Bending before the storm: the U.S. Supreme Court in economic crisis, 1935-1937.

• Author: Shughart, II, William F.

It all began with the great slump of 1931.... There followed the iron 30s, ... the dark and leaden 30s, to which, alone of all periods, no one ... wishes to return, unless indeed they lament the passing of Fascism.

--Isaiah Berlin, "President Franklin Roosevelt," 1955

Much of the history of the New Deal is hagiolatry of Franklin Delano Roosevelt (FDR). The Greatest Generation, so called (Brokaw 1998), not only sacrificed its blood and its treasure to defeat the first axis of evil, but earlier those same heroic men and women helped to save the American way of life by wisely electing and following a leader who purged capitalism of its worst excesses and rescued the economy from the depths of depression. (1)

Such is the conventional wisdom. Like most reductionist accounts of complex episodes, however, the popular history of the New Deal era is seriously mistaken as well as excessively reverential. Whatever else has been said about the policies and programs that took their name from a line in FDR's speech accepting the Democratic Party's presidential nomination in 1932--"I pledge you, I pledge myself, to a new deal for the American people" (qtd. in Black 2003, 239) (2)--the promised economic recovery never materialized. The New Deal did not work.

Christina Romer marks the following dates by which industrial production had recovered to predepression levels: "1932 for New Zealand; 1933 for Japan, Greece, and Romania; 1934 for Chile, Denmark, Finland, and Sweden; 1935 for Estonia, Hungary, Norway, and the United Kingdom; 1936 for Germany; and 1937 for Canada, Austria, and Italy." In contrast, "the United States ... did not recover before the end of the sample in 1937" (1993, 23-24). (3) As a matter of fact, the embryonic economic revival having been aborted by the "Roosevelt Recession" of 1937-38, gross national product (GNP) in 1958 prices remained below its 1929 level until 1939 (Couch and Shughart 1998, 26). Genuine prosperity did not resume until after World War II (Higgs 1997).

Standard accounts of the drama that began to unfold early in January 1935, when the U.S. Supreme Court ruled on the first of the challenges to New Deal legislation that came before it, frequently ignore these uncomfortable facts. (4) As the story usually is told, the Old Court stubbornly blocked FDR's policies by invalidating on constitutional grounds the bold experiments undertaken during his first term to deal with the nation's extraordinary economic emergency. Thwarted at nearly every turn, often by narrow five-to-four vote margins, and emboldened by his stunning reelection to the White House in November 1936, FDR responded the following winter by threatening to pack the Court with up to six additional members, thereby ensuring a more compliant majority. To diffuse that threat, the Court abruptly changed course, executing its famous "switch in time that saved nine," and began to sustain most of the president's policies and programs, especially in the area of economic regulation.

The New Deal's failure to stimulate the economy places the foregoing events in an entirely new light. Prosperity would not have returned earlier had the Supreme Court been more accommodating before 1937. The majority's subsequent submission to the president's policies cannot be credited with clearing the path to recovery, either. As a matter of fact, the Court's opportunistic change of interpretive course arguably prolonged the nation's economic misery.

These observations do not mean that the Supreme Court's apparent capitulation to external political pressures did not have far-reaching consequences. The year 1937 undeniably marks a watershed in federal judicial history. By abandoning longstanding constitutional protections for economic liberties, the Court thereafter actively fostered the growth of the modern regulatory state. In so doing, it repeatedly upheld statutes that plainly were intended not to advance the general welfare but to redistribute wealth to politically powerful special-interest groups. Although it is certainly true that "no one who did not participate in the conferences of the Court will ever know the answers" to all of the important questions raised by this critical episode in judicial history (Stern 1946, 681), the episode bears examining again in more detail. Three lessons can be drawn from such a reexamination. First and foremost, the so-called constitutional revolution of 1937 casts doubt on the federal judiciary's ostensible "independence" from the executive and legislative branches. The Court's adjustment to the changed political environment of the 1930s is broadly consistent with rational-actor models of judicial behavior. Although seven of the nine justices by and large held their constitutional ground throughout the decisive period, the "switch in time" is eloquent testimony to the chief justice's pivotal role in coordinating the Court's responses to shifts in the political equilibrium.

Second, however, the Court's change of direction was less sharp than usually acknowledged. Prior to 1937, majorities had both sustained a number of important New Deal statutes and afforded state legislatures more freedom in justifying economic regulation as a legitimate exercise of government's police powers. The absence of a sharp dividing line between the Old Court and the New suggests that events preceding the announcement of the president's packing plan also played crucial roles in explaining the behavior of the Court's swing voters.

Third, the political damage FDR suffered by launching his attack on the Supreme Court, damage worsened by his attempt to purge his own party of New Deal adversaries during the midterm election campaigns of 1938, turned out to have been needless. Justice William Van Devanter, one of the original "Four Horsemen" who voted consistently against the president's legislation, retired at the end of the Court's 1937 term, to be replaced by the more accommodating Hugo Black. Within two and a half years of submitting his court-packing plan to Congress, FDR had appointed five new justices with unswerving loyalties to his economic policies. The Court would have changed course eventually in any case. There would have been a constitutional revolution in the absence of the court-packing plan, a bit later perhaps, but of no less moment.

The Supreme Court Prior to 1935

The contrast between the Old Court and the one that midwifed the welfare state from 1937 on has received close examination by a number of scholars (for example, Swisher 1939; Shenfield [1976] 1998; Siegan 1980; Epstein 1988; Maidment 1991; Leuchtenburg 1995; and Cushman 1998). Nearly everyone agrees that 1937 was a year of "constitutional revolution" (Leuchtenburg 1995, 213), (5) whose chief casualties were the Constitution's Commerce and Due Process Clauses. In short order, the Court jettisoned the time-honored distinction between intrastate and interstate commerce, and it began to deny that the Fifth Amendment accorded protection to economic liberties. (6) Whether those reversals, which freed government to grow significantly in size and scope, were good things or bad things is a matter of continuing controversy.

The Commerce Clause

Article I, Section 8, of the Constitution of the United States declares in part that "Congress shall have Power ... [t]o regulate Commerce with foreign Nations, and among the several States, and with the Indian Tribes." In the first case that required meaning to be imparted to the second of those three phrases, a unanimous six-member Supreme Court (7) in 1824 struck down a New York law granting to inventor Robert Fulton and his partner Robert Livingston the exclusive right to operate steamboats in the state's waters. (8) Thomas Gibbons, who operated a rival steamship company out of Elizabethtown, New Jersey, challenged Fulton's monopoly after being instructed by local authorities to shut down his engines and hoist sail when his ships crossed into New York. Writing for his brethren, Justice William Johnson concurring, Chief Justice John Marshall defined commerce as "intercourse," a definition that comprehended "certain kinds of interstate transactions--sales, bills of lading, contracts of common carriage" as well as "navigation" (Epstein 1988, 10). (9) In so construing the federal government's constitutional authority, the Court effectively proscribed actions by the states that threatened to disrupt the free flow of commerce among them. But, importantly, Marshall also wrote that Congress's power to regulate commerce was not unconstrained. In particular, its constitutional authority "did not extend to those affairs that 'preceded' commerce," such as "inspection and quarantine laws" (Epstein 1988, 10). Nor did it comprehend commerce "which is completely internal, which is carried out between man and man in a State, or between different parts of the same State, and which does not extend to or affect other States (Epstein 1988, 11, emphasis added).

The Court thereafter generally adhered to Marshall's distinction, holding, for example, that manufacturing was not commerce (10) and, for the same reason, that Congress had exceeded its constitutional authority in prohibiting the interstate shipment of goods produced by child labor. (11) To be sure, the Court from time to time found that federal regulation was justified by its "police powers," (12) but Marshall's narrow interpretation of the Commerce Clause by and large still controlled when New Deal legislation faced its first major constitutional test. (13)

The Due Process Clause

Fifth Amendment guarantees that "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" joined the Commerce Clause as victims of the so-called constitutional revolution of 1937. The key question raised by the amendment's language is whether the guarantee of due process is substantive--that is...