“Intellectual freedom cannot
exist without political freedom; political freedom cannot exist without
economic freedom; a free mind and a free market are corollaries.” – Ayn Rand, 1963*
As
a final note on James W. Ely, Jr.’s chapter, “The Development of Property
Rights,” where we left off in Part
II
of this review, something should be said about the status of
intellectual property and patents. Ely wrote:
Patent and copyright law also
raised important issues of property rights and community interests during the antebellum period. The Constitution
authorized Congress to grant limited monopolies to inventors and authors for
the purpose of encouraging technology and literary production. In 1790 Congress
passed legislation securing both copyrights and patents. Under these acts,
copyrights lasted for a renewable term of fourteen years from the date of
publication. Patents, granted on application for novel and useful inventions
had a duration not exceeding fourteen years. once copyrights and patents
expired, the work fell into the public domain. (Italics mine; p. 81)
Ely
does not discuss the status of trademarks, however.
The Supreme Court’s first ruling
on the law of intellectual property was Wheaton
v. Peters
(1834). Concluding that there was no common law copyright, the
Court held that a statutory copyright could be obtained only by strict
compliance with the terms of the 1790 act. Reflecting the Jacksonian hostility
to monopolies, the Wheaton decision
established that copyright protection was designed
to benefit the public
and was therefore confined to the narrow limits set
by Congress. (Italics mine; p. 81)
Ironically,
Wheaton v. Peters concerned the
status of copies of the Supreme Court’s deliberations as recorded and managed by
a Court reporter, Henry Wheaton. Supreme
Justia.com
carries the opinion of Court:
In the eighth section of the
first article of the Constitution of the United States it is declared that
Congress shall have the power “to promote the progress of science and the
useful arts by securing, for a limited time, to authors and inventors the
exclusive right to their respective writings and inventions.”
The word “secure,” as
used in the Constitution, could not mean the protection of an acknowledged
legal right. It refers to inventors as well as authors, and it has never been
pretended by anyone either in this country or in England that an inventor has a
perpetual right at common law to sell the thing invented.
Henry
Wheaton had filed a copyright claim to the Court’s reports, and transferred
publication rights to another person, while renewing the copyright for himself
for another fourteen years. In the meantime, his successor as Court clerk,
Richard Peters, published an abridged version of Wheaton’s 24-volume work.
While Peters’s six-volume abridged version was based on Wheaton’s work, Wheaton
was not paid anything from the sales of Peters’s version, which was a financial
success. Procedural details governed the outcome of the case, as well,
concerning whether or not Wheaton and others had complied with the terms of the
1790 law. My point here is that it was the “public” that was deferred
to as the prime beneficiary of intellectual property, not the creator, not the
individual who had a first claim to his intellectual or patented idea. This
theme governed Court decisions well into the 20th century. The
opinion stated:
That every man is entitled to the
fruits of his own labor must be admitted, but he can enjoy them only, except by
statutory provision, under the rules of property, which regulate society and
which define the rights of things in general.
We
now move on the post-Civil War “Gilded Age and the Challenge of
Industrialization.” This era saw the initial disintegration of any
protection of property rights, which would reach a climax with the debut of
President Franklin D. Roosevelt’s New Deal in the 1930’s.
Ely
begins this chapter with:
American society experienced
sweeping changes in the latter part of the nineteenth century. The Civil War
destroyed slavery as a form of property and altered the balance of power
between the federal government and the states. Industrialization and the growth
of large-scale corporate enterprise transformed economic life, and Americans
struggled to adjust to the new economic and social order. Prevailing
constitutional thought stressed property rights and limitations on legitimate
government authority….Armed with the due process clause
of the Fourteenth Amendment, the Supreme Court emerged as a champion of
economic liberty….This set the stage for a clash with those who favored greater
regulatory intervention in the market. Concomitantly, the justices afforded
greater protection to property owners by broadening the reach of the takings clause of the
Fifth Amendment, and they invoked the commerce clause to
strike down state interference with interstate commerce. (p. 83)
There
were premonitory exceptions to the Court’s “prevailing constitutional
thought.” Citing again the passage of the first income tax law in 1861,
and the Legal Tender Act of 1862, which declared that the federal government’s
paper money notes were “legal tender for all debts and the payment of
taxes,” Ely writes:
Further, in 1864 Congress
organized the national banking system and established a uniform currency of
national banknotes. A year later Congress placed a heavy tax on state banknotes,
effectively driving them out of circulation as currency. (p. 85)
Ely
continues in another paragraph:
Also significant was the decision
in Veazie Bank v. Fenno (1869), in
which the Supreme Court affirmed the power of Congress to tax the notes of
state banks [state government issued currency]. Stressing the importance of
securing a uniform currency, the Court refused to scrutinize the motives of
Congress in levying such a prohibitive tax. Thus, Veazie Bank established that Congress could use its taxing power to
regulate or even eliminate particular economic activities. (Clarifying brackets
mine; p. 85)
Ely
does not mention any instances of the Court in any period questioning the power
of any government, federal or state, to create banks. While government-created
banks were deemed “economic activities,” they were not per se private enterprises or private
property. Establishing banks was not one of Congress’s original enumerated
powers. He does discuss, albeit briefly, the assumed powers of Congress to
monopolize currency and establish a “uniform national currency.”
In
a grain elevator case in 1877, Munn v.
Illinois
, the Court upheld an Illinois statute “that set the rate for
storing grain in Chicago elevators.”
The elevator managers assailed
this measure as both a deprivation of property without due process and an
impermissible regulation of interstate commerce by a state.
Upholding the Illinois law, the
Supreme Court again adopted a deferential attitude toward state authority to
control the use of private property. Speaking for the Court, Chief Justice
Morrison R. Waite ruled that “when private property is devoted to public
use, it is subject to public regulation.” Whether this public interest
doctrine applied to a particular enterprise was considered a matter for
legislative judgment. Although recognizing that the property owner
“clothed with a public interest” was entitled to reasonable
compensation, Waite further declared that the determination of such
compensation was a legislative task, not a judicial one. The only protection of
property owners against legislative abuse was resort to the political process.
(pp. 87-88)
Another
justice dissented with the majority opinion, “warning that under the Munn rationale, “‘all property and
all business in the State are held at the mercy of its legislature.'”
Stating that grain storage was a
private business, he maintained that the due process clause afforded
substantive protection to owners in their right to use and derive income from
property. (p. 88)
Developing
his theme of the clash between legislative aegis to control property, with the
“public” present in the Court as an amorphous but mute amicus curiæ  (“friend of the court”),  and liberty in the form of private property,
Ely mentions two 19th century theorists who expostulated on the
perils of legislative powers, Thomas M. Cooley and Christopher G. Tiedeman.
Cooley and Tiedeman gave impetus
to the widespread acceptance of a constitutionalism grounded in economic
liberty. Such advocates shared a deep aversion to state-sanctioned monopoly and
viewed with suspicion most governmental intervention into the market economy.  Consistent with the Jacksonian heritage, they
insisted that the government could not legitimately aid one class or group
against another. Attorneys for corporate enterprise were quick to urge this
position on the Supreme Court. They repeatedly contended that regulatory
statutes exceeded legislative authority and particularly attacked laws seeking
to redistribute wealth patterns.
The fundamental concerns of
laissez-faire proponents, however, went beyond the entrenchment of economic
privilege. They saw a close connection between economic liberty and the
protection of personal freedom against government authority. (p. 89)
Still,
as the nineteenth century drew to a close, the Supreme Court (as well as
federal district and appellate courts) gradually shifted from a broad “eight-lane
highway” approach to defending property rights to interpreting such
protection in the alleys and byways of procedural niceties, constitutional protocols,
and sheer funk of not wanting to tangle with state laws or even buck
“populist” sentiment.  Fundamentals
established by the Founders began to be forgotten or dismissed as “old
fashioned” and harking back to different social and economic circumstances
that no longer applied to rights. Ely writes, concerning the takings clause or
eminent domain to benefit a private party:
In the important case of Missouri Pacific Railway Company v. Nebraska
(1896) the Court [ruled] that the taking of property for the private use of
another violated the due process clause of the Fourteenth Amendment. Nonetheless,
both federal and state courts tended to defer to legislative findings that a
particular appropriation of property was for a public use. This attitude helped
erode the “public use” limitation as a check on the exercise of
eminent domain. (p. 94)
In
another case:
At the same time, the Supreme
Court was cool toward the claim that [state] regulations limiting the use of
property represented and unconstitutional taking without compensation. A Kansas
law, for instance, prohibited the manufacture or sale of liquor and ordered the
destruction of liquor already in stock. By preventing the use of breweries for
their intended purpose, the statute drastically reduced the value of land and
equipment to the owners. Stressing that this legislation did not disturb the
owners’ use of property for lawful
activities, the Court in Mugler v. Kansas
(1887) stated that a “prohibition simply upon the use of property for purposes
that are declared by valid legislation, to be injurious to the health, morals,
and safety of the community, cannot in any sense, be deemed a taking or an
appropriation of property for the public benefit.” In a dissenting opinion…Justice
Field refused to concede that the legislature could limit the use of land without
compensation and found that the destruction of liquor and brewing utensils
“crossed the line which separates regulation from confiscation.” (Italics mine; pp. 94-95)
If
a state legislature deemed a certain “economic activity” as unlawful, the Court increasingly refused
to question the moral propriety or validity of such a judgment. As for relying
on the due process clause as protection of property, Ely notes:
…[D]uring the late nineteenth
century the contract clause was gradually eclipsed by economic due process as
the primary constitutional safeguard of property and business interests. Several
factors explain the declining importance of the contract clause. By its terms
the contract clause applied solely to the states and afforded no protection from federal regulation. (Italics mine; pp. 95-96)
Ely
leaves the Gilded Age behind by giving us a few examples of the growing
judicial myopia of the Court.
For the most part there was no
federal legislation governing business activities, and the Supreme Court had
difficulty formulating a standard by which to determine the extent of allowable
state regulation of interstate commerce….Taking a step away from Munn, the
Supreme Court held in Wabash, St. Louis
& Pacific Railway vs. Illinois
(1886) that state regulation of
interstate rates invaded federal power under the commerce clause. The Court
reasoned that “this species of regulation is one which must be, if established
at all, of a general and national character, and cannot be safely and wisely limited
to local rules and local regulations.”
In response, Congress passed the
Interstate Commerce Act (1887), the first major affirmative exercise of federal
regulatory authority under the commerce clause….Using the model of existing
state regulations, the act also created the Interstate Commerce Commission
(ICC), with the power to conduct hearings and issue orders to halt practices
violating the statute….Whatever its shortcomings, the ICC was the first federal
regulatory agency and heralded the rise of the administrative state during the
twentieth century. (p. 100)
Capturing
the hesitation and doubt that was beginning to hamstring the Supreme Court, Ely
writes:
As Congress began gingerly to
regulate interstate commerce, the Supreme Court adopted a restrictive
conception of commerce and thereby limited the reach of Congress under the
commerce clause. In Kidd v. Pearson
(1888) the justices concluded that a state could prevent the manufacture of
liquor for shipment to other states. Distinguishing between commerce and
production, the Court defined commerce as trade and transportation. Under this
interpretation, on the states could regulate manufacturing, mining, and
agriculture. Although the distinction between commerce and production was later
attacked as artificial, it preserved extensive state control over business and
was broadly consistent with the constitutional scheme granting only enumerated
powers to Congress. [!!!] (Exclamation marks mine; p. 101)
Ely
hadn’t forgotten another unenumerated power of Congress.
The full implications of Kidd became evident in cases dealing
with antitrust policy. Widespread public concern about monopolistic practices
and market domination by a handful of corporations led to passage of the
Sherman Antitrust Act of 1890, which declared illegal every contract or
combination in restraint of trade among the states. At issue in United States v. E.C. Knight Co. (1895) was
an effort by the government to dissolve a combination that controlled over 90
percent of the sugar refining in the country and was thus able to control the
price of sugar. Speaking for the Court, Chief Justice Fuller famously asserted:
“Commerce succeeds to manufacture, and is not part of it….The fact that an
article is manufactured for export to another State does not of itself make it
an article of interstate commerce.” Because the refining of sugar was
manufacturing rather than trade among the states, such activity could not be
governed by the Sherman Act. (p. 101)
This
is winning a victory on the enemy’s terms. “Restraint of trade,” as a
strictly defined term, logically conjures up scenarios of criminals employing
force or extortion to compel men to be fettered vassals and patrons of a
successful corporation. Ely ends the chapter with the observation:
The Gilded Age marked an
important watershed in U.S. constitutional history….The justices tended to
strike down redistributive or class legislation but found that most exercises
of [state] police power passed muster. The Court never sought to impose a
strict laissez-faire ideology. (p. 104)
Part IV (and the last Part) of this review will track the rise
of Progressivism and the debut of Roosevelt’s New Deal, and how these
developments affected the fading wisdom of the Supreme Court.
The
Guardian of Every Other Right: A Constitutional History of Property Rights
, by James W. Ely, Jr .. New
York: Oxford University Press, 2007. 216 pp.
*From
“For the New Intellectual,” in For
the New Intellectual
: The Philosophy of Ayn Rand
, by Ayn Rand. New
York: Signet, 1963. 224 pp.