Northwestern University School of Law Northwestern University School of Law Scholarly Commons Faculty Working Papers 2012 Monopolies and the Constitution: A History of Crony Capitalism Steven G. Calabresi Northwestern University School of Law, [email protected] Larissa Price Repository Citation Calabresi, Steven G. and Price, Larissa, "Monopolies and the Constitution: A History of Crony Capitalism" (2012). Faculty Working Papers. Paper 214. http://scholarlycommons.law.northwestern.edu/facultyworkingpapers/214 This Working Paper is brought to you for free and open access by Northwestern University School of Law Scholarly Commons. It has been accepted for inclusion in Faculty Working Papers by an authorized administrator of Northwestern University School of Law Scholarly Commons. MONOPOLIES AND THE CONSTITUTION: A HISTORY OF CRONY CAPITALISM By Steven G. Calabresi1 & Larissa Price2 ABSTRACT: This article explores the right of the people to be free from government granted monopolies or from what we would today call “Crony Capitalism.” We trace the constitutional history of this right from Tudor England down to present day state and federal constitutional law. We begin with Darcy v. Allen (also known as the Case of Monopolies decided in 1603) and the Statute of Monopolies of 1624, both of which prohibited English Kings and Queens from granting monopolies. We then show how the American colonists relied on English rights to be free from government granted monopolies during the Revolutionary War period as, for example, when American colonists protested against the East India Company’s trade monopoly by holding the Boston Tea Party. We show that hatred of trade monopolies led in part to the American Revolution. During the drafting and debates on the federal Constitution, Thomas Jefferson and George Mason, as well as several Antifederalists, expressed grave concern about government grants of monopoly power. The new federal government was thus only given the enumerated power to create monopolies in the patent and copyright areas, and the Framers at Philadelphia deliberately chose not to give Congress the power to charter corporations which might be used to grant monopolies. During the Jacksonian era, it was a hatred of government grants of monopoly that helped to lead to President Jackson’s killing of the federally incorporated Bank of the United States. The same sentiment led as well to the Supreme Court’s narrowing of the Contract Clause in the Charles River Bridge case. Many state laws were struck down during the Jacksonian era for being monopolies, class laws, or grants of special privilege. By the 1850s, the Abolitionists themselves had begun to borrow the antimonopoly idea to argue that slavery was a constitutionally forbidden monopoly by slave owners of the labor of African Americans. By 1868, when the Fourteenth Amendment was adopted, the Reconstruction Congress was firmly opposed to all forms of class legislation, grants of special privilege, or of monopoly. Concerns about the evils of government granted monopolies were thus central to the original meaning of the Fourteenth Amendment. We argue that Americans have a constitutional right to be free from government grants of monopoly and other forms of class legislation because of: 1) the rich English and American colonial history with respect to the right to be free from monopolies; 2) the state constitutional law bans on monopolies, class legislation, and special grants of privilege; 3) the limiting of federal enumerated power to grant monopolies to the patent and copyright context; and 4) the original meaning of the Fourteenth Amendment. We think that the Slaughter-House Cases were wrongly decided, and we argue against rational basis review in economic liberties cases. We provide historical and legal arguments that defend the classical liberalism of John Tomasi in his new book defending economic liberty, Free Market Fairness. 1 Class of 1940 Professor of Law, Northwestern University. Copyright 2012—all rights reserved. 2 JD Class of 2012, Northwestern University. We would like to thank Stephen Presser for his helpful advice and comments and Pegeen Bassett for her invaluable skill and help as our research librarian. We dedicate this article to Professor Richard Epstein from whom we have learned so much about economic liberty. TABLE OF CONTENTS: I. A BRIEF HISTORY: HOW MONOPOLIES CAME TO BE HATED ................................................ 7 A. The English Experience with Monopolies ........................................................................... 7 1. Darcy v. Allen .................................................................................................................. 8 2. The Statute of Monopolies ........................................................................................... 15 B. Colonial America ................................................................................................................. 22 II. MONOPOLIES & THE FEDERAL CONSTITUTION .................................................................... 28 A. At the Founding ................................................................................................................... 28 B. Monopolies & the Original Federal Constitution ............................................................. 35 C. The Fourteenth Amendment: A Ban on Class-Based Legislation .................................. 42 D. Economic Liberty Cases: Slaughter-House, Lochner, & the New Deal Cases ............... 61 E. “Private” Monopolies & Federal Antitrust Law .............................................................. 75 III. MONOPOLIES & THE STATE CONSTITUTIONS ....................................................................... 87 A. A Tradition Rooted in Jacksonian Democracy & Changes in Corporate Law ............. 88 B. The Adoption of Antimonopoly Provisions ....................................................................... 93 1. Provisions Adopted at the Founding .......................................................................... 93 2. The Middle to Late Nineteenth Century .................................................................... 95 3. The Progressive Era ................................................................................................... 101 C. The Application of Those Provisions ............................................................................... 104 1. Challenging Licensing Requirements ....................................................................... 105 2. Striking Down Taxes that Benefit Preferred Industries ......................................... 109 3. Challenging Monopolies for Doing Business with the Government ...................... 110 4. Combating Price Controls ......................................................................................... 112 D. Why Have So Few States Adopted Antimonopoly Provisions? .................................... 114 CONCLUSION .............................................................................................................................. 117 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 a parliamentary Statute of Monopolies. While today the word “monopoly” is generally 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 sell3 The Greek word “monopolion” referred to an exclusive legal right of sale issued by the government. Sir Edward Coke defined monopolies in the early 1600’s as being: Institution[s] or allowance[s] by the King by his grant, commission, or otherwise to any person or persons, bodies politic or corporate, of or for the sole buying, selling, making, working or using of anything whereby any person or persons, bodies politic or corporate, are sought to be restrainted of any freedom or liberty that they had before, or hindered in their lawful trade.4 Samuel Johnson’s dictionaries from the eighteenth century defined a monopoly as “the exclusive privilege of selling anything.”5 The 1828 First Edition of Noah Webster’s 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 6 meaning of the law. 3 THE BARNHART DICTIONARY OF ETYMOLOGY 674 (Robert K. Barnhart ed. 1988). 4 EDWARD COKE, THIRD PART OF THE INSTITUTES OF THE LAW OF ENGLAND 181 (1664). 5 See, e.g., SAMUEL JOHNSON, A DICTIONARY OF THE ENGLISH LANGUAGE (6th ed. 1785); SAMUEL JOHNSON, A DICTIONARY OF THE ENGLISH LANGUAGE (3d ed. revised 1768); SAMUEL JOHNSON, A DICTIONARY OF THE ENGLISH LANGUAGE (3d ed.1766). 6 NOAH WEBSTER, AMERICAN