The Constitutional Liberty We Lost

Legal scholar David Mayer explains why liberty of contract is about more than economics

"For a period of exactly 40 years, from 1897 to 1937, the Supreme Court protected liberty of contract as a fundamental right, one aspect of the basic right to liberty safeguarded under the Constitution's due process clauses, which prohibit government—the federal government, under the Fifth Amendment, and states, under the Fourteenth Amendment—from depriving persons of 'life, liberty, or property without due process of law'…[but] following its 'New Deal Revolution' of 1937, it ceased protecting liberty of contract."

So writes David N. Mayer, professor of law and history at Capital University, in his new book Liberty of Contract: Rediscovering a Lost Constitutional Right. Although progressive legal scholars have derided liberty of contract as merely a tool of plutocrats—the most famous liberty of contract case, Lochner v. New York (1905), overturned maximum working hour laws for bakers in New York—Mayer argues that a wide range of individual liberties were properly protected under the doctrine.

Senior Editor Brian Doherty interviewed Mayer by phone in January about how and why liberty of contract was briefly a key part of the Supreme Court's arsenal of defenses against government action, and why it's a shame we've lost it.

Reason: Why is a book about the lost constitutional doctrine of liberty of contract worth writing and reading now?

David N. Mayer: We are facing a vast expansion of the 20th century regulatory and welfare state, and in debates over the welfare state it's important that people understand that the regulatory state has been built on a number of important myths: myths about economics, myths about history, and myths about constitutional law. I hope my book shatters one of the most important myths about early 20th century constitutional law.

The traditional story goes back to Justice Oliver Wendell Holmes' dissent in Lochner. The decision struck down a maximum hour law for bakers, and according to Holmes the majority was reading a laissez-faire economic theory into the Constitution. He accuses the majority of "enacting Mr. Herbert Spencer's Social Statics," referring to the most famous classical liberal English philosopher of the time.

That's entirely wrong. The majority didn't decide the case based on any kind of economic theory. The majority decided based on well-established principles of constitutional law. But Holmes' accusation stuck and was repeated by several generations of Progressive movement activists, including the people who in the early 20th century were pushing these new kinds of laws—minimum wage and maximum hour laws that the Court was striking down in liberty of contract cases. What has been accepted as the orthodox view of the Lochner era is that the Court in protecting liberty of contract was engaged in libertarian judicial activism. But the Court was following traditional views about constitutional law, applying traditional definitions of the police power as limited to certain categories of activities.

Reason: If the Court had been doing what Holmes accused them of doing in Lochner, how would constitutional law have been different?

Mayer: It would have meant hundreds of laws would be struck down at the state and federal level as interfering with liberty. If trying to enact Social Statics, the Court would have limited the police power to enforcement of what Spencer called the "law of equal freedom," so that any legislative act that limited the freedom of the individual to do what they please, and didn't directly harm someone else, would be struck down. That wasn't the case.

In the vast majority of challenges to state police power, the court upheld the traditional categories of police power used in the 19th century: protecting public health, safety, and morality. Categories which were so broad and slippery that the Court upheld, for example, virtually every case involving challenges to paternalistic laws, for example liquor prohibition [laws] were upheld, as in Mugler v. Kansas.

In the Lochner decision, Justice Rufus Peckham pointed out that the number of hours a baker worked had nothing to do with his health, let alone the health of the public. It had everything to do with bakeries in competition with unionized bakeries—and taking the side of unionized bakeries. It was, as Peckham said, not a legitimate traditional use of police power.

Before 1937, judges took seriously the due process clauses of both the Fifth and 14th Amendment as real limitations on the power of government, protecting both liberty and property rights. I quote in the book a wonderful passage describing the broad scope of liberty the Court protected from Justice Peckham's decision in Allgeyer v. Louisiana, the 1897 case where the Court first explicitly protected liberty of contract. [The decision overturned a Louisiana law barring its citizens from buying marine insurance from an out-of-state firm, an issue of great relevance in the health care debate]:

The "liberty" mentioned in that amendment means, not only the right of the citizen to be free from the mere physical restraint of his person, as by incarceration, but the term is deemed to embrace the right of the citizen to be free in the enjoyment of all his faculties; to be free to use them in all lawful ways; to live and work where he will; to earn his livelihood by any lawful calling; to pursue any livelihood or avocation; and for that purpose to enter into all contracts which may be proper, necessary, and essential to his carrying out to a successful conclusion the purposes above mentioned.

The real key to Lochner-era jurisprudence was not laissez-faire, but liberty of contract. The late 19th and early 20th century was a golden age of contracts. People understood that contract law dealt with the whole realm in which individuals privately ordered their lives and reached agreements for their mutual benefit—without interference from government.

Reason: Unlike conservative legal thinkers of the Robert Bork variety, you do believe in substantive due process. Why?

Mayer: The antecedent for the Due Process Clauses of the Fifth and 14th Amendments are clauses in early state constitutions, the so-called "law of the land" clauses, which said no person should be deprived of life, liberty, property, except according to the law of the land. Those clauses harkened back to Magna Carta Clause 39. I argue in the book—and I think support with ample evidence from constitutional history—that the concept of law of the land or due process has always had both substantive and procedural components.

Essentially, government has to have a damn good reason to deprive you of liberty or property, and that relates not just to the procedure, method, or process by which government acts but the substance of what government is doing. King John was promising not only to use proper procedure in royal courts; he was also promising substantively not to interfere with his subject's rights in areas the king had no right to interfere with.

Reason: What modern laws would fail constitutional muster if the Court took liberty of contract as seriously as it did in the Lochner era?

Mayer: Certainly minimum wage laws. Public policy scholars have argued for years about if those laws are detrimental to those they are supposed to help, if it's perverse paternalism because government is harming the very people—younger unskilled workers—that presumably they're intended to help. All federal labor laws would be called into question, and more broadly the whole slew of laws and regulations that dictate what kind of products Americans can use, energy legislation intended to ban incandescent light bulbs, legislation to conserve water which means toilets no longer properly flush, washing machines no longer properly wash clothes—almost any example of what libertarians would call legal paternalism that interferes with individual freedom to decide what products to buy.

And the health care law. If courts protected liberty as broadly as they did in the early 20th century, instead of arguing whether ObamaCare exceeded the scope of power under the Commerce Clause, you could argue it interferes with a fundamental right to decide how best to purchase health care services.

Reason: The progressive stereotype of these Lochner-era cases is that they were always merely about protecting the plutocracy, not individual rights in any meaningful sense.

Mayer: Even in the stereotypical cases like Lochner and Adkins v. Children's Hospital [a 1923 decision overturning a minimum wage law for women], what is often overlooked is that it's not just business or employer rights being protected. It was also the right of employees, of immigrants working in non-unionized bakeries to work long hours they were perfectly willing to work; they wanted to earn as much as they could.

Or Willie Lyons, one of the parties in Adkins. She was a female elevator operator in a D.C. hotel, perfectly willing to work for a lower salary because the hotel provided room and board. But because her wages were below the level set by D.C.'s wage law, she lost her job. Justice George Sutherland in the Adkins opinion wrote that the laws were a "naked arbitrary exercise of power." One need only look at the date the law passed—a couple of weeks before World War I ended—and see the reason for it was to price women out of the labor market to clear jobs for returning GIs from Europe. It was typical of so-called protective laws for women. It was really to protect women right out of the labor marketplace.

Another liberty of contract case of great importance to individuals, not just rich businessmen, one forgotten in most constitutional law casebooks, is Buchanan v. Warley, in 1917, where the Court struck down a Louisville, Kentucky, law making it illegal for homeowners to sell property to someone of a race different from that of the majority in the neighborhood. It was a government-mandated racial segregation law. Sometimes the case is erroneously called an equal protection case, which it was not, because the doctrine of Plessy still applied. The court viewed the law as applying equally to white and black; it didn't violate equal protection. The Court stuck down the law because it deprived someone of the freedom to sell to whoever they pleased.

Two other liberty of contract cases that [protect valuable individual rights] are the school cases, Meyer v. Nebraska  and Pierce v. Society of Sisters. In Meyer the Court struck down an early "English only" law, a World War I-era law reflecting bigotry against all things German. The Court overturned it using a broad definition of liberty protected by the Due Process Clause in an opinion written by Justice James McReynolds. [McReynolds wrote that the liberties protected by the 14th Amendment "denotes not merely the freedom from bodily restraint but also the right of the individual to contract, to engage in any of the common occupations of life…and generally to enjoy those privileges long recognized at common law as essential to the orderly pursuit of happiness by free men."]

In Pierce, Oregon passed a law mandating children of certain age attend public schools, making it illegal to go to private or parochial schools. The law was sponsored by the KKK, directed at Roman Catholic schools. Again the Court struck it down as interfering with the liberty of contract of parents and schools. That decision has been reconceptualized by scholars and commentators as cases protecting a parents' fundamental right to direct education of their children, but that overlooks the obvious fact that the parties at interest in one case was the teacher and in the other the school. It was their right to engage in contract for the livelihood of their choice at issue.

Reason: What happened to golden age of respect for liberty of contract?

Mayer: In 1937, in West Coast Hotel v Parrish, the Court upheld a Washington state minimum wage law and in the majority opinion by Chief Justice Charles Evans Hughes the Court changed in a fundamental way their entire due process jurisprudence. The Court announced a new standard of review, what modern scholars call the rational basis test, or "mere rational basis test" to underscore that it's so easy for government to meet. Virtually any law passed by the legislature supposedly in the "public interest" is going to be upheld. The Court essentially said anything goes with government regulation of business at the state or federal level. It would no longer protect liberty or property rights under the Due Process Clause to limit government regulation of business.

Reason: Any signs of hope the modern Supreme Court is ready to start thinking along freedom of contract lines again?

Mayer: In Lawrence v. Texas what's remarkable is Justice Kennedy doesn't talk about [homosexual sex] as a right to privacy. He talks about protecting liberty generally under the due process clause, even though most commentators see it—and I suppose it's fair to say the Court as a whole sees it—as another in the line of cases protecting the right to privacy. But the modern court's protection of privacy rights from a libertarian perspective is too narrowly focused on issues about procreation and love. Why is it not equally fundamental to decide how many hours we work or our wage levels? There are all sorts of government regulation of our lives [in the world of business and economics] that interfere with the right to privacy too.