The scope of private property rights in the United States has been greatly reduced during the twentieth century. Much of the reduction occurred episodically, as governmental officials seized control of economic affairs during national emergenciesmainly wars, depressions, and actual or threatened strikes in critical industries. The derogations from private property rights that occurred during national emergencies often remained when the crises passed. A ratchet took hold: people adjusted first their actions, then their beliefs, as they accommodated themselves to emergency governmental controls; later, lacking the previous degree of public support, private property rights failed to regain their pre-crisis scope.
How Emergencies Eroded Private Rights Historically
At the turn of the century, Americans enjoyed a wide scope of private property rights. The prevailing ideology of both elites and masses placed great importance on economic liberty. As James Bryce observed in The American Commonwealth, the typical American regarded the right to the enjoyment of what he has earned as primordial and sacred, believing that all governmental authorities ought to be strictly limited and the less of government the better.
Federal officials and judges typically acted in conformity with the belief that government ought to be confined to protective functions, refraining from redistributionist policies and leaving citizens free to conduct their economic affairs as they pleased. In Allgeyer v. Louisiana (1897) the Supreme Court declared that the Constitution protects not only the right of the citizen to be free from physical restraint of his person, but . . . the right of the citizen to be free in the enjoyment of all his faculties; to be free to use them in all lawful ways; to live and work where he will; to earn his livelihood by any lawful calling; to pursue any livelihood or avocation, and for that purpose to enter into all contracts which may be proper, necessary, and essential to his carrying out to a successful conclusion these purposes. When citizens were guaranteed such extensive freedom of contract, governments had neither much leeway to intervene in the market economy nor much reason to increase the burden of taxation.
In a violent break with American tradition, World War I witnessed the suppression of private property rights on a wide scale. In 1916 Congress granted the President emergency powers to seize materials, plants, and transport systems. During the war the government took over the railroad, ocean shipping, telephone, and telegraph industries; suspended the gold standard and controlled all international exchanges of goods and financial assets; commandeered hundreds of manufacturing plants; entered into massive economic enterprises on its own account in shipbuilding, wheat and sugar trading, and building construction; lent huge sums to businesses directly or indirectly; regulated the private issuance of securities; established official priorities for the use of transport facilities, food, fuel, and many other goods; fixed the prices of dozens of important commodities; intervened in hundreds of labor disputes; and conscripted nearly three million men into the army. In short, it extensively attenuated or destroyed private rights, creating what some contemporaries called war socialism.
Although most private rights were restored after the war, not all were. Tax rates remained higher, the tax structure was more progressive, and the income tax became a much more important source of federal revenues relative to the traditional consumption taxes. The Transportation Act of 1920, by which the government relinquished its emergency control of the railroads, came close to nationalizing them. Government remained in the ocean shipping business. The War Finance Corporation episodically meddled in the credit markets until 1925. Most significantly, the war left a legacy of ideological change. As Bernard Baruch said in his memoirs, The Public Years, the war experience convinced many prominent businessmen and others that government direction of the economy need not be inefficient or undemocratic, and suggested that in time of danger it was imperative.
The next time of danger was not war but the Great Depression, a national catastrophe that Justice Brandeis called an emergency more serious than war. After three years of widespread bankruptcies, foreclosures, and bank failures, of rapidly falling income and massively rising unemployment, it seemed the market economy would never recover. All classes of Americans grew increasingly clamorous for relief.
Recalling how the government had wielded sweeping emergency powers to manage the economy during the war, many politically influential people believed that similar governmental controls could prove effective in fighting the depression. (Their beliefs about the effectiveness of the wartime controls, we now know, were largely misapprehensions.) So in 1933 the government launched an entire fleet of emergency measures: huge work-relief projects; a program to cartelize all industries; abandonment of the gold standard and prohibition of private domestic transactions in gold; price and production controls in agriculture; detailed regulation of securities markets; extensive federal intrusion into labor markets and union-management relations; federal production and sale of electrical power; and before the New Deal has spent itself in 1938, a multitude of federal insurance and credit programs, Social Security pensions and welfare payments, the minimum wage, national unemployment insurance, and many other forms of governmental intervention in the market economy.
For a while the Supreme Court resisted. The national Industrial Recovery Act and the first Agricultural Adjustment Act, centerpieces of the early New Deal, were declared unconstitutional. But the court was of two minds. In 1934, in the Blaisdell case it upheld a Minnesota mortgage moratorium law admitted by the state authorities to be, in normal times, an unconstitutional impairment of the obligation of contract; and in Nebbia v. New York it upheld an emergency state law fixing milk prices and punishing those who transacted at lower prices. In the Norman case (1935), sustaining the governments abrogation of the gold standard, the court put private contractual rights in a clearly inferior position: There is no constitutional ground for denying to the Congress the power expressly to prohibit and invalidate contracts although previously made, and valid when made, when they interfere with the carrying out of the policy it is free to adopt. Finally, in 1937, the court caved in completely. Since then it has maintained that virtually any governmental interference with private property rights is constitutional.
The justices were only registering the ideological transformation going on around them. The Great Depression deeply discredited longstanding beliefs in individualism, private property rights, free markets, and limited government. The New Deal gave desperate people money and jobs, for which they were grateful. More importantly it taught many people, including a new generation of Americans who had no personal experience with anything else, to value collectivist policies and governmental promises of economic security.
Drawing on the collectivist programs and sentiments of World War I and the New Deal, the government during World War II built an unprecedented apparatus of economic control. The authorities drafted ten million men for service in the armed forces, allocated strategic materials, established priorities for the use of transport, food, fuel, and other goods, commandeered plants and sometimes whole industries, fixed prices and rents, rationed many consumer goods, built and operated entire new industries. In short, the free market virtually disappeared during 1942-1945.
While private property rights were being suppressed across the board, the Supreme Court just smiled. As Clinton Rossiter once said, the Court, too, likes to win wars. Even when the government herded some 110,000 persons of Japanese descent, two-thirds of them U.S. citizens, into concentration camps, the court stood aside, declaring the preemptory imprisonment of these innocent persons in the crisis of war to be not wholly beyond the limits of the Constitution. (Where, one wonders, are the constitutional limits on governmental invasion of private rights during emergencies?) In World War II not even the most elementary private rights could withstand the government's determination to exercise emergency powers.
Enduring legacies of the war included the Employment Act of 1946, committing the federal government to a policy of ongoing macroeconomic management, the Taft-Hartley Act of 1947, preserving many of the federal powers first stipulated in the War Labor Disputes Act of 1943, and the Selective Service Act of 1948, extending into peacetime the military conscription by which the government had coercively obtained the bulk of its military manpower at below-market rates during the war. Most significantly, as Calvin Hoover observed in The Economy, Liberty, and the State, the war experience conditioned [businessmen] to accept a degree of governmental intervention and control after the war which they had deeply resented prior to it. Even under the pro-business Eisenhower administration, no serious attempt was made to overthrow the economic controls inherited from past emergencies.
How Emergency Powers Continue to be Exercised
Until the late 1970s, unrevoked presidential declarations of national emergency continued to sustain extraordinary governmental authority. As late as 1976 the emergency declared by Roosevelt in 1933 had not been terminated. Trumans 1950 declaration remained operative as years, then decades, passed. Even when political conditions in the United States became as normal as possible in the nuclear age, the government continued to use a fictitious emergency rationale to augment its statutory power.
Few people worried about the emergency-spawned powers until the Nixon era. To deal with the 1970 balance-of-payments crisis, Nixon declared two more national emergencies. They also remained unrevoked. Only when the Watergate escapade and the impoundment of congressionally authorized funds engendered widespread fear of an imperial presidency did Congress begin to investigate seriously the web of governmental controls spun on the pillars of unrevoked executive declarations of national emergency.
In 1973, the Senate created a Special Committee on the Termination of the National Emergency to investigate the emergency powers. Finding that four presidential declarations of national emergency remained in effect, the committee reported:
These proclamations give force to 470 provisions of Federal law. . . . [These] powers, taken together, confer enough authority to rule the country without reference to normal constitutional procedures. Under the powers delegated by these statutes, the President may: seize property; organize and control the means of production; seize commodities; assign military forces abroad; institute martial law; seize and control all transportation and communication; regulate the operation of private enterprise; restrict travel; and, in a plethora of particular ways, control the lives of all American citizens.
The committees work led to enactment of two significant statutes, the National Emergencies Act (NEA) of 1976 and the International Emergency Economic Powers Act (IEEPA) of 1977.
The NEA sought to reassert congressional control over burgeoning national emergency legislation. Terminating all existing national emergencies two years after its enactment, the act permits future presidential declarations of national emergency only under strict procedures guaranteeing periodic executive and congressional review of each emergency decree. The act also stipulates that statutory authority contingent on a state of emergency cannot be triggered by a national emergency decree unless the President specifically states his intent to exercise authority under that particular statute. Moreover, the act declares that national emergencies may be terminated by concurrent resolution of Congress as well as by presidential proclamation or automatic lapse if not renewed annually by the President.
As originally enacted the NEA exempted Section 5(b) of the Trading with the Enemy Act (TWEA) from its provisions. The exemption was significant because the TWEA had, since 1917, given the President virtually unlimited power during war or (since 1933) national emergency to regulate or prohibit foreign exchange or international credit transactions. To narrow the exemption, Congress passed the IEEPA. In effect, the IEEPA separates presidential power over transactions previously covered by Section 5(b) into two categories. The TWEA is amended to authorize presidential action only during war, while the IEEPA becomes a repository for executive economic power wielded during other emergencies. The IEEPA also restricts the emergency powers to apply to international transactions only. Withheld are the purely domestic emergency powers previously exercised under the all-inclusive TWEA.
Although the Presidents emergency authority over international transactions retained its previous scope, the power to effect the requisite emergency was narrowed. By repealing the exemption that had shielded Section 5(b) of the TWEA from the NEA, Congress guaranteed that future declarations of national emergency within its scope would be subject to the NEA and that current emergencies could be terminated as specified in that statute. However, existing uses of Section 5(b) powers continued to be insulated from the NEA by provisions enabling the President to extend current Section 5(b) programs annually upon executive determination that such extension is in the national interestthat is, without the necessity of a continuing national emergency.
How well have the NEA and the IEEPA served their intended purpose? In the nearly ten years since their enactment the attempted curtailment of executive emergency power has proved to be much less successful than the statutory language suggested it would be. The dramatic and frequent use of executive emergency power that persists under the NEA and IEEPA speaks for itself. Presidents Carter and Reagan have declared national emergencies repeatedly to impose sweeping economic restrictions on Americans dealing with the citizens of other nations: Iran, Nicaragua, South Africa, and Libya, to name a few. Most recently, invoking the NEA and the IEEPA, President Reagan declared a national emergency to rationalize a complete prohibition of the economic activities of Americans in Libya and ordered all U.S. citizens residing in Libya to leave or face criminal sanctions. Also under the claim of national emergency, President Reagan recently used the IEEPA to keep in force an important law, the Export Administration Act, for over a year after Congress had allowed it to expire.
The Supreme Court has helped to keep the presidents emergency economic powers free of congressional hindrance. In 1983 the court ruled in Immigration and Naturalization Service v. Chadha (the congressional veto case) that Congress cannot use a concurrent resolution, or any other method short of full constitutional requirements for enactment of legislation, to overturn a decision delegated to the President, thus by implication invalidating one of the NEAs restraints on presidential use of emergency authority. In Dames & Moore v. Regan (1981) the court gave broad construction to the Presidents power to act under the IEEPA.
But the greatest erosion of the NEA and the IEEPA came in Regan v. Wald (1984). At issue was the scope of the grandfather provision of the IEEPA, which exempts existing uses of Section 5(b) powers from the NEAs restrictions. Despite lawmakers deletion from the grandfather provision of language that would have explicitly shielded from the NEA not only existing regulations but any changes in rules applicable to the regulated subject, the Supreme Court ruled that the grandfather provision does encompass changes in existing restrictions if they pertain to the same general authority previously exercised under the TWEAthat is, the court held that the act authorizes exactly what the congressmen had been assured in hearings that it would not authorize. The immediate result of the courts decision was that a major new curtailment of private travel to Cuba was implemented under the Cuban Assets Control Regulations without the necessity of declaring a national emergency or complying with the procedures of the NEA. The long-run implication is that, with the stroke of a judicial pen, an apparent pinprick in the NEAs armor against abuse of emergency powers has become a gaping hole.
Private property rights, historically truncated during national emergencies, remain highly attenuated and vulnerable to further erosion in future crises. Attempts to restrain the abuse of emergency powers have not eliminated the ratcheting effect of actual or purported emergency in augmenting governmental power. Only the respite of noncrisis affords time to contemplate and forestall the threat to liberty and private property rights inherent in the emergency psychology of the public and its exploitation by governmental officials.
Robert Higgs is Senior Fellow in Political Economy at The Independent Institute and Editor at Large of the Institutes quarterly journal The Independent Review. He received his Ph.D. in economics from Johns Hopkins University, and he has taught at the University of Washington, Lafayette College, Seattle University, and the University of Economics, Prague. He has been a visiting scholar at Oxford University and Stanford University, and a fellow for the Hoover Institution and the National Science Foundation. He is the author of many books, including Depression, War, and Cold War.
Full Biography and Recent Publications
|Charlotte Twight is Research Fellow at The Independent Institute, Professor of Economics at Boise State University, and contributing author to the books, American Health Care and Arms, Politics and the Economy.|
Reprinted with permission from the Fall 1986 issue of the Journal of Private Enterprise. © Copyright 1986, Association of Private Enterprise Education.