Religious Liberty Symposium Keynote | Richard Epstein

It’s a very great pleasure and honor to be here the only difficulty about speaking last on a platform which is likely to go over the
edge if I push on it, is that this has been such an exhausting conference from beginning to end including a dinner up at Sundance last
night that the only betting question is whether or not I’ll be able to last 45
minutes that I’ve been assigned to talk. as Leeza started to tell you I have a
very heterogeneous background the thing that she forgotto tell
you is that constitutional law at least as a writing thing is a relatively small
part of my portfolio. But I don’t want to dwell on the things that I don’t know.
What I’d rather do is to try and see if I could set the table to explain what
the topic is. And I gather the title is something about liberty and equality
is that correct? All right, thank you. Well now I know which speech I have to
give, of the many that I’ve given over the years from the past. But in order to
do that, I think it’s probably useful to give you first at least a little
expression what the title of the book is about and why it is that I used the word
classical liberal with respect to the book even though in many other places
where I do more popular writing the term that is often used with my name is,
“The libertarian.” Which doesn’t mean the foremost libertarian it may mean the only
libertarian left standing in the world today. But I don’t think it’s that, and
the difference between the two theories, I think, is really important because the
great difficulty of being a traditional libertarian is that you cannot figure
out how from the tools of that theory you can actually form of collective
viable organization known as the State endowed with monopoly powers over the
population that it rules, but subject to limitations that make sure that the
monopoly power is not exercised in appropriate fashion. Classical liberalism,
an effort to try and enrich the theory make things a little bit more
complicated but answer that particular question. So to go back to the
libertarian theory. Now the basic norms associated with that
particular theory are relatively few and they’re all quite powerful. One of them
of course is that in coming to any kind of social organization there is always
the question as to who owns each individual person. Now the good libertarian comes up
with the principle of individual autonomy so that each person is in fact
in control of his or her body and his or her mental faculties and his or her talents.
To some people this might seem to be a perfectly self-evident proposition but
in modern political theory particularly the theory associated with a man named
John Rawls the question of whether or not people have individual ownership of
talents has in fact been contested. The reason I think one rejects that, is if
each person does not own his or her own talents, the question of how the joint
ownership rights are to be defined and to be given to a whole variety of other people
create such a quagmire and nightmare that it is simply not a stable place from which
you can begin to deal with other rights. Now once you have these autonomy rights,
the question is what is it that you can do with them. Essentially doing with your
autonomy rights gets you to move in two particular directions. One is that it
turns out by virtue of the fact that you own your own labor, you’re generally
entitled to sell it in the marketplace on whatever terms and conditions you
see fit. And in addition to having control with respect to economic
transactions, it’s equally important to remember that by virtue of this kind of
self ownership it’s what’s explains such mundane things as the right to marry, the
right to pray in accordance with the faith that you have, the right to form
voluntary associations for non-profit purposes, a whole variety of range of
activities that you could not do if you were owned by others but what you can do
quite effectively if in fact self ownership is the implicit norm by which
your behaviors are going to be regulated. So what happens is the autonomy norm
explains a huge portion of the way in which we look at the legal system and
it’s not just simply a matter of intuition, this microphone’s going crazy, not just simply a matter of intuition what you always have to ask yourself is, if you don’t like that rule what rule do you
put into its place. And the complexities that come from any alternative rule are so
formidable that in the end every legal system regardless of its ostensible
differences always begins with an autonomy norm with respect to persons. Now the second
question is if you can use your labor in order to advance yourself through
voluntary transaction is there any other way in which you could use it? And the
classical answer to that question is always been that you can use it to
acquire property and the method by which properties being acquired is essentially
take it. If something is unowned, the first person to capture it is generally treated
as its owner. this is sometimes thought to be
egotistical and selfish but in fact this is probably a misapprehension of the way
in which this particular world rule works. The first point to note about it
is one of its great strains is it means that property no longer comes from the
state but it comes from the private action of autonomous individuals so
that the claim for state power is not something which is to be presumed it’s
something to be demonstrated. It has to be something that the individuals who
own their own liberty and their own property put together over themselves to improve their general well-being. In addition it turns out that the ability
to acquire property by possession is something which is shared amongst all
individuals so it’s very unlikely that any single person can gobble up all the
land in the world. Other people are out there doing the
kind of competition. And the third limitation, which is vitally important, is
that many kinds of resources which are left in the common by design, mainly water and air because if you try
to reduce them to private ownership these systems would essentially destroy
and so the traditional common-law rules with respect the acquisition understood
that these regimes to which everybody has access but nobody has ownership are
in fact a part and parcel of the overall system. Now the key feature of having a
system of property is that it means that resources once acquired turn out now to
have an owner who can figure out what it is to do with them. And so the usual rule is
under the standard libertarian theory is that as an owner you could exclude others, as an owner you can enter the property, as an owner you can use the property, as
an owner you can develop the property, as an owner you could dispose of the property
to other individuals. And if you put this ball of
wax together in that particular form it means that having gotten land and other
resources into play through a simple ownership rule cooperative ventures will
allow you in a great many situations to form businesses corporations and other
kinds of arrangements which allow people to pool their talents. How do these
things take place? Well essentially they take place through
contract and so the third grade feature of the standard the battalion theory is
one which says I can trade with you, you can trade with me, anybody can trade with
anybody else. And the theory is, if the rest of the world is kept at bay, then
you by entering into these special arrangements can improve the lot of the
two people to it, and then as if by individual hand, if you’ve got good
transactions going on between A&B everybody else is going to benefit
because the wealth in the society has increased and other people could become
better off. If D, E, and F do the same thing exactly the same kind of consequences go
so that within the standard theory, one of the key functions of the law is to lower the
frictions associated with getting these transactions together in order to
increase the overall size of the pot. And the last piece of the standard
libertarian theory is that you can’t bypass any of these rules so the
prohibition against theft means that the person who takes the land is the
president was allowed to keep it, and it also turns out that if I was to enter
into a voluntary arrangement with somebody else, no third person comes
along either by the use of force or by the use of false words, in order to deter
and upset that situation. So essentially what happens is individual rights and
autonomy set the ball for what you can do. Property then extends it into the external
world, gains from trade are allowed through contract and the law of tort make sure
that the first three set of rules that we’re talking about are kept in to place.
Now this is a very powerful theory and when you start to teach private law subjects like contracts and torts and so forth, keeping these elements in mind is
usually quite sufficient to get you a very powerful explanation of the way in
which certain kinds of transactions take place. But
this central lesson of political theory is that these rules are not sufficient
to create a society and there are other problems that you have to deal with. And
the problems that you’re talking about are as follows. Sometimes when you deal with
non-cooperative behavior it turns out that individuals can do things in ways
that fit these particular rules but still result in major harms. So if you
go back to the rule of acquisition that I talked about its great virtue is that
what it does is it allows you to get a single owner to figure out how to deal
with the particular asset, but if you’re not very careful this same rule will
encourage overfishing, over hunting and lead to the massive extinction of a large
number of kinds of animals. If you look to certain kinds of property lights, like
those in oil and gas, since these are spread over the entire globe or over
very large portions, over drilling could do exactly the same kind of thing. If you
let people get together by contract sometimes, they’ll get together by contracts in restraint of trade and so what you will do is create various kinds of voluntary
monopolies. And then, most importantly, if it turns out that you need to create
public facilities, there is no way that you can do this all the time by
voluntary arrangements. There’s a classic problem known as the freeloader this is
the guy who says you guys can form the state to protect me but don’t ask me to
contribute anything to its defense. And there’s the further problem which says
in order to run this state what we have to do is to develop public roads,
sometimes we need public parks, we need public buildings, we need public forts
and you can’t run a world in which every individual can hold out against the
collection of assets for common use because in effect you can have a
situation where you assemble eight of the nine parts you need for a fort and
the other guy says I’m gonna charge you a bloody fortune to finish it. So what you
have to do is to overcome the holdout problem as well as the coordination
problem which exist if you take the libertarian principles, wise as they are, one step too far. And so the question then is what kind of institutions do you have to put into place to deal with these problems? And the answer is essentially two: 1. you
must develop a regime of taxation which libertarians of the hard school variety
find it very difficult to organize. And you must develop a regime of eminent
domain which allows the government to take certain pieces of private property upon
payment of just compensation, and to put them into a system of public use. And if
you could accomplish those two things, then by use of the taxes, what you can do
is now provide the resources for the creation and defense of public order and
by the eminent domain power you could prevent individual holdouts from
wrecking what is a perfectly sensible common plan but making sure that they’re not
left worse off than they would otherwise be by supplying them with just
compensation but the property that you take. So classical liberalism in
opposition to the standard libertarian theory is a theory which essentially
allows for this kind of coercion to take place by government. So what you’re doing,
in effect, is your arming governments, which are always dangerous, with a set of
powers that they can use in very dangerous fashion and then the question
is how you limit them? And this then starts to get us to the major features of a
constitution. As we talked about in the title this paper, I gather this is the
title of my talk, it’s what we’re trying to talk about the classical liberal constitution
and we’re trying to talk about the way in which it relates to the intersection
between Liberty on the one hand and property on the other. And that requires
that you develop a set of stable institutions which allow the two things
to merge together into a coherent whole. So you have to figure out exactly what
these institutions are going to be. And so it’s not enough simply to say that
you have tax revenues to run a state or that you can overcome holdout problems,
it’s also absolutely critical to figure out how you designed the public
institutions of government so as to be consistent with the formation of the
various kinds of institutions that you want. The way in which this problem
was crystallized most clearly was back in in the Federalist paper and the
Federalist paper i’m talking about here was one written by James Madison , about the year 1787, 1788 and the question was what you do with the so-called problem the
faction which is the major problem with political theory. What happens is if in
fact you put a government structure together somebody is going to have the
power to coerce other individuals to pay these taxes somebody is going to have
all sorts of coercive powers with respect to the enforcement and the
administration of the criminal and the civil law. How do you make sure that the people
are given the power to protect your liberties do not act in such a way that
they become the greatest danger to the liberties that you’ve ever had? And this
is not an idle situation. If you look around very generally to the history of
Western civilization, the most somber lesson that you discover from it is that
most efforts to form an orderly government have failed. That the politics
of special interest arrangements, the use of force, the unprincipled
application of government’s power and so forth, has ripped societies to their parts. And so this was the issue for which the framers I think tried to develop a relatively
systematic constitutional design and that they were able to do this in a way
which, in fact, reflects, I think, it’s great strength. So what I want to do is
to start the tell you some of the ways in which the system was put together and
then start to tell you what I think was the major threat to this particular
system by the formation and the creation of the progressive movement which
started to arise in the United States about 1900 and reached its common law peak, or its constitutional peak, in 1936, 37, with the great transformation that existed in the Supreme Court. And while the first thing that one has to do is to recognize
that whenever you’re dealing with the system of government powers they could
be used for good or for evil and so the purpose of a constitutional design is to
allow as much of the good stuff to go forward as possible and to keep as much
of the bad stuff from going forward as possible as well. So let’s just start
looking at the two kinds of powers that we’ve talked to and this will give you, I think, some hint
as to why does that structural elements in the constitution matter enormously if
the question that you’re trying to answer is how do you keep leviathan
tethered to the point where it doesn’t become a very great menace to the
liberties and properties that is supposed to protect. That becomes the
fundamental dilemma. And so at this particular point it’s very useful to
contrast the Articles of Confederation on a couple of points with in fact the
Constitution as it was devised. And the point on which is most particular is
that under the Articles of Confederation you had a loose affiliation of states
but there was no central government had the power to tax individuals so as to
raise the monies that were necessary to make sure that a government from the
center actually operate. And one of the first
things that the founders of the Constitution did was to realize that a
central government had to beg for money from individual states would never be
strong and viable in its operation. And so what they did is they gave the
government a power in order to the tax. But this was not an untrammeled power it
was a power which was defined as follows. It says that the government has the
power to tax and it can tax in order to pay off the debt by which they meant the
public debt much of which was incurred for example in the early days to pay off
the revolutionary debt. It was the power to pay money for the common defense and
it was the power to essentially tax in order to support the general welfare of
the United States. And the question is exactly how do these particular terms
work and what is it that they’re supposed to mean? While the first strategy that you see with respect to these terms is that there’s a very conscious effort to
try to limit the ends to which public monies are to be spent. And if you start
looking at the public debt well clearly if you wish to have public
infrastructure and public improvements of any sort there is no way in which
that can be done if in fact you cannot finance things with borrowed money. Think of the situation with respect to
your own house. People don’t have ready cash to build it.
When you start thinking about the creation of public infrastructure it’s
exactly the same problem you have to put the thing in the today and you’re gonna
pay it off by the kinds of revenues or other public benefits that you get
tomorrow. And so having a borrowing market becomes absolutely essential and
the constitution says that when you tax you can use it obviously to repay and to
fund the debt. When it comes to the common defense, this is essentially a
device which is to make sure that the United States can deal with attacks to
its bodily integrity from invasions from without and also from all sorts of
internal disruptions within. It is not widely appreciated today because the
issue is no longer with us after the Civil War but when they form the
Constitution one of the major challenges they had to face was to figure out how
it was that they were to prevent or to control States from going to war with
one another. So the federal government essentially had two functions one it
had to keep things at peace with respect to the rest of the world and
secondly what it had to do was to develop various kinds of mechanisms to
do with inside. Again unless you can do this by taxation, it will never succeed
because voluntary contributions will always fall short, by virtue of the fact
that some people try to freeload on the good intentions of others in the way in
which these put these things together. The last of these three particular heads
is in many ways the most important for future development, because nobody argues over what the first two heads are about, what the third head starts to talk about
the general welfare of the United States. And one of the interesting things about
it is if you go back very much too early times, including Hamilton writing about
this in his report on manufacturers, what everybody does is they sort of drop out
some of the words, in basically is too expensive, so you start talking about
this is the general welfare clause, and you drop the words, of the United States, as if
it doesn’t make any difference. But in fact it makes a huge difference. And let
me see if I could explain to you what this is about. If you’re trying to figure out
what the analogy is to a government it is never a simple contract between two
parties. The closest analogy is that you have to government of various kinds of
corporate arrangements which have remarkable similarities to the kinds of
political arrangements you’re talking about here or arrangement for voluntary
associations. You have to have somebody with executive authority call them as
CEO in business, you call them the president in the United States. It turns
out that you have to have a governing body to set and implement policy you
can call the Board of Trustees if you’re dealing with respect to corporations,
call it the Congress of the United States if you’re dealing with our Constitution.
Right, and then if you’re talking about a corporation you have shareholders, if
you’re talking about the United States you have citizens and taxpayers. And the
question is always how it is that you keep the arrangements amongst the three
together. And so to understand what the general welfare of the United States is
about, it becomes absolutely critical to understand the way in which corporate
powers can be used in the private sector. And essentially, this is the basic
distinction that one draws in the corporate law. When you say that the
officers and directors of a corporation must do something for the benefit of the
corporation what you’re intending to talk about what are called, technically,
Pareto improvements. Now that’s a word to drive the rest of you out of the
audience, so I’ll explain to you what it means. Essentially what you’re saying is
a well-functioning corporation will only take those things which will improve the
lot of all citizens if it’s going to improve the lot of any given citizen
the shares are held pro rata and what you’re trying to do is to make sure that
the improvement that you make by investment or various other kinds of
employment strategies work pretty much across the board. The one thing that blows a cooperation
apart are efforts by the Board of Trustees to allow the transfer payments
to take place between various members of the corporation. So if in fact what they
corporation can do is have a board of trustees which says we’re going to take
money from everybody whose name begins with A through K and give it to people
whose names begin with L though Z what you do is you no longer have a
corporation, what you do is you have a system of built-in factions between the
two halves and the more freedom that you have in order to make these transfer
payments the less likely it is that you could get anybody to invest. Indeed, even
if you don’t know whether it’s gonna be A through L or A through K are going to be
paying L through Z or the other way around, both groups will want to stay out
because the uncertainty associated with the instability of capital reduces the
value of all investment. And therefore essentially undermines the operation of
the system as we know it. So you cannot do that. And so what corporations do is
they develop very powerful rules against this kind of self-dealing and they use a
much more lax business judgment rule with respect to the way in which the
corporation enters into business transactions, and on this
basis with third parties. Knowing that you can’t tag the corporation with the
loss if you hope these guys to stay in business. So you have that dichotomy . Exactly the same problem takes place within the political space. And when they were
talking about the general welfare of the United States what they really meant
under this was that you cannot allow a system of transfer payments to be
executed by the federal government in which the taxes that come from some
citizens are going to be used to basically line the pockets of other
citizens. The interesting feature about this view is it was generally widely
accepted up to about 1900 and there were all sorts of special programs that
were vetoed by people like President Grover Cleveland in the eighteen
eighties and early nineties on the ground that they were illicit transfer
programs which would open you up to the danger of factions. And this becomes of
course an extremely important complication associated with the
operation of government. At this particular point in time the question is how did this is to
start to unravel. Because if you wish to figure out what the most powerful set of
forces are in the United States today it is without question the rise of transfer
payments which are orchestrated by the federal government for a wide range of
programs, of which the two most conspicuous are
medicaid or rather medicare on the one hand and social security on the
other. But which are joined by a whole host of other programs of smaller amounts. These programs have such massive sums
what they do is they now galvanize large numbers of individuals to secure a
transfers to themselves by making payments upon the other this changes the
tax structure it makes it more progressive generally it introduces a
multiplicity of special taxes and what happens is in an effort to secure the
transfer payments for some you completely undermine the effectiveness
of the stability of possession and ownership which is the ideal of the
classical liberal constitution. Now the way in which this thing got passed is the most extraordinary because it doesn’t have to do, as such, are with the transfer payments itself it
started with, in effect, the doctrines of standing. And let me explain to a lay
audience what this particular means. The original transfer program that one had
to do was the Maternity Act that was passed in around 1920, which was designed to take federal expenditures and to use them to help give assistance to mothers
during pregnancy or shortly after childbirth. And let’s assume, for the sake of argument, people think that this is an important thing for people to do. But what
happens is they are two challenges that are made to this statute. One is made by
the state of Massachusetts and one is made by one of its aristocratic citizens
a woman named Mrs. Throlley Frothingham. What they say is look, look at this
clause about the spending power and you cannot use it for transfer payments you
can only use it in order to support bona fide or public good. And what the Supreme
Court does is not answer the particular question at all what it says is you know
you’re just one of many many taxpayers you are one of many states you do not
have standing to challenge because you cannot show that you suffered a special
injury above and beyond that which has been suffered by everybody else who’s
been associated with the situation and so since you are not somebody who has a
special injury you cannot challenge the program in question. The issue then comes up, can anybody challenge this particular program? And in
the case of a spending program the answer to that question is if you’re
just taking money out of the public treasury and sending it off to private
parties nobody is going to be in a position to
challenge. So if you did believe, as the United States has long believed, in a
principle of judicial supremacy that is the United States Supreme Court since
Marberry and Madison has the power to strike down laws have been passed by
congress the standing doctrine amounts to a partial repeal of that particular
rule. Because it says whatever the substantive law on this thing is, you
know that in practice that there’s nobody in a position to put this into
play. Now it turns out that this is a complete misreading of the
Constitution and it’s one that is completely inconsistent with the
originalist view of the Constitution which says try to figure out what the
text means so you could coordinate it. And it has to do with something that I
think it’s been mentioned earlier which is you can’t do modern constitutional
law unless you can do earlier private law. And in this case what the
constitution says is the judicial power shall extend to all cases in law and
equity. To most people in the room this doesn’t mean very much. but the words “and equity” were designed to show that the Supreme Court had the power in a
variety of cases to entertain lawsuits which involve suits by a single
shareholder, remember we talked about that before, which was designed to block
transfers by a corporate board which were beyond the power of the corporation
to make. And the clear analogy is if you can stop private parties from doing that, and you have standing, you could do the same thing with respect to the United
States. And when the supreme court says you have to show it discreet injury,
that is true with respect to people who are suing for the fact that the been run
over by a bus, but it has always been manifestly false with respect to the way
in which you deal with illegal actions, not only in corporations, but also in
municipal governments also in states and also in England, to the extent that they had
any form of limitation. So with the… basically what
the United States Supreme Court does it signs off on this particular venture and
once the transfer payments start to get started it’s very difficult to undo them. Now
the next thing is we come a few years later to talk about the taxing power and
at this particular point it’s the New Deal, which is an issue, and the New Deal
essentially has been organised by a system of progressive thought which is
utterly inconsistent with everything that I’ve talked about with respect to
the way in which the original Constitution was designed. It is a
genuine intellectual revolution and it is, I believe, one that was for the worse,
which is why it is I ended up writing this long book to expose what I could
about the political and substantive failures of the regime. And the basic
impulse for the progressive movement in the United States comes from a large
number of sources of which, for example, Woodrow Wilson who was at one time the
President of Princeton, one time the governor of New Jersey, and one time the
President of the United States was perhaps the most foremost academic
champion writing about congressional government in 1885 when he was 29 years
old. And the basic principle that he took is we are now going into a brave new
age and in this brave new age what we have to understand is that market
institutions do not work well when you have large corporations as they do when
you have small individuals and in effect now that we’ve run these sciences on the
model of the great German Research University of places like, not
coincidentally, Princeton we now have enough knowledge at the center that we
can get a set of impartial bureaucrats who will displace the chaotic functions
of market institutions with learned and well-conceived public programs. And
if you look at the original Constitution as far as Wilson was concerned it was
quote, unquote, a grievous mistake because all of his devices were built on exactly
the opposite presumption. The system of proper separation of power the system, of
judicial review, the protection of private rights of property and
so forth, were all designed to slow down this massive administrative process.
And if, in fact, you’re a good progressive what you have to do is to figure out how
it is that you could put these things over so that large centralized powers
could make comprehensive judgments for the betterment and the welfare of the
United States. I hasten to say when I talk about the progresses they were in
effect regarded themselves as members of the new enlightened. They thought in effect
at the level of growth that you can have in the United States and the level of
equality that you could achieve in the United States would be far greater if
they were put into charge than if you kept with these fossilized rules which
simply could not apply in the new age. And so it was those people who started
to do this, and by the nineteen thirties there were a whole variety of devices
that were put into place in order to achieve this, and the first of these
tended to involve the use of taxing power. And so one of the things that the
United States government decided to do was to impose various kinds of taxes on
agricultural products and then if it turns out that you will Goodfellow and
you destroy some of your crop to keep the prices high, cartels were big
business under the New Deal, what would happen is you would get a rebate. And the issue is whether or not these kinds of taxing and spending schemes would be
permissible. At the first run of this the answer was no you really can’t do it
shame on you but the willingness of the whole court to stand up to the new
realities was very uncertain and by the time you get to great decisions i.e. in terms of their importance not their soundness, like people like Justice Benjamin Nathan
Cardozo, a towering figure at the time, essentially the tax power got turned on
its head. the words of the United States get
forgotten and we are now told that the only thing that limits the scope of
the taxing power the United States is the ability of Congress to do things in
any other form, and so therefore as the congressional power expands taxing power
expands with it. Now this phrase, what can the congress do otherwise? in fact then, gets us to the second
element of the New Deal revolution, which again has to do with the relationship of
liberty and equality, albeit in an indirect way. If one goes back to the
jurisdictional powers of the Constitution, essentially in article 1
section 8 the Constitution embodies a theory known as the theory of enumerated
powers. And what that means it since we are so worried about the ability of
factions to control the government the way in which we wish to stop that is
to make sure that the number of tasks that the government can take is reduced
and if we reduce the number of tasks that they can undertake you reduce to renew the
opportunity and the maneuvering room for shenanigans. The most expansive power that one had at that time was called the commerce power, and it read Congress the power to
regulate commerce with foreign nations among the several states in with the
Indian tribes. And has that middle clause that got all the attention.
If you go back to John Marshall who thought he gave it an expansive
interpretation in a case called Givens and Ogden, in 1824, essentially what the
comerce power covered was the ability to transmit goods and people
communication and transportation across state lines. And the theory was that
Congress would basically form the basis of economic common union by keeping the
areas of Commerce open amongst the various states. It didn’t quite work out
that way but essentially what it did mean on the negative side was that the government
could not, in effect, regulate domestic manufacture transportation that took place solely
with a state, say a bus company, inside a particular city, mining and agriculture,
it meant most importantly in the antebellum years, before the civil war, that
Congress could not abolish slavery within the states. Which is one of the reasons
why this theory in fact was done. Slavery is the least libertarian institution you
could possibly imagine but oddly enough it had a pervasive influence on the way
in which particular constitutional structures were put. Including those
having to do with the federal power under the Commerce Clause. So now if you
go back to what I said if you can’t regulate it through the commerce power
then you can’t regulate though the tax power. Just as if you can regulate it
through the commerce power you can regulate its with the tax power. So long
as you kept a narrow vision of what the Constitution did with respect to the
power of government to give direct regulation you had a narrow vision of
the taxing power. And so this situation essentially got upended in the
period between 1937 and 1941. And this is all highly technical and may put you to
sleep but it’s in these technical doctrines that the life and death of a
country survives or does not survive. So going back to 1918, there is a case called Hammer and Dagenhart, and what this particular case has to do with the progressive movement
to try to find the Federal Way to impose child labor laws on the various states
in manufacture. And the device that they settled on was ingenuity itself. It said
if you wish to ship your goods in interstate commerce what we will do is
we will ban them if they are made in factories that use child labor under the
age of 14, and in North Carolina the age limit was 12. And so if in fact you could
keep this law in place everybody who wants to sell to the interstate more
will have to the tradeoff between the relatively
modest and convenience of getting rid of young child labor with the catastrophic
loss of going into interstate commerce. And what the supreme court said in a
five-to-four decision yes we know you’re regulating commerce but we know that
this effort to use your government monopoly power is what the economist
called leverage trying to regulate domestic issues like controlling these
kinds of foreign issues. And so what then happens it strikes it down. Congress
never rests because remember, factions never cease to move. So what they try to do is not basically impose a prohibition but to impose a tax on goods that are made
in factories that use child labor and the Supreme Court in 1922 in the child
labor cases strikes that down as well. So if you get the 1937 you can see what
happens. If the commerce power is very narrow then it turns out that the taxing
power is very narrow, but by 1937 all the old limitations on the power of Congress to
regulate commerce are completely upended. No longer is it just a matter of how it
is that we do this with respect to goods being shipped back and forth in
interstate commerce, or passenger train in interstate commerce. Now manufacture and mining and agricultural all come under the definition of contract by the
government. On the theory that in an integrated national economy you have one
party who could regulate everybody. Now this turns out to be intellectually, I
think, a terrible mistake. Let me see if I can explain to you why. What happens is whenever you
expand the power of government to do anything it expands its ability to do
good things and expands its ability to do bad things. And so the question you’re asking about it is what is it that the federal government is doing with its new power
over manufacturing agriculture that is a good thing relative to the bad things
that it could be doing? Well there’s no question that there’s gonna be a lot of
internal demand within the states for various kinds of law that deal, for
example, with difficult safety issues and workman’s compensation statutes for
example in the first part of the 19th 20th century produced pretty consistently across the
country. And you can do that state-by-state because of the statute
makes sense for your state you’re not worried about all the states who don’t
follow, hey, you’ve done the right thing. If they don’t want to follow you get a
better advantage and if you do the right thing and they do the right thing at
least you been able to keep up. So what is characteristic about the progressive era
is that basically institutionalizes one of the mistakes that I talked about
at the beginning of this lecture. If you remember, I said freedom of contract is a
wonderful device, but if you start using it the form cartels and monopolies
not so good and you need an antitrust law. But the federalists, the progressives,
were so confident that they knew what was right or wrong. What they did is
institutionalized cartels across all industries. The first step of this
action took place in 1914 under Wilson where they said you know we’re going to
exempt agricultural cartels and labor cartels from the antitrust law and we’re
just gonna apply it to business. The kind of constitutional ad hoc-ery
which should always set off alarm bells in your mind. But in the nineteen thirties
with both agriculture and with respect to labor they said it’s not enough to do
that, what we have to do is to have the government form the cartels itself. This
meant in agriculture it would set national quotas and then it would use
the Department of Agriculture to allocated it to different states in
different counties and different farms. And it meant mandatory collective
bargaining in the labor situation where management was forced to deal with
monopoly unions. So what happens is virtually every single application of
the expanded commerce power is something which is designed to prop up cartels
which are completely disruptive. And the other feature that they did at this
particular point in time is they got rid of traditional rules on freedom of
contract. So the great advantage of freedom of contract in a competitive
economy is if somebody starts to behave in a particularly obnoxious fashion
somebody else will come with an offer to pick that person up. So there’s a basic
global judgment that the way in which you deal with people who are
irresponsible employers or vendors or something else is you either sue them for breach of
contract or more potently you take your business somewhere else. And it’s exactly
this mechanism of free entry which explained the enormous level of growth in
the period between 1900 and 1935, at the same time that the progressives were saying that industrialization required a new set of rules. It was exactly the opposite,
with industrialization more firms came in, the ability to trade across state
lines increase because of improved communication and transportation and the
system actually grew. It’s not just a matter of economic growth it was also a matter
of individual health, life expectancy, in 1900 about 47 across the country for
black individuals about 32 ,by the time you get to 1935 it’s around sixty-two
sixty-three years of age, an increase which is unprecedented in the history of
mankind and it’s driven by technology and by competition. Other progressives
never saw any of that. So now let me sum up because I think we’re coming close to
the end of the time, is that right, what happens is you can now see what happens
to the classical liberal constitution. Originally what it does, is it’s designed to
give government enough power so as to maintain order. It gives it the power to
raise taxes, preferably flat taxes, it gives the power to regulate monopolies,
which the classical liberal judges always were prepared to do in connection
with the antitrust laws and so forth. It gives you the power to secure property
rights, it gives you the power to control the waste and dissipation of
common pool assets, all which was done in the
period between 1865 and 1900. It gives you the power actually to control sensibly
railroads, which are very complicated kind of negative network industry,
which was done, in effect, around 1887 and so forth and it doesn’t give you too
much extra. The moment you go to the bigger stuff on taxation and the bigger stuff with respect to regulation and the unquestioned power of the government to
block ordinary labor contracts and other contracts for sale, all of a sudden it’s the negative elements of
government that predominate. This started in 1937 it did have a negative effect
it’s certainly prolonged the recession slash depression through the beginning of the
second world war. In the years that followed I think we can say that the
United States grew but less than it ought to have done, because of these
things. But the political constitution still was influenced by the old
classical liberal tradition and people examined most forms of government
regulation under a modest, weak, but important presumption against government
intervention. If you will note in the last five or six years the term
progressive is now come back in to vogue. And that’s because these people regard
the model of good government as the new deal of 1935 when they were churning out
cartels at a record pace, and if you want to explain why it is that the current
system is gone off the rails it’s because the progressive vision now not
only has constitutional leeway to be implemented but it has enough political
support so as to go into place. So you see uncertainty in taxes, you see
increases in the level of progressivity, you see an effort to punish any business
that wants to leave the United States because the tax structures are too high,
that’s a signal you’re doing something wrong. You see comprehensive legislation
of labor markets to a level that has never happened, you see really
powerful and, I think in many cases, indefensible enforcements of the
anti-discrimination laws you start seeing the antitrust laws being used to
prop up monopolies instead of to knock them down. So essentially the progressive
vision of strong government transfer payments on top of a heavily regulated
economy is what has taken the order of the day. And what’s the lesson you
learned from this? If you reduce the productive base by putting these
regulations in place you cannot support the transfer economy that you wish to
have on top of it. So the kind of performance we’ve had in the United
States since say about 2008, arguably even since Bill Clinton, is a reflection
of the fact that the progressive vision which had won constitutionally now seems
to have won politically and the purposes of my two books is to try and mount the
intellectual campaign in a non-political setting. To see if one can reverse
the intellectual climate so as to undo, what I regard, as systematic mistakes these are
not simply marginal then not calculation errors they are
fundamental errors of political structure and in the progressive tradition all of
them, whether you are dealing with standing, taxation, commerce power or
individual rights, they’ve got everything precisely backwards. Thank you.

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