Today in Supreme Court History: December 24, 1798

12/24/1798: The Virginia Resolution, authored by James Madison, is published.

James Madison

Comments

[Frank Drackman]

A State can disregard acts of Congress? Sedition!!!!

[Dan Schiavetta]

Missouri Kansas & Texas Ry. Co. of Texas v. Ferris, 179 U.S. 602 (decided December 24, 1900): no federal question presented by Texas statute providing that refusal to answer at deposition is not an admission as to a corporate party (this was a civil case, wrongful death)

Gatewood v. North Carolina, 203 U.S. 531 (decided December 24, 1906): nominal stock exchange where no stocks were actually bought or sold (instead, members were awarded difference between sale price and market price) was actually a “bucket shop”, i.e., illegal betting (isn’t this perfectly legal now -- it’s called the stock index futures market?)

Noyd v. Bond, 393 U.S. 1048 (decided December 24, 1968): Douglas springs Capt. Noyd from jail in time for Christmas; Noyd was appealing his court-martial for protesting the Vietnam War by refusing to instruct an officer how to fly a military airplane (the Court ended up dismissing Noyd’s suit, holding that he had not exhausted his military appeals, 395 U.S. 683, 1969)

[SRG2]

isn’t this perfectly legal now -- it’s called the stock index futures market?

Not exactly a futures contract - it's technically a contract for differences (CFD). One relevant distinction is that a CFD does not require variation margin, that is, when the price changes before the final settlement date, no additional margin is paid or received. Another, in a futures contract the legal counterparty is the exchange or its clearing house, not the individual on the other side of the trade, whereas as far as I can tell from reading the decision, there was no such condition.

The decision quotes the NC SC as saying, "The statute of this state does not prohibit all purchases or sales for future delivery, but only such dealings as are in the nature of gambling or wagering contracts." which appears to be a further distinction but, first, the vast majority of futures trades are closed out before delivery or expiration date, and second, many financial futures contracts are cash-settled, that is, no delivery ever takes place. The contract expires on the last day after the final mark to market.

Certainly, modern futures exchanges are generally happy with speculators - they add liquidity and help risk transfer. There have even been instances, most notably with NYMEX, where a trader intentionally took delivery of a commodity, refusing to close out a position earlier, because he actually wanted the physical metal or other commodity, and it was cheaper to buy it via futures and take delivery than buy the cash product - and was criticised for it by NYMEX,

[Dan Schiavetta]

I know practically nothing about either gambling or the stock market, and was just venturing a guess. Thanks for the explanation, though I don't understand some of the terms you are using.

[Frank Drackman]

Hey, Dr Ed's the one who gives opinions on subjects he knows practically nothing about! Know your role!

[Dr. Ed 2]

Sorry Frank, I actually know what I am talking about when I speak.

[ReaderY]

This are many fields, and finance is certainly one of them, in which lawyers are paid lots and lots of money to come up with instruments that behave exactly like illegal things for all practical purposes, yet aren’t illegal because of some technical distinction with no actual practical significance.

For example, Uber and its lawyers got rich largely by coming up with the idea that using an app rather than waving ones arm on the street to call for a ride makes the ride a prearranged pick-up, categorized as a livery service, and not a hail, categorized as a taxi, even if the ride is visible from the street in both cases.

[Dan Schiavetta]

Quite true.

[SRG2]

I can attest from personal experience that Wall Street firms have people - not lawyers (see below) - who devise "structured loopholes".

The usual process however is that it will be a product specialist who will devise a plausible structure after lawyers have explained why certain transactions are unlawful or illegal. The lawyers will then be asked whether this new structure is effective. In general, lawyers don't have the intuitive familiarity with the products, particularly the more technical or sophisticated ones, to be adept at devising loopholes themselves.

FWIW many of the loopholes would not work in Germany because German financial jurisprudence looks at economic consequences, not transaction details. So if, for example, there is a rule that a certain product cannot be sold within a year of acquisition, a US firm might be able to devise a series of transactions using options, etc. that had the effect of selling the product - with a profit identical to that if the product had been sold, but was not covered by the rule, where a German firm would note that simply because the effect was the same as though the client had sold the product, the loopholed transaction also broke the rule.

[Dan Schiavetta]

Sounds like a better analysis.

[bernard11]

modern futures exchanges are generally happy with speculators

Speculators are an unfairly maligned group. They are, in many cases, the "insurers" making hedges possible.

[SRG2]

Yup. Almost all futures markets rely on speculators.

[JoeFromtheBronx]

Madison thought the Alien and Sedition Acts as a whole were both wrong and unconstitutional. The presidency, Congress, and courts were in Federalist hands. At least John Marshall, who would be Chief Justice in a few years, was wary about them.

Not every law was unconstitutional—for instance, the stricter naturalization law was arguably a bad policy, but Congress had the power to pass it. Madison used the law allowing the expulsion of enemy aliens during the War of 1812.

The problem was the sedition act and a law involving non-enemy aliens (never used by Adams but a loaded gun that pressured some people to leave the country).

Madison (Jefferson handled the Kentucky Resolutions) relied on the states to challenge the laws. He also hoped it would be a political goldmine for the upcoming 1800 elections.

Some state legislatures pushed back arguing the courts should be relied on to interpret the laws. Later, Madison was careful to emphasize that he wasn't saying a state by itself could block a federal law. He opposed South Carolina's claim to have the authority to nullify a tariff law which it felt unconstitutional.

Jefferson left in language especially open to that reading:

“[T]he several states who formed that instrument [the Constitution], being sovereign and independent, have the unquestionable right to judge of its infraction; and that a nullification, by those [states], of all unauthorized acts….is the rightful remedy.”

The ability of let's say Vermont to on its own judge the constitutionality of a law shows the problem with this sentiment. The Articles of Confederation offer more national force than that.

[Dan Schiavetta]

It seems untenable to us, particularly because "state's rights" was later used to support slavery and then segregation, but it would not have seemed odd in those days. We were still at the point where each state considered itself a sovereign entity which had for the sake of convenience signed on to a national government with limited powers.

[apedad]

I'd say 'convenience' is too mild and it was out of necessity (shown by the weaknesses of the Art. of Conf.), that led to the formation of our current federal govt.

[Dan Schiavetta]

Yes.

Mostly it was about $$. The new nation could not prosper with each state printing its own currency, erecting trade barriers against the others, ripping off their neighbors, running away from debts owed, making their own deals with foreign nations.

[Dr. Ed 2]

Shay's Rebellion was because Massachusetts didn't run away from its debt -- and was trying to collect the revenue from cash-poor farmers who lacked hard currency.

[SRG2]

The new nation could not prosper with each state printing its own currency,

That's an interesting and arguable point. Just as it's convenient but not necessary for a country to have its own central bank issuing currency, rather than its (private) banks, it's convenient but not necessary for a federation of states to have a centralised issuer of currency. Evidently, money-changers were an insufficiently powerful lobby in those days.

I would argue that a country or federation can prosper without a single currency or at least single issuer, but it is more effective when it does. (FWIW some sovcits, I think, argue in favour of private currency if not outright barter. None of them is on the shortlist for an economics Nobel - or indeed any other Nobel.)

[JoeFromtheBronx]

The general idea had more support than it has today though it still has some support even today. But as one commentary notes:

The Resolutions garnered support from none of the other fourteen states. Four states made no response to Kentucky and Virginia's request for support and ten states expressed outright disapproval.

The critical states included Maryland and Delaware. Only the Carolinas, Georgia, and Tennesee took no action.

The federal government had limited powers. Still does. A state, however, didn't have the right to simply nullify a law on its own. As noted, even James Madison granted the point.

[NvEric]

And, where is the limited national government today ?

Each year the disparity grows worse between control of that limited national government and the means to control the population. More attempted control by government increases the need for itself, creates more crime by way of more laws, and diminishes citizenship by reducing effective control.

Devalued citizenship occurs every 10 years by not increasing representation in the House of Representatives. Thirty-Thousand.org

Merry Christmas

[ReaderY]

There actually have been a number of things the federal government has retrenched on. Speed limits and marijuana were completely or partially repealed by statute. Abortion and expanded medicare were overturned by the courts. There have been a number of other lesser-known issues where the federal government has had to retrench on something. The federal government has periodically found that it can’t do anything and everything it wants.

[ReaderY]

And it’s come around full circle. “State’s rights” today is probably more likely to conjure up marijuana in peoples’ minds then slavery. Liberals and progressives can be remarkably pro states rights when they like the policy outcomes.

[The Margrave of Azilia]

[joke deleted - it was too stupid to post]

[Dan Schiavetta]

I should follow your example more often!