On the face of it, who can object to the Supreme Court’s decision that permits wine consumers to buy directly from out-of-state wineries? This is just the free market at work. The state laws that prohibited the practice were nothing but a legal leftover from prohibition days and a mercantilist privilege granted to politically powerful distributors who thought only of their monopoly.
The commerce clause of the Constitution is good for nothing if not to prevent this kind of state-to-state protectionism.
Right? Well, that is the impression you get from those who are toasting and celebrating and proclaiming a glorious day for wine lovers. To these enthusiasts, it is enough that consumers are now permitted to do something they were previously prohibited from doing, and that’s all there is to it. Yes, it was an act of power by the Supreme Court, but power used for good ends. Or so they say.
It’s been a very long time since liberty lovers have been able to celebrate anything, so I can understand the impulse. But let the libertarian conscience speak here. What precisely are you celebrating? The Supreme Court, which has been, with very few exceptions, a major force for statism for as far back as one can look, has employed its power not against the federal government but against a lower order of government. If we celebrate this, are we developing a habit of mind that pleads with the powerful to somehow impose freedom on others? And what would be wrong with this?
Well, there is the not-small matter of federalism. Under this idea, higher orders of government should not interfere with the juridical powers of lower orders. In the American setting, this means states should manage their own affairs, however badly, rather than be managed by the central government.
Why? The positive case is that, over time, laws are least bad and oppressive when they are closest to the people. In these conditions, we are more likely to experience government by the people. If that is not the case, smaller units of government permit people to move from one jurisdiction to another, and the competition between units drives the whole system towards greater liberalization. Capital and labor flow to areas that permit more liberty, even as despotic jurisdictions drive away new wealth and talent.
We see this in local governments all the time. Neighboring towns frequently compete with each other on the rules by which the residents live. It can be a small matter of the local sales tax which can cause a business to locate on this instead of that side of the tax jurisdiction. Zoning laws can drive companies and developers from one town to another.
The competition for rules is not only a matter for the public sector. Private housing subdivisions and retail malls compete with each other over who offers the best configuration of rules and covenants to maximize property value and profits. Residents and businesses shop for the best package of rules and make an entrepreneurial judgment concerning the likelihood of future success. If a central government came along in the name of liberty to supposedly liberalize the rules, the result would be foreordained: regulations would be “upwardly harmonized” over time.
There is also the negative case for federalism. The higher order of government is not an impartial arbiter. Its interest in the liberty of lower orders is dubious at best. It is very likely invoking that liberty as an excuse to expand its jurisdiction — its empire. Once that power is acquired, it is likely to be abused. The supposed concern for liberty that higher level of government uses to trample on lower orders is never applied against the higher order itself.
American history demonstrates this well. Part of the propaganda for the ratification of the Constitution included the claim that it would liberate Americans from state-to-state protectionism. In fact, as Scott Trask has shown, the real motive force behind the Constitution was not to abolish tariffs, which were either minimal or non-existent, but rather to prevent some states from establishing free trade relations with foreign countries at the expense of mercantilist interest groups in the US. In other words, the Constitution wasn’t backed in order to bring about free trade but to prevent free trade from becoming the full reality it might have been under the Articles of Confederation.
Economic libertarians have usually celebrated the decision of Lochner v. New York in 1905, which invalidated state-level labor laws, but look what happened: once the federal government acquired the power to do “good,” it promptly went about doing bad. The wartime central planning of Wilson abolished economic liberty and the New Deal resurrected wartime planning in peacetime. The iron regulatory grip of the state hasn’t loosened in any way. At every step it has been approved by the Supreme Court, the great agency that supposedly liberated wine consumers.
Now, consider an alternative history of Lochner. Let’s say that the case had gone the other way, and the Supreme Court had neither ratified nor abolished New York’s labor regulations. It simply said that the federal government may not pronounce on the matter and has no business regulating contracts within states via the 14th amendment or between states via the commerce clause. Instead, the impulse to strike down laws turned against federal government legislation and regulation.
What a different history might have followed! The states would have systematically reduced their regulations through a competitive process and the federal government would not have erected any regulatory agencies in the 20th century. But note that the drive to strike down laws is selective. It is quickly applied against states and localities, but rarely against the federal government.
Where is the Lochner-style decision striking down the constitutionality of the Department of Labor? Of course it doesn’t exist. Instead we have a Supreme Court nestled amidst the largest and most powerful executive branch in the history of the world and which, instead of standing up to power, uses its power to point out the various ways in which lower orders of government annoy people with petty regulations. This is a classic case of yapping about the splinter in the other guy’s eye while ignoring the log in your own.
Let’s return to the case decided by the Supreme Court on wine shipments. For some years, competition has been driving these laws toward liberalization. Eight states restricted direct sales from out of state while allowing them in state. Many other states had a reciprocity rule, allowing direct sales from other states that allow the same. Another 15 states prohibit both internal and external wine sales from wineries to consumers.
The same pressure that landed this suit in the Supreme Court might have been brought to bear at the state level, and without causing the underlying damage to liberty that is wrought by centralized decisions. The central state is not a fast-track to liberty; enhancing it is a fool’s gambit and a sucker’s game. It paves the way for the abolishing of liberty, not its establishment and protection. What seems like short-term gain turns into long-term loss. As Felix Morley wrote in Freedom and Federalism, there is no dictatorship without centralized power.
The early history of American political debates divided very clearly along Jeffersonian and Hamiltonian lines. The Jeffersonian position favored free trade, decentralized government, and the libertarian position generally. The Hamiltonian view favored centralized government, protectionism, and a regulated national life. When the Supreme Court claims to be achieving Jeffersonian goals with Hamiltonian means, there is a solid reason to be suspicious. As Murray Rothbard emphasized, the principled libertarian position is: universal rights, locally enforced.
Do you think the Supreme Court is giving you liberty? Ask yourself why the court pounced on state regulations instead of addressing the regulations by the pound enforced by the federal government that constitute far more of an imposition on consumers and retailers. When the Court starts striking these down, I’ll celebrate, but until then I’ll continue to observe the federal government doing what governments do, namely amassing power unto itself.
Recall that in 1801, President Thomas Jefferson, having crushed the threat of the post-Hamiltonian centralists, gave the country a lesson in what liberty and the American system is all about. It is about “peace, commerce, and honest friendship with all nations, entangling alliances with none” and — immediately following that endorsement of market globalization — “the support of the State governments in all their rights, as the most competent administrations for our domestic concerns and the surest bulwarks against antirepublican tendencies.”
To the preservation of both freedom and federalism, I lift a glass and say Salute!