Economic system based on private property, competition, and the production of goods for profit, with the market rather than a central government making decisions about production and distribution.
In a basically free-market economic system, the Supreme Court has been obligated to set restrictions on the power of the states and the federal government to intervene in the market’s growth and direction. In the nineteenth century, the Court frequently cited substantive due process in rebuffing state proposals to regulate wages or free trade. It upheld freedom of contract,
The Court tried to minimize political interference with capitalism by restricting state authority to the state’s own borders and by limiting federal powers to the area of interstate commerce. Swift v. Tyson
In the nineteenth century, the Court’s preference for an unregulated market contributed to several important decisions involving freedom of contract. The contracts clause (Article I, section 10, clause 1, of the Constitution) says that “No State shall…pass any Law impairing the Obligation of Contracts,” and its interpretation featured in several early Court decisions opposing actions by states. The private branch of contracts clause jurisprudence dealt mostly with state attempts to weaken contracts between private parties, usually to effect debtor relief.
The public branch of contracts clause jurisprudence forced the states to uphold their contracts faithfully. In Fletcher v. Peck
Whereas procedural due process ensures fair procedures, the doctrine of substantive due process
Even in its period of strongest support of substantive due process, however, the Court took a generally broad view of issues. State regulation of railroad rates, for example, was accepted with the understanding that investors must be allowed reasonable competitive profits. In Muller v. Oregon
Criticism by Progressives combined with the New Deal to end the dominance of substantive due process in economic affairs. In Nebbia v. New York
The Court handed down several important decisions in the nineteenth century establishing corporations
In Welton v. Missouri
Beginning with the New Deal in the 1930’s, the Court allowed more state and federal regulation of corporations, as in Federal Trade Commission v. F. R. Keppel and Bros. (1934), which gave the Federal Trade Commission increased oversight of business practices. Several later decisions gave more freedom to the market. In Chiarella v. United States
Before the passage of the Sherman Antitrust Act in 1890, the Court relied on the common law of trade restraint in making decisions, but a series of rulings after the act’s passage disallowed price fixing and anticompetitive mergers. In United States v. Trans-Missouri Freight Association
Paul Bowles’s Capitalism (New York: Pearson/Longman, 2006) is a general consideration of the subject. Two books that focus on capitalism and the law are Herbert Hovencamp’s Enterprise and American Law, 1836-1937 (Cambridge, Mass.: Harvard University Press, 1991) and Arthur Selwyn Miller’s The Supreme Court and American Capitalism (Westport, Conn.: Greenwood Press, 1968). An excellent study is Kermit L. Hall’s The Magic Mirror: Law in American History (New York: Oxford University Press, 1989). Among the topics that Hall treats in his bibliographical essay on “Law and the Economy” is the controversy prompted by Morton J. Horwitz in The Transformation of American Law, 1780-1860 (New York: Oxford University Press, 1977), in which Horwitz argued that the body of common law developed in the nineteenth century worked for entrepreneurs against laborers and farmers. James Willard Hurst is the author of several important books, including The Legitimacy of the Business Corporation in the Law of the United States, 1780- 1970 (Charlottesville: University Press of Virginia, 1970) and Law and Markets in United States History: Different Modes of Bargaining Among Interests (Madison: University of Wisconsin Press, 1982). Lawrence M. Friedman’s A History of American Law (3d ed., New York: Simon & Schuster, 2005) has important chapters on law and the economy: 1776-1850, corporation law, and commerce, labor, and taxation. Charles R. Geisst’s Wall Street: A History (New York: Oxford University Press, 1997) details the struggles between financial institutions and the Court. For a comprehensive history of the stock market, see Charles R. Geisst’s Wall Street: A History--From Its Beginnings to the Fall of Enron (Rev. ed. New York: Oxford University Press, 2004).
Charles River Bridge v. Warren Bridge
Contract, freedom of
Dartmouth College v. Woodward
Due process, substantive
Field, Stephen J.
Home Building and Loan Association v. Blaisdell
Lochner v. New York
Nebbia v. New York