Cracks in the Constitution

The Birth of a Transfer Society, by Terry L. Anderson and Peter J. Hill, Stanford, Calif: Hoover Institution Press, 1980, 114 pp., $6.95 paper.

We lawyers are very jealous of attempts by "laymen" (here, economists) to explain the evolution of American jurisprudence. It is fortunate that Professors Anderson and Hill were not dissuaded by this fact from studying legal history, because they arrive at an analytical framework that is useful for the lawyer and nonlawyer alike. The authors forgo the usual narrow framework for tracing legal precedent and instead apply a historical, economic analysis.

A book that discusses constitutional history evokes the image of an unreadable tome, filled with legalese and obscurities. In contrast, although The Birth of a Transfer Society admirably handles the complete legal and economic history of the United States, it is readable and downright interesting. Anderson and Hill have presented an unusually clear and easily communicated argument against governmental control of economic decisionmaking.

The central thesis of the book is that America was born as a production-oriented society, wherein the primary emphasis was on the creation of wealth. However, sometime between the American Revolution and today the economic and legal systems got sidetracked, and the society shifted its emphasis from production of wealth to transfer of wealth.

The distinction between a productive society and a transfer society has concrete implications. The process of production and voluntary exchange is a positive-sum game: it enlarges the size of the economic pie so that everyone is better off. Transfer activity is a negative-sum game: resources are expended in the redistributive process of lobbying, litigating, and regulating. The size of the societal economic pie is reduced as people squabble over the division of the pieces.

The authors present strong evidence that the dominant political philosophy upon which the Constitution was based implicitly recognized the dangers of overinvolvement in transfer activity. The Founding Fathers realized that economic growth stemming from free transfer of property is the best means of providing equal opportunity and eliminating poverty and that these results do not arise from redistribution of property rights among citizens. According to the authors, the most significant time period for the metamorphosis of America to a transfer society was between the Civil War and World War I, when the legal basis of a transfer society was established. Despite its focus on this crucial time, the book does not concentrate entirely on the 19th century; it contains a valuable section highlighting the more recent growth of transfer activity.

Three main constitutional provisions that originally minimized transfer activity are analyzed by Hill and Anderson. The contract clause was emasculated by the early 19th century and never regained viability. The commerce clause, prior to the Civil War, was "a negative check on state interference with interstate commerce rather than a positive guide for federal intervention." The "positive" application of the commerce clause, however, has provided the legal basis for most 20th-century federal excesses. The third significant constitutional protection was the due process requirement, embodied in the Fifth and Fourteenth Amendments to the Constitution. Although substantive due process was the basis for invalidating many state economic regulations prior to the 1930s, the authors criticize it for failing to offer firm protection of vested property rights because it was based on a definition of reasonableness that changed over time.

Hill and Anderson also discuss the implications of legal decisions that broadened the authority of the legislative branch to delegate powers to the executive (thus encouraging "tyranny of the minority" by requiring special interest groups to convince only a small regulatory board rather than an entire legislature in order to obtain favorable laws), expanded state police power, and strengthened the taxing power.

As an attorney who has spent many hours studying constitutional history, I might dispute which of the thousands of cases decided by the US Supreme Court in the last two centuries mark turning points in policy. I would be inclined to place more emphasis on substantive due process as a means of protecting economic freedoms and to place less historic significance than did the authors on the broadening of public interest regulation in the Supreme Court's 1877 Munn v. Illinois decision.

These are, however, at most minor criticisms—and are primarily just differences in interpretation. Although the details of legal history might be disputed, the central point expressed in Birth of a Transfer Society is compelling and virtually irrefutable: a vast change has taken place since the creation of this nation. The exact point at which the change occurred may be subject to debate; the more significant fact that a change did occur is not.

In proposing a solution to the growth of transfer activity, the authors reject an incremental approach and instead argue for the amendment or general rewriting of the Constitution to achieve a clearer definition of individual property rights. They present a persuasive argument that the rules limiting transfer activity must be made difficult to change; otherwise, the process of jockeying for preferential treatment will continue. Although incremental changes may not provide an end to transfer activity, I am optimistic that The Birth of a Transfer Society may minimize our proclivity toward governmental decisionmaking, even without a rewriting of the Constitution.

Gale Norton is a senior attorney with the Mountain States Legal Foundation.