Economic Regulation

• Author: William Letwin
• Pages: 843-847

Page 843

In the field of economic policy, the composite constitutional powers of American governments?federal, state, and local?are extremely broad. Granted that governments may not implement economic policies that would violate the guarantees of the BILL OF RIGHTS or a few other constitutional limitations, within these spacious constraints there is little that governments may not do. But what they must or should do is more complex. As to macroeconomic policy, whose main instruments are monetary and fiscal, powers amount virtually to duties, for government could not function without taxing and borrowing, nor could the economy run at all smoothly if government declined to issue any money or take any steps to control its value. (See BORROWING POWER; MONETARY POWER; TAXING AND SPENDING POWER.) Just how these essential functions should be carried out is a matter of art and of debate, but few contend that the functions need not be carried out at all. However, as to microeconomic policies?those identified by usage as the substance of "economic regulation"?constitutional powers have not been regarded as inescapable duties. Although governments may intervene directly to regulate prices, wages, quality of products, and various other aspects of markets, they need not do so. Wages, for instance, have been regulated at some times but not others, in some occupations but not all, and so as to set minima but not maxima. In short, economic regulation is constitutionally optional.

Nonetheless, American governments have always practiced economic regulation, albeit in varying forms and degrees. Moreover, they have always been considered to possess broad authority to regulate, even if during a relatively short interval at the beginning of this century the federal courts invalidated a few particular forms of economic regulation without, however, casting doubt on the legitimacy of most other forms. This historically continuous practice of economic regulation shows that American governments were never dogmatically addicted to laissezfaire, notwithstanding a broad though sometimes faltering preference for private enterprise, and that the Constitution, as intended, written, and interpreted, is not a manifesto in favor of laissez-faire.

Before the CIVIL WAR, the constitutional authority of the states to carry on any and every form of economic regulation was seldom questioned. And this acceptance was not for want of regulations to question. On the contrary, state and local governments set the prices to be charged by wagoners, wood sawyers, chimneysweeps, pawnbrokers, hackney carriages, ferries, wharfs, bridges, and bakers; required licensing of auctioneers, retailers, restaurants, taverns, vendors of lottery tickets, and slaughterhouses; and inspected the quality of timber, shingles, onions, butter, nails, tobacco, salted meat and fish, and bread. This very incomplete list attests to an intention to exercise detailed control over the operation of markets, especially (though not only) those that have since been characterized as providing "public services" and those thought to be morally

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dubious because of association with usury, betting, intoxication, or excessive jubilation.

In the few instances before the Civil War when such regulations came before its eyes, the Supreme Court roundly affirmed their constitutional propriety, always provided (for so the issues arose) that the state's legislation did not collide with the federal commerce power. So in GIBBONS V. OGDEN (1824) JOHN MARSHALL referred to "the acknowledged power of a state to regulate ? its domestic trade" and to adopt "inspection laws, quarantine laws, health laws ?, and those which respect turnpike roads, ferries, etc." In the LICENSE CASES (1847), ROGER B. TANEY defined the STATE POLICE POWER as "nothing more or less than the powers of ? every sovereignty ? to govern men and things," including commerce within its domain, powers absolute except as restrained by the Constitution. Again, in COOLEY V. BOARD OF WARDENS (1851) the Court upheld the constitutionality of a state law requiring ships in the port of Philadelphia to employ local pilots, and further regulating the qualifications of pilots and their fees. Only one notable judgment of the time, by the highest court of New York, seems on casual reading to cast doubt on a state's regulatory power. In WYNEHAMER V. PEOPLE (1856) that court invalidated a law prohibiting the sale, and even the possession, of hard liquor on the ground that the statute acted retroactively and thus fell afoul of the DUE PROCESS clause in the state's constitution. The Justices agreed that a PROHIBITION law framed to operate prospectively would lie entirely within the legislature's power, and the only Justice who expressed reservations about outright prohibition went on to say: "It is ? certain that the legislature can regulate trade in property of all kinds." Long and widespread practice throughout the country confirmed that state legislatures can indeed regulate the terms and conditions not only of trade but also of PRODUCTION, as well as entry into various occupations?though courts repeatedly insisted that the states' police powers, broad though they were, must be limited by profound constitutional antipathy to arbitrary action, such as that instanced by Justice SAMUEL CHASE in CALDER V. BULL (1798): "a law that takes property from A. and gives it to B."

Nor was this broad scope of the police power curtailed by decisions following shortly after the ratification of the FOURTEENTH AMENDMENT in 1868. In the SLAUGHTERHOUSE...