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                           Imprimis, On Line
                               April 1994
        
        IMPRIMIS (im-pri-mis), taking its name from the Latin
        term, "in the first place," is the publication of
        Hillsdale College. Executive Editor, Ronald L.
        Trowbridge; Managing Editor, Lissa Roche; Assistant,
        Patricia A. DuBois. Illustrations by Tom Curtis. The
        opinions expressed in IMPRIMIS may be, but are not
        necessarily, the views of Hillsdale College and its
        External Programs division. Copyright 1994. Permission
        to reprint in whole or part is hereby granted, provided
        a version of the following credit line is used:
        "Reprinted by permission from IMPRIMIS, the monthly
        journal of Hillsdale College." Subscription free upon
        request. ISSN 0277-8432. Circulation 510,000 worldwide,
        established 1972. IMPRIMIS trademark registered in U.S.
        Patent and Trade Office #1563325.
        
             ---------------------------------------------
        
                    "Economic Liberties and the Law"
                        by Richard W. Duesenberg
                Senior Vice President, Monsanto Company
        
             ---------------------------------------------
        
                          Volume 23, Number 4
              Hillsdale College, Hillsdale, Michigan 49242
                               April 1994
        
             ---------------------------------------------
        
        Preview: In this issue, Richard W. Duesenberg notes
        that there has been a virtual explosion of state and
        federal regulation in America. To explain why, he
        offers a brief history of changing interpretations of
        the Constitution and of our economic liberties. Mr.
        Duesenberg spoke at Hillsdale's Center for Constructive
        Alternative seminar, "Politicization of the Law:
        Landmark Decisions and Trends in U.S. Legal History,"
        in November, 1993.
        
             ---------------------------------------------
        
        
                         The Cost of Regulation
        
        The cost of government regulation is truly staggering
        -- it is also a barometer of how free we Americans are
        to pursue our own interests and to determine the course
        of our own lives.
        
             In the late 1970s, Washington University's Center
        for the Study of American Business estimated that the
        total annual cost of implementing government
        regulations was about $64 billion. By the late 1980s,
        its estimate more than doubled to reach $137 billion.
        Other studies reveal even starker figures. The
        Rochester Institute of Technology estimated in 1990
        that federal regulations were costing Americans $395-
        $510 billion, or $4,100-$5,400 per household, each
        year.
        
             Financial costs are not the only burden.
        Regulations also result in a tremendous loss of one of
        our most valuable and limited resources -- time. In the
        1980s, the U.S. Office of Management and Budget
        reported that the private sector was spending over 5
        billion hours a year just to meet government paperwork
        demands. It is spending even more time on compliance in
        the 1990s. It is no wonder that regulation discourages
        the creation of new businesses, new jobs, new products,
        and new services.
        
             Today, every single aspect of business activity
        requires seeking the approval of one or more government
        agencies. A businessman may not even interview a job
        applicant without first knowing all the federal and
        state regulations that govern the interview process.
        These determine whom he may interview, what questions
        he may ask, and how he may determine an applicant's
        qualifications. Regulations also dictate to the person
        seeking a job, from stipulating the number of hours he
        may work to limiting the kind of the work he may
        perform.
        
             Looking to invest in a business? You need a lawyer
        to help sort through all the complex regulations
        related to raising and investing capital. Erecting or
        remodeling a building? If you are very lucky, you will
        get a permit, but then be prepared for even more costly
        restrictions. Setting salaries or other compensation?
        Call your lawyer again to find out all the regulations
        on minimum benefit levels, nondiscrimination, selective
        disclosures, etc. Developing a product? Send tons of
        reports to the government and cross your fingers in the
        hope that you will get permission to sell it -- within
        a decade, that is. Setting a price? Not without
        checking with the state once again to see if it
        considers that price "fair" and "equitable." And that's
        just getting started in your new business -- it is even
        tougher to stay in business.
        
             Each of us is affected -- intimately -- every day
        by regulation. Without approval from the government, we
        cannot drive an automobile. We cannot establish a
        school to educate our children. We cannot make the
        smallest improvement to our home or other property. We
        cannot practice any profession. We cannot even contract
        an illness without being reported to some bureaucratic
        authority. And, of course, up to half of what we earn
        is confiscated by local, state, and federal tax
        collectors.
        
        
                Economic Liberties and the Constitution
        
        Government control over our lives has increased as
        protections of our economic liberties have decreased.
        But this is a fairly recent phenomenon. Throughout most
        of our history, we have been free from the heavy yoke
        of regulation. We have viewed government with
        suspicion, and we have been protected from government,
        not by government. We have also recognized that there
        is no meaningful freedom without freedom of enterprise
        -- our political and economic liberties are
        interdependent.
        
             Over two hundred years ago, our economic liberties
        were foremost in the minds of the framers of the
        Constitution. In Federalist, No. 10, James Madison
        argued that men have different "faculties," i.e.,
        different talents and abilities, and that this is why
        property rights are essential: "From the protection of
        different and unequal faculties of acquiring property,
        the possession of different degrees and kinds of
        property immediately results." And he emphasized, "The
        protection of these faculties is the first object of
        government."
        
             Madison furthermore criticized the "rage" for "an
        equal distribution of property," and condemned it as an
        "improper or wicked project." On laws impairing the
        obligation of contracts, he wrote that they were
        "contrary to the first principles of the social compact
        and to every principle of sound legislation."
        
             In his Defense of the Constitutions of Government,
        John Adams also raised the issue of property rights as
        "natural rights": "property is surely a right of
        mankind as really as liberty....The moment the idea is
        admitted into society that property is not as sacred as
        the laws of God, and that there is not a force of law
        and public justice to protect it, anarchy and tyranny
        commence."
        
             Does this resound with self-interest from the
        landed and propertied classes? Of course it does. But,
        more important, this natural rights view explains why
        America has not only been "the land of the free" but
        "the land of opportunity" for millions of men and women
        of every race, every social class, and every economic
        condition.
        
             It may seem surprising that the framers referred
        only briefly to property rights in the Constitution.
        This was mainly because the document was so short,
        consisting merely of a preamble and seven articles. But
        it was also because the framers believed that a lengthy
        defense of any form of rights was unnecessary. Rights
        originated with the people, not with the state:
        delegation to government, not from it -- that was the
        idea. As Alexander Hamilton expressed it, "[T]he people
        surrender nothing; and as they retain everything, they
        have no need of particular reservations."
        
             So the document that emerged from conference on
        September 17, 1787 and that was effectively ratified on
        June 21, 1788 made only two references of any
        significance to property. In Section 9 of Article I,
        there was a proscription against bills of attainder
        (depriving the accused of rights without judicial
        trial) and ex post facto legislation (retroactive
        punishment for activities that were once legal). In
        Section 10, the same prohibitions were applied to state
        legislatures, and there was an added restriction
        against laws impairing the obligation of contracts.
        
             But there were even more important references to
        property rights in the Bill of Rights attached to the
        Constitution. The famous language of the Fifth
        Amendment was: "No person shall...be deprived of life,
        liberty, or property, without due process of law; nor
        shall private property be taken for public use without
        just compensation."
        
             Keep in mind that the framers had a very broad
        definition of "property" that not only included land,
        merchandise, and contracts but much more. Madison
        explained that it meant "that dominion which one man
        claims and exercises over the external things of the
        world, in exclusion of every other individual." He
        added, "In its larger and juster meaning, it embraces
        everything to which a man may attach a value and have a
        right; and which leaves to everyone else the like
        advantage."
        
             Property, then, extends to our opinions and the
        free communication of them, our religious beliefs, our
        safety, and our liberty of person. "In a word," Madison
        concluded, "as a man is said to have a right to his
        property, he may be equally said to have a property in
        his rights."
        
        
             Economic Liberties and the Early Supreme Court
        
        It was with this broad definition of property rights,
        springing from natural rights philosophy, that the
        early Supreme Court began its work. From the start, the
        justices interpreted the Constitution to mean that the
        government could not abridge the rights of its citizens
        except in rare circumstances, and that even then it
        would have to provide compelling proof that
        intervention was necessary. In one of the earliest
        cases involving property rights, Justice William
        Paterson wrote:
        
            "The right of acquiring and possessing property,
            and having it protected, is one of the natural,
            inherent, and inalienable rights of man.... No man
            would become a member of a community in which he
            could not enjoy the fruits of his honest labor and
            industry."
        
             He judged that the legislature had no authority to
        make an act divesting one citizen of his freehold and
        vesting it in another without just compensation, and in
        ringing terms he concluded with the declaration that
        such conduct "is inconsistent with the principles of
        reason, justice, and moral rectitude; it is
        incompatible with the comfort, peace, and happiness of
        mankind; it is contrary to the principles of social
        alliance in every free government...."
        
             In an 1810 case, Fletcher v. Peck, Chief Justice
        John Marshall relied on both natural rights language
        and the contracts clause to declare unconstitutional a
        Georgia statute canceling title to a 35 million acre
        tract of land that had been purchased in good faith.
        But it was a dissenting opinion written near the end of
        his tenure on the Court that best describes Marshall's
        view. "Individuals," he wrote, "do not derive from
        government their right to contract, but bring that
        right with them into society; that obligation is not
        conferred on contract by positive law, but is
        intrinsic, and is conferred by the act of the parties.
        This results from the right which every man retains to
        acquire property, to dispose of that property according
        to his own judgment, and to pledge himself for a future
        act. These rights are not given by society but are
        brought into it."
        
             Justice Joseph Story expressed the same view in an
        1829 opinion:
        
            "The fundamental maxims of a free government seem
            to require, that the rights of personal liberty and
            private property should be held sacred. At least no
            court of justice in this country would be warranted
            in assuming that the power to violate and disregard
            them, a power so repugnant to the common principles
            of justice and civil liberty, lurked under any
            general grant of legislative authority, or ought to
            be implied from any general expressions of the will
            of the people. The people ought not to be presumed
            to part with rights so vital to their security and
            well being...."
        
             Unfortunately, the early Court failed to take
        advantage of some important opportunities to protect
        property rights. For example, in 1798 the Court ruled
        that the ex post facto clause only applied to criminal
        cases. (It was not unanimous on the point, and many
        subsequent justices and legal scholars have argued that
        the position was in error.) Since much of today's
        legislation has a retroactive effect, the Court's
        failure to use the ex post facto clause broadly has had
        a huge negative impact on the protection of lawful
        private action recently, especially in the area of
        environmental law. As for the contract clause, an 1827
        decision upholding a state bankruptcy law gave
        government a power over individuals and businesses that
        might not otherwise have emerged.
        
             But even with its weak interpretations of these
        provisions, the early Supreme Court was a strong
        defender of economic liberties in general. In a case
        applying the Fourteenth Amendment against a piece of
        state legislation that made it illegal to purchase
        insurance from an unlicensed out-of-state carrier, the
        Court found that the 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 enter into all contracts which may be
        proper, necessary, and essential to his carrying out to
        a successful conclusion the purposes above mentioned."
        
             The Court also reiterated the principle that if
        the government chose to restrict an individual's
        "inalienable right" to pursue any of the commonplace
        occupations of life, then it bore the burden of
        justifying its action.
        
             Probably the most famous case declaring a statute
        unconstitutional because it infringed upon freedom of
        contract was Lochner v. New York. The state of New York
        had passed a law limiting the number of hours that
        could be worked in one week in a bakery. It was
        justified on health grounds, but if one looked behind
        the statute, its political raison d' tre was not hard
        to find. An employer had been indicted for violations,
        so it was a criminal case. His defense was that the
        state law violated his liberty of contract, i.e., his
        liberty to engage a worker for whatever number of hours
        per week he was willing to pay and the worker was
        willing to labor.
        
             The Court declared the New York law
        unconstitutional, not because a state could not pass
        health-related legislation, but because if it used its
        police power to restrict economic liberties, it had to
        show that the exercise of those powers was fair,
        reasonable, and appropriate. Whether the act in
        question met those standards could be answered "in a
        few words," the Court declared. "There is no reasonable
        ground for interfering with the liberty of person or
        the right of free contract, by determining the hours of
        labor, in the occupation of a baker." Bakers could
        decide that for themselves. After all, the Court
        reasoned, they were citizens of average intelligence,
        not wards of the state, and they did not need its help
        to determine how many hours they were willing to work.
        The mere assertion of health considerations was not
        enough for the state to save its legislation.
        
             Lochner was an early 20th century decision -- 1905
        to be exact. The Court had reached the zenith of its
        protection of economic liberties, primarily through the
        due process clause of the Fifth and Fourteenth
        Amendments.
        
        
            Economic Liberties and the Modern Supreme Court
        
        Oliver Wendell Holmes, who was just beginning a 30-year
        career as a Supreme Court justice, filed a dissenting
        opinion. He criticized the Court's decision for being
        based, he alleged, "upon an economic theory which a
        large part of the country does not entertain." But
        whether he agreed or disagreed with that theory, he
        insisted, had nothing to do with "the right of the
        majority to embody their opinion in the law."
        Consistent with this, in 1915 Justice Holmes wrote
        another dissenting opinion:
        
            "Regulation means the prohibition of something, and
            [in interstate commerce] I cannot doubt that the
            regulation may prohibit any part of such commerce
            that Congress sees fit to forbid."
        
             Such language signaled that a truly monumental
        shift in constitutional interpretation was about to
        take place. The principle that government derives its
        authority only from the individual was being supplanted
        by the principle that legislation becomes legitimate
        through the action of the majority.
        
             The framers of the U.S. Constitution feared the
        rule of the majority. In Federalist, No. 51, Madison
        wrote that it was critically important that a republic
        guard the rights of the minority. He was aware that
        democracy can justify its own expansion of power better
        than any other political system. A government that is
        derived from the authority of the people is, after all,
        seemingly authorized to do everything.
        
             But the fear of the majority faded in the first
        several decades of the 20th century; constitutional
        protections of economic liberties -- which we may call
        "substantive due process" -- were gradually abandoned.
        In case after case, price support laws, price
        discrimination laws, minimum wage laws, laws setting
        fees in various industries, laws limiting work hours in
        various trades, laws on union organization and
        membership, laws on child labor, and laws on product
        contents kept coming back to the Court. And Holmes was
        joined on the bench by other pro-interventionist
        justices like Louis Brandeis, William Douglas, and Hugo
        Black. Finally, in the mid-20th century, the
        constitutional edifice the framers built collapsed.
        
             Keep in mind the historical setting for this
        drama: The Great Depression had ravaged society, and
        socialist factions had risen to power in Europe.
        Intellectuals everywhere had been seduced by the
        temptations of the Left. A leading theologian, Reinhold
        Niebuhr, idealized socialist Germany as the place
        "where all the social and political forces of modern
        civilization have reached their most advanced form."
        
             The abandonment of constitutional protections of
        economic liberties meant that the state no longer had
        to prove the necessity of intervention. In Nebbia v.
        New York, a 1933 decision upholding milk price
        controls, the Supreme Court pronounced that the
        guarantee of due process "demands only that the law
        shall not be unreasonable, arbitrary, or capricious."
        Many years later, Justice Black would add with
        satisfaction that the "modern" Court refused "to sit as
        a 'superlegislature to weigh the wisdom of
        legislation,' and we emphatically refuse to go back to
        the time when courts used the Due Process Clause to
        'strike down state laws regulating business and
        industrial conditions because they may be unwise,
        improvident, or out of harmony with a particular school
        of thought.' "
        
             Unbounded legislative discretion, coupled with the
        principle that "the majority rules," became the new
        standard for constitutional interpretation. Justices
        could, at their own discretion, grant or deny economic
        liberties. So-called "personal liberties" (like the
        "right of privacy," which is no where mentioned in the
        Constitution) outweighed economic liberties.
        
        
                        The Pursuit of Happiness
        
        But to most Americans, the pursuit of happiness is the
        pursuit of economic liberties. Being able to hang from
        a tree and utter vulgar epithets at the emperor is not
        nearly so dear to us as being able to own and dispose
        of property, to engage freely in our own chosen trade
        or profession, to pass our possessions on to our heirs.
        
             While there are indications that the Court might
        be resuming some sensitivity to property (e.g., under
        the takings clause) the deference it gives to
        legislative action is still near-absolute. If a law or
        regulation simply stresses "urgent need" or "the public
        interest," the Court is sure to let it stand. The
        judicial review process is so biased that only the most
        absurd edicts are found unconstitutional.
        
             Legal scholar Bernard Siegan has noted that this
        bias has led to the impeding of the democratic process.
        If the Court refuses to review the legitimacy of
        economic regulation, then the government is essentially
        free to dominate the entire American business community
        and, indeed, the life of every American citizen. This
        is socialism -- and socialism does not work any better
        in this country than it has anywhere else. We just seem
        to be the only country that still doesn't want to admit
        it. Our most pressing social and economic problems have
        only been made worse by government intervention. Even
        more alarming is the loss of freedom that has
        accompanied growing government involvement in our
        affairs. But freedom is valueless to the government
        planner. He requires coercive force in order to have
        his way, and he regards centralized planning as far
        superior to the untidy, unpredictable actions and
        decisions of free men and women.
        
             Recently, Hillary Clinton was quoted as saying
        that one of the federal government's tasks is
        "redefining who we are as human beings in the post-
        modern age." Heaven help us! We've had enough
        politicians in this century who have made redefining
        humanity their goal. Millions of lives have been
        destroyed as a result. We should recall that the
        framers of the Constitution did not to try to
        "redefine" or "remake" human beings. They sought to
        understand them and to protect their natural rights.
        They also stood firm with John Locke, who warned in his
        Second Treatise on Civil Government:
        
            "He who attempts to get another man into his
            absolute power does thereby put himself into a
            state of war with him....For I have reason to
            conclude that he who would get me into his power
            without my consent would use me as he pleased when
            he had got me there, and destroy me too when he had
            a fancy to it; for nobody can desire to have me in
            his absolute power unless it be to compel me by
            force to that which is against freedom, that is
            make me a slave."
        
             ---------------------------------------------
        
        Richard W. Duesenberg is senior vice president, general
        counsel, and secretary of Monsanto Company.  He has
        also served as chairman of the American Society of
        Corporate Secretaries and the American Bar
        Association's Section of Corporation Banking, as a
        member of the New York Stock Exchange's Legal Advisory
        Committee, and as a board director of the National
        Judicial College.
        
             Currently, Mr. Duesenberg is an elected member of
        the American Law Institute and a member of the board at
        Valparaiso University, the Opera Theatre of St. Louis,
        the St. Louis Symphony Orchestra, and the Lutheran
        Brotherhood.  He is coauthor of one volume and author
        of two volumes on commercial codes and has written
        numerous articles for law journals and other
        publications.
        
                                  ###
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