by Jim Powell by Jim Powell
During the early 1930s, there were powerful political pressures to suppress economic liberty, as the New Deal promoted price fixing and cartels that benefited producer interests at the expense of consumers. But for three years, the U.S. Supreme Court defended economic liberty and struck down one New Deal law after another.
New Deal historians long blamed these adverse Supreme Court decisions on the "Four Horsemen of Reaction," meaning justices Willis Van Devanter, James C. McReynolds, Pierce Butler and George Sutherland. These were sometimes joined by others, particularly Chief Justice Charles Evans Hughes and justice Owen Roberts. So in addition to 5-4 decisions, there was a key unanimous decision (striking down the National Industrial Recovery Act) — even the "progressive" justices Louis D. Brandeis, Benjamin Cardozo and Harlan Fiske Stone were on board for that one. There was an 8-1 decision (striking down New Deal restrictions in the oil business). Brandeis wrote the majority opinion striking down the Frazier-Lemke Act that authorized farmers to walk away from their obligations to creditors.
Willis Van Devanter brought an appreciation of business risks to the Supreme Court. He was born in 1859 in Marion Indiana. He graduated from Indiana Asbury (now DePauw) University, then Cincinnati Law School in 1879 and joined his father's law firm. When his father retired, Van Devanter headed for Wyoming. He hunted grizzly bears in the Bighorn Mountains with Buffalo Bill. He handled a lot of legal business for the two principal interests in Wyoming, cattlemen and railroads.
In 1888, he was elected to the territorial legislature and played a major role codifying territorial laws that subsequently became the basis of the state's laws. President William McKinley appointed Van Devanter Assistant Attorney General in the Department of the Interior. President Theodore Roosevelt nominated Van Devanter to the U.S. Court of Appeals for the Eighth Circuit. He was nominated for the Supreme Court by President William Howard Taft in December 1910. He served 26 years, writing 346 majority opinions.
James Clark McReynolds was a brilliant man and a prickly pear. He was born in 1862 in Elkton, Kentucky. His father was a physician and planter who didn't approve of compulsory government schools. Young McReynolds graduated from Vanderbilt University and earned a law degree at the University of Virginia. He became a corporate lawyer in Nashville. He ran unsuccessfully for Congress, then taught commercial law at Vanderbilt and in 1903 was appointed Assistant Attorney General in Republican Theodore Roosevelt's administration. There he helped enforce antitrust laws.
He remained a Democrat, though, and supported Woodrow Wilson's campaign for the White House in 1912. Wilson named McReynolds Attorney General the following year. Despite his volatile temper and abrasive manner that made enemies, Wilson in 1914 nominated him to the Supreme Court. A brash bachelor, McReynolds didn't like the two Jewish justices, Brandeis and Benjamin Cardozo. He wouldn't speak to justice John Clark whom he considered unfit for the job. After justice Stone described one lawyer's brief as dull, McReynolds told him, "The only duller thing I can think of is to hear you read one of your opinions." McReynolds reportedly didn't like female attorneys or tobacco smokers, either.
McReynolds' opinions focused on protecting private property, freedom of contract and freedom of speech. In Meyer v. the State of Nebraska, 262 U.S. 390 (1923), he struck down a law which made it illegal to teach a foreign language prior to the ninth grade. In Farrington v. T. Tokushige, 273 U.S. 284 (1927), McReynolds overturned a law that banned the teaching of the Japanese language. He was horrified at the policies of FDR whom he called an "utter incompetent."
Having come up the hard way, Pierce Butler cherished individualism and enterprise. He was born in 1866 in Pine Bend, Minnesota. His parents had emigrated from Ireland after the potato famine of the 1840s. His father operated a tavern, then tried to develop a farm on the frontier. Pierce graduated from Carlton College and studied law at a local law firm. As general counsel for the Chicago, St. Paul, Minneapolis and Omaha Railroad, he became known as one of the best railroad lawyers.
Butler was asked to help the federal government prosecute antitrust cases during the Taft administration. He took on meat-packing companies, and he later argued railroad cases before the Supreme Court. President Warren Harding nominated him to the Supreme Court in November 1922. During his career on the High Court, Butler wrote 323 majority opinions, 44 dissenting opinions and 3 concurring opinions.
The most impressive thinker was George Sutherland, a champion of natural rights jurisprudence. He believed the most important function of law was to protect individual liberty by restraining government power — historically, the biggest threat to liberty everywhere. Sutherland understood that for ordinary people, economic liberty was generally the most important liberty. Intellectuals tended to rate First Amendment liberties more highly because they spoke out publicly and published their political views, but every individual's livelihood depended on freedom to choose where to work, where to live, where to travel, where to spend money, what to buy and how much to pay. Freedom of contract was absolutely essential for all these things. It would be hard to find a Supreme Court justice who ever did a better job defending economic liberty than George Sutherland.
He was born in 1862 in Stony Stratford, England, and his family emigrated to America when he was a child. They moved to Utah, the second state to adopt woman suffrage, and he was educated at Brigham Young University and the University of Michigan. He began practicing law in 1883. He entered Republican politics, serving in the U.S. House of Representatives (1901-1903) and the Senate (1905-1917). As a U.S. Senator, Sutherland had introduced the "Anthony Amendment," the proposed constitutional amendment which would give women the right to vote. "When we have established the righteousness of the case for a Democracy," he declared in a 1915 speech, "when we have proven the case for universal manhood suffrage, we have made clear the case for womanhood suffrage as well."
Defeated during the 1916 elections, he became an advisor to Warren Harding and was nominated to the U.S. Supreme Court soon after Harding was elected president in 1920. Sutherland wrote the majority opinion in Adkins v. Children's Hospital, 261 U.S. 525 (1923), striking down the Minimum Wage Act of 1918 that applied only to women. The case was argued before the Supreme Court by Felix Frankfurter who, like his mentor Louis Brandeis, submitted a brief (a thousand pages) full of sociological data.
How could a champion of woman suffrage oppose a minimum wage law for women? The case involved 21-year-old Willie Lyons, an elevator operator who earned $35 per month plus two meals a day at the Congress Hotel, Washington, D.C. The new minimum wage law prevented employers from paying women less than $71.50 per month, and since the going rate for elevator operators was only about $35 per month, she was soon unemployed. If the hotel had persisted in paying her the going rate, it would have been subject to penalties provided by the minimum wage law. Because there wasn't a minimum wage law for men, her job was filled by a man at $35 per month. Thus did a "progressive" law, intended to help protect the "health and morals" women, throw women out of work.
The Minimum Wage Act of 1918, Sutherland wrote, "is not for the protection of persons under legal disability or for the prevention of fraud. It is simply and exclusively a price-fixing law, confined to adult women…who are legally as capable of contracting for themselves as men. It forbids two parties having lawful capacity — under penalties as to the employer — to freely contract with one another in respect of the price for which one shall render service to the other in a purely private employment where both are willing, perhaps anxious, to agree, even though the consequence may be to oblige one to surrender a desirable engagement and the other to dispense with the services of a desirable employee…surely the good of society as a whole cannot be better served than by the preservation against arbitrary restraint of the liberties of its constituent members."
The so-called "progressives" promoted more and more interference with economic liberty, and Sutherland wrote another landmark decision in New Ice Co. v. Liebmann, 285 U.S. 262 (1932). In 1925, the Oklahoma legislature had passed a law declaring that the ice business was "public," and no firm could enter it without securing a permit. This involved hearings where competitors could testify that new firms weren't necessary, and apparently the Corporation Commission denied permits to new competitors. Subsequently Liebmann, without a permit, bought land and started an ice business. New State Ice Company, in Oklahoma, filed a lawsuit to stop Liebmann from competing.
Sutherland observed that "a regulation that has the effect of denying or unreasonably curtailing the common right to engage in a lawful private business, such as that under review, cannot be upheld consistent with the Fourteenth Amendment…The control here asserted does not protect against monopoly, but tends to foster it. The aim is not to encourage competition, but to prevent it; not to regulate the business, but to preclude persons from engaging in it."
Justice Brandeis, supposedly the "progressive" defender of the downtrodden, denounced "destructive" competition (price cutting) and defended government-enforced monopoly in the New Ice case. "It is no objection to the validity of the statute here assailed that it fosters monopoly," he wrote. "That, indeed, is its design."
Brandeis believed that either a government monopoly or government-controlled private monopoly would mean greater efficiency, less waste and better living. He assumed government officials had superior knowledge about the desires of customers, the competence of entrepreneurs, the quality of service they offered, the potential of new technologies and other factors. Brandeis further assumed that established firms contribute more than new entrepreneurs. Finally, Brandeis assumed that even if government officials knew what they were doing, they wouldn't be corrupted by lobbyists from established firms who wanted to suppress competition. None of these assumptions have turned out to be true.
Brandeis defended the Oklahoma ice monopoly by blaming the Great Depression on what he called "unbridled competition." He insisted "There must be power in the states and the nation to remould, through experimentation, our economic practices and institutions to meet changing social and economic needs." The "experimentation" he referred to was government-enforced monopoly privileges which friends of liberty had fought for hundreds of years.
The first major New Deal case for which Sutherland wrote an opinion (dissenting) was Home Building & Loan Assn. V. Blaisdell 290 U.S. 398 (1934), where the issue was freedom of contract. John H. Blaisdell, a Minnesota man, took a $3,800 mortgage on some land with a 14-room house. He and his family lived in three rooms, renting the others. But his tenants lost their jobs, and he couldn't keep up the payments. Home Building & Loan Association foreclosed. Two weeks before May 2, 1933, the redemption deadline provided in his mortgage contract (when he could get the house back by paying the amount due), the state enacted a law extending the deadline until May 1, 1935. Blaisdell went to state court for a two-year extension, which was granted. Home Building & Loan Association protested that the state law violated U.S. Constitution's impairment of contract clause (Article 1, section 10).
Chief Justice Charles Evans Hughes wrote the majority opinion upholding the Minnesota law. He had served two non-consecutive terms, first as associate justice, then chief justice. He was born in 1862 in Glens Falls, New York, a small community on the upper Hudson River. He graduated from Madison (now Colgate) University and subsequently transferred to Brown University with the idea of becoming a minister like his father. But he discovered baseball, poker and smoking and decided it would be better to pursue a legal career. He was a "swing" vote on the Court, often supporting the expansion of government power before the New Deal, joining the "Four Horsemen" against some important early New Deal decisions and later supporting the New Deal.
In Home Building & Loan Assn. V. Blaisdell, justice Hughes acknowledged that the creditor couldn't take possession, occupy or dispose of the property. The creditor was only entitled to collect rent of $40 per month. Hughes considered this a reasonable position during the Great Depression.
Sutherland's dissenting opinion insisted that lenders deserved equal treatment with borrowers and warned that efforts to disadvantage lenders would almost surely backfire. The more borrowers were allowed to get out of inconvenient contracts, the greater the risks for lenders anxious to be repaid, and the less lending there was likely to be in the future. Sutherland turned out to be right, and business investment remained at historic lows throughout the Great Depression.
In Nebbia v. New York, 291 U.S. 502 (1934), a Rochester grocer was convicted of selling two bottles of milk for less than the 9 cents per quart ordered by the Milk Control Board (consisting of three officials), which the New York State Legislature had established in 1933. The aim was to protect the profit margins of milk producers and distributors. The grocer claimed the law violated the equal protection clause of the Fourteenth Amendment.
The majority opinion was by justice Owen J. Roberts, another "swing" vote on the Court. He was born in 1875 in Philadelphia, the son of a Welch hardware merchant. Owen graduated from the University of Pennsylvania and earned his law degree there, too. Then he started private law practice in Philadelphia. After World War I, he was named a special deputy attorney general to prosecute individuals charged with violating the Espionage Act (he secured convictions of several German and Lithuanian publishers). President Calvin Coolidge made him a special counsel in the prosecution of the Teapot Dome case which involved the bribery of the Secretary of the Interior for oil leases. In March 1930, Herbert Hoover nominated him to the Supreme Court.
In Nebbia v. New York, justice Roberts was joined by the so-called "progressive" justices Brandeis, Cardozo and Stone who considered only the interests of the milk producers and upheld the law suppressing price competition. Justice McReynolds wrote the dissenting opinion which was joined by Sutherland, Van Devanter and Butler. These supposedly reactionary justices defended the rights of consumers.
McReynolds wrote, "The Legislature cannot lawfully destroy guaranteed rights of one man with the prime purpose of enriching another, even if, for the moment, this may seem advantageous to the public…Not only does the statute interfere arbitrarily with the rights of the little grocer to conduct his business according to standards long accepted, but it takes away the liberty of twelve million consumers to buy a necessity of life in an open market."
FDR's assaults on economic liberty began to alarm Chief Justice Hughes, and he wrote the majority opinion in Panama Refining Co. v. Ryan, 293 U.S. 388 (1935). There were state and federal regulations restricting the quantities of petroleum that could be produced, and on July 11, 1933 when FDR issued executive order 6199 which banned the interstate shipment of any excess production. Anyone convicted of violating these orders could be hit with a $1,000 fine and/or a six-month prison sentence.
The regulations harmed many people. Panama Refining Company, which had oil and gas leases in Texas, filed a lawsuit claiming that the regulations amounted to an unconstitutional delegation of power from Congress to the executive. Amazon Petroleum filed a similar lawsuit. Justice Hughes agreed that the delegation of power violated the Constitution.
The challenge to the National Industrial Recovery Act came from the most unlikely source, a Jewish chicken producer. Joseph Schechter operated Schechter Poultry Company, and Martin, Alex and Alan Schechter operated A.L.A. Schechter Company, both of which were slaughterhouses selling chickens to kosher markets in New York City. Schechter was convicted of violating the Code of Fair Competition for the Live Poultry Industry of the Metropolitan Area in and about the City of New York, in the district court of the United States, Eastern District. On April 13, 1934, FDR had issued his executive order authorizing this code.
There were two key issues. First, Schechter conducted its business entirely within New York State. The company purchased chickens in New York State and sold them in New York State. Schechter wasn't involved with interstate commerce.
In the unanimous decision, written by Chief Justice Hughes, he noted that the Constitution's Commerce Clause (Article 1, section 8, clause 3) provides that "Congress shall have the power…to regulate commerce…among the several States." This had long been interpreted as a limitation on the power of the states, but all the justices believed it
was also a limitation on the power of Congress, barring it from interfering with business which didn't involve interstate commerce.
The second key issue involved the delegation of legislative power to a president. Hughes wrote, "The President in approving a code may impose his own conditions, adding to or taking from what is proposed…the discretion of the President in approving or prescribing codes, and thus enacting laws for the government of trade and industry throughout the country, is virtually unfettered."
This violated the constitutional principle of delegated, enumerated powers, that the branches of the federal government had only such powers as were specifically delegated to them. So, on May 27, 1935, the NIRA was struck down, and the NRA was out of business.
At a press conference, FDR complained that "The whole tendency over these years has been to view the interstate commerce clause in the light of present-day civilization. The country was in the horse-and-buggy age when that clause was written."
The Schechter decision was a blow to FDR, but as things turned out, it was boon for the economy. As economists Richard K Vedder and Lowell E. Gallaway explained, "This was probably because one wage-increasing piece of legislation, the National Industrial Recovery Act, was found unconstitutional, and a second such piece of legislation, the National Labor Relations Act of 1935, had not yet had any real effect, as its constitutionality was still uncertain."
Before the Supreme Court had ruled on the NIRA, Congress passed the Bituminous Coal Conservation Act, known as the Guffey Act. This was much like the NIRA, only it applied to coal mining. The aim was to maintain high coal prices and high wages amidst the depression. Under the act, the National Bituminous Coal Commission was established to issue a Bituminous Coal Code for enforcing coal mining cartels.
Justice Sutherland wrote the 5-4 majority opinion, with justices Butler, McReynolds, Roberts and Van Devanter concurring. The decision was announced on May 18, 1936: the "firmly established principle is that the powers which the general government may exercise are only those specifically enumerated in the Constitution and such implied powers as are necessary and proper to carry into effect the enumerated powers…The supremacy of the Constitution as law is declared without qualification. That supremacy is absolute; the supremacy of a statute enacted by Congress is not absolute, but conditioned upon its being made in pursuance of the Constitution."
The next big Supreme Court case involved the Agricultural Adjustment Act that New Dealers considered as important for reviving agriculture as the National Industrial Recovery Act was thought to be for industry. The idea was to tax food processors and channel the proceeds to farmers who destroyed crops, thereby reducing supplies and maintaining farm prices. Raising farm prices was viewed as the way to raise farmers' income, much as high wage rates were supposed to raise the incomes of industrial workers.
When the government billed Hoosac Mills, a bankrupt food processor, for taxes under the Agricultural Adjustment Act, the receivers disregarded them. The District Court ruled the taxes were valid, the Court of Appeals reversed this ruling, and the case went before the Supreme Court.
The Roosevelt administration claimed that the tax was just another tax, and taxpayers couldn't refuse to pay because they disagreed with the way it was spent. But justice Roberts, in his majority opinion, observed that the sole purpose of this tax was to pay farmers who reduced their cultivated acreage and destroyed crops, which meant it wasn't a legitimate tax: "A tax, in the general understanding of the term, and as used in the Constitution, signifies an exaction for the support of the Government. The word has never been thought to connote the expropriation of money from one group for the benefit of another."
Roberts continued, "The question is not what power the Federal Government ought to have, but what powers, in fact, have been given by the people…The federal union is a government of delegated powers. It has only such as are expressly conferred upon it and such as are reasonably to be implied from those granted. In this respect, we differ radically from nations where all legislative power, without restriction or limitation, is vested in a parliament or other legislative body subject to no restrictions except the discretion of its members…From the accepted doctrine that the United States is a government of delegated powers, it follows that those not expressly granted, or reasonably to be implied from such as are conferred, are reserved to the states, or to the people."
The anti-New Deal bloc was tested again in Morehead v. Tipaldo, 298 U.S. 587, that involved a New York laundry manager who had been jailed for failing to pay the state-mandated minimum wage for women. A majority of justices (apparently including Roberts as well as Brandeis, Cardozo, Hughes and Stone) agreed to take the case because the intention was to reverse Sutherland's 1923 majority decision in Adkins v. Children's Hospital.
But something happened along the way, and justice Roberts came to agree with justices Butler, McReynolds, Sutherland and Van Devanter that Adkins should be followed, and the New York State minimum wage law should be struck down. Roberts found that the fundamental provisions of the New York State minimum wage law (Morehead) were similar to the District of Columbia law (Adkins), and the circumstances were similar, too, so Adkins prevailed.
"The right to make contracts about one’s affairs is a part of the liberty protected by the due process clause," Roberts explained. "Within this liberty are provisions of contracts between employer and employee fixing the wages to be paid. In making contracts of employment, generally speaking, the parties have equal right to obtain from each other the best terms they can by private bargaining. Legislative abridgement of that freedom can only be justified by the existence of exceptional circumstances. Freedom of contract is the general rule and restraint the exception."
Roberts suggested that the underlying purpose of the New York State minimum wage law for women was to limit competition for jobs, benefiting men. The New York State minimum wage law for women was struck down on June 1, 1936.
The "Four Horsemen of Reaction" carried on valiantly with their lucky genes. Van Devanter retired from the Supreme Court in June 2, 1937, and he died at his Maryland farm, February 8, 1941. He was 81. Sutherland retired January 17, 1938. He died at 80, July 18, 1942, in Stockbridge, Massachusetts. Butler died on November 16, 1939, in Washington, D.C. He was 73. That left McReynolds, who died on August 24, 1946, in Washington, D.C. He was 84.
Van Devanter, Sutherland, Butler and McReynolds, sometimes joined by others, had done a splendid job articulating vital principles of economic liberty in the worst of times. Very few authors of any era have done better. These justices faced enormous political pressure from a popular president with commanding majorities in Congress, so they deserve credit for displaying the courage of their convictions. Subsequent experience has made clear that the purported New Deal "reform" measures which these justices struck down were, in fact, prolonging the Great Depression. The economic liberty they defended, criticized as an obstacle to recovery, has been vindicated as the mainspring of human progress.
Jim Powell [send him mail] is a senior fellow at the Cato Institute and editor of Laissez Faire Books. He is the author of The Triumph of Liberty and FDR’s Folly: How Roosevelt and His New Deal Prolonged the Great Depression.