Positive Law and Mixed Economic Enterprise in the Federal System

The history of law in the United States is the history of legal institutions broadly conceived. Congress and state legislatures were the most important "lawmakers" of the nineteenth century. ⁵ They distributed economic justice through positive laws that promoted and regulated the marketplace. Federalism gave differing scope to their actions, with the states intervening more frequently and forcefully than Congress. In neither instance did the level of promotion or regulation match the depth of governmental involvement that has come to characterize the administrative state in the late- twentieth-centuryUnited States. Legislative decisions were political decisions, made with a view to serve the "rights of the public." ⁶ This concept meant that the commonwealth, the public as a whole, had certain rights that had to be placed above private self-interest. In legislative bodies, partisanship, sectionalism, and intrastate regional rivalries defined the public interest. Following a burst of activity in the first part of the century, legislative promotion and regulation waned. It was the victim of its own initial enthusiasm, of political stalemate in Congress, and of charges that state legislatures had unevenly distributed economic justice. The populist and antigovernmental stirrings of the late 1840s and 1850s climaxed in an outburst of constitutional reform that diminished legislative power.

Congress and the Promotion and Regulation of Enterprise

Congress displayed an early enthusiasm for intervening in the private marketplace. Federalist Secretary of the Treasury Alexander Hamilton persuaded Congress during the 1790s to adopt a program that favored commercial and manufacturing interests. It included funding the federal and assuming the state Revolutionary War debts in order to improve the credit rating, passing taxes and tariffs to pay the debt and protect infant domestic industries, and chartering a national bank to stabilize the currency. After the election of 1800, all but the most radical southern states' rights wing of the Jeffersonian Republican party embraced the main features of the Hamiltonian program. Jefferson ordered the planning of the National Road, the nation's first involvement with a large-scale internal improvement. Subsequently, James Madison approved bills establishing the Second Bank of the United States and the Tariff of 1816, James Monroe signed a measure authorizing Congress to subscribe $300,000 to the stock of the Chesapeake and Delaware Canal Company, and John Quincy Adams secured grants of land for canals to be built in Illinois and Indiana while signing other legislation that pleged financial involvement of the federal government in the Louisville and Portland Canal, the Dismal Swamp Canal, and the Chesapeake and Ohio Canal.

Congress used the law as an instrument to promote private economic enterprise. A strong sense of public purpose influenced these actions. The federal government's promotion of private enterprise, either by creating conditions that encouraged commercial and manufacturing activity or by directing subsidies to transportation improvements, was intended to serve all of the people. These congressional policies created the foundation upon which a national commercial market in agricultural goods and manufactured items grew.

These national economic initiatives did not benefit everyone equally. Congress in the Indian Removal Act of 1832, for example, displaced thousands of native Americans from their ancestral lands in the Southeast to poorer lands in the Indian Territory

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of present-day Arkansas and Oklahoma. Their "trail of tears" was a lawfully mandated policy designed to open the Indians' former lands to what the whites considered more profitable forms of farming and planting.

Other congressional policies stirred controversy within the white community along sectional and class lines. What was wanted in the West was not always best for the East; what served the interests of manufacturers did not necessarily benefit small farmers and laborers. After 1820 a higher tariff on imported manufactured goods to many southerners meant only that they were footing the bill to construct canals and roads over the Appalachian Mountains. Moreover, as John Randolph observed during a debate in Congress over internal improvements during the 1820s, "If Congress possesses the power to do what is proposed in this bill they may emancipate every slave in the United States." ⁷

Sectional conflict formed the political fault lines that disrupted the lawmaking role of Congress. The most dramatic evidence of sectional tension over federal economic policy surfaced in the Nullification Crisis of 1832, when a South Carolina convention adopted an ordinance declaring null and void a federal tariff. The nullifiers were motivated as much by fear about the disruption of the institution of slavery, whose fate they believed was tied to the strength of their economy, as by the direct economic effects of the tariff. Throughout the antebellum years the specter of slavery was always near the surface of the debate about the national economy. President Andrew Jackson reacted forcefully to the Nullification Crisis, denouncing the theory of secession it embraced and forcing the nullifiers to retreat.

During the 1830s charges also began to appear that the promotional role of Congress abetted class distinctions. The Democratic party of Andrew Jackson challenged the doctrine of vested rights, claiming that Congress had inequitably distributed the benefits and costs of promoting economic growth by granting special privileges, sometimes in the form of monopolies, that enabled a few entrepreneurs with existing capital to grow rich at the expense of less well-capitalized but equally ambitious men-on-the- make. At the same time, the Whig party, led by Senator Henry Clay of Kentucky, insisted that the federal government had to encourage well-capitalized entrepreneurs to take risks. Clay told his colleagues in Congress that there was little choice. Capitalists, he insisted, "must be patronized, by the general government," or internal improvements "so necessary to the public good . . . never could be accomplished." ⁸ The combined fate of the Second Bank of the United States, the tariff, public land policy, and patents for new inventions reveals how the Jacksonian; Democrats, through political control of the national government, gradually reduced the direct promotional role of Congress in the economy.

Banking was an economically important and politically controversial business. State banks provided the antebellum economy with bank notes as its principal medium of exchange and bank loans as its most important source of credit. The first supported the second. The more notes a bank could issue, the more loans it could make. The worth of the notes, however, depended on the value of the gold and silver specie held in the bank. If a bank's notes got too far out of proportion to its specie reserves, the public ceased to trust the specie as currency, they depreciated in value, and business transactions occurring in distant markets suffered from the attendant uncertainty.

When Congress in 1816 chartered the Second Bank of the United States, it fashioned a classic model of mixed economic enterprise. Congress capitalized it at $35

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million, of which the government put up $5 million. Its twenty-five directors included five public members appointed by the president.

Congress blended promotional and regulatory goals in the bank. The bank and its several branches served as a repository for the federal government, and federal funds, along with those invested by foreign countries, provided the basis on which it could issue its own notes. The bank stabilized the currency by refusing to accept weak state bank notes in payment of debts owed to it, forcing the state banks to act more cautiously.

Perceptions of the bank's usefulness depended on a person's economic position. Debtors and speculators charged incorrectly that the bank was nothing more than a "monster" that kept money tight and then foreclosed when payment became impossible. Senator Thomas Hart Benton of Missouri made the case for western farmers against the bank, which had its headquarters in Philadelphia. "All the flourishing cities of the West," Benton roared in Congress, "are mortgaged to this money power, they are in the jaws of a monster! A lump of butter in the mouth of a dog! One gulp, one swallow, and all is gone!" ⁹ The bank enjoyed support among creditors, who expected future payment in undepreciated currency, and merchants and manufacturers, who depended on a stable currency.

When the charter of the Second Bank of the United States came up for renewal in 1832, a political storm ensued with lasting consequences for the promotional role of Congress. "The Bank is trying to kill me," Andrew Jackson proclaimed, "but I will kill it."¹⁰ And so he did. When Congress sent a bill rechartering the bank to the president, he vetoed it. Jackson rejected the legislation on several grounds, claiming, for example, that Congress had no authority to pass such legislation and that the Supreme Court, in the case of McCulloch v. Maryland ( 1819), had ruled incorrectly when it held that Congress did have such power under the "necessary and proper" clause of the Constitution. Jackson and his Democratic followers rejected as well the idea that Congress through its lawmaking power should attempt to serve the public interest by serving special interests. "There are no necessary evils in government," Jackson informed the Congress. "Its evils exist only in its abuses. If it would confine itself to equal protection, and, as Heaven does its rains, shower its favors alike on the high and the low, the rich and the poor, it would be an unqualified blessing." ¹¹

Andrew Jackson did not try to set himself above the rule of law, and his vision of distributive justice left an important role for the states. He argued that he too had the constitutional right to chart the course of economic development. Jackson understood that banking was crucial to the economy, and throughout his second term he supervised the removal of the federal deposits to state banks, many of which his partisans controlled. The battle over the Second Bank of the United States eventually took its toll, however; throughout the remainder of the antebellum period the promotion and regulation of banking was an exclusively state function. Decisions about distributive economic justice gravitated to the state legislatures. Initially the benefits weighed on the side of speculators, debtors, and stockjobbers, but the costs of laissez-faire became apparent in the Panic of 1837. It burst the speculative bubble in paper money that the national bank's death had encouraged, in many instances ruining the small businessmen and farmers that Jackson had professedly hoped to aid. The states never filled the regulatory void.

The Democratic party's disdain for granting special privileges to encourage eco

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nomic development also shaped early patent law. The Constitution, in Article I, section 8z , gave Congress power "to promote the progress of science and useful arts, securing for limited times to authors and inventors the exclusive right to their respective writings and discoveries." ¹² Justice Joseph Story in an 1825 case in a federal circuit court had enunciated what became the Whig position, when he held that an inventor had only to demonstrate that an object was "new," rather than a work of "genius," in order to receive a patent. ¹³ Democrats believed that such a doctrine encouraged monopoly, and in the Patent Office Act of 1836 they tightened the requirements necessary for obtaining a patent, providing that one would only be issued when the applicant could prove that it was "useful and important" and had not been previously "invented or discovered." ¹⁴ Democrats concluded "that the disincentive costs of monopoly could well outweigh the incentive benefits of patents." ¹⁵

The Democratic party retained political control of the national government for the remainder of the years before the Civil War, and the policies it pursued diminished the promotional role of Congress. Conflicting economic interests expressed through political parties gave Congress little opportunity to exert full national authority, and the divisiveness of sectionalism merely added to governmental inertia. The federal tariff, for example, held the promise both to protect domestic manufacturers and to raise revenues, but a partisan consensus was possible only on the second of these. Southerners, who consumed large amounts of manufactured goods, claimed that they were discriminated against. New Englanders, on the other hand, approved the tariff, although the evidence suggests that it was probably more important to the textile industry than to any other business in the section. Political leaders in both sections, however, did accept the redistributive consequences of the tariff as a revenue measure, because the collections by it maintained the nation's credit worthiness, making the United States an attractive place for the investment of foreign capital. What government had done was to "tax one group of people (chiefly, buyers of imported goods) . . . for the immediate benefit of a smaller group of people (securities holders [and investors])." ¹⁶

Public land policy was similarly hamstrung. The public domain was the federal government's single most important asset, and the use of it had important social and economic consequences. For example, Congress under the Articles of Confederation had passed the Northwest Ordinance of 1787, which set terms for the purchase of lands from the national government and promoted the advancement of education by requiring that one section in each county be set aside for a common school. But as the domain of the United States expanded thereafter, partisan and sectional wrangling in Congress contributed to a confused public land policy that benefited speculators able to purchase lands rather than settlers who were able to invest only sweat equity in return for developed land. Manufacturing interests in the Northeast initially resisted any liberal land policy for fear that easy terms of settlement would mean a loss of labor and consequently higher wages. Southerners, too, disapproved of easy terms, because any revenues not raised through the sale of public lands would have to come through a higher tariff. They also realized that a force of free white farmers in the West, where slavery would have a difficult time flourishing, would be hostile to the peculiar institution.

Partisan and sectional contention did not stop the rush westward, however; each spurt in the price of agricultural commodities produced a surge of westward migrants. But it did mean that would-be settlers had either to buy their land from speculators or

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simply to squat on it in the hope that the federal government would eventually recognize their ownership. Congress gradually did make the terms of purchase easier, but the South blocked homestead legislation that would have given lands to settlers who had lived on and improved them.

Date: 2015-01-29; view: 925