Chapter 2
Property Rights and Economic
Freedom
CHAPTER OUTLINE
I. INTRODUCTION
A. The Influence of John Locke
B. Early Judicial Perspectives
C. The Age of Conservative Activism
D. Modern Judicial Perspectives on Economic Freedom
II. THE CONTRACTS CLAUSE
A. Key Decisions of the Marshall Court
1. The Dartmouth College Case
III. THE RISE AND FALL OF ECONOMIC DUE PROCESS
A. Origins of Substantive Due Process
B. Early Supreme Court Resistance to Economic Due Process
1. “Business Affected with a Public Interest”
C. The Court Reflects Growing Corporate Influence
1. West Coast Hotel Company v. Parrish: A Sudden Turnaround
G. The Court Gives Carte Blanche to Legislatures
IV. EQUAL PROTECTION AND ECONOMIC REGULATION
V. PROPERTY RIGHTS AND THE TAKINGS ISSUE
A. The Takings Issue under the Rehnquist Court
2. Freedom of Expression versus Private Control of Property
VI. CONCLUSION
CRITICAL THINKING QUESTIONS
1. Given the pervasive attachment in this society to the values of private property and free
enterprise, what degree of judicial scrutiny of economic regulation is necessary? Should
questions of economic regulation not be left entirely to the political process?
2. To what extent are private property rights supportive of other rights retained by the
people?
3. Does the concept of “substantive due process” make sense? How does one impart
substantive content to the due process clauses of the Fifth and Fourteenth Amendments?
4. Is the U.S. Constitution inextricably wed to a capitalist economic system?
5. Could the federal government use the power of eminent domain to nationalize industry?
In your opinion, in what situations would this be justified?
6. To what extent is the Takings Clause of the Fifth Amendment, as applied to the states
through the Fourteenth Amendment, a limitation on state land use policy?
7. In what ways do modern statutes limit the right of private parties to enter into contracts?
How has the Court’s treatment of contracts changed since the early 1900s?
8. Do laws restricting the development of privately owned wetlands constitute takings of
property within the meaning of the Fifth Amendment?
9. Are modern court decisions allowing government broad latitude in regulating the
economy consistent with the intentions and expectations of the Framers of the
Constitution?
10. How do courts determine what constitutes “just compensation” in a case of eminent
domain? Why is this process such a controversial component of eminent domain cases?
11. How has John Locke’s theory of natural rights influenced judicial interpretation in the
area of property rights and economic freedom?
12. Compare and contrast the Marshall and Taney Court’s perspectives on the protection of
property and business interests.
13. Describe competing meanings of the Fifth Amendment’s provision that permits taking of
private property for “public use”? How has the Court expanded the meaning of the term
“public use” in recent decisions?
14. Describe Justice Sutherland’s rationale in the dissenting opinion in Home Building and
Loan Association v. Blaisdell (1934). What constitutional provisions does he feel the
majority has ignored and do you feel his argument is meritorious?
15. When scholars refer to the Lochner era on the United States Supreme Case what type of
jurisprudence are they generally describing? Which cases, other than the obvious, are
typical of the Court’s Lochner era?
LECTURE LAUNCHERS
Introducing the Importance of Court Membership Change through the Kelo Case.
One of the key cases discussed in Chapter 2 is Kelo v. City of New London (2005). In this case the
Court held that a city could condemn over a hundred private homes to facilitate an ambitious
waterfront development project. The property owners claimed this action violated the Fifth
Amendment as an unconstitutional taking of private property and argued that granting the land to
a private development was not a public use. The Court upheld the state action and authorized the
taking as having a public purpose. The case was extremely controversial and response was
decidedly negative among the American public. Some viewed the Court’s decision as
legitimizing governmental property theft. Yet some legal scholars and practitioners view the
Supreme Court’s decision as upholding a legitimate exercise of a constitutional power.
Kelo v. City of New London (2005) creates a great opportunity for classroom discussion on the
varying arguments regarding the Court’s decision. This case was voted 5-4 in favor of City of
New London, which means the perspectives taken by the justices become extremely important for
future cases of this nature. Justice Stevens wrote the majority opinion and was joined by Justices
Kennedy, Souter, Ginsburg, and Breyer. The dissent was authored by Justice O’Conner and
joined by Justices Rehnquist, Scalia, and Thomas.
HYPOTHETICAL PROBLEM (FOR CLASSROOM
DISCUSSION OR ESSAY EXAMINATION)
Caldwell Coot, a retired miner living in an abandoned coal mine on his remote West Virginia
property, refuses to allow anyone to cross his property to get access to the most popular
whitewater rafting river in the state. Coot’s property, which spans a narrow gauge between two
rugged mountains, provides the only avenue of access to the river for one hundred miles in either
direction. The state legislature has offered to buy this section of land from Coot on many
occasions. According to the states bureau of land management the property overall was valued at
$133,000. Yet Coot has held firm that the land was not for sale for less than $5,000,000.
After repeatedly failing to obtain Coot’s permission to cross his land, several groups of
whitewater outfitters successfully lobbied the state legislature for the creation of an easement
across Coot’s property. The legislation required that the state pay Coot a fee for the lands use that
was to be determined by the state bureau of land management plus 10%. Under the special act,
KEY TERMS
capitalist economy An economy based on private ownership and free enterprise.
private property Property held by individuals or corporations, not by the public
generally.
contracts Legally binding agreements between or among specific parties.
property rights The bundle of rights that exist relative to private ownership and
control of property.
economic freedom Another term for free enterprise—that is, the ability to conduct
one’s business without interference by government.
social contract The theory that government is the product of agreement among
rational individuals who subordinate themselves to collective
authority in exchange for security of life, liberty, and property.
laissez-faire capitalism The theory holding that a capitalist economy functions best when
government refrains from interfering with the marketplace.
vested rights Rights acquired by the passage of time.
substantive due process Doctrine that the Due Process Clauses of the Fifth and
Fourteenth Amendments require legislation to be fair and
reasonable in content as well as application.
economic due process The doctrine under which the Supreme Court in the late
nineteenth and early twentieth centuries used the Due Process
Clauses of the Fifth and Fourteenth Amendments to protect free
enterprise from government intervention.
business affected with A nineteenth century doctrine holding that certain businesses are
a public interest more closely associated with the public interest and are therefore
more subject to government regulation.
yellow dog contracts Contracts, generally illegal, making the right to work
conditioned upon the employee’s agreement not to join a labor
union.
doctrine of incorporation The doctrine under which provisions of the Bill of Rights are
held to be incorporated within the Due Process Clause of the
Fourteenth Amendment and are thereby made applicable to
actions of the state and local governments.
taking Government action taking private property or depriving the
owner the use and control thereof.
INSTRUCTOR RESOURCES
Ackerman, Bruce. Private Property and the Constitution. New Haven, CT: Yale University Press,
1977.
Black, Charles L., Jr. A New Birth of Freedom: Human Rights Named and Unnamed. New
1948.
Dorn, James A., and Henry G. Manne (eds.). Economic Liberties and the Judiciary. Fairfax, VA:
George Mason University Press, 1987.
Ely, James W., Jr. (ed.) Property Rights in American History (6 vols). NY: Garland, 1997.
Ely, John Hart. Democracy and Distrust: A Theory of Judicial Review. Cambridge, MA: Harvard
Orthodoxy. NY: Oxford University Press, 1992.
Kens, Paul. Judicial Power and Reform Politics: The Anatomy of Lochner v. NY. Lawrence:
University of Kansas Press, 1990.
Keynes, Edward. Liberty, Property, and Privacy: Toward a Jurisprudence of Substantive Due
Process. University Park: Pennsylvania State University Press, 1996.
NOTES ON EXCERPTED CASES
DARTMOUTH COLLEGE v. WOODWARD (1819).
In this case the Supreme Court held that a corporate charter was a contract, the terms of which
could not be changed materially by the state without violating the Constitution. This ruling
significantly bolstered the power of the Contracts Clause found in Article I, Section 10. The
charter in question had been issued in 1769 by the British Crown for the creation of Dartmouth
College. This corporate charter authorized a self-perpetuating twelve-member board of trustees to
Clause. Marshall indicated that any ambiguity in the charter should be construed in favor of “the
adventurers,” and against the state.
CHARLES RIVER BRIDGE COMPANY v. WARREN BRIDGE COMPANY (1837).
In 1785 the Massachusetts legislature had granted a corporate charter to the Charles River Bridge
Company authorizing it to build a privately owned bridge between Boston and Charlestown and
Justice Taney’s assertion that: “While the rights of private property are sacredly guarded, we
must not forget that the community also have rights, and that the happiness and well-being of
every citizen depends on their faithful preservation.”
HOME BUILDING AND LOAN ASSOCIATION v. BLAISDELL (1934).
Here the Supreme Court, by a five-to-four vote, upheld a Minnesota law, passed in 1933 in the
depths of the Great Depression, authorizing the postponement of mortgage foreclosures for
periods not to extend beyond May 1, 1935. The state’s attorneys argued that the economic
emergency the Depression had caused required the state to pass relief legislation. Opponents
argued that the state act was clearly in violation of the Contracts Clause and that such legislation
would offer at best minor short-term relief with devastating long-term economic consequences
when citizens could not be confident in the value of contract rights. Chief Justice Hughes, writing
MUNN v. ILLINOIS (1877).
Here the Supreme Court upheld an act of the Illinois legislature fixing maximum storage rates
charged by grain elevators and public warehouses and requiring licenses to operate these
facilities. This legislation grew out of the granger movement, in which thousands of farmers
sought protection against excessive freight rates charged by railroads and other businesses
involved in the distribution of agricultural commodities. Chief Justice Morrison R. Waite, writing
for a seven-member majority sustained the rate regulation under the English common law
LOCHNER v. NEW YORK (1905)
Here the Supreme Court, dividing 5–4, struck down a state law specifying a maximum sixty-hour
work week for bakery employees. The state argued its police powers allowed for such action to
protect the welfare of its citizens. Lochner and other business associations challenged the law on
the grounds that it violated their liberty of contract. Ruling five-to-four the Court struck down the
New York law. The Court’s fundamental objection to the legislation was that it was a
majority for reading laissez-faire into the Constitution. According to Holmes, the case was
“decided upon an economic theory which a large part of the country does not entertain.”
ADKINS v. CHILDREN’S HOSPITAL (1923).
Here a divided Supreme Court struck down a congressional measure authorizing the setting of
minimum wages for women and minors employed in the District of Columbia. The government’s
perceived interference with liberty of contract was held to violate due process; in this instance,
the Fifth Amendment’s restriction on federal authority. Writing for the majority, Justice
Sutherland noted that the law was demeaning to women, especially in light of the drive toward
political equality that had resulted shortly before this decision, in ratification of the Nineteenth
WEST COAST HOTEL COMPANY v. PARRISH (1937).
In this case the Supreme Court upheld five-to-four a Washington state minimum wage law
enacted in 1913. Chief Justice Hughes delivered the majority opinion. He noted that in upholding
the minimum wage, the Washington Supreme Court had “refused to regard the decision in the
Adkins case as determinative.” Such a ruling, Hughes declared, “demands on our part a
reexamination” of the Adkins case. This reexamination began with the dismantling of the
“freedom of contract” theory on which Adkins was based. Hughes pointed out that this freedom is
not absolute. Thus constitutional liberty is “necessarily subject to the restraints of due process,
FERGUSON v. SKRUPA (1963).
Here the Supreme Court, in an opinion by Justice Black, upheld the validity of a Kansas statute
conferring a virtual monopoly on the legal profession to engage in the business of “debt
adjusting.” Black noted that the doctrine prevailing in the Lochner–Coppage–Adkins line of cases
authorizing courts to invalidate laws because of a belief that the legislature acted unwisely, “has
long since been discarded.” The Court, he continued, had “returned to the original constitutional
proposition that courts do not substitute their social and economic beliefs for the judgment of
HAWAII HOUSING AUTHORITY v. MIDKIFF (1984).
Here the Supreme Court ruled unanimously that the state of Hawaii had not violated the Public
Use Clause of the Fifth Amendment by adopting a policy for the redistribution of land as a means
of reducing the high concentration of ownership by a small number of individuals. After
extensive hearings the state legislature had discovered in the mid-1960s that, whereas the state
and federal governments owned almost forty-nine percent of the land in Hawaii, forty-seven
percent of the total was in the hands of seventy-two private land owners. The legislature
concluded that such concentrated land ownership was responsible for skewing the state’s real
estate market in the area of home ownership, that it inflated land prices, and that it was
detrimental to the public welfare. Writing for the Supreme Court, Justice O’Connor found ample
DOLAN v. CITY OF TIGARD (1994).
The State of Oregon enacted a comprehensive land use management program in 1973, which
“required all Oregon cities and counties to adopt new comprehensive land use plans that were
consistent with the statewide planning goals.” The City’s Community Development Code (CDC)
“require[d] property owners in the area zoned Central Business District to comply with a 15
percent open space and landscaping requirement[s].” The City of Tigard “adopted a plan for a
pedestrian/bicycle pathway intended to encourage alternatives to automobile transportation for
short trips.” Florence Dolan requested a building permit from the City to redevelop her plumbing
and electric supply store. Fanno Creek flowed through the southwestern corner of Dolan’s
KELO v. CITY OF NEW LONDON (2005).
In this highly controversial decision, the Court held that a city could condemn over a hundred
private homes to facilitate an ambitious waterfront development project. The issue was whether a
city violates the Fifth Amendment’s Taking Clause if it takes private property and sells it for
private development, with the expectation the private development. The City of New London
