Monopolies and the Constitution: A History of Crony Capitalism

Abstract

This article explores the right of the people to be free from government granted monopolies or from what we would today call “Crony Capitalism.” We trace the constitutional history of this right from Tudor England down to present day state and federal constitutional law. We begin with Darcy v. Allen (also known as the Case of Monopolies decided in 1603) and the Statute of Monopolies of 1624, both of which prohibited English Kings and Queens from granting monopolies. We then show how the American colonists relied on English rights to be free from government granted monopolies during the Revolutionary War period as, for example, when American colonists protested against the East India Company’s trade monopoly by holding the Boston Tea Party. We show that hatred of trade monopolies led in part to the American Revolution. During the drafting and debates on the federal Constitution, Thomas Jefferson and George Mason, as well as several Antifederalists, expressed grave concern about government grants of monopoly power. The new federal government was thus only given the enumerated power to create monopolies in the patent and copyright areas, and the Framers at Philadelphia deliberately chose not to give Congress the power to charter corporations which might be used to grant monopolies. During the Jacksonian era, it was a hatred of government grants of monopoly that helped to lead to President Jackson’s killing of the federally incorporated Bank of the United States. The same sentiment led as well to the Supreme Court’s narrowing of the Contract Clause in the Charles River Bridge case. Many state laws were struck down during the Jacksonian era for being monopolies, class laws, or grants of special privilege. By the 1850s, the Abolitionists themselves had begun to borrow the antimonopoly idea to argue that slavery was a constitutionally forbidden monopoly by slave owners of the labor of African Americans. By 1868, when the Fourteenth Amendment was adopted, the Reconstruction Congress was firmly opposed to all forms of class legislation, grants of special privilege, or of monopoly. Concerns about the evils of government granted monopolies were thus central to the original meaning of the Fourteenth Amendment. We argue that Americans have a constitutional right to be free from government grants of monopoly and other forms of class legislation because of: 1) the rich English and American colonial history with respect to the right to be free from monopolies; 2) the state constitutional law bans on monopolies, class legislation, and special grants of privilege; 3) the limiting of federal enumerated power to grant monopolies to the patent and copyright context; and 4) the original meaning of the Fourteenth Amendment. We think that the Slaughter-House Cases were wrongly decided, and we argue against rational basis review in economic liberties cases. We provide historical and legal arguments that defend the classical liberalism of John Tomasi in his new book defending economic liberty, Free Market Fairness.

Keywords: Middle to Late Nineteenth Century, Progressive Era, Statue of Monopolies, Colonial America, Fourtheenth Amendment, Econoic Liberty, Federal Anitrust Law, Antimonopoly Provisions

JEL Classification: K10, K19, K20, K29