracy goes too far. Other forces can also protect people from risk, including the market and the judicial system:

But … regulation is only needed when market and common law mechanisms fail. To push bureaucratic regulation beyond those situations threatens individual liberty and freedom. (247)

Put differently, Breyer’s European-style, top-down, technocratic system brings efficiency and rationality to bear of the problem of risk. But — interestingly for a lawyer and judge — it neglects the bottom-up tools that are core to the American approach, such as tort law and free-market competition. He proposes a grand, top-down restructuring that does nothing to adjust and improve an individual’s ability to assess and manage risk, such as improved labeling and consumer information and better access to the courts.

The Judiciary

What would be the role of the judiciary in an America where technocratic elites are making regulatory decisions?

Medical device manufacturers have already argued — and won — the case that FDA-approval of medical devices preempts tort lawsuits (Riegel v. Medtronic, 552 U.S. 312 (2008)). On the other hand, drug manufacturers lost their bid for preemption in Wyeth v. Levine, 555 U.S. 555 (2009).

Would — or should — Breyer’s approach preempt lawsuits? For maximum efficiency, it should — but the American system is not about efficiency at all. It’s about checking the power of any one part of government. The judiciary’s role since Marbury v. Madison, at least, is to check the rest of government. But while eliminating this check would fundamentally alter the balance of power, not doing so would severely undermine many gains in efficiency.

Interestingly, Breyer’s unelected, technocratic elite are reminiscent of the federal judiciary itself. It too consists of specialists (in law) who are unelected (they appointed by the President) and unaccountable (except via impeachment, federal judges serve for life). But the judiciary is considered the third branch of American government, and these special attributes serve as its means of checking and balancing the executive and legislative branches. Extending these attributes to Breyer’s new cadre might well create the equivalent of a fourth branch — and would anything less prove effective enough to be worth the effort?

Liberal or Conservative?

Finally, I wonder how to characterize Breyer’s proposal: is it liberal, conservative, or something else? In many respects, his solution is extremely conservative: it presumes a distrust of the public that is reminiscent of conservative distrust of poor voters, for example. But it invokes a liberal (in the modern sense), governmental solution to the problem, one that is opposed to contemporary Republican views that government is the problem, not the solution. On the other hand, a more efficient regulatory system could eliminate government waste, reform tort law, and free business from burdensome, pointless regulations. A more efficient government is a cheaper government that would require fewer taxes — a popular conservative goal.

Depending on the details, then, Breyer’s reforms could appeal to both Democrats and Republicans — but certainly not to modern libertarians, or to anyone opposed to government on principle. It is, in a sense, anti-individualist, and deeply dismissive of old liberal notions of market-based corrections and individual responsibility.

Conclusions

Still, gains in efficiency and effectiveness would not require such radical changes. Improved cross-agency coordination and more inclusion of scientific experts — perhaps with a more limited version of Breyer’s technocratic bureau — might provide major gains without requiring fundamental readjustments of the American system.

My short opinion? Breyer effectively identified major systemic problems with the American regulatory system, but his full proposed solution is simply impractical in the United States (perhaps especially in 2012) — but more limited versions would still provide useful reforms. But any of this would require greater trust and respect in science — and a philosophical uniting of virtue and wisdom by scientists is not enough to overcome the current anti-intellectual and anti-science beliefs prevalent today in the American Right:

“The dangers of carbon dioxide? Tell that to a plant, how dangerous carbon dioxide is.”  —  2012 GOP presidential candidate Rick Santorum.