Economic Rights in the Constitution

2012-06-15 11:14:21

Protection of the rights of property owners has long been a vital function of the Anglo-American legal system. In particular, the English constitutional tradition stressed individual property rights as an important bulwark of freedom from arbitrary government. The Magna Carta (1215) contained a number of provisions that safeguarded property ownership. Foremost among these was the provision that ‘‘no freeman shall be taken, imprisoned, disseised . . . except by the lawful judgment of his peers and by the law of the land.’’ With this language, the Magna Carta sought to secure owners against deprivation of their liberty or property without due process of law.

The property-conscious tenets of English constitutionalism were powerfully reinforced by the political theorist John Locke. He maintained in his famous Second Treatise on Government (1689) that private property existed under natural law before the creation of political authority, and that one of the principal functions of government was to protect property. Locke rejected the view that property could be created only by government. In Locke’s thought, property ownership was closely connected with the preservation of liberty. Property was seen as giving people basic security and was therefore a necessary predicate to the enjoyment of other individual liberties. William Blackstone, in his influential Commentaries on the Laws of England (1765–1769), also attached great significance to the protection of property. He classed the free use and disposal of property as an ‘‘absolute right, inherent in every Englishman.’’ Blackstone stressed the high regard of law for private property and the exclusive dominion of owners, but he noted that the use of property was subject to control by law. In particular, he insisted that English common law mandated the payment of compensation to persons whose property was taken for public use.

Revolutionary Era

By the time of the American Revolution the right to property was central to legal and political thought. Property was viewed as the linchpin upon which other rights rested. Indeed, theAmerican colonists repeatedly invoked safeguards of property rights in their struggle with England. Economic issues, such as taxation without representation and restrictions on colonial trade, were crucial in shaping the drive for independence. The colonists therefore manifested a deep concern for property rights as part of their effort to devise constitutional restraints on governmental power.

Not surprisingly, the initial state constitutions contained a number of provisions to protect the rights of property owners. Several state constitutions asserted that the right to acquire and possess property was a natural right. Some states sought to promote free trade and the incentive to accumulate property by prohibiting grants of monopoly. Echoing the Magna Carta, a number of constitutions also declared that no person could be ‘‘deprived of his life, liberty, or property but by the law of the land.’’ In addition, several states incorporated into their constitutions the common law principle that compensation should be paid when private property was taken for public use. Similarly, the Northwest Ordinance of 1787 included language protective of property ownership and contractual arrangements. Besides law of the land and Takings Clauses, the ordinance stated that no law should ‘‘interfere with or affect private contracts.’’ These property guarantees were forerunners of provisions in the federal Constitution and Bill of Rights.

Notwithstanding the professed devotion to the security of property, the actual behavior of Americans during the Revolutionary era resulted in widespread despoliation of property rights. State legislators enacted bills of attainder declaring named Loyalists to be guilty of treason and confiscating their property without a judicial trial. Similarly, states, most notably Virginia, placed legal obstacles to the recovery of private debts owed to British merchants. Moreover, in the aftermath of the break with England, state lawmakers frequently interfered in debtor–creditor relations with a variety of measures designed to assist debtors. A particular sticking point was the issuance of depreciated paper currency, a move seen by merchants and creditors as amounting to confiscation of their economic interests. The seizure of Loyalist property and the repudiation of debts did not bode well for the security of economic rights in the new republic. As a result, many political leaders became convinced that the states could not adequately protect property ownership.

Constitution and Bill of Rights

Heirs to the English constitutional tradition linking tradition and liberty, the Framers of the Constitution in 1787 were anxious to secure property rights and halt the abuses that characterized the Revolutionary era. They also understood the advantages of private property as the basis for a strong national economy. Envisioning a unified commercial nation, the Framers recognized that uncertain ownership and contractual rights discouraged investment and inhibited economic growth. Many provisions of the Constitution therefore relate to economic interests. The Contract Clause bars states from enacting any law ‘‘impairing the obligation of contracts.’’ Moreover, the states were prohibited from enacting bills of attainder and from making anything other than gold or silver coin legal tender for the payment of debts. The Constitution curtailed the power of Congress to levy ‘‘direct’’ taxes by requiring that such levies be apportioned among the states according to population. Congress was authorized to regulate interstate and foreign commerce, thus encouraging the growth of a national market for goods. Mindful of the emerging importance of intellectual property, the framers gave Congress the power to award copyrights and patents to authors and inventors. It should further be noted that several provisions in the Constitution were concerned with the protection of property in slaves.

 The high priority assigned by the Framers to property rights was further evidenced in the Federalist Papers. In Federalist 54, for instance, James Madison asserted that ‘‘government is instituted no less for the protection of the property, than of the persons of individuals.’’ In addition to the specific provisions relating to economic interests, the Framers anticipated that the structural arrangements of the new federal government, with its system of checks and balances between branches of government, would foster a political climate in which property rights would be secure.

The Constitution as originally drafted did not include a Bill of Rights to guarantee individual liberty. The Framers felt that a Bill of Rights was unnecessary because they proposed to create a national government of limited powers. The absence of a Bill of Rights, however, proved to be one of the major obstacles in winning ratification of the new Constitution by the states. Accordingly, the proponents of the Constitution informally agreed to adopt a bill of rights in order to secure ratification. James Madison took the lead in drafting this bill of rights. For the most part he drew upon traditional guarantees already recognized in state bills of rights or English common law. Madison had long been an advocate for private property rights, and he included important protections for property ownership in the proposed bill of rights. The Fifth Amendment provides in part that no person shall be ‘‘deprived of life, liberty, or property, without due process of law; nor shall a private property be taken for public use, without just compensation.’’ It is revealing that Madison placed this language in the same amendment with procedural safeguards governing criminal trials. This step emphasized the close association of property rights with personal liberty in his mind.

Madison amplified his thinking about property rights in a 1792 essay published shortly after ratification of the Bill of Rights. Madison broadly defined property as including more than physical objects. Madison treated important individual liberties, such as freedom of expression and religious conscience, as forms of property. He cautioned against either direct or indirect violations of property rights by governmental action. Indeed, Madison may well have been seeking to buttress support for civil liberties by associating them with the strong protections afforded private property. The essay suggests that Madison himself would lean toward a muscular reading of the property clauses in the Constitution.

The inclusion of specific constitutional guarantees of property in the federal Constitution led to similar moves by the states. Many states adopted clauses from the Constitution and Bill of Rights when they fashioned their own fundamental laws. State constitutions generally included a Contract Clause, protected persons against deprivation of property without due process, and required that just compensation be paid when property was taken by the state for public use. These state developments reinforced the high standing of property and contractual rights in the constitutional culture. Moreover, it bears emphasis that the Bill of Rights was initially understood as restraining just the federal government. Only the Contract Clause applied to the states and provided a basis for federal court oversight of state legislation interfering with economic rights. It followed that property owners looked primarily to state constitutions as safeguards of their rights. Even where state constitutions did not contain specific property guarantees, state courts tended to treat the rights set forth in the federal Bill of Rights as articulating fundamental constitutional principles. In Gardner v. Village of Newburgh (1816), for instance, the distinguished jurist James Kent ruled that, even in the absence of an express state constitutional provision, owners of land were entitled as a matter of natural equity to compensation when their property was taken for public use.

From the outset of the new republic, federal courts made clear their willingness to curtail state infringement of property and contractual rights. In the important case of Vanhorne’s Lessee v. Dorrance (1795), Justice William Patterson, who had been an active member of the Constitutional Convention, characterized the pivotal role of private property in Lockean terms. Declaring that ‘‘the right of acquiring and possessing property, and having it protected, is one of the natural, inherent and inalienable rights of man,’’ he added, ‘‘the preservation of property . . . is a primary object of the social compact.’’ As this suggests, the right to acquire and use property was seen by the framers as a bedrock principle of social order, a right that was crucial for the enjoyment of individual liberty and economic growth.

Nineteenth Century

The interdependence of economic rights and political freedom was a major principle of American constitutionalism throughout the nineteenth century. In Wilkinson v. Leland (1829), for instance, Justice Joseph Story expressed this view in striking language: ‘‘That government can scarcely be deemed to be free, where the rights of property are left solely dependent upon the will of a legislative body, without any restraint. The fundamental maxims of a free government seem to require, that the rights of personal liberty and private property should be held sacred.’’

To vindicate this vision of the importance of economic rights, the Supreme Court under Chief Justice John Marshall developed a broad reading of the Contract Clause. In essence, the Court concluded that the Contract Clause covered both private bargains and agreements to which states were parties, such as land sales and grants of corporate charters. In revealing language, Marshall in Fletcher v. Peck (1810) characterized the various constitutional restraints on state legislative power, including the Contract Clause, as a ‘‘bill of rights for the people of each state.’’ In the Dartmouth College Case (1819), the Contract Clause was invoked to guarantee the contractual nature of state-granted charters of incorporation from abridgement. Although the Contract Clause decisions of the Marshall Court upset local interests and states rights theorists, there was little criticism directed against the Court’s defense of private property and contractual arrangements. In fact, the Marshall Court was expressing a widely shared constitutional norm. Not only did Marshall and his colleagues give vitality to the property-conscious value to the framers, but they did much to set the parameters of American constitutionalism for more than a century.

Marshall’s successor as chief justice, Roger B. Taney, was more inclined to uphold state regulatory authority, but he also did much to protect property rights and facilitate economic growth. In cases such as Bronson v. Kinzie (1843), the Court under Taney applied the Contract Clause to uphold private credit arrangements against state legislative interference. This line of decisions reflected the high standing of contracts in the legal culture of the nineteenth century as a vehicle by which individuals participated in the expanding market economy.

At the state level courts began to treat the due process norm as protecting economic rights. In the landmark case of Wynehamer v. People (1856), for example, the New York Court of Appeals ruled that a prohibition statute constituted a deprivation of property without due process when applied to liquor already owned when the measure took effect. By the eve of the Civil War a number of state courts had fashioned substantive guarantees of property from the due process concept. This principle found expression in the maxim that laws which took property from A and transferred it to B amounted to a deprivation of property without due process.

The centrality of property to the constitutional order did not rule out any role for public controls. States possessed a general legislative authority, known as the police power, to enact laws protecting public health, safety, and morals. Yet such regulations restricted the rights of owners to utilize their property. Moreover, both the federal and state governments could exercise the power of eminent domain to take private property for public use. State governments aggressively employed eminent domain to acquire property to promote transportation projects, and delegated the power to canal and railroad companies. Of course, property owners were entitled to just compensation when their property was taken.

The bedrock status of property rights in the constitutional order was dramatically illustrated during the Civil War. Although property in slaves was destroyed by the Thirteenth Amendment, Congress refused to adopt a sweeping confiscation policy calculated to seize all the property of persons supporting the Confederacy. Reluctant to disturb the property rights of individuals, even those in rebellion, Congress in 1862 passed a weak measure that authorized confiscation only after condemnation proceedings before a court. The presidential administration of Abraham Lincoln showed no enthusiasm for confiscation and did little to enforce the act. In marked contrast to the experience of the Revolutionary era, the Civil War debates over confiscation served to underscore the sanctity of private property, and to stigmatize confiscation as an illegitimate exercise of governmental power.

Property rights and private economic ordering continued to occupy a key position in constitutional doctrine throughout the late nineteenth century. For example, the Civil Rights Act of 1866 enumerated the right to make contracts and acquire property as among the liberties guaranteed to freed persons. Moreover, the Supreme Court invoked the Contract Clause in numerous cases to prevent municipalities from repudiating their bonded debt, thus protecting investment capital.

Supporters of economic rights, however, increasingly shifted their focus to the Due Process Clause of the Fourteenth Amendment. A central constitutional question was the extent to which this amendment, ratified in 1868, imposed new limits on state authority. Thomas M. Cooley, an influential treatise writer, asserted that the Due Process Clause was a substantive as well as a procedural restraint on state legislative power. He paved the way for a muscular interpretation of the Fourteenth Amendment. Initially, however, the Supreme Court was reluctant to see the Fourteenth Amendment as establishing a basis for federal court review of state law. In the Slaughterhouse Cases (1873), the justices adopted a narrow reading of that amendment. Similarly, the Supreme Court in Munn v. Illinois (1877) affirmed state regulatory power, rejecting a due process challenge to state laws that regulated the prices charged by railroads and allied industries.

Yet by the 1880s the Court was increasingly receptive to arguments that the Due Process Clause of the Fourteenth Amendment protected fundamental individual rights, such as the ownership and use of private property, from unwarranted encroachment by state government. In essence, federal judges did not accept legislative exercises of the police power at face value. Rather, they assessed legislative controls on economic activity against a reasonableness standard, invalidating those deemed arbitrary or beyond the legitimate scope of government. It bears emphasis that most state laws, and especially those protecting health and safety or fostering public morals, passed constitutional muster.

Still, the due process norm afforded considerable protection for economic rights. In Allgeyer v. Louisiana (1897), the Supreme Court held that the Due Process Clause guaranteed the liberty to make contracts. Freedom to enter contracts was treated as the constitutional baseline. States had to justify laws that limited contractual freedom, a requirement that set the stage for conflict between individual economic freedom and social legislation. Further, the Court ruled in Chicago, Burlington & Quincy Railroad v. Chicago (1897) that the just compensation principle concerning taking of property was applicable to the states as an element of due process in the Fourteenth Amendment. In effect, the just compensation rule became the first provision of the Bill of Rights to be ‘‘incorporated’’ into the Fourteenth Amendment Due Process Clause. In a closely related development, the Court determined that the governmental taking of property from one person for the private use of another constituted a deprivation of property in violation of due process.

The Supreme Court looked with particular skepticism on laws that appeared to redistribute property to achieve greater economic equality. To compel the redistribution of private property was viewed as threatening the very individual autonomy that respect for property promised to safeguard from governmental encroachment. This rejection of redistributive claims found expression in a series of cases which held that regulated industries, such as railroads, were constitutionally entitled to a reasonable return upon their investment. In other words, states could not impose confiscatory rates that would impair the value of property. Even more dramatic were the decisions in Pollock v. Farmers’ Loan & Trust Company (1895), invalidating the 1894 income tax as an unconstitutional direct tax. This levy, which affected only a small number of upper-income taxpayers, breached the widely accepted norm enjoining equality of rights and duties. Pollock represented the culmination of longstanding constitutional principles that restricted the power of government to redistribute wealth.

Twentieth Century

The traditional place of property rights in American constitutionalism was challenged in the early twentieth century. Concerned about a variety of problems arising from urbanization and industrialization, the Progressive movement urged a more active role for federal and state governments in redressing the economic and social imbalances associated with the new industrial society. Progressives called for the imposition of workplace safety standards, minimum wage laws, and limits on the hours of work, measures that curtailed contractual freedom. They also successfully pushed for adoption in 1913 of the Sixteenth Amendment, which authorized Congress to tax incomes, effectively overturning the Pollock decisions and opening the door to redistributionist use of the taxing power. At the same time, theorists began to reconceptualize property ownership as a set of social relationships rather than as dominion over an object. Property was analyzed in terms of being a cluster or bundle of rights, an approach that emphasized the contingent and changing nature of ownership. By suggesting that property did not imply any fixed set of rights, this theory sought to undermine the constitutional position of property and make room for greater governmental regulation of economic behavior.

The response of the Supreme Court to these novel political and intellectual currents was mixed. The majority of the justices remained suspicious of laws that altered free-market ordering or infringed on property rights. In the landmark case of Lochner v. New York (1905), for example, the Court struck down a statute limiting the hours of work in bakeries as violative of the liberty of contract protected by the Fourteenth Amendment. Similarly, the Court invoked the Due Process Clause to invalidate minimum wage laws for women. Judicial solicitude for the rights of property owners resulted in a significant victory for civil rights. In Buchanan v. Warley (1917), the Supreme Court voided a city ordinance mandating racial segregation in residential areas as a deprivation of property without due process. More commonly, the Court relied on due process review to eliminate entry barriers that impeded competing enterprise. Thus, in New State Ice Co. v. Liebmann (1932), the Court declared unconstitutional a state licensing law that had the practical effect of fostering a monopoly in established ice companies by excluding competitors. Suggesting the link between economic liberty and other rights, the Court equated the right of free speech with entrepreneurial freedom.

In addition to relying on the Due Process Clause, the Supreme Court strengthened the protection afforded property owners under the Fifth Amendment Takings Clause. Speaking for the Court, Justice Oliver Wendell Holmes, Jr. in Pennsylvania Coal Co. v. Mahon (1922) ruled that a regulation of the use of property could be so severe as to amount to a taking of property which required compensation. Although agreeing that property could be controlled to some extent, he cautioned that ‘‘if regulation goes too far it will be recognized as a taking.’’

Yet the Court was prepared to accommodate much of the economic regulation associated with the Progressive movement. The justices sustained in Muller v. Oregon (1908) a state law restricting the working hours for women in factories and laundries. They likewise approved workers’ compensation laws that mandated payment to employees injured in industrial accidents without regard to fault. Moreover, the Court in Village of Euclid v. Ambler Realty Company (1926) upheld the validity of comprehensive zoning laws to control land use patterns against due process objections.

The Great Depression and the election of Franklin D. Roosevelt as president in 1932 were watershed events in American history. Roosevelt’s New Deal program was premised on the belief that government should intervene in the economy and actively promote social welfare. This political philosophy was sharply at odds with traditional constitutional doctrines stressing a limited role for government and a high regard for private property. Not surprisingly, the Supreme Court was initially hostile to much of the New Deal’s regulatory program. Following a lacerating struggle, however, the Court in 1937 began to uphold New Deal legislation and largely abandoned its longstanding commitment to economic rights. Freedom of contract was stripped of its constitutional base. A major component of New Deal constitutionalism was a dichotomy between property rights and other personal liberties. In United States v. Carolene Products Co. (1938), the Court indicated that in due process cases it would afford a higher level of judicial scrutiny for a preferred category of personal rights, such as free speech and religious freedom, than for property rights. Such a distinction was contrary to the belief of the Framers that protection of property was essential for political liberty, but this constitutional double standard soon became the reigning paradigm. For decades thereafter economic rights were of scant concern to judges or scholars, and they downplayed the historical importance of property as a bulwark of individual autonomy.

Obituaries for property rights, however, proved to be premature. Starting in the 1980s, jurists and scholars rediscovered the constitutional dimensions of property rights. A series of Supreme Court decisions have revitalized the regulatory doctrine and helped to restore property rights to the forefront of academic debate. Wealth redistribution, which has rarely aroused sustained interest, was replaced by tax-cutting initiatives. International developments also contributed to the resurgence of interest in economic rights. With the collapse of communist regimes throughout the world, new governments have looked to the restoration of private property as a route to economic growth and political freedom.

The historic link between economic rights and the preservation of individual liberty retains considerable vitality even in an age with far-reaching economic regulations. Private property tends to diffuse power and resources throughout society, and thus shield all personal liberties by limiting a concentration of power in governmental hands. Other important rights, such as free speech and voting, would be unlikely to check governmental abuses without secure property rights to encourage political independence. With citizens under the economic thumb of the government, the exercise of personal and political freedom is illusory. Indeed it is difficult to find examples of free societies that do not respect private property.


References and Further Reading

  • Alexander, Gregory S. Commodity & Propriety: Competing Visions of Property in American Legal Thought, 1776– 1970. Chicago: University of Chicago Press, 1997.
  • Benedict, Michael Les, Laissez-Faire and Liberty: A Re- Evaluation of the Meaning and Origins of Laissez-Faire Constitutionalism, Law and History Review 3 (1985): 243–331.
  • Bruchey, Stuart, The Impact of Concern for the Security of Property Rights on the Legal System of the Early American Republic, Wisconsin Law Review (1980): 1135–58.
  • Ely, James W., Jr. The Guardian of Every Other Right: A Constitutional History of Property Rights. 2nd ed. New York: Oxford University Press, 1998.
  • ———, The Marshall Court and Property Rights: A Reappraisal, John Marshall Law Review 33 (2000): 1023–61.
  • Horwitz, Morton J. The Transformation of American Law, 1870—1960. New York: Oxford University Press, 1992.
  • Nedelsky, Jennifer. Private Property and the Limits of American Constitutionalism: The Madisonian Framework and Its Legacy. Chicago: University of Chicago Press, 1990.
  • Pipes, Richard. Property and Freedom. New York: Alfred A. Knopf, 1999.
  • Rose, Carol M., Property as the Keystone Right? Notre Dame Law Review 71 (1996): 329–66.
  • Scheiber, Harry N., ed. The State and Freedom of Contract. Stanford, CA: Stanford University Press, 1998.

Cases and Statutes Cited

  • Allgeyer v. Louisiana, 165 U.S. 578 (1897)
  • Bronson v. Kinzie, 42 U.S. 311 (1843)
  • Buchanan v. Warley, 245 U.S. 60 (1917)
  • Chicago, Burlington & Quincy Railroad v. Chicago, 166 U.S. 226 (1897)
  • Fletcher v. Peck, 10 U.S. 87 (1810)
  • Gardner v. Village of Newburgh, 12 Johns. Ch. 162 (N.Y. 1816)
  • Lochner v. New York, 198 U.S. 45 (1905)
  • Muller v. Oregon, 208 U.S. 412 (1908)
  • Munn v. Illinois, 94 U.S. 113 (1877)
  • New State Ice Co. v. Liebmann, 285 U.S. 262 (1932)
  • Pennsylvania Coal v. Mahon, 260 U.S. 393 (1922)
  • Pollock v. Farmers’ Loan & Trust Company, 157 U.S. 429 (1895), 158 U.S. 601 (1895)
  • Slaughterhouse Cases, 83 U.S. 36 (1873)
  • Trustees of Dartmouth College v. Woodward, 17 U.S. 518 (1819)
  • United States v. Carolene Products Co., 304 U.S. 144 (1938)
  • Vanhorne’s Lessee v. Dorrance, 2 Dallas 304 (1795)
  • Village of Euclid v. Amber Realty Company, 272 U.S. 365 (1926)
  • Wilkinson v. Leland, 27 U.S. 627 (1829)
  • Wynehamer v. People, 13 N.Y. 378 (1856)