Popular Law-making
by
Frederic Jesup Stimson
Part 3 out of 8
civil service, a statute which gives a respectable antiquity to our
laws making a privileged class of veterans or the descendants of
veterans of the Civil and Spanish Wars. Under Cromwell they could
exercise any trade without apprenticeship; a recent South Carolinian
statute providing that Confederate veterans could exercise any trade
without paying the usual license tax was held unconstitutional by the
Supreme Court of South Carolina itself.
VI
AMERICAN LEGISLATION IN GENERAL
Before approaching the actual field of American legislation, it may be
wise to make a few general statements concerning it. It was some fifty
years after the adoption of the Federal Constitution before it began
in great bulk, but to-day we find in the States alone forty-six
legislative bodies, and two of Territories, besides the Federal
Congress and the limited legislatures of our insular possessions.
Nearly all of these turn out laws every year; even when the
legislatures meet biennially, they frequently have an annual session.
Only in one or two Southern States have recent constitutions
restricted them to once in four years. It would be a fair estimate
that they average five hundred statutes a year, which would make,
roughly speaking, twenty-five thousand annual laws. It has been well
doubted by students of modern democracy, by Lecky and Carlyle, if this
immense mass of legislation is a benefit at all. Carlyle, indeed, is
recorded to have taken Emerson down to the House of Commons and showed
him that legislative body in full function, only taking him away when
he was sufficiently exhausted, with the query whether Emerson, though
a Unitarian, did not now believe in a personal devil. Administrative
law-making for the machinery of government there must always be, but
for the rest, if we rely on the common law and its natural development
alone, our condition will be far less hopeless than most of us might
imagine. Indeed, as we shall so often find, it is the very ease and
frequency of legislation that has caused our courts and law-makers
to forego the well-tried doctrines of the common law. Many of our
statutes but re-enact it; when they go beyond it, it is frequently to
blunder. Moreover, it is a commonplace that no law is successful that
does not fairly express the thought and customs, the conditions, of
the mass of the people. Professor Jenks of Oxford applies to all other
legislation the term "fancy legislation," or, as we might say, freak
legislation--the caprices and desires of the present legislature or
their constituents, carried immediately into law; and we may say at
the outset that such legislation has rarely proved wise, and
hardly ever effective. It is needless to state that many modern
statutes--like prohibition laws, for instance--are passed for that
very reason. Yet whatever the fact may have been in the past, there is
no doubt that for the future, legislation by the people, constructive
law-making at the popular behest, is the great new fact of
Anglo-American civilization. There has just been brought out an
immense index, under the auspices of the British Government, called
"The Legislation of the Empire, being a Survey of the Legislative
Enactments of the British Dominions, from 1897 to 1907." This
work fills four huge volumes, and gives but the briefest possible
index-headings of the statutes of the British Empire for that period.
Our excellent "Index of Legislation," published by the New York State
Library, contains about six hundred pages, and even this is hardly
more than an index, as the title suggests.
Now, this tremendous increase in legislative output, most notable in
the States of the United States, did not begin with us at once. For
some forty or fifty years after the Revolution our State legislatures
made as little constructive legislation as did the Parliament of
George III. It was with the end of the first quarter of the nineteenth
century that the great increase began. It seems to have taken
democratic legislatures some fifty years to become conscious that they
had this new unlimited power, and not only that they possessed it but
were expected to exercise it; the power of making absolutely new laws,
statutes which did not exist before as law, either by the common law
or by the custom of the people. It is true, our ancestors had some
taste of radical legislation during the Revolution, and the checks of
the State constitutions were adopted for that reason; but subject only
to this limitation, it was the first modern experiment in popular
legislation. The great wave of radical law-making that began with the
moral movements--the prohibition movement, the anti-slavery movement,
and the women's rights movement--of the second quarter of the
nineteenth century, lasted down until the Civil War. After that
there was a conservative reaction, followed by a new radical wave in
reconstruction times, which ended with another conservative reaction
at the time of the first election of President Cleveland. Since then,
new moral or social movements, mainly those concerned with the desire
to benefit labor and repress the trusts, with the desire to protect
women and children, seem to have brought up a new radical wave, the
progress of which has hardly ended yet. Before the Civil War, the
women's rights movement and the anti-slavery movement always worked
together. They were in great part composed of the same persons. In
fact, the historical origin of the women's suffrage movement was a
large abolition meeting held in England, but attended by many women
delegates from America, where they excluded a leading American woman
abolitionist and would only allow her husband to take her seat in her
place. We shall, of course, consider this precise question later, and
pause now merely to note the fact that with the anti-slavery movement,
ending with the adoption of the war amendments and the women's
suffrage movement, ceasing to progress soon after, there came the
period of conservative reaction, or, at least, of quiescence, which
lasted down to the recent labor and social movements that have caused
our increasing mass of constructive legislation in the last few years.
It is true that some of the far Western Territories adopted women's
suffrage soon after being made States, or at the time they were
admitted; but no other State, even of those surrounding them, has
followed their example, though the people have repeatedly voted on the
point. Whatever progress the cause may have made in England, or in the
larger cities of the East, I think that no unprejudiced observer would
say that it looks so near to accomplishment as it did in the twenty
years preceding the Civil War. Then, also, there was during the same
decades a great increase in personal property; that is to say, in
corporate stocks and bonds, the kind of property most easily attacked
by legislation; but the very possession of such securities by large
numbers of the people tended to make them more conservative in
ordinary property matters. It is in the times when you have but
farmers on the one side, as in the Shay Rebellion in Massachusetts
after the Revolution, or when the proletariat on the one side is
opposed to the bourgeoisie on the other, as in certain Continental
countries, that you find radical legislation. We were fortunate in
that a large number of our citizens were thus arrayed on both sides of
the question. Property rights, of course, have been granted to women
most completely throughout the Union, but in twenty years they have
made little progress toward the vote.
Blackstone says that democracy is peculiarly fitted to the making of
laws, and calls attention to the importance of legislation, with the
regret that there should be no other state of life, arts, or science,
in which no preliminary instruction is looked upon as requisite; but
by "democracy" Blackstone really meant representative government,
which still acts quite differently from the referendum and the
initiative. Democracies, he says, are usually the best calculated to
direct the end of a law. But in no sense, says Professor Jenks, was
the British Parliament the result of a democracy; while our State
legislatures during the Revolution were, indeed, democratic, and
practically omnipotent, and for that very reason were promptly curbed
by the State constitutions, which were adopted even before the
Federal. And of late the distrust of our legislatures is shown by the
most exaggerated list of restrictions we find placed upon them in the
newer constitutions of the Southern and Western States. Another thing
Blackstone oddly says, is that in legislation by the people they will
show great caution in making new laws that may interfere with their
rights and liberties. Precisely the contrary is experienced. Nobody is
so willing to interfere with the rights or liberties of the people
as the people themselves, or their supposed representatives in the
legislature; and a body or faction of the people is far more ready and
reckless to impose its will upon the others than have been the most
masterful English monarchs.
The recklessness of legislatures has two or three most evil
consequences. They pass foolish or unconstitutional laws, relying on
the governor to veto them, or the courts to declare them void--which
has the effect of shirking their responsibility and imposing unjust
and obnoxious duties on the other branches of government, to which
they do not fairly belong; increases the growing disrespect for
all law, and deteriorates the moral and intellectual fibre of the
legislature itself. Finally, also, it provokes that hypertrophic
modern State constitution of the South and West, which tries to bind
down future legislatures in infinite particulars, thereby again
diminishing their importance and responsibility, making it more
difficult to get able men to serve in them, and, by the frequent
necessary amendment of State constitutions, resulting in a continual
referendum, which nearly does away with representative government
itself.
Moreover, when a law is unconstitutional it should ever be only
because it violates some great natural right of humanity, personal
liberty, property, or the right to common law. When constitutions go
into details which are not substantially connected with these cardinal
rights, they bring themselves into contempt, and justify the growing
prejudice of our labor leaders against them. The people should
believe, as I think they do believe under the Federal Constitution and
under the older ones of the States, that when a law is declared _no_
law by a high court for being counter to the higher will of the
people as expressed in their permanent constitution, it is not on a
technicality, but because some great liberty right is infringed by it.
Yet it is a curious thing that whereas our people only got the power
to legislate by democratic assemblies freely and completely from the
year 1776, in hardly more than a hundred years after their conscious
possession of that power we find a respectably strong popular movement
attempting to reverse it, or, at least, to limit its field. Most of
our advocates of direct legislation by the people assume that a great
mass of law-making would result in practice; probably the contrary
is true; the referendum would destroy more than the initiative would
create. They would go back to a condition of things which, in theory
at least, existed in the England of the early Saxon times; although,
of course, in those days only the freemen, and no women, had the
law-making vote. Anyhow, it is curious that that representative
government upon which we have been priding ourselves as the one great
Anglo-Saxon political invention should be precisely the thing that we
are now urged to give up. In the _Federalist_ there is much discussion
as to whether it is possible to have so big a democracy as the United
States, and the answer made by Hamilton was; "Yes, because we shall
have representative government." But detailed discussion of the
initiative we must leave for a later chapter.
Perhaps we begin to detect the prejudice in the general mind, which is
notable in the works of a few earlier theorists, to prefer statute law
to what is known as judge-made law, on that ground alone. The writer
is not of the school that admits there is such a thing as judge-made
law, but believes the phrase to be a misnomer, at least in ninety-nine
cases out of a hundred. The whole theory of the English law is that
it exists in and by the people and is known of them before it is
announced by a judge, and although the extreme of this theory be
somewhat metaphysical, it is certainly true that a judge is a very bad
judge who does not decide a point of law apparently new or doubtful
according to the entire body of English-American precedent,
experience, rather than by his own way of looking at things. If judges
really made new law, particularly if they made it consciously, it
would be more than "aristocratic"--it would be simply tyrannical, and,
of course, be unconstitutional as well as being an interference with
the legislative branch of government. But it is doubtless this theory,
that it is the statute law that is the democratic kind, which has
given form and body to the vast mass of statutes we are here to
consider. Certain of our legislators seem to be horrified when a court
applies a precedent a hundred years old, still more when it is a
thousand years old, although to the jurist, in most cases at least, if
never since questioned and never grown obsolete, it is entitled to all
the more respect for that reason. Both the labor interests and
the "special interests" resent excessively the recent tendency of
intelligent judges to look at precedent and history. Mr. Debs will
tell you that such matters are aristocratic and reactionary; Mr.
Rockefeller, or his lawyer, that they are both visionary and obsolete.
Yet a statute may only represent the sudden will of a small body of
mediocre intelligence on a new subject (or an old one) which they have
never studied. It is true that if they make a mistake they can amend
it to-morrow; but so, also, may be amended the decisions of the court.
VII
AMERICAN LEGISLATION ON PROPERTY RIGHTS
When we come to the vast field of legislation in the United States,
comprising the law-making of forty-six States, two Territories, the
National Congress, and the Federal District, it is difficult to decide
how to divide the subject so as to make it manageable. The division
made by State codes and revisions, and the United States Revised
Statutes, hardly suits our purpose, for it is made rather for lawyers
than sociologists or students in comparative legislation. The division
made by the valuable "Year Book of Legislation," published by the New
York State Library, comprises some twenty subjects: Constitutional
Law; Organic Law; Citizenship and Civil Rights; Elections; Criminal
Law; Civil Law; Property and Contracts; Torts; Family; Corporations;
Combinations and Monopolies; Procedure; Finance; Public Order; Health
and Safety; Land and Waters; Transportation; Commerce and Industry;
Banking; Insurance; Navigation and Waterways; Agriculture; Game and
Fish; Mines and Mining; Labor; Charities; Education; Military Matters;
and Local Government. This division, however convenient in practice,
crosscuts the various fields of legislation as divided in any logical
manner. The same criticism may be applied to a somewhat simpler
division I have used in tabulating State legislation for the last
twenty years into thirteen columns, the titles of these being, roughly
speaking, Property and Taxation; Regulation of Trades and Commercial
Law; Personal Liberty and Civil Rights; Labor; Criminal Law, Health
and Morality; Government; Elections and Voting; Courts and Procedure;
Militia and Military Law; Women, Children, Marriage and Divorce;
Charities, Education, Religion and Jails; Agriculture, Mining and
Forestry; Corporations, Trusts and Interstate Commerce. Is it not
possible to begin with a broader and more simple division?
Now, all statutes are limitations on a state of pure individualism,
defining this latter word to mean a state of society recognizing
personal liberty and private property, and allowing all possible
freedom of action and contract relating thereto; with a court
administration for the purpose of protecting such liberty and
enforcing such contracts in the courts. The usual rough division of
our constitutional rights, following the phraseology of the Fourteenth
Amendment, is that of life, liberty, and property; but the rights to
life and liberty obviously belong to the same broad field. Our first
division, therefore, may well be that which divides life and liberty
rights from property rights; although in some cases, notably in the
earnings of labor, they would be found to run together. Liberty rights
are multifarious and indefinite; we may, therefore, first take the
field of property as presenting, after all, a more simple subject.
Considering all possible organizations of human society from this
point of view, we shall find that all may be expressed, all at least
that have hitherto been conceived, under the systems of anarchism,
individualism, and socialism, these words expressing all possible
states of human society when expressed in terms of individual liberty,
that is to say, the free exercise of the individual will. Either
one of these may exist either with or without the notion of private
property; though, of course, one's action as to property would be
controlled under a system of socialism, and property itself would have
no legal protection under a system of anarchism. Nevertheless, the
notion of property might still exist and be recognized by the custom
of mankind without any sanction or enforcement from the entire
community, _i.e._, what people call the state. When we are speaking in
terms of property, we use the word _communism_--meaning that state of
society where the conception of property exists, but the law or custom
will not recognize individualism. Communism, therefore, usually
implies ownership by the entire community, while in anarchism there is
no property at all. There has been much confusion in the use of these
terms in the popular mind, and even in ordinary writing. Many people
have confounded, for instance, socialism with anarchism or nihilism,
when the two things are whole poles apart. In the same manner,
communism has been confounded with socialism, although the term should
be used in entirely different connections--communism when we are
speaking in terms of property, socialism when we are speaking in
terms of individual liberty. The word _individualism_ was used by
the present writer in a series of articles entitled "The Ethics
of Democracy," beginning in 1887, as the most convenient term
for describing that state of society where the greatest possible
individual liberty is conjoined with a strong recognition of the right
of private property, substantially the _laissez faire_ school as
it existed in England in the first half of the last century; "the
distinction between communistic and socialistic laws being, that the
former are concerned solely with the taking or redistribution of money
or property; the latter regulate or prohibit men's mode of life, acts,
or contracts, either among themselves or as concerning the state." [1]
[Footnote 1: _Scribner's Magazine_, vol. XV, p. 653.]
Now, property is but the creature of law; and that is to say, in
those of our States which have no common law, of statute. Jurists
and communists are alike agreed on this. "Property is robbery," said
Proudhon; property is but the creature of law, all English jurists
admit. It is, of course, possible to conceive of a social system which
recognizes no right of property, or one which makes all property
belong to the community, or a middle ground which admits the
institution, but holds that every individual holds property subject
to the state's, that is, the organized community's, regulation and
control. A convenient term for this state of affairs to which,
perhaps, in our statutes, we are approaching, is "allowable
_socialism_"; private property is recognized, but its use is
regulated. In England they call it "gas-and-water socialism"; but this
term, though picturesque, is not sufficiently comprehensive, relating,
as it does, only to municipal activities. There is a third variety,
the latest and perhaps the most intelligent of all, that believed in
by leading modern German and American socialists, which we will call
nationalism--the nationalization or municipalization of productive
industry--the science of this doctrine being that private property may
exist in all personal belongings, articles of pleasure, or domestic
necessity, but not in lands, mines, works, or other instrumentalities
used for the further production of wealth.
Whatever the future may bring, we must start with the institution of
private property recognized to its fullest extent. It is expressly
guaranteed in our Federal Constitution, as for the matter of that it
was also in Magna Charta, as clearly as the right to liberty, and
usually in the very same clause. Not only that, but when we adopted
our first State constitutions, from 1776 to 1788, and the Federal
Constitution in 1789, every one of them made express guarantee of this
right. One or two, following the lead of Massachusetts and Virginia,
recognized equality also, or, at least, equality by birth and before
the law; but without exception property was expressly recognized as
one of two leading constitutional rights, and even in some States,
like Virginia, it was termed a natural right. The same thing is
true of the Massachusetts Bill of Rights and in the Federal Fifth
Amendment, though it is significant that the Declaration of
Independence omits the word _property_, and only mentions among
unalienable rights, life, liberty, and the pursuit of happiness--which
some courts have held to include private property.[1] Nevertheless,
under our constitutions to-day, the right is not only doubly, but even
triply, guaranteed; that is to say, by all State constitutions against
State action; by the Federal Constitution against national action;
and finally, by the Federal government in the Fourteenth Amendment
as against State action also. This is the reason why, in any case
affecting a cardinal liberty or property right, a litigant may
carry his case not only through the State courts, which have sole
jurisdiction of ordinary business and domestic matters, but to the
courts of the United States as well.
[Footnote 1: Justice Brewer, in the _Yale Law Review_, for June, 1891.
He holds that under "the pursuit of happiness" comes the acquisition,
possession, and enjoyment of property, and that they are matters which
even government cannot forbid nor destroy. That, except in punishment
for crime, no man's property can be taken without just compensation,
and he closes: "Instead of saying that all private property is held at
the mercy of the public, it is a higher truth that all rights of the
state in the property of the individual are at the expense of the
people."]
When we come to legislation on the subject, or to modern State
constitutions, there is hardly a change in this particular. Naturally,
we find no new legislation confirming the right of property
abstractly, or restating that that institution is part of our
civilization. There is but one significant exception to this
statement. While most of the States in their constitutions declare
that men have a natural right to acquire, possess, and protect
property, and Kentucky and Arkansas go to the length of saying that
the right of property is "before and higher than any constitutional
sanction"--which latter statement is a legal hyperbole--Oklahoma in
its recent constitution, North Carolina, and Missouri state only that
men have a natural right to the enjoyment of the fruits of their own
labor; on the other hand there are recent intimations coming from
Federal sources that individualism or private property rights, at
least, and not anarchism or socialism, are part of our constitutional
system. Before 1907 a Texas district judge refused to naturalize an
immigrant on the ground that he was a socialist and that socialism was
inconsistent with the Federal Constitution; and in that year Congress
passed an act to regulate all immigration of aliens, which excludes,
among other classes, persons who believe in or advocate the overthrow
by force or violence of the government of the United States or of all
government, or of all forms of law--a definition which would exclude
anarchists, but not socialists; and in the case of South Carolina _v_.
United States (199 U.S. 437), the Supreme Court of the United States
gave serious consideration to the question whether State socialism was
compatible with a republican form of government. This is all, so far
as I am aware, that a century and a half of legislation has given us
affirming the abstract right of property, though there are several
constructive statutes and constitutional provisions applied to the
general right to trade or labor, which we shall consider when we come
to that subject.
When a right is expressly guaranteed by the Constitution, we need
ordinarily have no affirmative legislation about it. Liberty and
property being always guaranteed by the State constitutions, it has
not been necessary for the States to legislate to protect them.
Our study of this subject, therefore, will be confined to the
restrictive or limiting legislation affecting private property or
property rights, and of this we shall find plenty. Now there are four,
and only four, methods by which the state, that is to say, American
society as organized into governments, interferes with the right to
property or the enjoyment and use thereof; that is to say, taxation,
which is, of course, general; eminent domain, a peculiarly American
doctrine; the police power; and the regulation of rates and charges.
Some authorities place the last under the police power; but It does
not seem to me that it historically, if logically, belongs there.
Starting with the simplest first--eminent domain, an American doctrine
which, in its simplest form, subjects the land of any one to the need
of the state or, in cases authorized by the Federal Constitution,
of the nation. It is questionable whether it applies to personal
property. It is an American doctrine, for in England where the king
remained in theory the feudal over-lord, it was not necessary for him
or the sovereign Parliament, wishing to take or control land, and
having no constitution protecting property rights against such action,
to invent any new doctrine; but with us all land is allodial. The old
charters of the original States creating tenures in free and common
socage are, of course, obsolete. Everybody is a freeholder, and the
States are not, still less the Federal government, a feudal over-lord.
Nevertheless, the property of every one must be subject to the supreme
common necessity; and the right is absolute in the States, although
limited in the national government by the Federal Constitution. It
is an American constitutional principle; and this principle also
provides, as does Magna Charta and the early charters of England as to
_personal_ property seized by royal purveyors, that full damages must
be paid; and to this general principle our constitutions have added
that the damages must be paid at the time of the taking and the amount
be determined by due process of law; that is to say, in most cases
by a jury. Blackstone says: "So great is the regard of the law for
private property that it will not authorize the least violation of it;
no, not even for the general good of the whole community";[1] a new
road, for instance, cannot be made without consent of the owner of the
land, and the words "eminent domain" do not appear in the text of his
book. But though we hold the contrary doctrine, the rights of the
property owner are sufficiently protected when the taking is directed
by the State, or even by a city or town. The menace to property here,
with the increasing bulk of legislation, comes in the number of _new_
uses, not only directly for the State or for cities and towns, but for
public-service corporations, or often other private corporations, and
associations of persons, who are permitted by legislation to take land
under eminent domain, or, what is often worse, to acquire easements
over it. Most of the States give damages for land not actually taken,
but damaged, though our Federal courts have not held this to be
necessary under the Fourteenth Amendment; but although land can still,
in theory, only be taken for a public use, the number of uses which
our legislation makes public Is being enormously increased. The usual
national purposes are forts, magazines, arsenals, dockyards, and other
needful buildings. Independent of some express permission in the
Constitution, the Federal government has no power to take, or even to
own, land at all within the State limits. Therefore, it is questioned
whether land may be taken for national parks or forest reservations
except in the Territories, where title still remains with the Federal
government. But the State's power of eminent domain is unlimited,
although it began only with the towns or counties taking roads for
highways, and cities and towns appropriating lands for schools and
other public buildings. Probably the only serious addition of a
wholly public use is covered by the general expression, parks and
playgrounds; but the analogy of the highway led to the taking of land
under eminent domain for railroads, when they were first invented,
then for street railways, then for telegraph, telephone, and
electric-light lines, underground pipe-lines or conduits of all sorts,
and finally, for drains, sewerage districts, public, and often private
irrigation purposes. Most of the more complex State constitutions
define at great length to the extent of some twenty or thirty
paragraphs just what purposes shall be considered a public use under
eminent domain. In the absence of such definition, or without such
definition, the number of such uses is being enormously increased by
statute. Thus, reservoirs, storage basins, irrigation canals, ditches,
flumes, and pipes for water drainage, or mining purposes, working
mines, as dumps, hoists, shafts, tunnels, are made a public use by the
constitutions of the arid States, Idaho and Wyoming. So as to water
only in Montana, but in Idaho also to any other use "necessary for the
complete development of the material resources of the State or the
preservation of the health of its inhabitants."[2] And even by private
parties, land may be taken for ways of necessity in many States, and
for drains, flumes, and aqueducts by the constitutions of the arid
States.
[Footnote 1: Book I, p. 139.]
[Footnote 2: These provisions are collated in "Federal and State
Constitutions," p. 159.]
At common law, of course, a man or a set of men, who happen to be
neighbors, would have had no right to take my land for a private way,
or for drainage or irrigation purposes, however beneficial to their
land; still less to take water from my stream across my land to their
fields. But this precise thing can be done in an increasing number of
States, although it has been held unconstitutional in the courts
of one or two of the far Western States, and has even yet not been
decided by the Supreme Court of the United States as to the powers of
the Federal government. Under the broad definition given in Idaho
and Wyoming, you can probably take land to establish a municipal
coal-yard, or dispensary, or anything else that the legislature might
suppose to be for the general health or benefit of the people. Yet
a hotel company would not, as yet, be considered a public use, nor,
probably, a private recreation park. And land taken for one use may be
subjected to other and totally distinct uses without giving any new
right of damages, as was decided in Massachusetts, at least, when land
given or taken for an ordinary city street was afterward occupied by a
steam railroad. A notable limitation on the use of streets, however,
we find imposed by the statutes of New York and many other States,
which provide that no railway shall be placed therein without the
consent of a majority of the property owners or abutters. There is
frequent legislation providing that the betterment taxes collected in
case of public improvement shall not exceed the damages given for the
property actually taken. In the last two or three years there has been
an extension of the doctrine, authorizing cities and towns to take
more land than is actually needed, for the purpose of convenience, or
in order to get a better bargain, and then sell the surplus; but such
laws may be unconstitutional.
Land may, of course, be taken for all municipal purposes, including
public squares or parks, playgrounds, reformatories and penal
institutions, levees, ditches, drains, and for cemeteries; and the
right is being granted to private companies other than those above
mentioned, in Colorado, to tunnel, transportation, electric power, and
aerial tramway companies; in North Carolina to flume companies; in
many States for private irrigation districts; in the West generally to
mining or quarrying companies; in West Virginia and other States to
electric power, light, or gas companies; while in North Carolina,
Washington, and Wisconsin, we find the dangerous grant of this great
power to electric-power companies, which are, in Wisconsin at least,
expressly permitted to flood lands by right of eminent domain in order
to form ponds for power purposes. It is easy to see that under such
legislation everybody holds his land not only subject to public need,
but to the greed of any designing neighbor. Perhaps the most important
question of eminent domain is or was whether it authorized
general schemes of internal improvement made by the State or by a
municipality, or, worse still, by a private corporation chartered for
the purpose. The Constitution of Michigan, with those of the Dakotas
and Wyoming, provides that the State cannot be interested in works of
internal improvement, nor, in North Dakota and Wyoming, engage in them
except on two-thirds vote of the people; nor, in Alabama, may it
loan its credit in support of such works; nor, also, in Maryland,
Minnesota, Ohio, and Wisconsin, create or contract debts for them;
nor, in Kansas and Michigan again, be a party to carrying on such
works. But the Tennessee Constitution declares that a well-regulated
system of internal improvement should be encouraged by the
legislature. So, in Virginia, no town or county may become a party to
any work of internal improvement except roads, and they are frequently
forbidden from borrowing money for such purposes. There is, therefore,
considerable constitutional check to legislation in this direction.[1]
[Footnote 1: See "Federal and State Constitutions," book III, secs.
92, 324, 345 370, 391, and 395.]
Taxation, of course, has from all time been the universal limitation
upon property rights, though it is important to remember that until
the present budget there has not in modern times been an attempt at
direct taxation of the capital value of land in England; Cobbett
records many "aids" of a few shillings per hide of land in
Anglo-Norman times. The earliest taxation was the feudal aids imposed
purely for defensive purposes, for building forts and bridges; later
for foreign wars or crusades. We have traced the origin of the
scutage tax as a substitute for military service and the two great
constitutional principles that all taxation must be with the common
consent of the realm; that is to say, of Parliament, later of the
House of Commons; and must also and equally be for the common benefit.
Theorists have argued, particularly with us, that under the latter
principle protective tariffs are unconstitutional; but even if it be
admitted that they are not for the benefit of the whole people, the
exception is as old as the rule; protective tariff laws, and, earlier
still, laws absolutely prohibitive of importation, being plentiful
on the English statute-books before and at the time this earliest
of constitutional principles appeared. There is a step beyond the
protective tariffs, however, which is naturally mentioned in this
connection, and that is the bounty--sums of money paid to certain
interests and derived from the general taxes fund. Under the Acts of
Congress there has been, I think, only one instance of a bounty; that
is in the case of the Louisiana sugar-growers. In State legislation it
has been a little more usual. Foreign countries, notably Germany and
France, as to beet sugar, etc., have been in the habit of giving
bounties. This precedent undoubtedly suggested it; but these countries
do not enjoy our constitutional principles. There has hardly been a
direct decision on the constitutionality of the Federal bounty, but as
to State bounties we find several, with an increasing tendency to hold
void such laws. There can be no question that they are utterly against
our whole constitutional system. The Supreme Court, when considering
sugar-bounty laws, seems to have thought that it might be sustained
as a compensation made for a moral obligation, the Louisiana planters
having been led into industries from which the protection was suddenly
removed; of such nature must be the justification, if any, for
bounties given in times of flood, fire, or public disaster, which,
however, are really sustained only in the absence of objection and on
the principle _lex non curat de minimis._ The most insidious form of
the bounty, however, is that of exemption from taxation, or, still
worse, granting subsidies or subscribing to the stock and bonds of
public-service, or even ordinary private, corporations. Undoubtedly
the exception has been established in the case of railroads. The
granting of State, city, or county aid to railroads has existed almost
from their invention, probably on the analogy of highways; at all
events, it is too late to be constitutionally questioned now. The
exemption from taxation of private profitable enterprises, such as
mills or factories, is less defensible. Frequently, however, they go
without question, it being to no one's particular interest to do so.
The usual subjects of State bounties were, in 1890, beet-root sugar,
binding twine, iron and iron pipe, potato starch, and rope, with tax
exemptions to Portland-cement works. Ramie fibre continued a favorite
subject of bounty for some years, with seed distributions to farmers,
which were in some States held unconstitutional. In 1896 Utah gave a
bounty on canaigre leather and silk culture. There was an exemption
on salt plants in Michigan, but beet sugar continued the favorite
beneficiary. There has been a reaction against bounty legislation of
recent years. In 1908, for instance, New York repealed its bounty
on beet sugar, and it may be hoped, with greater intelligence
of constitutional principles, that all such legislation will be
abandoned.
Coming to matters of ordinary taxation, of course the first thing to
note is its extraordinary extent. In direct taxation it is not
an unfair estimate to say that the States and their municipal
organizations undertake to impose an annual assessment on real
and personal property which would average at least two per cent.
throughout the country; amounting to from one-third to one-half of the
income derived therefrom. In indirect taxation, duties, and revenue
taxes, a sum far greater is taken from the average household. One
might very much wish that the individual householder might at least
know how large a sum is thus taken from his earnings annually, for it
is safe to say that in no civilized country, not even in the France
before the Revolution, was individual taxation anything like so heavy.
Therefore, we are beginning to find legislation, even constitutional
provisions, carefully limiting the tax rate. The amount of the State
tax is thus limited in probably half the States, mostly Southern or
Western, and nearly all of them limit also the amount of taxation to
be imposed by the counties, cities, towns, school districts, or for
other special purposes. In the North-eastern States such limitation
is not usual, though in Massachusetts and New York it exists as to
certain cities. It may properly be said of such legislation that it
does not appear to be so futile as one might have expected. There
is, of course, a tendency to raise the limit, involving frequent
constitutional amendment, or, in Massachusetts, for instance,
where the limitation is put on only by statutes, by later statutes
authorizing the borrowing outside of the debt limit; for it should be
said that such limitations do usually apply both to the appropriations
and to the funded indebtedness incurred. Still I have not observed
in the last twenty years any repeal of such laws or constitutional
provisions, but rather an increasing number of States adopting them,
from which it may be inferred that they work satisfactorily. Nearly
all the States purport to tax the capital value of both real and
personal property, not, as in England, rents or incomes; and they tax
"tangibles" and also "intangibles." That is to say, they undertake to
tax stocks or bonds or mortgage debts; the evidence of property, as
well as the property itself; and the debt as well as the property
securing It. Some States, such as Pennsylvania, impose a smaller, more
nominal, tax upon stocks and bonds in the hands of the owner, for
the sake of getting a larger return, but in many States, such as
Massachusetts, this legislation would be unconstitutional, as not
proportional taxation.
There is a mass of legislation every year directed to the
assessing and collecting of taxes, tending more and more to become
inquisitorial, requiring the tax payer under oath to furnish full
schedules of his property, with provision for an arbitrary assessment
if he fails to do so. One effect of this has been to drive very
wealthy men from Ohio or other Western States to a legal residence in
the East, where the laws are more lenient, or their enforcement more
lax. The problem is a most important one and I see no signs yet of any
solution in the increasing mass of legislation one finds upon this
subject every year. It is to be noted--what our socialist friends have
never seemed to observe--that just in so far as a man's earnings or
income are taken from him in the form of taxation, you are already in
a state of socialism. That is to say, to that extent is his income
taken from him and administered by the state. This is an observation
most unwelcome to the opponents of capitalism, so-called, who resent
the conclusion that if the State and Federal governments are already
taking forty per cent. of his income from him, a state of perfect
socialism could do no more than take the other sixty per cent. This
whole problem of taxation, indeed, is evaded at present only by the
miserable solution of fraud; hardly any one, except the non-propertied
classes, paying what the law purports to take from them; and the
non-propertied classes only pay it because their taxation, being
indirect, is paid for them by others.
Coming to other forms of taxation, we may distinguish three: Income,
succession, and license. Income taxation in England dates, it is said,
from 1435; but (in the shape of tithes) it is far older. The power of
income taxation (except upon earnings and profits) belongs here only
to the States; just as the sole power of imposing duties on imports is
given to the Federal government. Many of the States impose an income
tax, but I observe no particular increase in that kind of taxation in
the legislation of the last twenty years. A man's income is commonly
taxed with his other property. It is a form of tax far more evaded
here than in England, probably because the English law provides a
machinery for collecting a large part of income taxation from the
persons from whom the income is derived, as, for instance, from the
tenant who pays rent to a landlord; just as with us a corporation
is made to pay the tax on its capital stock nominally due from the
individual owner. The only notable extension of income tax legislation
is in the establishment of the principle of the _graded_ income tax,
which is beginning to be adopted in a few States, as in North and
South Carolina in 1897.
This principle of graduated taxation has, however, been nearly
universal in our next and more modern variety--the succession tax. The
old English precedents are the "aids" and fines for alienation. But
beginning here about 1893, this form of taxation has now been adopted
by nearly all the States, the amount of the tax being graded both
according to the relation of the inheritors to the person from
whom the succession is derived, and according to the amount of the
inheritance itself; the rate of the tax thus varying all the way from
an absolute exemption, as to the wife or children, to a tax as high as
twenty-five per cent. (in New York) in the case of large estates going
to remote relatives. The Federal inheritance tax imposed at the time
of the Spanish war was soon repealed, and this domain of taxation,
with the income tax, is now almost universally employed by the States.
The principle itself can hardly be carried much farther, but it will
be necessary to have some understanding or arrangement between the
States, whereby double or treble succession taxes are not imposed
on the same estate, as notably in the case of the stock or bonds of
railroads chartered in several States, all of which may undertake to
impose full succession taxes upon such stock. It has been held
that succession taxes may be graded even in cases where a State
constitution provides for proportionate taxation, the tax being an
excise tax and not a direct property tax; but this is not so in
respect to income taxes. We may assume therefore that income taxes
must be equal in States which have this constitutional provision,
although in one or two of them recent statutes have exempted a portion
of the income of veterans of the Civil War. This might be sustained as
a pension, pensions being for actual military service constitutional,
and are in the Southern States expressly permitted to Confederate
soldiers and their families--despite the implied prohibition of the
Fourteenth Amendment.
The last form of taxation, that of an excise upon licenses or trades,
is most usual in the South. An increasing number of trades are thus
being taxed or regulated. Sometimes the taxation is put under the
guise of a fee for examination and licensing, sometimes plainly as an
excise tax. Undoubtedly such taxation is against all the history
of our legislation demanding complete freedom of labor and trade.
Nevertheless, it has not been held unconstitutional by the States
except, of course, when touching a trade which is interstate commerce,
though the _examination_ occasionally has been. Such taxation has not
yet become popular in the North, except definitely for the purpose of
examination and license; but it is almost universal in the South, many
States indeed providing by their constitution or laws that all trades
and callings may be thus taxed. These taxes may be arbitrary in
amount, but are sometimes graded according to the amount of business
done. Such legislation has been sustained in so far as it is a tax or
a license imposed for protecting the public health in a reasonable
manner; thus, doctors, plumbers, nurses, dentists, etc., have been
submitted to such regulation, but in the case of blacksmiths its
constitutionality was in one State denied, and the law as to barbers
in several States annulled. Nevertheless, it will always be a popular
method of raising money in the poorer States, where land already bears
its full burden and little personal property can be found.
Commissions of inquiry on this whole subject of taxation are
continually being appointed--we have had two in Massachusetts in
the past ten years--and their recommendations nearly always prove
unacceptable. The probable scientific answer, that you must only tax
property and not money or the evidence of property, and that if direct
taxation thereby becomes too burdensome we must reduce our rate of
expenditure, is a conclusion our legislators are yet unwilling to
accept. The taxation of corporations presents a different problem
and we shall therefore leave it for special consideration with that
subject. The matter of betterment taxes may be dismissed with a
word, as it is hardly, in theory, taxation at all, but rather using
municipal agencies to collect the cost, or part of the cost, of a
local work or benefit. It is, of course, closely connected with the
subject of eminent domain. That is to say, only a public use, or at
least a general local benefit, can justify a betterment tax. There is
still considerable legislation on this matter, confined generally to
the objects of securing a jury trial, or at least a public hearing, on
the amount of the assessment, defining the purposes for which it
may be imposed, as, for instance, paving, sewers, water-works where
public, and--perhaps the most contested case of all--that of parks or
pleasure-grounds; and providing that the amount of betterment taxes
imposed shall not exceed one-half the value of the improvement of the
property, and shall never exceed the amount paid as damages when part
of the owner's land is taken.
By far the greatest mass of legislation relating to property is
concerned with the police power and modern extensions thereof. It
is also by far the most dangerous to property rights, and this for
several reasons: firstly, it involves the destruction of property
without any compensation whatever, not upon payment of damages, as in
the ease of eminent domain; secondly, on account of the extraordinary
extension by our modern legislation of this power to matters not
hitherto deemed necessary for the safety, health, or even the
well-being of the public, vague as the legal application of the last
word is; thirdly, and perhaps most important, because the police
power is usually exercised without any common-law guarantees, without
process of law or jury trial, but by the arbitrary ruling of some
board, or even single commissioner, and often, so far as the statute
is concerned, without a jury or even an appeal from the commissioner's
ruling to any court of law.
I believe this to be the most dangerous tendency that now confronts
the American people--government by commission, tenfold more dangerous
than "government by injunction." Not only is there no liberty, no
appeal to common right and the courts, but all permanent "boards" tend
to become narrow and pedantic or, worse, to be controlled by the works
they are created to control.[1] The constitutionality of such boards
is, of course, always questionable, but the tendency to create them is
perhaps the most striking thing in modern American legislation. Not
only do we find them in enormously increased numbers in all the
States, but even a late President of the United States seriously
recommended that the contracts and affairs of all corporations at
least (and the bulk of modern business is done in corporate form)
should be so submitted to the control or dictation, or even the
nullification, of such an administrative board or commission, and this
again with no appeal to the courts. So audacious an upsetting of
all Anglo-Saxon ideas of the right to law, it may be said without
exaggeration, has never been attempted in the history of the English
people, not even by the Stuart kings, who were most of all disposed
to interfere in such particulars. Wiser counsels deterred the
administration from insisting on this measure, but the fact that it
could be brought up, and that with the approval of a large portion of
the public, indicates how radical our legislation is getting to be in
this particular.
[Footnote 1: Two singular instances happened only the past year: at
common law any one may build railroads, and they are certainly for the
general advantage whether profitable to the owners or not. Yet the
railroad commissions of New York and Massachusetts have recently
in each State prevented the building of most important lines, by
responsible applicants--under the opposition of other railroads.]
It is a commonplace in the law that no court has defined, or ever will
consent to define, the exact limits of this police power; suffice
it to say that in the classic words of Chief Justice Shaw of
Massachusetts, "it is all that makes for the health, safety, or
comfort of the people." As to the health and safety, there can be
little question; but when it comes to indefinite words like "comfort"
or "well-being," too wide a field is left for the imagination. It
has recently been decided that the aesthetic part of life does not
necessarily concern the comfort or well-being of the people. That is
to say, laws forbidding the use of land for the erection of hideous
signs, or forbidding the height of buildings at an inartistic excess
have been declared not to fall within the police power, but under
eminent domain. So of statutes forbidding the taking of a man's
picture, or a woman's portrait for advertising purposes, when not
properly obtained; yet it may be questioned if any law is more
certainly for the comfort of the persons concerned than such a
statute. On the other hand, noisy or noxious trades, mosquito ponds,
trees infected with moths, etc., sawdust in water, offensive smoke,
and, in Vermont, signs, were all made nuisances by statute of one
State or other in 1905 alone. The first historical instance, perhaps,
of destruction of property under the police power was the blowing
up of buildings to check a conflagration, a practice still common,
although its utility was much questioned after the Boston fire,
and which, at common law at least, gave the owner no right to
compensation; but the more usual use of the police power until very
recent years has been limited to the prohibition of offensive trades
in certain localities, and the suppression of public nuisances. Later,
the prohibition of the manufacture of intoxicating or malt liquors,
and the regulation of tenement houses at the orders of the Board of
Health. This led to the regulation or prohibition of certain trades
conducted in tenement houses or in sweat shops, and to other matters
which we shall find it more convenient to consider under the head of
labor legislation.
Whether there are any limits to this power is much discussed. There is
no question that the power must not be arbitrary or utterly without
reason, and of that reason the courts must and do in fact judge.
Taking property for a purpose unjustified by the police power is,
of course, taking property without due process of law. An arbitrary
statute taking the property of _A_ and giving it to _B_, or even to
the public, without compensation has, from the time of Lord Coke
himself, been the classic definition of an unjustifiable law and one
which with us at least is unconstitutional; but our courts wisely
refuse to judge if, when a proper police motive is disclosed in the
statute, it is the _best_ method of effecting the result. This, I
think, is a clear statement of the principle of our court decisions.
If, upon the face of the statute, the court can see no possible
relation to the public health or safety, or, possibly, general
welfare, it will hold the law null in so far as it invades either
property or liberty rights because not under the police power. If, on
the other hand, they can see _some_ relation to the public health,
safety, or general welfare, even though they do not think it the best
method of bringing about the desired result, they will not presume to
run counter to legislative opinion. Of the expediency of the statute,
the legislature must be and is the final judge.
With us the police power is exercised largely for moral reasons. That
is to say, the great instances of its extension have been connected
with moral or sanitary reform. No doubt the police power may broaden
with advancing civilization and more complex appliances and possibly
greater medical knowledge and social solidarity. No doubt purposes
which were once lawful may be unlawful, and property devoted to them
thus be destroyed by a change in the law. Mr. Justice Brewer, of
our Supreme Court, holding the contrary view, was overruled by the
majority, and that decision is final.[1] Not only we, but a State, may
not even make a contract which shall be immune from future extension
of the police power, the Dartmouth College case notwithstanding. For
instance, the State of Massachusetts in 1827 granted a perpetual
franchise to a corporation to make beer. It was allowed, forty years
later, to pass a law that no corporation should make beer, and the
brewery became valueless. The State of Minnesota granted a perpetual
franchise to a railroad to fix its own fares. Twenty years later
it took away that right, thereby, as claimed, making the railroad
property valueless; the railroad had no remedy. A man in Connecticut
had barrels of whiskey in a cellar for many years, but the State was
allowed to pass a law prohibiting its sale; which, of course, had he
been a teetotaler, would have deprived that property of all value, and
in any case, of all exchange value. A man in Iowa owns one glass of
whiskey for several years, and then a law is passed forbidding him to
sell it; the law is valid. A youth in Nebraska buys tobacco and paper
and rolls a cigarette. The State afterward passes a law forbidding
smoking by minors. It is a crime if he light it. Sufficient has,
perhaps, been said to show the extraordinary scope and elasticity of
this, the widest, vaguest, and most dangerous domain of our modern
legislation, though perhaps we should add one or two striking
cases affecting personal liberty, as, for instance, a citizen of
Pennsylvania marries his first cousin in Delaware and returns to
Pennsylvania, where the marriage is void and he becomes guilty of a
criminal offence; a white man in Massachusetts who marries a negress
or mulatto may be guilty of the crime of miscegenation in other
States; a woman might work fifty-eight hours a week in Rhode Island,
but if she work over fifty-six in Massachusetts may involve her
employer, as well as herself, in a penal offence.
[Footnote 1: Mugler _v_. Kansas, 123 U. S, 623.]
The most valuable of all police legislation is, of course, that to
protect public health and safety; and prominent in the legislation of
the last twenty years are the laws to secure pure and wholesome
food and drugs. Possibly "wholesome" is saying too much, for our
legislative intelligence has not yet arrived at an understanding of
the danger from cold storage or imperfectly canned food, though Canada
and other English colonies have already legislated on the subject, to
say nothing of our tariff war with Germany on the point. One may guess
that ninety-nine per cent. of the present food of the American people,
leaving out the farmers themselves, is of meat of animals which have
been dead many months, If not years, and from vegetables which date at
least many months back. It is nonsense to suppose that such food is
equally wholesome with fresh food, or that there is not considerable
risk of acute poisoning or a permanent impairment of the digestive
system. Senator Stewart, of Nevada, has shown that nearly fifty per
cent. of the soldiers of the Spanish War had permanent digestive
trouble, as against less than three per cent. in the Civil War, which
took place before cold-storage food was known, or canned food largely
in use. It was hopeless for the States to act until there was
Federal legislation on the subject, as the health authorities had no
constitutional power over goods imported from other States; but the
passage, under Roosevelt, of a national food and drugs act has given
a great impetus to the reform, and by this writing more than half the
States have passed pure-food laws, being usually, as they obviously
should be, an exact copy of the Federal Act. Among the articles
specially mentioned in such legislation we find candy, vinegar, meat,
fertilizers, milk, butter, spices, sugar, cotton seed, formaldehyde,
insecticide, and general provisions against adulteration, false
coloring, the use of colors and preservatives, etc.
Going from matters merely unwholesome to actual poisons, the course of
legislation on intoxicating liquors is too familiar to the reader
to make it necessary to more than refer to it, with the general
observation that in the North and East the tendency has been toward
high licensing or careful regulation, always with local option; while
in the West originally, and now in the South, the tendency is to
absolute "State-wide" prohibition and even to express this principle
in the constitution. How much this extreme measure is based on the
racial question, in the South at least, is a matter of some debate;
and the working of such laws everywhere from Maine to Georgia, of
considerably more. One may hazard the guess that the wealthier
classes have no difficulty in getting their liquor through interstate
commerce, while the more disreputable classes succeed in getting it
surreptitiously. Prohibition, therefore, if effective at all, is
probably only effective among the respectable middle class where,
perhaps, of all it is least needed. In the older States, at least in
Massachusetts, there has been a decided tendency away from prohibition
in the last twenty years, and even from local prohibition in the
larger cities. Worcester, for instance, after being the largest
prohibition city in the world, ceased to be so this year by the
largest vote ever cast upon the question.
Whatever may be said of the strict prohibition of liquor dealing, no
one can have any objection to such laws as applied to cocaine, opium,
or other poisonous drugs, and we find statutes of this sort in
increasing number; while the manufacture and sale of cigarettes
to minors or even in some States, their consumption, is strictly
prohibited, under criminal penalty. Laws of a similar sort were aimed
at oleomargarine when invented, but this probably not so much to
protect the health of the people as the prosperity of the dairymen.
The mass of such legislation has emerged from the scrutiny of the
courts, State and Federal, with the general result that only such laws
will be sustained as are aimed to prevent fraud; but the manufacture
and sale of oleomargarine under that name cannot be prohibited.
Artificial coloring matter may be forbidden, but a New Hampshire law
was not sustained which required all oleomargarine to be colored pink;
so it may be guessed that the laws of those States which make criminal
the sale or use of cigarettes to or by children "_apparently_" less
than sixteen or eighteen, will hardly be sustained as a constitutional
police measure; yet such laws existed in 1890, while the State of
Washington in 1893 made the sale even of cigarette paper criminal.
Another important line of modern legislation consists in the
subjecting of trades to a license for the purpose of _examination_
(the tax feature has been discussed above). Such laws are
constitutional when applied to a trade really relating to the public
health, but as we have found above, black-smithing is not such an
one; when imposed merely for the purpose of raising revenue,
such legislation is undoubtedly constitutional under our written
constitutions, but opposed to historic English principles, which
insisted for seven centuries of statute-making on the utmost liberty
of trade. In a South American republic you have to get a concession
before going into almost any business, even maintaining a shoe-shop,
or a milk farm, which concession is, of course, often obtained by
bribery or withheld for corrupt reasons. It is to be hoped that the
citizens of our States will never find themselves in that predicament.
Still, certain State constitutions, as that of South Carolina, provide
absolutely that all trades may be made subject to a tax, and the
tendency--particularly in the South--to raise revenue in this way is
increasing by leaps and bounds. Among the trades already subjected to
such licensing or taxing, we find doctors, of course, and properly,
pharmacists, plumbers, pedlars, horse-shoers, osteopaths, dentists,
veterinary surgeons, accountants, bakers, junk dealers, coal dealers,
optometrists, architects, barbers, commission merchants, embalmers,
and nurses. Of course it is a motive to novel or irregular trades to
secure a licensing law from the State, for the slight tax insures them
protection. This is the reason that we find common statutes allowing
osteopaths, etc., to be licensed. So far as I have observed, there is
no such statute as yet in any State applying to Christian Scientists.
Police regulation for the _safety_ of the public is found nearly
entirely in the laws regulating labor, factories, mines, or machinery,
and will be accordingly treated in that connection. Laws protecting
the public against fraud, which from earliest times has been a branch
of police legislation, have been of late years numerous, principally
in connection with the prohibition of dealing in futures or sales on
margin, of sales of goods in bulk without due precautions and notice
to creditors, of the issue of trading stamps or other device tending
to mislead the public. Some States have prohibited department stores,
but this legislation has been held unconstitutional, though the early
English labor statutes forbidding to any person more than one trade or
mystery will by the historical student be borne in mind. Usury laws,
of course, are still frequent, but decreasing in number with the
increasing modern tendency to allow freedom of contract in this as
in other matters, except only to such persons as, for instance,
pawn-brokers, who peculiarly require police regulation.
Coming to statutes which merely facilitate business as it now exists,
by far the most important movement has been the successful work of the
State Commissioners on Uniformity of Law in getting their negotiable
instrument act passed in nearly all the States, and in several already
their uniform law statute on sales, only recommended in 1907. Some
progress has been made in getting a uniform standard of weights and
measures, and there is an increasing tendency to prescribe specific
weights and markings for packages--possibly unconstitutional
legislation. Still more important as a change in previously existing
law has been the increasing tendency to make documents other than
bills and notes negotiable. Perhaps this is a matter which requires
explanation to the lay reader.
The early Anglo-Saxon law could not conceive of ownership of property
as distinct from possession, and to their simple minds, when ownership
was once acquired it was impossible to divest the owner of his
property by any symbolical delivery. Hence the very early statutes
making fraudulent sales or conveyances of property without actual
and visible change of possession. The notion of a symbol, a paper or
writing, which should represent that property would probably have
impressed them like a spell or charm in a child's fairy tale. Even
theft with asportation could not alter property rights, even in
favor of innocent purchasers, when the owner did not intend to part
therewith. A moment's recollection of what is now perhaps the most
familiar of Teutonic saga to the ordinary reader, the text of Wagner's
"Ring of the Nibelung," will give ample evidence of that mental
attitude. But the Oriental mind was far more subtile. To the Jews or
Lombards we owe the discovery of that _bill of exchange_--the first of
negotiable instruments, and the first historically to bring into
our law the legal concept of a symbol of ownership which might be
instantly transferred with an absolute change of title in the property
thereby represented, and this either to a present transferee or to one
far away. Thus, a simple bill of exchange might transfer the ownership
in a pile of gold in a moment from a man in Venice to a man in London,
thereby (if the law-merchant was respected) freeing the treasure
itself from attack at the hands of the Venetian authorities. And not
only was this change of ownership instantaneously effected by the
transfer of some symbol or document representing it, but there also,
and as a necessary part of the invention, grew up the doctrine that
the transferee was relieved of any claims against the property at the
hands of the previous owner. This is what we mean by negotiable;
and it is essential that the precise meaning of the word should be
understood if we are to understand the importance of this legislation.
Even most business men have a very vague understanding of the
difference between _negotiable_ and _assignable_. Substantially
all property and choses in action are assignable, except personal
contracts; and in ordinary business many of them are assumed to
be negotiable, such as bills of lading, warehouse receipts, trust
receipts, or certificates of stock. Most brokers, or even bankers,
assume that when they have a stock certificate duly endorsed to
them by the owner mentioned on its face they have an absolute and
unimpeachable title to the stock therein represented. Such, of course,
is not the case except for recent statutes in a few States. To take a
familiar example, and I can think of none better to show exactly the
difference between a personal contract non-assignable, a document
which is assignable, and one which is negotiable--a Harvard-Yale
foot-ball ticket. If the ticket is issued by the management to a
person under his name, with a condition that it shall be used by no
one else, it is a contract non-assignable. If it is issued to him in
the same manner, but with no provision against assignment or the use
by another person, it would entitle such other person to whom the
ticket was given to use the seat, but only under the title of the
original holder; and if the assignment was later forbidden, or for
other reasons the right recalled by the management, the holder would
have no greater title to the seat; the contract is _assignable_, but
not negotiable. The assignee takes it merely as standing in the place
of the original holder and subject to all the equities between him and
the management. If, for instance, the ticket were given him by fraud,
the right to use it might be revoked and the transferee would have
no greater right than the original holder. But if the ticket were
_negotiable_, like a bank-note payable to bearer, the holder, not
actually himself the thief, would have an absolute title to the
seat without regard to anything that happened prior to his getting
possession of the ticket.
Now it is obvious that it is for the enormous convenience of business
to have business documents made negotiable. If a banker can loan on a
bill of lading or a warehouse receipt, or a trader can buy the same,
or if a man can give a trust receipt to his banker agreeing that all
his general shipments or stock in trade shall be the property of that
banker until his debt is paid, it makes enormously for the rapid
turning over of capital, and the extension of credit. Of course, an
enormous proportion of business in the United States is conducted upon
credit, and without the invention of the negotiable instrument those
credits could not be secured without an actual delivery of the
commodities intended to secure them. And the custom of business is to
consider most such documents negotiable even when in fact they are not
so. It is more than usual to loan money upon warehouse receipts, bills
of lading, stock certificates or trust receipts of all descriptions,
regardless of the question whether the law of the State makes them
negotiable. Hence the very great tendency to make such instruments
negotiable by statute; and I find many such laws, beginning in 1893
in North Carolina, as to warehouse receipts, while the Massachusetts
statute concerning stock dates from 1884.
A reaction to the English common law is the statute, common in recent
years, prohibiting sales in bulk. It appears to have been a growing
custom for merchants, particularly retail merchants, when in financial
difficulties to sell their entire stock in trade to some professional
purchaser by a simple bill of sale without physical delivery. Nearly
all States have adopted statutes against this practice, although in
several they have been held unconstitutional. The feeling that they
are dishonest is doubtless justified by the facts; but it may also be
truly described as a reaction to the simpler English law as against
Oriental innovations.
The descent of property throughout the United States is regulated by
English common-law ideas. That is to say, there is no primogeniture,
although in early colonial times the older son took a double portion;
and there is, except in Louisiana, complete liberty of testamentary
disposition, although in one or two other States there have been
statutes forbidding a man to dispose of all his estate to a charity
within a short time previous to his death, to the prejudice at least
of his direct heirs. The Code Napoleon, of course, limits testamentary
disposition in favor of these latter, so in Louisiana, only half of
a man's estate can be given away from his children or widow, and not
more than three-fourths of his estate can be bequeathed to strangers
or to charity, to the prejudice even of collateral heirs.
In matters of general business the usual lines of legislation have
been the ordinary ones found in English history. That is to say,
statutes of frauds, usury or interest laws, and other familiar
matters. The only tendency one can note is a broad range of
legislation devised in the interest of the debtor--not only liberal
insolvency laws now superseded by the national bankruptcy act, which
is still more liberal than the laws of the States preceding it, but
statutes restricting or delaying foreclosure of mortgages, statutes
exempting a substantial amount of property, implements of trade,
agricultural articles, goods, land, or even money, from the claims of
his creditors. The exemption of tools or implements of trade goes back
to Magna Charta, it will be remembered, but the exemption of other
articles is modern and American. There is probably, however, no
subject which is so apt to be let alone by our legislatures as that of
business law. Upon that subject, at least, they are fairly modest
and inclined to think that the laws of business are known better
by business men. Imprisonment for debt is, of course, absolutely
abolished everywhere, and in most States a woman is not subject to
personal arrest in civil process. The statutes prevailing throughout
the country, which give special preference to claims for wages or even
for material furnished by "material men," have already been noted. It
may be broadly stated that the presumption is that such claims are
everywhere a preferred debt to be paid out of the estate of the
insolvent, living or dead, in preference to all claims except taxes.
The security of mortgages is very generally impaired by legislation
confining the creditor to only one remedy and delaying his possession
under foreclosure. That is to say, in far Western States generally, he
cannot take the land or other security, and at the same time sue the
debtor in an action for debt for the amount due, or the deficiency.
This, of course, makes of a mortgage a simple pledge. Moreover, with
the practice of delaying possession under foreclosure, appointing
receivers in the interest of the debtor, etc., he is in many States
so delayed in getting possession of his security that by the time he
acquires it he will find it burdened with overdue taxes and in a state
of general dilapidation. We have already alluded to the practice in
California of compelling the executor of a mortgage to submit
himself to the jurisdiction of the local public administrator, which
practically results in a sequestration of a considerable portion of
the property. For all these reasons, many conservative lawyers in the
East, at least, would not permit their clients to invest their money
in mortgages in California, Minnesota, Washington, or the other States
indulging in such legislation, and partly for this reason the rate of
interest prevailing in mortgages is very much higher in the far West
than it is in States east of the Missouri River.
The greatest mass of legislation is, of course, that upon mechanic's
liens, which are burdensome to a degree that is vexatious, besides
being subject to amendment almost every year. In a general way, no
land-owner is free from liability for the debt of any person who has
performed labor or furnished materials on the buildings placed upon
the land, even without the knowledge or consent of the land-owner in
some States, though in one or two instances, notably in California,
such legislation has been carried to such an extreme as to make it
unconstitutional.
The matter of nuisances has been already somewhat covered. Legislation
extending the police power and declaring new forms or uses of property
to be a nuisance is, of course, rapidly increasing in all States. The
common-law nuisance was usually a nuisance to the sense of smell or
a danger to life, as, for instance, an unsanitary building or drain.
Noise, that is to say, extreme noise, might also be a nuisance, and
in England the interference with a man's right to light and air.
Legislation is now eagerly desired in many States of this country to
make in certain cases that which is a nuisance to the sense of sight
also a legal nuisance, as, for instance, the posting of offensive
bills on the fences, or the erection of huge advertising signs
in parks or public highways. Such a law was, however, held
unconstitutional in Massachusetts. There is some legislation against
the blowing of steam whistles by locomotives, although I believe
none against the morning whistle of factories, and some against the
emission of black smoke in specified durations or quantities.
But perhaps the most important legislation affecting simple matters of
business other than the line of statutes already mentioned, making new
negotiable instruments and controlling the title of property by the
possession of a bill of exchange, bill of lading, warehouse or trust
receipt, are those statutes prohibiting the buying of "futures," or
the enforcement of gambling contracts to buy or sell stocks or shares
or other commodities without actual or intended change of possession,
which we have necessarily referred to in our discussion of restraint
of trade (chapter 4). There is a very decided tendency throughout the
country, particularly in the South, to prohibit all buying or selling
of futures, that is to say, of a crop not actually sold, or of any
article where physical delivery is never intended, and it will be
remembered we found plenty of precedent for such legislation in
early English statutes. Gambling contracts may be forbidden only in
specified places, such as stock exchanges; and the buying of futures
may be specially permitted to favored persons, such as actual
manufacturers intending to use the goods; and both such statutes will
be held constitutional and not an undue interference with the liberty
of contract. These matters were largely covered by the statutes of
forestalling in early times. Legislation more distinctly modern is
that against sales in bulk, and against department stores; more
striking still is the statute, already passed in Wisconsin and
Virginia, forbidding all tips, commissions, or private advantages
secured by any servant or agent in carrying on the business of his
principal, his master, or the person with whom he deals; the statute
even forbids a gratuity intentionally given directly from the one to
the other. It is hard to see how the last clause of the law can be
held constitutional, any more than the laws forbidding department
stores, although such commissions may be forbidden to be given
"unbeknownst."
Weights and measures are standardized by the Federal government, and
to these standards the States in practice all conform, but the legal
weight of a bushel or other measure of articles varies widely in the
different States, and the State Commissioners on Uniformity of Law
have tried in vain to get the matter generally regulated. At one time
the weight of a barrel of potatoes in New York City was fourteen
pounds more than it was in Hoboken, across the river. In Massachusetts
the weight of a barrel of onions was increased two pounds to
conform with the uniform law recommended to all the States by the
commissioners; but a representative in the State Legislature coming
from a locality of onion farms lost his seat in consequence, which
inspired such terror in other members of the State Legislature that
the uniform law was promptly repealed, the weight of the barrel of
onions put back at the former figure, and this over the veto of the
governor. It is needless to say that the whole value and object of the
whole movement for uniformity is to have actual uniformity. That is to
say, unless the lawyer or citizen reading the statute can be sure that
it is uniform with the laws of all other States without taking the
trouble to consult them, the reform has no value. But it has proved
almost hopeless to get this through the brain of the average
legislator. The uniform law upon bills and notes, indeed, already
mentioned, is treated with more respect; because, as has been said
above, they regard that as a matter of business, and they have some
respect for the expert knowledge of business affairs possessed by
business men.
The licensing of trades might be made a very valuable line of
legislation to prevent the fleecing of the ultimate consumer by the
middleman. Our ancestors were of the opinion that the middleman, the
regrator, was the source of all evils, and they were also of the
opinion that any combination whatever to control the price of an
article of food, or other human necessity, or to resell it elsewhere
than at its actual market and at the proper time, was a conspiracy
highly criminal and prejudicial to the English people; in both of
which matters they were, in the writer's opinion, perfectly right, and
far more wise than our modern delusion that "business"--that is to
say, the making of a little more profit from the larger number of
people--justifies everything. Now, at the time of the coal famine of
1903, Massachusetts passed a statute licensing dealers in coal; the
law for the municipal coal-yard having been declared unconstitutional.
The object of this statute was not to derive revenue or to restrict
trade, but to regulate profits; and in particular to prevent
the retail coal-dealers from combining to fix the price of coal
themselves. Yet in spite of this legislation, the ice-dealers of
Massachusetts only this year (1910) assembled in convention in Boston
upon a call, widely advertised in the newspapers, that they were
holding the assembly for that precise purpose, that is to say, to
fix and control the price and the output of ice. They were, indeed,
"malefactors of great wealth"; at least we may guess the latter, and
the animus of a more intelligent precedent may some day hopefully be
directed to such definite evils, of which our ancestors were well
aware, rather than blindly running amuck at all. The coal-dealers in
Boston, by the way, made the same argument that is always made, and
was made at Athens in the grain combination of the third century
B.C.--to wit, that they put up the prices in order to prevent other
people buying all the coal and speculating in it; but notwithstanding
that showing of their altruistic motives, the secretary of state
revoked the license of the coal company in question. The statute
also forbade the charging extortionate prices, which, again, was a
perfectly proper subject of legislation under the common law; but,
unfortunately, was carelessly drawn, so that it resulted in a somewhat
cloudy court opinion.
For the matter of uniform legislation the reader must be referred
in general to reports of the National Commission. Their greatest
achievement has been the code of the law of bills and notes just
mentioned. Besides this they have just adopted a code on the law of
sales, and they have recommended brief and uniform formalities as well
as forms for the execution and acknowledgment of deeds and wills, and
have very considerably improved the procedure in matters of divorce.
The best modern legislation concerning trade and business is, of
course, that of the pure-food laws. The Federal law has certainly
proved effective, although it is in danger of being repealed or
emasculated in the interest of the "special interests"; most of the
State laws simply copy it. Undoubtedly the laws should be identical in
interstate commerce and in all the States; and this can only be done
by voluntary uniform action.
VIII
REGULATION OF RATES AND PRICES
This, the last method of infringing upon absolute rights of property,
has assumed such importance of recent years as to deserve and require
a chapter by itself. The reader will remember what precedents we found
for the fixing of prices, wages, and rates or tolls in England. It may
be convenient for our purposes to use these three definite words to
mean the three definite things--prices in the sense of prices of goods
or commodities; wages the reward of labor or personal services; and
rates (the English word is tolls) for the charges of what we should
now term public-service corporations, or in old English law,
franchises, or what our Supreme Court has termed "avocations affected
with a public interest." The reader will remember that the attempted
regulation of prices began early and was short-lived, dating from the
Assize of Bread and Beer in 1266, to the Statute of Victuals of 1362,
hardly a century, and even these two precedents are not really such,
for the first only fixed the price of bread and beer according to the
cost of wheat or barley, just as to-day we might conceivably fix the
price of bread at some reasonable relation to the price of flour in
Minneapolis, and as it was fixed in ancient Greece by the wholesale
price of wheat at Athens[1]--not as it now is, from three to four
times the cost of bread in London, although made out of the same flour
shipped there from Minneapolis; and the two latest statutes expressly
say that they fix the price by reason of the great dearness of such
articles on account of the Black Death or plague, and the consequent
scarcity of labor. Then the Statute of Laborers of 1349 provided that
victuals should be sold only at reasonable prices, which apparently
were to be fixed by the mayor. With these statutes the effort to fix
prices by general statute disappeared from English civilization save,
of course, as prices may be indirectly affected by laws against
monopoly, engrossing, and restraint of trade; and local ordinances in
towns continued probably for some time longer.
[Footnote 1: For an actual report of an indictment and jury trial
for forestalling and regrating wheat in the third century B.C., see
Lysias's oration, translated by Dr. Frederic Earle Whitaker, in
_Popular Science Monthly_, April, 1910.]
Legal regulation of _wages_ lasted much longer in England; and
has reappeared in very recent years, at least in the Australasian
colonies, with a beginning of such legislation in Great Britain and
Ireland and the State of New York. The first Statute of Laborers
merely provides that the old wages and no more shall be given. The
next year, however, in 1350, the exact rate of wages was fixed; and
this lasted for more than two centuries, to the reign of Elizabeth,
the so-called "great" Statute of Laborers consolidating all the
previous ones. It is apt to be the case that when a statutory system
has reached its full development it falls into disuse; and that is
certainly the case here. There is no later statute in England until
1909 fixing directly or indirectly the rate of wages; and it may be
doubted whether the justices of the peace continued to fix them for
many years under the Statute of Elizabeth. More than three centuries
were to go by before this principle reappeared in legislation or
attempted legislation; but in Australia,[1] New Zealand,[2] and
England[3] there has been recent legislation for a legally fixed rate
of wages to be determined for practically all trades by a board of
referees, consisting, as such boards usually do consist, of one
member to represent capital, one to represent labor, and the third to
represent the public or the state. As such third representative almost
invariably votes on the side of the greatest number of voters, this
practically makes a commission hardly impartial. The working of the
system in New Zealand will be found discussed in the _Westminster
Review_ for January, 1910. There is an appeal to the courts from the
rate of wages fixed by such commission; and it appears that out
of four such appeals, in three the decision of the commission was
confirmed, and in the fourth set aside; but the workingmen disregarded
the judgment of the court and struck for a higher wage--contrary to
the whole theory of such legislation, which is to _prevent_ strikes.
This strike succeeding, there has, therefore, been no case so far
where the increasing rate of wages was checked by any appeal to the
courts.
[Footnote 1: So. Australia, 1906, no. 915; 1900, no. 752; Victoria,
1903, no. 1,857; 1905, no. 2,008.]
[Footnote 2: See New Zealand Law of 1900, no. 51; frequently amended
since.]
[Footnote 3: 60 and 61 Victoria, c. 37, 9 Edward VII.]
In the British Parliament last year (and the identical bill has
been introduced in the State of New York under championship of the
Consumers League, as applied to women and children), a bill was
introduced,[1] not backed, however, by the government as such,
although bearing the name of Lloyd-George, providing in effect that
wages might be fixed in this manner in certain definite named trades,
and also in such other trades as might be designated from time to time
by the home secretary. The economic effect of such measures we are not
to discuss. In the United States, except as to public work, they would
be probably unconstitutional.
[Footnote 1: Since enacted, see below in chap. XI.]
Coming, therefore, to public work, we use this phrase for all labor
contributed directly to the State, to any county, city, town, village,
or municipality thereof, to any municipal-owned public-service
corporation, gas, water, etc., company, or, finally, and most
important, to or under any contractor for the same, or any of them.
Some years ago the State of New York adopted legislation to the effect
that in all such public employment the wages paid should be the usual
rate paid for similar work in the same locality at the same time. As
a result of this legislation, many thousands of lawsuits were brought
against the City of New York by persons who had done labor for that
municipality in the past, complaining that they had not in fact been
paid "the prevailing rate," although in fact the work had long since
terminated, and they had been discharged, paid in full, and apparently
satisfied. Shortly after, the law itself was declared unconstitutional
by New York courts. Thereupon the labor interests proposed a
constitutional amendment in 1905, to the effect that "the legislature
may regulate and fix the wages or salaries, the hours of work or
labor, and make provision for the protection, safety, and welfare of
persons employed by the State or by any county, city, town, village,
or other civil subdivision of the State, or by any contractor or
subcontractor performing work, labor, or services for the State or for
any city, county, town, village, or other civil division thereof." A
very small proportion of the voters of New York took the trouble to
vote upon this amendment, although it revolutionized the economic, if
not the constitutional, system of the State, so far as property and
contract rights are concerned; and it was adopted by a substantial
majority. In Indiana there was a statute at one time fixing the rate
of wages in public employment at a minimum of not less than fifteen
cents per hour, but it was held unconstitutional. It is customary in
New England villages to vote annually that the town shall pay its
unskilled labor a prescribed rate for the following year, usually two
dollars per day. The effect of this has been sometimes to cause the
discharge of all but the very most skilful and able-bodied; of those
who had, by working at less than full pay, been kept out of the
poorhouse; and the selectmen of some towns, notably Plymouth, have
refused to obey such a vote. The California Code of 1906 provides a
minimum compensation of two dollars per day for public labor, except
as to persons regularly employed in public institutions. Delaware has
copied the New York statute as to the prevailing rate. Hawaii, in
public labor, provides a minimum wage of one dollar and twenty-five
cents per day. Nebraska goes further, and provides not only for two
dollars per day for public work, but that it must be done by union
labor in cities of the first class, while Nevada has a minimum wage
of three dollars and an eight-hour day for unskilled labor in public
work. On the other hand, the Constitution of Louisiana prescribes that
no law shall ever be passed fixing the price of manual labor.[1]
[Footnote 1: This matter will be found further discussed in chap. XI.]
Coming lastly to _tolls_, or rates of persons or corporations enjoying
a franchise, that is to say, a legalized monopoly, or exclusive
legislation, or special privilege, such as eminent domain, or the
right to occupy the streets; such are, in fact, identical with what we
term public-service corporations, the older, the most universal, and
certainly the most, if not the only, justifiable example of legal
regulation of the returns for the use of property or personal
services.
Whatever may be thought of the economic wisdom of attempting to
regulate any rate or prices by law (and for a discussion of this
subject as to railways, at least, the reader may well be referred
to the valuable treatise of Mr. Hugo R. Meyer, "State Regulation of
Railways"), such legislation was at least in England constitutional;
but in this country, owing to our specific adoption of the principle
of property rights and freedom of labor and hence of freedom of
contract in our Federal and State constitutions, and as it has been
repeatedly decided that to take away the income from property or a
reasonable return for labor by legislation is to infringe on the
property or liberty right itself, we have a universally recognized
constitutional objection which has, in fact, made impossible all
regulation of prices and wages, except as above mentioned, and as we
are now about to discuss. The first attempt to regulate rates (with
the possible exception of some early colonial laws) was the so-called
Granger legislation, as shown in the Illinois Constitution of 1870,
authorizing a warehouse commission to fix charges for elevating grain,
the Act of Iowa of 1874 establishing reasonable maximum rates for
railways, a similar act in Wisconsin of the same year relating to
railroad, express, and telegraph companies, and in Minnesota; which
legislation was all sustained by a divided opinion in the so-called
Granger cases headed by Munn _v._ Illinois, 94 U.S. 113.
In the many years which have elapsed since this famous decision, the
clouds have rolled away and the shape and basis of that apex of our
jurisprudence been fairly surveyed. It will appear, I think, to any
dispassionate jurist to have been rightly decided, at least as to
the railroads, though the reasons given by Chief Justice Waite are
unsatisfactory and have little logical basis. The true basis of
regulation of rates at the common law and in English history was
_monopoly_; either a franchise directly granted by the crown, such as
a bridge, ferry, or dock, or one which was geographically, at least,
exclusive, like a dock without a franchise. As Lord Ellenborough said
in the decision quoted by the Chief Justice himself: "Every man may
fix what price he pleases upon his own property, or the use of it; but
if for a particular purpose the public have a right to resort to his
premises and make use of them, and he have a monopoly in them for that
purpose, if he will take the benefit of that monopoly, he must, as an
equivalent, perform the duty attached to it on reasonable terms." "_If
for a particular purpose the public have a right to resort to his
premises_"--this important qualification from now on seems to have
been lost sight of in the majority opinion. Quoting the early
precedents such as that statute of William and Mary regulating the
charges of common carriers--and our readers will remember many
more--and the case of cabmen whose charges are regulated by city
ordinances--but they are given stands or exclusive privileges in the
streets--the chief justice concluded with the startling proposition
that "if they do not wish to submit themselves to such interference,
they should not have clothed the public with an interest in their
concerns." But the public has an interest, as was afterward pointed
out in dissenting opinions, in the price of shoes; yet it has never
been supposed that that gave any power of legal regulation of factory
prices. A still stronger case is that of inns or hotels, which have
always been "a public avocation." They have had to take in all
travellers without discrimination; yet there is not a vestige of
legislation in the English statute-book regulating the prices to be
charged by hotels. Indeed in early times most employments--millers,
barbers, bakers--were public in the sense that the man could not
refuse a job; yet their prices were never regulated. Yet it was upon
this phrase, "_public employment_" or "_private property affected with
a public interest_," taken from the opinion of Justice LeBlanc in the
London Dock Company case, decided in 1810, without its context, that
the chief justice built up the whole reason of his decision. The
_decision_ in Munn _v._ Illinois, subject to court review as to
whether the rate be confiscatory, remains good law, but the _opinion_
is still open to question; and indeed the most recent decisions of the
Supreme Court show a desire to get away from it.
Some writers endeavor to justify, under our constitutions, the
regulation of rates by the principle of eminent domain; but this
source seems far-fetched and unnecessary. It is, of course, done under
the police power; but the precedent for that use of the police power
is to be found in the history of English law and statutes. Thus we
have noted in the Statute of Westminster I, A.D. 1275, that excessive
toll contrary to the common custom of the realm was forbidden in
market towns. The very phraseology of this statute indicates the
antiquity of the doctrine that tolls must be reasonable; but "toll"
was always a technical term, not for ordinary prices of commodities,
but for a use or service which was in some way dependent upon law or
ordinance. In the very opinion of Chief Justice Waite, he quotes Lord
Hale, saying that the king "has a right of franchise or privilege,
that no man may set up a common ferry without a prescription time out
of mind, or a charter from the king," and so later he quotes Lord Hale
as saying that the same principle applies to a public wharf "because
they are the wharves only licensed by the king." We also found
legislation fixing rents and so on in staple towns, and consequently
of the charges of property owners therein, such towns having grant of
a special privilege. The early law books are full of cases showing
that discrimination and extortion were unlawful, even criminal,
offences. And finally, as Chief Justice Waite points out, we find the
rates of carriers fixed by law in 1691. Ordinary carriers, not having
the right of eminent domain such as express companies, might to-day be
considered to have no legal monopoly, and indeed, possibly for that
reason, the regulation of charges of express companies has not yet
been attempted; but in King William's time it was doubtless considered
that the carriers had special privileges on the highways, as indeed
they did.
It seems to me, therefore, that the real reason, both logical and
historical, for regulation of rates rests on the fact that the person
or corporation so regulated is given a monopoly or franchise by some
law or ordinance, or at least a special privilege from the State; or
at least that he maintains a wharf, a bridge, or a ferry, or
other avocation which (really for the same reason) has, from time
immemorial, been subject to such regulation. This, indeed, has been
the doctrine officially adopted by the Commonwealth of Massachusetts
in its legislation--"Where monopoly is permitted, State regulation
is necessary." The new "Business" Corporation Act of 1903 makes the
express distinction between public-service corporations and all other
private corporations for gain: it applies to "all corporations ...
established for the purpose of carrying on business for profit ... but
not to ... railroad or street railway company, telegraph or telephone
company, gas or electric light, heat or power company, canal, aqueduct
or water company, cemetery or crematory company, or to any other
corporations which now have or may hereafter have the right to take or
condemn land or to exercise franchises in public ways granted by the
commonwealth or by any county, city, or town." The implication is that
such other corporations are not given the entire freedom of action and
contract conferred by this Business Corporation Act. Where the State
creates a monopoly, it puts the public at the mercy of the grantee
of that franchise. Therefore, it is logical and just that it should
regulate the rates. The test, however, is not and cannot be, that the
man is ready to serve all comers, or even that he is compelled so to
do; hotel-keepers, barbers, restaurants, doctors, etc., have never
had their charges regulated by law. In early days most tradesmen were
compelled to serve any and all, at an equal price, under liability
for damages.[1] Mills, indeed, have always been subject to have their
tolls regulated; at least, a certain proportion of the grist had to go
to the miller; but even if it be held they had no peculiar franchise,
the exception is as old as the rule.
[Footnote 1: Holmes J., _ex banco_, in United States _v_. Standard Oil
Co., March 14, 1910.]
It is further noteworthy that since the Granger cases themselves,
there has been no extension of the doctrine of Chief Justice Waite to
other trades or industries, while the extent of the doctrine, that is,
the amount of regulation permissible under the Constitution, has
been very much limited. Waite's opinion gives no intimation of any
constitutional limit whatever, but dozens of the decisions of
the Supreme Court since draw the limit this side of the point of
confiscation; that is to say, at a "reasonable return," whatever that
phrase may mean. It was, indeed, at first extended to semi-private
grain elevators on the prairies, to elevators monopolizing the water
front of Buffalo, New York, and to floating elevators in New York
Harbor, the first and last of which show certainly no element of legal
monopoly, while the Buffalo case at most only a geographical one.
Still, elevators were the subject of Munn _v_. Illinois itself.[1] And
it has never been extended to a mere _de facto_ or "virtual" monopoly
arising only from the accident of trade. Moreover, in matters of
interstate commerce, although it might have been argued that such
affairs were left absolutely to the plenary power of Congress, which
might well, if it chose, pass laws preventing any railroad from
engaging in interstate business, except at a certain rate per mile for
passengers or freight--or that no vessel should be allowed to carry
passengers or freight from foreign countries except at a certain price
per head or per ton--yet the Supreme Court seems to have held that
even this plenary power over commerce expressly given to Congress in
the Constitution, is limited by the ordinary property guarantees of
that instrument; possibly because the Fifth Amendment is of later date
than the body of the Constitution.
[Footnote 1: We may divide monopolies into legal, geographical, and
_de facto_, or "virtual" monopolies--phrases which sufficiently
describe themselves.]
We thus find that the earliest legislation regulating rates was that
of the States. It was thirteen years after the Iowa statute above
referred to that the Interstate Commerce Act was passed, which was
supposed to give a power--afterward denied by our Supreme Court--to
the Interstate Commerce Commission to fix rates. It certainly did give
them power to find, upon complaint, what was a reasonable rate, which
was _prima facie_ evidence in case of appeal. In hundreds of cases
actual rates were complained of, in probably many more discrimination
was complained of, and, according to Mr. Meyer, the commission was
found by the Supreme Court to have decided rightly about half the
time. In 1903 came the intelligent Elkins Bill against discrimination,
which merely re-enacts the common law, and up to within two or three
years has proved the only really effective measure of controlling the
rates themselves. In 1906 came the Hepburn Act under Roosevelt, giving
general power to the commission to fix rates upon complaint, to make
joint rates, extending the statute to the oil pipe-lines, express
companies, and sleeping-car companies, and going to the verge of
the Constitution in an effort to provide that rates fixed by the
commission should take immediate effect. So far as most recent
decisions go, however, this great statute has not altered the position
of the Supreme Court of the United States as to the constitutional
necessity of a reasonable return to the carrier, and perhaps the
cardinal question remains to be decided, whether such rate-making
power is legislative, and, if so, may under the Federal Constitution
be delegated by Congress to any board. Congress merely proclaims that
the rates shall be reasonable and without discrimination--both mere
expressions of the common law--and leaves the determination of what is
reasonable between the Interstate Commerce Commission and the Supreme
Court, neither of them legislative bodies. The common law may, indeed,
be decided by a judicial body; but it is difficult to see why the
alteration of the common law is not legislation. And this criticism
applies _a fortiori_ to the Taft Bill just enacted (June, 1910), which
gives the Interstate Commerce Commission power to fix rates of their
own motion. When, therefore--if the author may venture to repeat his
words--the commission fix a "just and reasonable" rate,[1] if they are
applying the common law, their act is judicial; if they are fixing
other standards, it is legislative.[2]
[Footnote 1: United States Act of February 4, 1887, as amended June
29, 1906, sec. 15.]
[Footnote 2: Stimson's "Federal and State Constitutions of the United
States," p. 53.]
Coming to the States again, this constitutional difficulty does not
concern us, for it has been decided that the division of powers into
legislative, executive, and judicial must, as to the States, be
expressly provided in the State constitutions and is not guaranteed
under the Fourteenth Amendment. Broadly speaking, the history of
legislation has been as follows: The States have usually exercised
their rate-making power through a railroad or corporation commission.
New York and Virginia now employ the more comprehensive phrase "public
service" or "corporation" commission. The Massachusetts statute, like
the Granger statutes, dates from 1874. Just as we found in the Middle
Ages in the case of the Black Death in times of famine, so times of
panic with us have always produced radical legislation: this, it
will be noted, is the year after the great panic of 1873. But the
Massachusetts law, the earliest of all, did not and does not authorize
any fixing of rates, or even any finding as to what was reasonable
upon rates. It extends only to the other conditions of service. The
statute is, perhaps, broad enough to permit such a finding as matter
of opinion; but it would have no legal effect. The commission, section
15, were authorized to find that a change in rates of fares for
transporting freight or passengers was reasonable and expedient, and
so inform the corporation and the public, through their annual report.
All the Western States, however, did give such power.
As has been said, no constitutional objection has been sustained by
the United States Court as to this delegation of power, if it be one;
but in later years, possibly dissatisfied with the conservatism of
such boards, we find drastic legislation, particularly in the West
and South, fixing maximum rates, at least as to passengers (it is
obviously difficult, if not impossible, to enact express legislation
as to freight rates). Such legislation stands in as strong (or
stronger) constitutional position, as rates made by the commission;
and only fails when "confiscatory" or when in conflict with Federal
legislation. Perhaps the most notable clash between the States and the
Federal power has been on this subject in this very last year, where
State laws have been annulled and even high State officers enforcing
them restrained by injunction of Federal courts. Still, in the
legislation of all States, I find as yet none overstepping the limits
we have above defined as proper.
The question of the _amount_ of return required by the court is, of
course, a most important one. It is a difficult subject, because no
fixed rule takes any account of risk to the original investment. It is
all very well to say that six or eight per cent, is a fair return on
invested capital, or even on "cost of reproduction"; but when, as to
original promoters, the chance of even any return was as one against
ten of a total loss, _fifty_ per cent. of annual profit would not
be more than a "fair return"! The original Massachusetts railway
legislation seems to contemplate that ten per cent. should be the
normal return on railway stock, for it provides that at any time the
commonwealth may purchase any or all its railroads upon the payment of
the cost, plus ten per cent. a year profit.
Other than in railroads, the main fixing of rates has been in
illuminating gas. Many cities are permitted to legislate on this
point. In New York it was decided that they might so do, provided the
gas company got a fair return on its capital, not including the value
of its franchise; and certainly it would seem to be the height of
audacity to claim more. Much as if a boy, presented by his father with
hens and the feed to support them, were to demand the capitalization
of the value of all future eggs upon going out of business! In
Boston, intelligent legislation was adopted--based on good mediaeval
principles--which allows dividends at a sliding scale according to the
price of gas to the consumer.[1] The great reason, of course, of the
cessation of legislative activity on the part of the States, as to
railway rates, has been that the great bulk of rates appertained to
interstate commerce, or at least must be controlled by the rates of
interstate commerce; so only legislation as to strictly local rates
remains.
[Footnote 1: It will be remembered that the very earliest Statute of
Bread and Ale (1266) established such a sliding scale.]
The two most important questions, aside from that of an actual
extortionate rate (which has hardly ever been claimed) are that of
discrimination, and of the long-and-short-haul clause, which is really
a derivative of the former. We have found the principle against
discrimination time-honored in the common law; but modern statutes
wisely recognize that discrimination only exists when two persons
or two localities are given different rates _under equivalent
circumstances._ There has, therefore, been great dispute what these
words, "similar circumstances and conditions," in the Federal law may
mean. There is no doubt that actual differences in cost of service
make dissimilar conditions; but does geographical situation, such as
is recognized in the long-and-short-haul clause? or still more, the
amount of business offering, or the amount of possible competition?
Very early the Interstate Commerce Commission and our legislation got
to the point of recognizing competition by water; but the competition
of other railroads was a thing harder to recognize. Many people
think they have a right to a fairly equivalent service at a fairly
equivalent cost throughout the United States, and that they have
a right to all the advantages of their geographical position. The
farmers in Westchester County, about New York, thought they had
undoubted reason to complain when the rates on milk were made the same
from their farms to the city as from farms in Ohio; pointing out,
indeed, that they had bought their farms originally, and paid high
prices for the land, for the very reason of its geographical situation
close to a great market. Yet in our courts the economic rule has
usually prevailed; although no legislation, so far as I have found,
recognizes such differences, except under some vague expression such
as service or discrimination "under like or similar conditions."
Whether legislation will ever come to the point of recognizing the
railroad man's shibboleth, "charge what the traffic will bear," is
perhaps dubious. And the new Taft Act, in its long-and-short-haul
provision, takes a long step in the direction of geographical
uniformity and rigidity of rates.
A few examples of modern rate regulation may be given. In 1896 South
Carolina fixed a flat passenger rate of three and one-quarter cents
per mile. Both South Carolina and Virginia have empowered the railway
or public service commission to fix all rates, including telephone and
telegraph. Passenger rates are now usually fixed at two cents per mile
in the East, or at two and one-half cents in the South or West. In
1907 Kansas and Nebraska arbitrarily reduced all freight rates fifteen
per cent. on the price then charged. In 1907 there was some evidence
of reaction; Alabama, in an extra session, repealed her law enacted
the same year prescribing maximum freight rates, substituting more
moderate rates in seven "groups" (which, however, may be changed by
the railway commission!), and also enacted a statute directing the
commission and the attorney-general not to enforce the earlier law;
while the heavily penal Minnesota law was declared unconstitutional by
the United States Supreme Court. In the British empire the power to
fix rates is, of course, unquestioned; and they are, as to railways
at least, generally regulated by law. Canada in 1903 established
a railroad commission, and Nova Scotia in 1908 imposed various
restrictions as to tolls, still the English word for rates. So in
Ontario and Quebec in 1906, and in Tasmania in 1901. In many States,
such as Victoria, the railways are owned by the state, in which case,
of course, no question as to the right to fix rates can arise.
IX
TRUSTS AND MONOPOLIES
Legislation against combinations of properties to bring about
monopoly, or contracts in restraint of trade, is the last field of
legislation we have to consider in connection with property, and
possibly in the public mind the most important. Although the law
against combinations of laborers rests upon much the same principles,
it is perhaps best to give a special chapter to combinations of
property, leaving labor combinations to be treated in that special
connection. The matter has been written up so voluminously that it
might be difficult to say anything new upon the subject, yet for that
very reason it may be as well to analyze it into its simplest elements
at the common law, and then trace its recent development in our
somewhat unintelligent statute-making. At common law, then, these
obnoxious acts may be analyzed into five definite heads: forestalling,
regrating, and engrossing--which have been thoroughly defined in an
earlier chapter and the modern form of which in modern language might
be called restraining production or fixing prices, the buying
and selling of futures or gambling contracts, and cornering the
market--restraint of trade, and monopoly. The broad principles,
however, upon which the gravamen of even these first three rests, is
restraint of trade, which was always obnoxious at the common law.
Contracts in restraint of trade, except such reasonable contracts as
partnership, or the sale of a business with condition not to engage in
the same trade in a certain limited locality or for a certain, limited
time, have always been void at the common law. They are not, however,
criminal except by statute, though a combination in restraint of
trade, etc., was always so. We found many such statutes as we also
found laws which gave a penalty in double or treble damages to the
person injured by such combination or contract. The great case of
monopolies, reported in full in the seventh volume of the State
Trials, is a perfect mine of information on this subject, having been
argued many months at great length by the greatest lawyers, three of
whom later were chief-justices of England. This is not the case of
the playing cards, Darcy's case, commonly called the "Monopoly Case,"
which is briefly reported in Coke and covers a far narrower subject,
the royal grant for a monopoly in the importation (not manufacture or
sale) of playing cards, presumably because Coke's reports are far more
accessible than the somewhat rare editions of the State Trials; but
the great case brought by the British East India Company against one
Sandys, the loss of which would have forfeited its charter and its
business, and possibly put an end to British dominion in the East.
Its charter dated from the early years of Charles II and the 43d
Elizabeth. It brought suit against the defendant, who freighted a
vessel to East Indian ports. Mention in it is made of a charter to the
Muscovy Company as early as Philip and Mary, a much earlier date than
is elsewhere assigned to trading corporations. Hundreds of cases of
unlawful monopolies are cited, among them the case of the tailors of
Norwich, where a combination to work only for certain wages and to
advise others not to work for less and to prevent such others from
getting employment with their own employer, was held a conspiracy and
an attempt to gain a monopoly at the common law. Another case, of one
Peachy, who had by royal grant an exclusive right to sell sweet wine
in London, was held to disclose an odious monopoly at common law and
the king's franchise void.
In the opinion of the writer, had this common law been thoroughly
remembered and understood by our bench and bar, to say nothing of our
legislatures, very little anti-trust legislation by the States
would have been necessary except, again, of course, to affix modern
penalties to such offences. There has, however, been a vast amount
of such legislation. In so far as such legislation has embodied the
common law, it has stood the test of the courts and been of some value
in repressing objectionable trusts or contracts. In so far as it has
gone beyond the common law, it has often proved futile and still more
often been declared unconstitutional by the courts.
To the five principles of the common law set forth above we have,
perhaps, added two new ones. Besides fixing prices, limiting outputs,
cornering the market, contracting in restraint of trade, and acting or
contracting with the purpose of gaining a monopoly--all of which were
objectionable at common law--we have legislated in some States against
the securing of discriminatory railway rates for the purpose of
establishing a monopoly, and against what we have termed "unfair
competition"--that being generally defined to be the making of an
artificially low price in a certain locality for the purpose of
destroying a competitor, or the making of exclusive contracts; that is
to say, refusing to deal with a person unless he binds himself not to
deal with anybody else. This last thing can hardly, however, be said
to add to common-law principles. Nevertheless, some of the newer State
anti-trust statutes prescribe it so definitely that it may be treated
as a modern invention.
All this legislation is extremely recent. In the writer's digest of
"American Statute Law," published in 1886, I find no mention of trusts
in this modern sense, though a special chapter is given to them in
volume II, published in 1892. The first legal writing in which the
word was used and the rise of the thing itself adverted to is, so
far as I know, a contribution to the _Harvard Law Review_, entitled
Trusts, vol. I, page 132; but the trust then had in mind was the
simple early form of the railway equipment trust said to have been
invented in Pennsylvania, which was indeed copied in the first
agreement, so long kept secret, of the Standard Oil Trust; and also
the corporate stock trust, that is to say, the practice then beginning
of persuading stockholders to intrust a majority of the capital stock
of the corporation into the hands of trustees, receiving in return
therefor trust certificates, with a claim to the net earnings of the
corporation, but without real voting power; and there are cases in
which such trusts were sought to be held invalid and enjoined in
equity, sometimes with and sometimes without success.
Before going into the details of anti-trust legislation, it would be
well to sketch its history on the broadest possible lines. Legislation
began first in the States some years before the Federal Anti-trust
Law, or Sherman Act, first enacted in 1890. These earlier statutes,
including the Sherman Act itself, made illegal all contracts or
combinations between persons or corporations in restraint of trade;
and their direct result was to compel the formation of the gigantic
modern trust as we now understand it. Had the Sherman Act, instead of
being called "An Act to Protect Trade and Commerce Against Unlawful
Restraints and Monopolies," been entitled "An Act to Compel the
Formation of Large Trusts by all Persons Engaged in Similar Lines of
Business," it would have been far more correctly described in its
title. For whereas, before this act persons or corporations could make
contracts or arrangements among themselves which were good and valid
working agreements unless so clearly monopolistic as to be held
unreasonable restraint of trade at the common law (which, indeed,
so far as I know, was never done in any American court), after
the Sherman Act was passed all such contracts, combinations, or
arrangements, even when reasonable and proper, were made illegal and
criminal. The only escape, therefore, was to bring all such persons
and corporations in the same trade together in one corporation, and
this is precisely what we now term a trust. Before 1890, in other
words, a trust was really an agreement, a combination of individuals
or corporations usually resting upon an actual deed of trust under
which the constituent parties surrendered their property or the
control of their property to a central board of trustees; since 1890
this kind of trust has practically disappeared and been replaced by
the single large corporation, either a holding company which holds
the stock of all constituent companies, or under still more modern
practice, because more likely to stand the scrutiny of the courts,
a huge corporation, with a charter given by the liberal laws of New
Jersey, West Virginia, or other State, which actually holds, directly,
all the properties and business of the constituent corporations
or persons. The modern question, therefore, has become really the
question of the large corporation, its regulation and its control;
further complicated, of course, by the fact that hitherto there has
been no power to control such large corporations except the very State
which creates them, which is usually quite indifferent to their acts
so long as they pay the corporation tax. It is therefore a question
not only of the large corporation, but of the powers of the States
over each other's corporations and of the Federal government over all.
Until the Northern Securities case, it was probably supposed that a
corporation, being an individual, could not be guilty of a criminal
conspiracy, and consequently could not in itself offend against the
anti-trust acts. That case, and more recent decisions still, show a
disposition of the courts to look behind the screen of the fictitious
entity of the corporation to the merits and demerits of the persons
making it up, and the objects with which they came together and the
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