Minimum Wage, the Constitution, and the Long Fight for Popular Control Over the Economy
On April 4, the governors of California and New York signed off on legislation raising their state’s minimum wages to $15 per hour. While the public may disagree about the merits of this measure and what the cumulative effects will be, there is little disagreement that states – as “laboratories of democracy” – are entitled to perform such economic experiments. After all, the first state minimum wage law was passed more than a century ago in Massachusetts in 1912, and a majority of states have minimum wages above the federal baseline today.
Yet states have not always had this privilege: in fact, the struggle over the public’s ability to exert control over the economy through state and local governments is a turbulent one – one that stretches back to the time of the country’s founding.
A Populist Constitution?
In the 1780s, after the failure of the Articles of Confederation, many came to believe that granting states too much authority jeopardized national unity and thwarted the ability of the country to emerge from the post-revolutionary period as a potent economic force. As a result, those who drafted the Constitution endowed the federal government with powers that had previously been left to the states, including the authority to levy taxes and regulate interstate commerce.
Also added to the Constitution was Article I, Section 10, which imposes several restrictions on the states, including prohibitions on “impairing the Obligation of Contracts” and making “any Thing but gold and silver Coin a Tender in Payment of Debts.” This section in particular was included to resolve a problem that had spread to many states, how to pay off wartime debts – a problem that caused protracted political turmoil in Rhode Island and even internal uprisings, like Shays' Rebellion in Massachusetts.
Some state legislatures, having to pay bondholders, resorted to the issuance of paper money to avoid increasing taxes – a measure that displeased wealthy speculators but which was evidently popular among the general public in many states. Fearing such measures would deter investors and threaten the young nation’s credit, many who convened at the Constitutional Convention – complaining that the state governments were “too democratic” by being so responsive to the will of the people – championed provisions like Section 10 (which made such debtor relief legislation illegal) in order to serve as “checks against the popular intemperance.”
But as Madison and other pro-Constitution advocates knew, the requisite number of states would never ratify the Constitution unless it reserved for them ample powers. As a result, the Bill of Rights was appended to the Constitution – a collection of ten amendments that defines the limits of the federal government and places no additional constitutional constraints on the states.
Yet rather than serving as a charter sanctifying individual liberty, the Bill of Rights was written primarily to empower popular majorities at the state and local levels.
As the constitutional scholar Akhil Reed Amar notes regarding the Ninth and Tenth Amendments (which safeguard citizens' and states' rights to self-determination), their language invokes not the absolute and inviolable freedom of the individual but the principle of popular sovereignty. "In light of the strongly populist cast of the preceding amendments," Amar writes, "it is wholly fitting that the Bill of Rights ends with back-to-back invocations of 'the people.'"
The Nineteenth Century and the Regulatory State
Contrary to the myth of a stateless, laissez-faire society in early America, state and local governments in the decades after the ratification of the Constitution exercised broad control over the economy, citing their general “police powers” to do so. As historian William Novak details in The People’s Welfare: Law and Regulation in Nineteenth-Century America, city, county, and state governments regulated nearly all aspects of public life – from public safety laws to health regulations to the management of the marketplace.
In Maryland, for example, the state legislature mandated in 1827 that merchants acquire a “license to trade” if they engaged in the purchasing and selling of goods for the purpose of earning a profit. And in Louisiana, as a demonstration of the presumptive power of the government to regulate the market, the state legislature did not officially legalize private grocery markets and stores in New Orleans until 1866.
These laws and regulations limiting individual freedom were justified (by both legislatures and courts) under two principles of common law: salus populi supreme lex est (the people’s welfare is the supreme law) and sic utere tuo ut alienum non laedes (use your own so as not to injure others).
Perhaps the clearest articulation of these principles was made by Massachusetts Supreme Court Chief Justice Lemuel Shaw, who in the case of Commonwealth v. Alger from 1851 declared:
We think it is a settled principle, growing out of the nature of well ordered civil society, that every holder of property, however absolute and unqualified may be his title, holds it under the implied liability that his use of it may be so regulated, that it shall not be injurious to the equal enjoyment of others having an equal right to the enjoyment of their property, nor injurious to the rights of the community. All property in this commonwealth...is derived directly or indirectly from the government, and held subject to those general regulations, which are necessary to the common good and general welfare.
The Fourteenth Amendment and "Liberty of Contract"
The amendment's drafters – alarmed by the legislation passed in southern states after the Civil War that had discriminated against freed slaves (and which in same cases amounted to legalized servitude) – sought to render these laws, like racist “black codes,” unconstitutional.
To do this, Radical Republicans in Congress took the various “privileges and immunities” that individuals held against the federal government as articulated in the Constitution – particularly in the Bill of Rights – and “incorporated” or applied them against state and local governments as well.
Opponents of the regulatory state did not wait long to use the Fourteenth Amendment to try to curtail states’ broad police powers.
Out of the provision that no state shall “deprive any person of life, liberty, or property, without due process of law,” some legal scholars claimed that strict control over the market and the thicket of business regulations curtailed citizens’ rights to “substantive due process,” and, in particular, their “liberty of contract” – the right to engage in harmless economic activity without unnecessary or “undue” interference from the state.
At first, the “liberty of contract” argument proved largely unsuccessful before state courts. In 1875, the Louisiana Supreme Court rejected precisely this argument as used by a plaintiff claiming that a New Orleans ordinance requiring merchants to pay $300 for a license impeded his Fourteenth Amendment rights. Judge Taliaferro in his decision in New Orleans v. Stafford defended the ordinance by explicitly invoking the salus populi principle and added that the plaintiff’s personal economic ambitions “would have to yield to the public advantage.”
Yet by the 1880s, some judges had warmed up to the "liberty of contract" argument. In New York, the state's highest court struck down prohibitions on the manufacture of cigars in tenement houses and the production of oleomargarine. In the following years, the U.S. Senate cleared the appointment of Supreme Court nominees who were sympathetic to it and who would later strike down state and local regulations that had previously been considered constitutional.
The Lochner Court
The Court's attitude toward economic legislation took a drastic turn in 1895, with the appointment of Rufus Peckham to the Supreme Court, who was a foe of state regulations.
In 1897, Peckham wrote the majority opinion in Allgeyer v. Louisiana, in which for the first time the Court recognized a citizen's purported "liberty of contract" as guaranteed by the Fourteenth Amendment. Peckham also authored the majority opinion in the infamous case of Lochner v. New York in 1905, striking down a law restricting the hours of bakers to 10 per day and 60 per week.
The Supreme Court during this period also struck down minimum wage legislation. In Adkins v. Children’s Hospital, the Court invalidated a federal minimum wage law for female and child employees working in Washington D.C., and 1936, it struck down a New York law empowering a labor board to fix wages in Morehead v. Tipaldo.
Like many of the Lochner Court's similar decisions, these rulings were grounded on the legal assumption that unless a law demonstrably protected the health and well-being of workers and the public, economic regulation amounted to class legislation aimed unjustly against the owners of business and was thus unconstitutional for reasons of both substantive due process and unequal treatment under the law (though whether the court applied this reasoning consistently is another matter).
But the Court's judicial activism in enforcing its interpretation of the Fourteenth Amendment and what constituted impartial and public interest economic legislation would not last. A political and legal backlash would culminate in a "constitutional revolution" that reinstated the right of governments to exert control over businesses and the economy.
The Constitutional Revolution
At the turn of the century, some legal scholars began to argue that economic legislation being passed during the Gilded Age was not meant to upset class relations but rather, in an age of unequal economic and bargaining power that favored elites, was meant to restore equality. As F.C. Woodward put it in 1895, “The purpose of the statutes is to protect one class of persons against the over-reaching and duress of another class, which by reason of its stronger position, has acquired an undue position.”
This rationale appeared in the case of West Coast Hotel Co. v. Parrish from 1937 – the decision that ended the Lochner era at the beginning of President Roosevelt's second term. At issue was the constitutionality of a minimum wage law for women in Washington state, which differed from the law struck down in Morehead because it did not seek to set wages that reflected the value of labor, but rather sought to establish a subsistence-level wage.
In his decision, Chief Justice Charles Hughes explicitly rejected the substantive due process and “liberty of contract” arguments that had prevailed under the previous Court.
“The Constitution does not speak of freedom of contract,” he wrote matter-of-factly, adding – using language reminiscent of mid-nineteenth century state justices – that a regulation “which is reasonable in relation to its subject and is adopted in the interests of the community is due process .”
Hughes also showed his sympathy with turn-of-the-century arguments about the necessity of legislation seeking to counteract social inequalities. “The exploitation of a class of workers who are in an unequal bargaining power and are thus relatively defenceless against the denial of a living wage is not only detrimental to their health and well being,” he wrote, “ but casts a direct burden for their support on the community,” which, in the absence of such legislation, he said, is asked “to provide what is in effect a subsidy for unconscionable employers.”
Today, historians still argue over whether this decision was politically motivated. After all, the decision was handed down in March 1937, a month after President Roosevelt threatened to pack the Supreme Court with more justices who would be receptive to his New Deal proposals. Of particular controversy is whether this plan influenced Justice Owen Roberts, who had voted against the minimum wage law struck down in Morehead but joined the majority in the West Coast Hotel decision.
Yet the evidence shows that Roberts had voted to join the majority in December 1936, and Chief Justice Hughes argued that the exigencies of the times necessitated taking another look at the constitutionality of economic legislation like minimum wage laws. Scholars also observe that the Court, since at least 1934 – and likely even earlier, had evolved to toward a new legal worldview that was more permissive of economic regulations.
But it was not until 1938 that the Supreme Court more clearly articulated its decision-making standards. In a footnote to the majority opinion in United States v. Carolene Products Co., the Court explained that it would use a lower standard (called the rational basis test) when deciding the constitutionality of laws such as economic legislation and a higher standard (called strict scrutiny) when deciding the constitutionality of laws that restrict freedoms explicitly safeguarded by the Constitution.
With this decision, the Supreme Court sent governments at all levels a clear message: so long as your economic laws and regulations do not directly trespass on the stated rights of individuals or overstep your defined boundaries, your measures are more likely to pass constitutional muster.
While this "constitutional revolution" is generally seen as having advanced a particularly liberal economic agenda (and, given the quick advances of the New Deal, for good reason), it is important to note its compatibility with the conservative legal worldview. After all, conservatives tend to argue that decisions are best made at the local level, are the greatest supporters of states' rights, and traditionally advocate for judicial restraint and deference to the will of the people.
In the end, this history shows that the Constitution, through both its dual federalist structure and its amendments (as interpreted by the Supreme Court), grants city and state governments broad authority to pass legislation to address their citizens' pressing economic needs.
Whether it is minimum wage legislation, measures granting paid sick leave or building affordable housing, or laws deciding how to manage natural resources, Americans possess the ability to exert popular control over nearly all aspects of the economy, and thus their livelihoods.
Such initiatives aimed at improving the lives of the majority of citizens are not only consistent with the Court's interpretation of the Fourteenth Amendment, but also with the original intent of the authors of that amendment, the advocates for the Bill of Rights, and indeed, even the country's founders themselves.