Restoring the Contract Clause

Here is George Leef, writing today at National Review online:

For decades, the Court has allowed the Constitution’s contract clause (in Article I, Section 10, along with other things the states aren’t allowed to do) atrophy. It reads “No state shall enact any law impairing the obligation of contracts” and was meant to help stabilize the national economy at a time when the states often passed laws that rewrote or erased contracts to benefit certain parties or themselves….

The good news is that the Court is about to hear arguments in a case that could revive the Originalist view of the contract clause. I write about that case in my latest article for Forbes.

Leef fleshes out the sad story of the Contract Clause in the Forbes piece:

American courts took the Contract Clause very seriously until the New Deal. Professor James W. Ely’s recent book The Contract Clause: A Constitutional History (which I reviewed here) recounts the way the Marshall Court esteemed the clause and how it held up quite well (although with some erosion) during the “Progressive” era.

Then came the Great Depression.

Just as the Court turned its back on other cornerstones of limited government and the rule of law during that era, so did it jettison the once-formidable Contract Clause. In a 1934 decision, Home Building & Loan Association v. Blaisdell, Chief Justice Hughes decided that during the “emergency” of the Depression, the Court had to allow legislatures to impose a moratorium on mortgage foreclosures. In an early exemplar of “living Constitution” theory, the Chief Justice said that the Contract Clause “is not an absolute one and is not to be read with literal exactness….” He went on to say that the Constitution’s restraints on power “must not be confined to the interpretation which the framers, with the conditions and outlook of their time, would have placed upon them.”

Just imagine if the First Amendment had been treated that way, giving the government wide latitude to censor or punish free speech and the press on the breezy, “Well, times have changed” approach. The First Amendment would be cowering in the shadows today.

Conversely, imagine if the Court had developed a robust, pro-contract jurisprudence based on the Contract Clause to match its pro-speech jurisprudence emanating the its favored First Amendment. Lots of governmental interference with people’s liberty to shape their lives through contracts they want — or don’t want — would have been prevented, such as minimum wage laws.

But that’s not what happened to the Contract Clause. The courts kept allowing the states to whittle away at it by devising a three-factor “balancing test” whereby the assertion of the slightest state interest in meddling with contracts was usually good enough….

But what’s wrong with the current approach to the Contract Clause, one that, as Chief Justice Hughes said in Blaisdell is based on the “growing appreciation of public needs and the necessity of finding ground for a rational compromise between individual rights and public welfare”?

A lot, Ely argues. It tears apart the plain meaning of the Clause, whose words, wrote Chief Justice Marshall, “are express and incapable of being misunderstood.” Nor, Ely continues, was there ever any justification for the politically expedient “let’s forget about this Clause because the country is facing an emergency” rationale of Blaisdell and subsequent cases. The truth is that the Clause was inserted precisely because the nation needed contractual stability in the distressed times of 1787 and no amount of economic turmoil can be alleviated by allowing states to rewrite contracts….

Furthermore, Ely contends, the current interpretation of the Clause (again, Marshall would laugh at the idea that it needs any “interpretation”) is far too vague, giving lower courts little guidance. They are only supposed to apply the Contract Clause only if the legislative interference is “substantial” and “unreasonable.” Ely comments, “Yet it is sadly ironic that the Court has fashioned such an amorphous test for the Contract Clause – the one constitutional provision that, more than any other, was designed to ensure stability and predictability in commercial relationships.”

The Supreme Court will hear oral arguments in the case [of Sveen v. Melin] on March 19. It would be one of the great results of its current term if the justices would not merely uphold the Eighth Circuit [which upheld the contract at issue, despite a Minnesota law that abrogated it] but also give a full-throated declaration that the Contract Clause will henceforth be read just as it was written.

The Supreme Court of 1934 effectively ripped the Contract Clause out of the Constitution. I fervently hope for its restoration. Many things are at stake. As Leef says, a living Contract Clause would have prevented “governmental interference with people’s liberty to shape their lives through contracts they want — or don’t want”. Leef mentions minimum wage laws as an example. In the same category, namely, laws that inhibit job creation, are mandates that require paid family leave and paid sick leave. (The latter was recently dictated by the proglodytes of Austin”s city council.)

Had the Court not killed the Contract Clause in 1934, compulsory recognition of labor unions — one of the biggest job-killers of them all — could have been made purely optional in 1937. It was then that the Court decided in favor of the Wagner Act by invoking the Commerce Clause.

The Commerce Clause has had a long and dishonorable career as an all-purpose justification for dictatorship from D.C. It was taken down a peg in NFIB v. Sibelius (2014) — the nugget of gold in a disgraceful opinion that salvaged Obamacare by other means.

In any event, here’s to the restoration of the Contract Clause — and to the demise of the “modern” reading of the Commerce Clause.

See also “The Constitution: Myths and Realities“.

Politics and Prosperity

“Government is a disease masquerading as its own cure.”

Restoring the Contract Clause

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