William J. Novak, Law and the Social Control of American Capitalism

• Jurisdiction: United States,Federal
• Publication year: 2010
• Citation: Vol. 60 No. 2

LAW AND THE SOCIAL CONTROL OF AMERICAN CAPITALISM

William J. Novak^*

To hold the balance true between the material and the human values of life is the oldest and the newest economic problem.

-Walton Hale Hamilton¹

INTRODUCTION

This Essay is part of a larger, ongoing investigation of the role of law in the creation of a modern American state from 1877 to 1932. That project charts the decline of an early nineteenth-century world of local, common law self- government (what I called in a previous work a "well-regulated society"²) and the rise of a distinctly modern administrative regulatory state in the United

States. This new legal-political regime was rooted in three interlinked developments: the centralization of public power; the individualization of private right; and the constitutionalization of the rule of law.³Beginning soon after the Civil War, nineteenth-century common law understandings of the public obligations of associative communities in a confederated republic were increasingly replaced by a new emphasis on the constitutional rights of individual citizens in a nation-state-a nation-state insistently expanding its general police and regulatory authority.⁴

The project has three overarching interpretive objectives. First, it emphasizes the distinctive power and reach (as opposed to the exceptional weakness and limits) of the twentieth-century American state created in this period. In line with a recent wave of revisionist scholarship on American governance, it holds that the American state is and has been consistently stronger, larger, more durable, more interventionist, and more redistributive than accounted for in any earlier U.S. historiography.⁵Consequently, it attempts to come to grips with one of the fundamental yet underexplained facts of modern American history-the emergence of a global geopolitical and legal-economic leviathan. Second, the project asserts that law played a fundamentally positive and creative (as opposed to negative and restrictive) role in the development of that modern American state. In contrast to an extensive legal-political literature emphasizing the role of law as primarily a constitutional limitation on, or hindrance or obstruction to, the growth of the American state, this project highlights law as a formative and forceful

"technology of public action"⁶-a distinctive source of expansive governmental authority in a critical period of United States political and economic development. Third, and very much related to the special role of law in American state-building, the project investigates the close interdependence of expanding central powers and new constitutional liberties. Though frequently presented as opposed developments, this study argues that the essence of the governmental regime established in turn-of-the-century America was the simultaneous centralization of new state powers and the constitutionalization of new individual rights. The new American state created in this period was both a jural and a regulatory state-a product of the rule of law as well as modern political administration.

In the context of this larger story of legal and governmental transformation, the subject of this particular Essay is economic policy-the origins of modern American economic regulation. The period from 1877 to 1932 basically marks the development of modern capitalism in the United States-a realignment of economic actors and institutions in a market system more industrial, more organized, and more corporate. Perhaps most importantly, this modern capitalism was also decidedly more state and policy centered, shaped and directed by a new legal and political regime of economic rules and regulations that define this period of American history. Part II of this Essay attempts to present a new interpretation highlighting this interrelationship of legal statecraft and modern American capitalism. Subsequent Parts try to bolster that interpretation with evidence drawn from intellectual history, particularly a new legal-economic discourse concerning "the social control of business" in Part III, as well as a case study of the emerging legal concept of public utility in Part IV. But, of course, the general topic of law and economic regulation in the Gilded Age and Progressive Era is not exactly terra verde. Historiographically, it resembles something more akin to a burnt-over district. So it is perhaps useful at the outset, in Part I, to stake quickly a few interpretive boundaries so as to make room for new claims.

I. INTERPRETATIONS OF LAW, ECONOMICS, AND REGULATION

There are basically four different, dominant interpretations of law and political economy in this period. The oldest, most powerful, and most tenacious interpretation goes by the name laissez-faire constitutionalism. So pervasive is this understanding of the relationship of law and economy that I need merely name it for most to conjure up a favorite example of a conservative, pro-business, Lochner-era jurisprudence frustrating progressive economic and social-welfare regulation. The thesis of laissez-faire constitutionalism is as old as the Progressive Era itself-invented by a host of early twentieth-century activist scholars, among them Charles Beard,⁷J. Allen

Smith,⁸Frank Goodnow,⁹and Louis Boudin.¹⁰These scholars were anxious to impugn an American judiciary that they envisioned as an obstacle to the legislative and administrative experiments of reform. The progressive critique of turn-of-the-century jurisprudence was as unsubtle as it was materialist. As Max Lerner summed up the reigning dogma,

[T]he real Constitution became under capitalism merely the modus operandi of business enterprise . . . . Capitalist enterprise in America generated . . . forces in government and in the underlying classes hostile to capitalistic expansion and bent upon curbing it: it became the function of the Court to check those forces and to lay down the lines of economic orthodoxy.¹¹

What is surprising is that despite a rash of critical revisionism dating back to the late 1960s, including the work of Alan Jones,¹²Charles McCurdy,¹³

Michael Les Benedict,¹⁴Mel Urofsky,¹⁵Barry Cushman,¹⁶and Ted White,¹⁷ laissez-faire constitutionalism remains alive and kicking-the dominant discourse in Howard Gillman's The Constitution Besieged,¹⁸William Wiecek's The Lost World of Classical Legal Thought,¹⁹and Owen Fiss's Troubled

Beginnings of the Modern State,²⁰as well as the general histories of Robert

McCloskey²¹and Kelly, Harbison, and Belz.²²

The second important interpretation of law and economic regulation in this period goes by the name of the capture thesis-a curious example of what can result when New Left historians and New Right economists agree. The essence of the capture thesis holds that, when initial economic regulation did escape the close scrutiny of laissez-faire courts, as in the case of the ICC or the FCC, for example, the regulation served not the "public interest" professed by the reformers, but the narrower interests of the regulated businesses themselves.²³As Chicago School economist George Stigler summed up the thesis for some unlikely intellectual compatriots in history: "[A]s a rule, regulation is acquired by the industry and is designed and operated primarily for its benefit."²⁴In the hands of "corporate liberal" historians, the capture theme acquired a somewhat more sinister, class-based edge than the special- interest or rent-seeking theories of the economists. As James Weinstein put it, "[B]usinessmen were able to harness to their own ends the desire[s] of intellectuals and middle class reformers. . . . These ends were the stabilization, rationalization, and continued expansion of the existing political economy, and . . . the circumscription of the Socialist movement . . . ."²⁵Caught between such twin assaults by left and right, the "public interest" or "public service" theory of regulation and administration articulated by progressive reformers themselves is often treated as no more than a pipe dream by contemporary social scientists.²⁶

The third significant interpretation, following Wallace Farnham and Moisei Ostrogorski, might be termed "The Weakened Spring of [American] Government"-the idea that the dominant story in the political economy of this period was a certain structural weakness, or a comparative deficiency, or an exceptionally limited trajectory in the nature of the American state and its response to the socioeconomic challenges of modern industrialism.²⁷

Originating in Farnham's investigation of the role of government in the growth of the Union Pacific Railroad (which he characterized as a government "hardly govern[ing] at all"²⁸), the weakened spring thesis has been only reinforced more recently by American Political Development literature fixated on demarcating the limited capacity of modern American statecraft in the late nineteenth and early twentieth centuries, from Stephen Skowronek's characterization of state policy in this period as "patchwork"²⁹to Theda Skocpol's voluminous chartings of the comparative laggardness of the American social welfare state.³⁰The list of odd and strained adjectives used to describe the modern American state is illuminating. The American state is "uneasy" for Barry Karl,³¹"reluctant" for Bruce Jansson,³²"divided" for Jacob

Hacker,³³"hidden" for Christopher Howard,³⁴"inept" for Farnham,³⁵and

"warped" for Ostrogorski.³⁶

Now, one should immediately notice that there is a certain consonance in these first three interpretations of the formative era of modern American political economy. Despite the disagreements of individual authors, it is not impossible to imagine a synthesis involving a weak and uncertain general polity, easily captured and dominated regulatory agencies, and market- policing, laissez-faire courts. The overarching thrust of such a synthesis is economy trumping polity, a state deferential to, and incapable of, autonomously restraining the overweening interests of industrial...