Monopolies and the Constitution: a history of crony capitalism.

• Author: Calabresi, Steven G.
• Position: I. A Brief History: How Monopolies Came to Be Hated through II. Monopolies in the United States B. Monopolies and the Original Federal Constitution, p. 983-1023

1. A BRIEF HISTORY: HOW MONOPOLIES CAME TO BE HATED A. The English Experience with Monopolies 1. Darcy v. Allen 2. The Statute of Monopolies B. Colonial America II. MONOPOLIES IN THE UNITED STATES A. At the Founding B. Monopolies and the Original Federal Constitution C. The Fourteenth Amendment: A Ban on Class-Based Legislation D. Economic Liberty Cases: Slaughter-House, Lochner, & the New Deal Cases E. "Private" Monopolies and Federal Antitrust Law III. MONOPOLIES AND STATE CONSTITUTIONAL LAW A. A Tradition Rooted in Jacksonian Democracy and Changes in Corporate Law B. The Adoption of Antimonopoly Provisions 1. Provisions Adopted at the Founding 2. The Middle to Late Nineteenth Century 3. The Progressive Era C. The Application of State Antimonopoly Provisions 1. Challenging Licensing Requirements 2. Striking Down Taxes that Benefit Preferred Industries 3. Challenging Monopolies for Doing Business with the Government 4. Combating Price Controls D. Why Have So Few States Adopted Antimonopoly Provisions? CONCLUSION Government-conferred monopolies granted by English kings and queens plagued England in the late sixteenth and early seventeenth centuries, leading to both The Case of Monopolies and the parliamentary Statute of Monopolies. Although today the word "monopoly" generally is used to refer to the private accumulation of economic power, this is not the meaning that was originally attached to the term. The original meaning of the word "monopoly" was an exclusive grant of power from the government--in the form of a "license" or "patent" -- to work in a particular trade or to sell a specific good. The word "monopoly" comes from the Greek roots "mono," meaning "single" or "one," and "polein," meaning "to sell." (1) The Greek word "monopolion" referred to an exclusive legal right of sale issued by the government. (2) Sir Edward Coke defined monopolies in the early seventeenth century as being

   [Institution[s], or allowance[s] by the King by his [g]rant, [c]ommission, or otherwise to any person or persons, bodies politick or corporate, of or for the sole buying, selling, making, working, or using of any thing, whereby any person or persons, bodies politick or corporate, are sought to be restrained of any freedom[] or liberty that they had before, or hind[e]red in their lawful trade. (3) Samuel Johnson's dictionaries from the eighteenth century likewise defined a monopoly as "[t]he exclusive privilege of selling any thing." (4)

   The 1828 first edition of Noah Webster's An American Dictionary of the English Language defined a "monopoly" as being:

   The sole power of vending any species of goods, obtained either by engrossing the articles in market by purchase, or by a license from the government confirming this privilege. Thus the East India Company in Great Britain has a monopoly of the trade to the East Indies, granted to them by charter. Monopolies by individuals obtained by engrossing, are an offense prohibited by law. But a man has by natural right the exclusive power of vending his own produce or manufactures, and to retain that exclusive right is not a monopoly within the meaning of law. (5) The American colonists thus shared English concerns that exclusive monopoly privileges issued by the government could impose enormous costs on the general public, and especially on consumers. (6) George Mason, Thomas Jefferson, and several Antifederalists argued in favor of including an antimonopoly clause in the federal Constitution. (7) Although no such clause was added at the federal level constitutional drafters in two states recognized the danger of monopolies and prohibited government-granted monopolies in their state constitutions, (8) More states added antimonopoly clauses to their constitutions in the first one hundred years after the federal Constitution was adopted. (9) Others prohibited monopolies using different language, including clauses that forbade the giving of exclusive privileges to one class of citizens over another, or clauses that forbade the abridging of the privileges or immunities of citizens. (10) The Framers of the Fourteenth Amendment to the federal Constitution shared this concern with what they called "class legislation," a concern that led four United States Supreme Court Justices to say that state-granted monopolies were unconstitutional in an important dissent in the Slaughter-House Cases. (11)

   This objection to government-granted monopolies and to forms of caste or class legislation is not merely a part of this country's history; it is also relevant today. In a 2011 Washington Post opinion piece, George Will describes a legal challenge to the constitutionality of a monopoly granted by the state of Washington to a ferry boat company. (12) The ferry boat company has a legal monopoly on boat service to a town that can otherwise only be reached by plane. (13) The challengers to the Washington state law creating the monopoly are residents of that remote town who wish to open a competing boat service to provide an easier way to access their town. (14) But the problem of government-conferred monopolies is not unique to one town in the state of Washington, because it is now routine in many states for the government to require licenses for various industries, often for the purpose of bestowing economic favors. (15) Licensing requirements of this kind sometimes take the form of a complete prohibition (as is the case in Washington), but they may also take the form of barriers to entry that prevent or reduce competition. Many local and state governments license businesses for no legitimate health or safety reason. For example, tourist guides, funeral attendants, and florists are all sometimes required to be licensed professionals despite the evident lack of a legitimate public health or safety reason for such laws. (16)

   Local public schools provide another example of a government-sponsored monopoly provider of public services. Like most monopoly providers, many public schools provide poor service to their consumers (parents and children) while diverting monopoly rents in the form of bloated salaries and benefits to the providers of education (bureaucrats and teachers' unions). (17) Polls suggest that most Americans feel strong pressure to send their children to public schools because they are taxed to pay for public schools even if they ultimately choose to send their children to private schools or to home-school them. (18) The public school monopoly is especially objectionable because it interferes with parents' control over raising and educating their own children. (19) Since the New Deal, the Supreme Court has applied the very deferential rational basis test when reviewing the constitutionality of federal and state economic regulations, including those that grant monopoly status. (20) Such laws are rarely challenged and even more rarely struck down. This is a mistake. The post-New Deal case law on economic liberties, epitomized by Williamson v. Lee Optical Co., (21) is wrongly decided, and the right to be free from class legislation, monopolies, and grants of special privilege is deeply rooted in this nation's history and traditions. (22) We therefore think this right is embodied in the Fourteenth Amendment to the U.S. Constitution and that it can only be trumped by just laws enacted for the good of the whole people. (23) We think George Will is right when he denounces government licensing schemes because they "lack[] constitutional warrant and repudiate[] the nation's foundational philosophy" and because they require entrepreneurs to "approach government on bended knee to beg it to confer upon them a right--the right to compete." (24)

   As John Tomasi argues in his new book, Free Market Fairness, economic liberties are just as important to freedom as are all of the other liberties embraced by modern liberals. (25) This Article helps to spell out the legal underpinnings and history of the economic liberties that Tomasi identifies; its analysis and Tomasi's are mutually reinforcing. Tomasi defends economic liberty from the perspective of political philosophy to which we seek here to add the perspective of history and law.

   Part I of this Article discusses the history of government-licensed monopolies in seventeenth century England and the landmark events limiting the King's power to grant monopolies-The Case of Monopolies and Statute of Monopolies. Part I also discusses the spread of the English concern with government grants of monopoly to the American colonies and the role trade monopolies played in building support for the American Revolution in colonial America. Part II discusses the effort by some of the Framers of the U.S. Constitution to include an antimonopoly clause therein, an effort that ultimately failed. Part II then shows how antimonopoly ideas infused themselves into the Supreme Court's early Contracts Clause case law and the central role they played in the emergence of the Fourteenth Amendment as a ban on class-based or caste-based legislation. Part II finally discusses the connection between the various federal antitrust laws and government-granted monopolies. Part III discusses the adoption of antimonopoly clauses in state constitutions, beginning at the Founding and continuing through the early twentieth century. Part III also considers the move toward general laws governing incorporation and away from special legislative charter grants and surveys how the monopoly concept came to reflect a concern with private economic power in some states, as well as the application of state antimonopoly provisions. The Article concludes with a few parting words about the decline in concern for the protection of economic liberty in modern American constitutional law.

   1. A BRIEF HISTORY: HOW MONOPOLIES CAME TO BE HATED

   1. The English Experience with Monopolies The English hatred of monopolies dates back to the reigns of Queen Elizabeth I and King James I. Two principal events-one...