The Bear’s Lair: The real Supreme Court issue

(10th anniversary reprint of a Golden Oldie from July 11, 2005 — I’m away this week.)
Discussion following Supreme Court Justice Sandra Day O’Connor’s retirement has centered on her potential successor’s views on abortion and wrongful imprisonment, the two areas in which the Angry Left is most hostile to the George W. Bush administration. Yet in reality there is a much more crucial question from the right: what is that successor’s view on private property rights? As the Court’s recent Kelo v. New London decision showed, those rights are by no means secure.

For those who didn’t follow it, the Supreme Court decided June 23, by a 5-4 majority (of which O’Connor was not a member and Republican appointees John Paul Stevens, Anthony Kennedy and David Souter were) that the town of New London CT. could seize private property by its right of eminent domain “for public purpose” even when that public purpose was in reality a private development, whose only discernable public benefit was higher property taxes. The only fig-leaf for the property-owner was that such seizure could not take place at random, to a “particular private party” but only pursuant to a “carefully considered development plan.”

By this decision, local governments were given the green light to seize the private property of the politically unconnected, not simply for public uses such as roads and schools, but for private uses by large corporations which find favor with the local government, presumably by the usual methods of campaign donations and nepotism. The prospects for corruption have thereby been immeasurably increased, the rights of the citizen correspondingly diminished. The reference to “carefully considered development plans” is particularly sinister, redolent as it is of Stalin’s 1928 Five Year Plan by which he depopulated Ukraine.

Contrary to popular belief, the rights of private property have never been particularly well entrenched in the U.S. constitution. This is hardly surprising; the Founding Fathers were by and large economically unsophisticated, their views ranging from the simplistic French-inspired agrarianism of Thomas Jefferson to the mercantilist protectionism of Alexander Hamilton. Unlike the leaders of the contemporary British government of William Pitt (in particular Pitt himself and his Trade Secretary Charles Jenkinson) the Founders do not seem to have read Adam Smith, or if they had, they ignored him.

Thus the Founders put a “public purpose” exemption into the right of private property to be free from seizure by the government. As numerous examples of rampant nationalization and expropriation in the Third World have demonstrated, such an exception renders the protection more or less nugatory.

The Founding Fathers also failed to provide security for private contracts against being rewritten by meddling bureaucrats; it was this security that the Supreme Court attempted to impose in its celebrated 1905 decision, Lochner v. New York, though the Court’s rationale for doing so, an extension of the rights provided for in the post-Civil War 14th Amendment, was tenuous to say the least.

In Lochner, the Supreme Court held that the state of New York did not have the right to impose arbitrary restrictions on the working hours of employees of Lochner’s New York bakery. The Court (Justice Rufus W. Peckham) determined that the law in question was an arbitrary interference with the right of personal liberty to contract as he sees fit – there being no reasonable right to interfere with the liberty to contract by determining the hours of a baker. “The general right to make a contract in relation to his business is part of the liberty protected by the Fourteenth Amendment, and this includes the right to purchase and sell labor, except as controlled by the State in the legitimate exercise of its police power.” “Are we all … at the mercy of legislative majorities?” Peckham asked plaintively.

The law was held not to involve the safety of the baker, who was adult, intelligent, and not threatened by his power to negotiate hours of employment. The state’s justification for this law under health and safety was held to be a pretext because the public interest was not sufficiently affected by this act, there being no demonstrable causal link between the labor hours of a baker and the quality of his product or his own health.

The Court’s decision was attacked in the dissent of Justice Oliver Wendell Holmes, who claimed that the Constitution was not intended to embody a particular economic theory. But property rights being central to any well ordered economy, embodying them is precisely the job of a well designed constitution if the country concerned is to flourish economically.

The ability of government to seize private citizens’ and corporations’ property arbitrarily, or to interfere arbitrarily in contracts between private individuals or corporations, is wholly detrimental to economic good health, and the constitution is not doing its job if it does not protect against it. Custom and tradition may make expropriation rare (as historically in the United States if you were not a Native American) but they are no protection against expropriation in an era such as the present when such customs and traditions are increasingly disregarded.

The first crack in the protection for property provided by Lochner was the Supreme Court’s decision in the Gold Clauses cases in 1935. Franklin Roosevelt, on coming to office in 1933, had taken the United States off the Gold Standard, had devalued the dollar against gold from $20.67 per ounce of gold to $35 per ounce, and had retrospectively invalidated the clause in many loan agreements from the 1920s and before that provided for repayment in gold. This was a retroactive devaluation of gold clause bonds by about 40%; it was justified on the feeble grounds that the clauses really provided for repayment in money rather than metallic gold, and that monetary policy was a matter for the President and Congress. An outrageous decision, it at least could be taken as a one-off, particularly in view of the Supreme Court’s courage in 1935-36 in invalidating some of the Roosevelt administration’s other unconstitutional depredations against business.

However, once Roosevelt had scared the Court witless by his attempt to pack it, and had begun to appoint judges whose economic views were in line with his own ill-considered maunderings, Lochner’s downfall was swift. It came in U.S. v. Carolene Products Co. (1938) in which Justice Harlan Fiske Stone ruled that, contrary to Lochner, the Fourteenth Amendment and the remainder of the Constitution did not in fact protect property against the depredations of an errant legislature. Indeed in his Footnote 4, which later became constitutional gospel, Stone opined that property rights were the only rights and freedoms NOT covered by the Fourteenth Amendment, so that economic freedom was to be placed in a distinctly inferior category to freedom of every other kind.

Conservative lawyers such as Robert F. Bork (defeated for confirmation in a famous Donnybrook when President Ronald Reagan nominated him to the Supreme Court in 1987) object to Lochner on the grounds that the Constitution does not give the Supreme Court the right to overturn the legislature, approve of the Carolene decision because it overturns Lochner, and then disapprove of Stone’s Note 4, because it opens the door to a vast new field of judicial self-aggrandizement in social matters. Constitutionally, Bork may be correct. Economically, it can be stated without a shadow of doubt that if the Constitution does not contain the protections to private property claimed by the Supreme Court in Lochner, it should.

Stone’s distinction whereby the Supreme Court cannot overturn the legislature on matters of property rights but can in matters of social policy is precisely the reverse of the proper position.

The legislature is elected to impose the social policy desired by the majority of the electorate; it is therefore reasonable that in that area the majority will should prevail. In the economic area, on the other hand, neither the legislature nor the electorate as a whole has sufficient understanding of economic matters to determine what the correct approach should be. Furthermore the legislature is only too ready to accept special favors from particular lobbies, or to attempt to bribe the electorate with government handouts or, better still, with goodies secured at business’s expense. It is in the economic area, therefore, that a wise Supreme Court should be able to overrule the legislature, protect the rights of private property, and ensure that economic freedom is maintained.

In an ideal world, we would get a constitutional amendment that both protects private property from being seized by government and protects private contracts against arbitrary government interference. Such an amendment would correct the failures of the 1787 Constitutional Convention and restore the U.S. Constitution, in the economic area, to a document that would have passed muster with William Pitt and his successor as Prime Minister Robert, Lord Liverpool (Jenkinson’s son). This is not an original thought; the need for such an amendment was the central theme of Ayn Rand’s 1957 “Atlas Shrugged.”

In the world we are unlucky enough to live in, with big government, huge lobbies and no Randian heroes, this is probably too much to hope for.

There is an intermediate step, however, and that is to strive for a Supreme Court that protects the private property rights overturned by Kelo, and the sanctity of contract upheld by Lochner. Clearly, there is no guarantee that electing even a succession of Republican Presidents will achieve this – after all, Kennedy, Stevens and Souter voted for Kelo, while even Bork, the lost Supreme Court martyr of the Right, is unsound on Lochner.

However, there is one recent judicial nominee who does understand the need for Lochner and has said so publicly: Appeals Court Judge Janice Rodgers Brown, confirmed by the Senate in June as a result of the “no filibuster” deal between moderate Republicans and moderate Democrats. Brown, as an African American woman, has considerable protection against attacks from the Left on “white male” judges yet like Clarence Thomas (who was completely sound on Kelo) she offers the best chance available for extension and protection of our vulnerable property rights. In particular, she has denounced Holmes’ dissent from Lochner as “simply wrong.”

The alternative, the nomination of a “moderate” who can win Senate confirmation (even if, like President Bush’s friend Attorney General Alberto Gonzales, the left object to him on unrelated issues) is too unpleasant to contemplate. It cannot be supposed that local governments, having by Kelo gained this unexpected power to dispossess ordinary citizens, will fail to use it, and indeed they are likely to extend its use so that any old piece of paper can be justified as a “carefully considered development plan” if a big campaign donor wants somebody’s house. Ordinary restraint will not stop them; there’s too much money involved.

As Kennedy, Souter and Stevens showed moderates, particularly those like Gonzales whose political instincts override any principles they may have, cannot be relied upon to protect us. “Extremism in the defense of liberty is no vice” said Barry Goldwater in 1964. Nor is extremism in the defense of our private property a vice, and Bush, if he nominates a moderate to the Supreme Court, is no friend on this issue of ordinary Americans.

(The Bear’s Lair is a weekly column that is intended to appear each Monday, an appropriately gloomy day of the week. Its rationale is that, in the long ’90s boom, the proportion of “sell” recommendations put out by Wall Street houses declined from 9 percent of all research reports to 1 percent and has only modestly rebounded since. Accordingly, investors have an excess of positive information and very little negative information. The column thus takes the ursine view of life and the market, in the hope that it may be usefully different from what investors see elsewhere.)