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Subject Area: Law
Topic: The American Revolution and Constitution

§ 131.: National, State and municipal monopolies.— - Christopher G. Tiedeman, A Treatise on State and Federal Control of Persons and Property in the United States considered from both a Civil and Criminal Standpoint, vol. 1 [1900]

Edition used:

A Treatise on State and Federal Control of Persons and Property in the United States considered from both a Civil and Criminal Standpoint (St. Louis: The F.H. Thomas Law Book Co., 1900). Vol. 1.

Part of: A Treatise on State and Federal Control of Persons and Property in the United States considered from both a Civil and Criminal Standpoint, 2 vols.

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§ 131.

National, State and municipal monopolies.—

In preceding pages of this discussion of the right to create monopolies, the constitutionality of the creation of exclusive franchises and monopolies has been chiefly considered from the standpoint of the individuals who have been prohibited by law from the prosecution of a lawful and natural calling or business, because it has been converted by statute into a more or less exclusive privilege and granted as such to a few persons or corporations. In the case of monopolistic franchises, which necessarily involve the grant by the government of a peculiar or extraordinary privilege or power, before the business can be successfully established or conducted, and without which no individual could undertake it, however resourceful he may be; there can be very little doubt that no one’s personal liberty has been particularly restrained by the grant of such a franchise as a special privilege to a few persons or corporations; or even when it is granted as an exclusive monopoly to one person or corporation. No one’s constitutional right to pursue any lawful calling has been infringed by the grant of an exclusive right to build and maintain a railway between two termini, or a street railway along a certain street or avenue of a city. Nor, as it has also been argued, has any man’s constitutional right to pursue any lawful calling been violated by the grant to a few persons or corporations, or even to one, the exclusive right to carry on a business, however natural and ordinary it may be, which,—because it is inherently and necessarily injurious to the welfare of society, or dangerous to individuals, when left open to the unrestricted competition of individuals,—may be prohibited altogether. If total prohibition of a trade or business is constitutionally justifiable, certainly the constitutional rights of the individuals who are denied the privilege of carrying on such a business, are not more seriously interfered with, if, instead of prohibiting the trade altogether, the legislature were to grant the more or less exclusive privilege of carrying on the prohibitable business to a few persons or corporations, under more or less strict police supervision.

But, conceding the soundness of these propositions of constitutional law, the question still remains to be asked and answered: Does not the grant of exclusive or monopolistic privileges to a few persons or private corporations, even in the apparently necessary and justifiable cases, which I have just described, conflict with our constitutional declarations of equality of all men before the law, and with our guaranty to all of equal privileges and immunities? Is it a sufficient answer to such a question to say, that public interests forbid that any and every man, who wants to and has the necessary capital, should be permitted to construct a railroad, a street railway, a gas, electric light, water, telegraph or telephone plant; that, on the other hand, these conveniences are public necessities, and that there is no alternative but to make more or less exclusive monopolies of them? Granted that individuals cannot be allowed indiscriminately, and without restraint, to exercise the right of eminent domain and to tear up the streets of a city in order to lay down conduit pipes and tracks; it does not necessarily follow that the right to do these things should be granted as a private monopoly to a few persons or corporations. If there was no other alternative to the creation of such private monopolies but the denial of these conveniences and necessities to the people, it might be excusable to ignore the patent and unmistakable repugnance to our constitutional principle of the grant of such exclusive privileges. But there is another alternative. That is, that whatever business or calling cannot be opened to the free choice of all persons without favor or discrimination,—subject only to reasonable regulations for the protection of the public and of individuals against fraud and other wrongs and dangers—should and can be made a government monopoly, instead of being granted to private individuals and corporations.

Whatever arguments may be advanced in opposition, there can be no doubt of the existence of a most marked tendency all over this country to convert into government monopolies every public franchise, which serves to satisfy some public want. The cities have almost universally constructed their own water works; and many own and conduct the gas works and electric light plants, for the supply of these necessities to private consumers, as well as for public use. The city of New York owns and manages a large number of the docks, has for years run the cable cars on the Brooklyn Bridge; and has just concluded (February, 1900) a contract for the construction of a railroad tunnel in Manhattan and Bronx Boroughs, to furnish rapid transit to the people of the city. And while the city does not now contemplate the conduct of this tunnel road by city officials, no question has ever been raised as to its power to do so, of that policy were deemed to be the wisest.

I believe the decisions, to which I will now refer, will afford a very clear delimitation of those businesses which can be, and of those which cannot be, converted into government monopolies. I will first refer to the cases in which the power of a municipality to engage in these enterprises is explained and set forth; because of the adoption at an early day of what must now in the light of recent decisions be classed among the fictions of the law, of the proposition that the municipal corporation has both a public and a quasi-private character, and that it may in the latter character lawfully, when empowered by its charter, engage in the so-called private business of vending to private consumers water and light, and of furnishing the private services of transportation and communication by telegraph and telephone. Elsewhere1 I state this fiction of the law as follows:—

But in determining the constitutionality of government monopolies, a very important distinction must be made between the monopolies, which may be established and operated by the State government, and those which may, under legislative authority, be erected by a municipal corporation. The distinction rests upon the generally accepted doctrine, that a municipal corporation has a quasi-private character, as well as a strictly public character. The grant by the State to a municipal corporation of the power to establish and operate gas, electric light or water works, is a grant to the corporation in its semi-private character as the corporate representative of the local community, and not to it as the public representative of the State government.1

Fifty years or more ago the principles of individualism exerted over the political thought of this country a far more powerful and universal influence than they do now. And if it had been proposed in those days that a city government should assume the monopoly of supplying its inhabitants with gas or water, the judicial veto would have been both decisive and general, that the government of the municipal corporation was only a local branch of the State government; and that it was not one of the functions of the government, either State, county or municipal, to engage in the private business of vending water or light to private consumers. And only recently has the Supreme Court of South Carolina held it to be an irrepealable limitation of the functions of municipal government.2 But the popular demand for the embarkation of municipal corporations in these enterprises of general utility gradually became stronger and stronger, until it became irresistible. Then the courts conceived of this fictional distinction between municipal and State governments, as a means of avoiding the shock to public opinion, which would be occasioned by the thought that the municipalization of such enterprises would inevitably lead to State socialism. Under the influence of this fiction, and of the argument that the supply of these general necessities, such as light and water, is the performance of a public act, and not an engagement of the municipal corporation in a private business, the courts have, in all of the cases, with the exception of the South Carolina case just cited,3 declared it to be within the constitutional power of the legislature to authorize cities and towns to erect and maintain plants for supplying private consumers with water and light.1 In the case of Smith v. City of Nashville,2 the court said: “Nothing should be of greater concern to a municipal corporation than the preservation of the good health of the inhabitants. Nothing can be more conducive to that end than a regular and sufficient supply of wholesome water, which common observation teaches all can be furnished in populous cities only through the instrumentality of well-equipped water works. Hence, for a city to meet such a demand is to perform a public act and confer a public blessing. * * * It cannot be held that the city in doing so is engaging in a private enterprise, or performing a municipal function for a private end.” And in reference to the establishment and operation by cities of gas and electric light works, the Supreme Court of Massachusetts3 said in part:—

“We have no doubt, that if the furnishing of gas and electricity for illuminating purposes is a public service, the performance of this service can be delegated by the legislature to cities and towns for the benefit of themselves and their inhabitants and that such cities and towns can be authorized to impose taxes for this purpose upon their inhabitants and to establish reasonable rates which the inhabitants who use the gas or electricity can be compelled to pay. The fundamental question is, whether the manufacture and distribution of gas or electricity to be used by cities and towns for illuminating purposes is a public service.” * * * “Artificial light is not, perhaps, so absolutely necessary as water, but it is necessary for the comfortable living of every person. Although artificial light can be supplied in other ways than by the use of gas or electricity, yet the use of one or both for lighting cities and thickly settled towns is common, and has been found to be of great convenience, and it is practically impossible for every individual to manufacture gas or electricity for himself. If gas or electricity is to be generally used in a city or town, it must be furnished by private companies or by the municipality, and it cannot be distributed without the use of the public streets or the exercise of the right of eminent domain.”

The court reserved the question whether the legislature could authorize cities and towns to furnish gas and electricity for heat and power, evidently ignoring the real reason for the public supply of these things, viz.: that all of these wants can only be supplied by the grant, by the legislature, to the municipal or private corporation, as the case may be, of the monopolistic privilege of eminent domain, or of the extraordinary use of the streets and highways for the laying of conduit pipes and wires. All of these public and general utilities contain that same feature. And I do not hesitate to assert that whenever the special grant of a franchise or privilege is necessary to the prosecution of a business, such business can and should be made a State or municipal monopoly as the case may be, instead of a private monopoly in the hands of a private individual or corporation.

But, whenever the legislature authorizes a city to engage in a business, the prosecution of which does not require the ownership of any such peculiar and restricted privilege or franchise, and does not involve any danger to the public, the liberty of the individual, to pursue a lawful calling, is thereby infringed, if the business is made a municipal monopoly; and in any case, the city is assuming a private function, which the legislature cannot constitutionally confer. Thus, in a recent case,1 it was held by a majority of the Supreme Court of Massachusetts that the legislature has not the power, under the constitution, to authorize the cities and towns within the commonwealth to buy coal and wood for the purpose of sale to their inhabitants for fuel, or to engage in any trade merely that it may be better carried on. But Mr. Justice Holmes in a dissenting opinion says: “I am of the opinion that when money is taken to enable a public body to offer to the public without discrimination an article of general necessity, the purpose is no less public when that article is wood or coal, than when it is water or gas or electricity, or education, to say nothing of cases like the support of paupers or the taking of land for railroads or public markets. I see no ground for denying the power of the legislature to enact the laws mentioned in the questions proposed.” Mr. Justice Barker occupies a middle ground in this case between the opinion of the majority of the court and that of Justice Holmes, and holds that the test in all of these cases is whether the necessities of society, as now organized, can only be met by the engagement of the city government in the particular business. The objection to Justice Barker’s statement of the limitation in this regard of the power of the legislature is that it is too vague to furnish a reasonable and satisfactory restraint upon the growing demands of the day for the embarkation of government in businesses, which have heretofore been left to private initiative and enterprise.

On the other hand, it has been held that, in the regulation of the trade in intoxicating liquors, a law providing for the exclusive sale of such liquors by agents of the town was constitutional.1 If the courts did not unanimously reject the contention, which is so earnestly presented in a preceding section2 that the total prohibition of the sale of intoxicating liquors is unconstitutional, the establishment of a municipal monopoly in the sale of liquors would be in the same category with the Massachusetts provision for the sale by the town to private consumers of wood and coal, which was held to be an unconstitutional extension of the functions of municipal government. But having declared that the liquor trade was so inherently injurious to the public interests, when left to unrestricted enterprise, as to justify constitutionally the total prohibition of the trade, the courts could not consistently deny the right of the legislature to convert it into a municipal monopoly; unless the doctrine was upheld that governmental functions could not be extended to include the satisfaction of any wants of the individual; a doctrine which, as has been seen, has been repudiated by the courts.

So far I have confined myself to the consideration of the cases of government monopoly and engagement in what have heretofore been characterized as private businesses, in which city governments have been authorized by their charters or by special statutes to thus extend their functions; in deference to the opinion which has been expressed by the courts, that in this connection a distinction is properly made between city governments and the State or county governments; on the theory, already stated, that cities, as incorporated bodies, have a public and a quasi-private character, and that the city exercises the extraordinary function of vending water or light to private consumers in its quasi-private and not in its public character. However sound this theory of the dual character of municipal corporation may be, in connection with the claims of creditors, and the right of the courts to compel the city to pay its debts; it seems to me to be incontrovertible that, in prohibiting a trade to private individuals and converting it into a municipal monopoly, the city is exercising a function of government, and is therefore acting in its public character, as a local branch of the State government. If the State legislature may authorize a city to create municipal monopolies out of water works, gas and electric light plants, street railways, liquor trade, etc., without violating any provision of the State constitution; the legislature may equally establish these and kindred businesses as State government monopolies, unless the State constitution contains some provision, which distinguishes in such matters between the functions of State and municipal governments.

The same rule would apply to the scope of power of the national government, so far as its jurisdiction extends over the subjects of police power. So far as there have been adjudications on the subject, the contentions of the text have been fully sustained by the courts.

Up to the present time, there have been only two cases in which government monopolies have been established, outside of the municipal monopolies, and which have been sustained by the courts. And these are (1) the transportation and distribution of the mails by the United States officials and (2) the sale of intoxicating liquors by the officers of the State of South Carolina.

The right of the national government to make an exclusive government monopoly of the postal service has never been questioned in any judicial proceeding. The universality of this government monopoly, throughout the civilized world, would, according to the principle of constitutional construction, adopted in the case of Juillard v. Greeman,1 have been a complete answer to any question of the constitutional power of the national government to establish post offices and post roads; even if the United States constitution had not expressly authorized the national governernment to establish and maintain them as government monopolies.

If a political party were to go before the people on the declaration, that it proposes, if successful at the polls, to convert all the railroads and telegraph lines into government monopolies, to buy under condemnation proceedings the existing lines of railroad and telegraph, or establish new ones, and prohibit the existing railroad and telegraph companies from conducting their respective businesses; an intense excitement would prevail all over the country. Apart from the economic objections, which would be urged against the program, many would feel that the government would thereby intrench upon the fields of private enterprise, without constitutional authority. But if it is lawful for the government to establish and maintain a postal service as an exclusive government monopoly, there can be no legal or scientific objection to the conversion of the railroads and the telegraph or telephone service into government monopolies. The same reasons which justify the post-office monopoly would be sufficient to justify these. They are all common means, now made, by the exigencies of modern life, necessary means of intercourse and intercommunication among people of the same and of different countries, and might very properly be compared with the governmental control of the public highways on land and on water. Then again, these means of communication are so necessary to the prosecution of the trade and commerce of the world, that any interruption of them by disputes of the railroads and telegraph lines with their employees over wages and terms of hiring or with the shippers of goods and travelers over rates of charges, would be and have been often a serious menace to the public welfare. Whatever serious doubts may be entertained concerning the political propriety of such government monopolies; in these days of labor agitation and gigantic railroad and telegraph combinations, and in the face of the charges of extortion of these combinations, alike toward patrons and employees;1 when a strike of railroad and telegraph employees may extend over the whole country, stop the wheels of commerce and bring all commercial intercourse to an end, as long as the disagreement continues, public opinion may not, after a thoughtful consideration of these things, reject the proposition. Certainly, the courts would not deny to the national government the power thus to extend the scope of its functions. No private corporation or syndicate of capitalists should be vested with the ownership and control of any of the means of intercourse or communication of people with each other. Apart from the opportunities for the practice of extortion, which the private ownership of such means of communication affords, the grant of them to private corporations is a violation of the constitutional guaranty of equal privileges and immunities. The United States Supreme Court has declared, in two cases,2 that it would be lawful for Congress to make government monopolies of the railroad and the telegraph, to construct the same anew or to appropriate to its use, in the exercise of the right of eminent domain, the existing lines of railroad and telegraph. This was only a dictum, but it may be taken as a reliable forecast of what the decision of that court would be if the question should ever come before it.1

The South Carolina Dispensary Law has not only been the occasion of a great deal of bitter political animosity within the State, but it has also provoked a widespread discussion throughout the country, in the public press, as well as in the legal journals, over this extension of the functions of government. Briefly stated, the dispensary law, so-called, prohibits all private trade in intoxicating liquors within the State of South Carolina, and provides for its sale by officials of the State government, under strict regulations as to the amounts to be sold, and expressly forbidding all drinking at the place of sale. This was a clear establishment in the sale of intoxicating liquors of a government monopoly. And, naturally, the private liquor dealers of the State sought to secure the nullification of this law, aided and abetted by the strong political acrimony which the political divisions of recent years have engendered in that State. The result of the first case was a pronouncement of the unconstitutionality of the law, in an able opinion from Chief Justice McIver.2 Chief Justice McIver said in part:—

“But it is earnestly contended by the attorney-general that if the power to prohibit absolutely the sale of intoxicating liquors be conceded, it follows necessarily that the State may assume the monopoly of such a trade; and in support of this view he cites Tiedeman on the Limitations of the Police Power (page 318), where that author uses the following language: ‘There is no doubt that a trade or occupation which is inherently and necessarily injurious to society may be prohibited altogether; and it does not seem to be questioned that the prosecution of such a business may be assumed by the government, and managed by it as a monopoly.’ But the only authority which the author cites to sustain this rather extraordinary proposition is the case of State v. Brennan’s Liquors, 25 Conn. 278, overlooking entirely the case of Beebe v. State, 6 Ind. 503, which holds an opposite view, and which had been previously cited by the same author at page 197, and quoted from, apparently with approval; but, in addition to this, we are unable to perceive how the right to prohibit a given traffic carries with it the power in the State to assume the monopoly of such traffic. If the right to prohibit the sale of intoxicating liquors rests upon the ground that such a traffic ‘is inherently and necessarily injurious to society,’1 as is involved in the statement by the author of this proposition, then it seems to us that the logical and necessary consequence would be that the State could not engage in such traffic, for otherwise we should be compelled to admit the absurd proposition that a State government established for the very purpose of protecting society could lawfully engage in a business which ‘is inherently and necessarily injurious to society.’ We must prefer, then, to follow the case of Beebe v. State, rather than State v. Brennan’s Liquors; for while it has been said that the case of Beebe v. State has been overruled (though the case to that effect has not been brought to our attention), yet we do not cite the case as authority, for it is not authority here, but it is only referred to for the reasoning contained in the opinion. Indeed, neither the Indiana nor the Connecticut case could constitute authority in this case, for the reason that the statute which we are called upon to construe contains very different provisions from those found either in the Indiana or Connecticut statutes. But in this connection we are enabled to cite a very recent case, which the research of counsel for respondents has furnished us with, which, it seems to us, is as conclusive of this whole matter as any case from abroad can be. That is the case of Rippe v. Becker (Minn.) 57 N. W. 331, in which one of the points distinctly decided is thus stated in the syllabus, prepared by the court: ‘The police power of the State to regulate a business is to be exercised by the adoption of rules and regulations as to the manner in which it shall be conducted by others, and not by itself engaging in it.’ In that case the question was as to the constitutionality of an act entitled ‘An act to provide for the purchase of a site and for the erection of a State elevator or warehouse at Duluth for public storage of grain,’ and one of the grounds upon which it was sought to sustain the constitutionality of the act was that it was an exercise of the police power. But the court held that, while ‘the right of the State, in the exercise of its police power, to regulate the business of receiving, weighing, inspecting, and storing grain in elevators and warehouses, as being a business affected with a public interest, is now settled beyond all controversy’ by the case of Munn v. Illinois, 94 U. S. 113, and others on the same line, yet ‘that the act there in question could not be regarded as a police regulation of the business, and that the police power of the State to regulate a business does not include the power to engage in carrying it on.’ It would extend this opinion to an unwarrantable length to make further quotations from the opinion of the court in that case, which might be instructive and profitable. It seems to us, therefore, that in no view of the case can the dispensary act be regarded as a police regulation of the business of selling intoxicating liquors, and, even if it could be, that such police power does not include the power on the part of the State to engage in carrying on such business.

“Finally, the constitutionality of the dispensary act is assailed upon the ground that the legislature have undertaken thereby to embark the State in a trading enterprise, which they have no constitutional authority to do; not because there is any express prohibition to that effect in the constitution, but because it is utterly at variance with the very idea of civil government, the establishment of which was the expressly declared purpose for which the people adopted their constitution; and therefore all the powers conferred by that instrument upon the various departments of the government must necessarily be regarded as limited by that declared purpose. Hence when, by the first section of the second article of the constitution, the legislative power was conferred upon the general assembly, the language there used cannot be construed as conferring upon the general assembly the unlimited power of legislating upon any subject, or for any purpose, according to its unrestricted will, but must be construed as limited to such legislation as may be necessary or appropriate to the real and only purpose for which the constitution was adopted, to wit, the formation of a civil government. In this connection it is noticeable that the word ‘all’ is not used in the section above referred to, but the language used is, ‘the legislative power,’ meaning such legislative power as may be necessary or appropriate to the declared purpose of the people in framing their constitution and conferring their powers upon the various departments constituted for the sole purpose of carrying into effect their declared purpose. It is manifest from the numerous express restrictions upon the legislative will found in the constitution that the people were not willing to entrust even their own representatives with unlimited legislative power, but, as if not satisfied with these numerous express restrictions, and perhaps fearing that some important right might have been overlooked, a general clause, not usually found in State constitutions, was inserted, apparently designed to cover any such omissions, for in section 41 of article 1 it is expressly declared that ‘the enumeration of rights in this constitution shall not be construed to impair or deny others retained by the people, and all powers not herein delegated remain with the people.’ Now, upon well-settled principles of constitutional construction we are not at liberty to disregard this clause, but must give it some meaning and effect. It seems to us that the true construction of this clause is that, while there are many rights which are expressly reserved to the people, with which the legislature are forbidden to interfere, there are other rights reserved to the people not expressly but by necessary implication, which are beyond the reach of the legislative power, unless such power has been expressly delegated to the legislative department of the government. These views have not only the support of the highest authority in this country, as may be seen by reference to the cases of Loan Assn. v. Topeka, 20 Wall. 655, and Parkersburg v. Brown, 106 U. S. 487, 1 Sup. Ct. 442, but have been distinctly adopted by the Supreme Court of the State in Feldmann v. City Council, 23 S. C. 57, as well as by the courts of Massachusetts and Maine, as may be seen by reference to Allen v. Jay, 60 Me. 124, and Lowell v. City of Boston, 111 Mass. 454; and, what is more, they were applied to the vital power of taxation—a power absolutely essential to the very existence of every government. These cases substantially hold that, although there may be no express restrictions contained in a State constitution forbidding the imposition of taxes for any other purpose than a public purpose, yet such a restriction must necessarily be implied from the very nature of civil government; and hence the legislative department, under the general power of taxation conferred upon it, cannot impose any tax except for some public purpose. Upon the same principle it seems to us clear that any act of the legislature which is designed to, or has the effect of, embarking the State in any trade which involves the purchase and sale of any article of commerce for profit, is outside and altogether beyond the legislative power conferred upon the general assembly by the constitution, even though there may be no express provision in the constitution forbidding such an exercise of legislative power. Trade is not, and cannot properly be, regarded as one of the functions of government. On the contrary, its function is to protect the citizen in the exercise of any lawful employment, the right to which is guaranteed to the citizen by the terms of the constitution, and certainly has never been delegated to any department of the government.

“We do not deem it necessary to go into any extended consideration of the fearful consequences of recognizing the power of the legislature to embark the State in any trade, arising from the hazards of all business of that character, or to comment upon the danger to the people of the monopoly of any trade by the State,—for if it can monopolize one it may monopolize any or all other trades or employments,—although it is permissible for a court, when called upon to construe an act, to consider its effects and consequences; for it may be said—indeed, has been said—that the good sense and patriotism of the members of the general assembly may be safely relied upon to protect the people from such apprehended dangers.”

After the rendition of this opinion against the constitutionality of the dispensary law, a change in the personnel of the Supreme Court of South Carolina occurred, which resulted in producing a preponderance of judicial opinion in favor of the constitutionality of the law. When a case came before the court again, which involved this question of constitutionality of the dispensary law, the opinion of the court in McCullough v. Brown, just cited, was expressly overruled, and the constitutionality of the law was sustained.1 Judge Gary, in delivering the opinion of the court, said:—

“Objection is made as to the constitutionality of the act on the ground that it creates a monopoly. Those interposing this objection likewise assume that it is not a police measure. The objection is fully met by the decision of the court in the Slaughter-house Cases, supra, in which the court says: ‘That wherever the legislature has the right to accomplish a certain result, and that result is best attained by means of a corporation, it has the right to create such a corporation, and to endow it with the power necessary to effect the desired lawful purpose, seems hardly to admit of debate.’ Tied. Lim. 318, says: ‘If it is lawful for the State to prohibit a particular business altogether, or to make a government monopoly of it, the pursuit of such business would, if permitted to any one, be a privilege or franchise, and being like any other franchise, may be made exclusive. This is but a logical consequence of the admission that the State has the power to prohibit a trade altogether. Such an admission is fatal to a resistance of the power to make it a monopoly.’ The doctrine of ‘monopoly’ cannot be applied to a State in exercising its governmental functions. * * *

“It is contended that the foregoing section1 prevents the legislature from embarking the State in a commercial enterprise. We have no doubt that if such was the object of the act, and it was not intended as a police measure, it would be unconstitutional, even in the absence of section 41, art. 1. As we have said, if the act is not a police measure, it is unconstitutional. It is quite a different thing, however, when trade is simply an incident to a police regulation. Buying and selling on the part of the Federal, State, and municipal governments take place every day, and as long as the buying and selling are in pursuance of police regulations they are entirely free from legal objection. The Federal government sells liquor and other articles that have been seized as contraband. Articles are purchased by the State to keep up the penitentiary and asylum and other public institutions and enterprises. We see it buying a farm to utilize the convict labor of the State, and selling the produce made on the farm. Municipal governments have the right to buy and dispose of property in administering their governmental affairs. The very distinction for which we contend is pointed out in the case of Mauldin v. City Council, 33 S. C. 1; 11 S. E. 434. In that case the court showed it was not wrong for the city to buy and sell for a public purpose, but that the act only became illegal when it was for a private purpose. We think the case was properly decided, and that the decision rested upon this distinction. The case of Beebe v. State, 6 Ind. 501, was upon the construction of a statute of Indiana somewhat similar to the act in question, and is relied upon as an authority to sustain the proposition that the State cannot take direct control and management of the liquor traffic. In that case the court uses the following language: ‘The business [the management and sale of liquor] was at and before the organization of the government, and is properly at all times, a private pursuit of the people, as much so as the manufacture and sale of brooms, tobacco, clothes, and the dealing in tea and rice, and the raising of potatoes.’ (Italics ours.) This case is in conflict with the distinction made between liquor and the ordinary commodities of life. * * *

“If liquor is to be placed on the same footing with the articles mentioned in the Indiana case, then that decision was right; but if there is that distinction for which we contend, then the case is valueless as an authority, being decided on erroneous principles. The principles upon which that case was decided would have forced the court that rendered it to have declared null and void a statute entirely prohibiting the traffic in liquor, although there is no longer any doubt as to the constitutionality of such statutes. The case of Rippe v. Becker (Minn.), 57 N. W. 331, is also relied upon to sustain the constitutional objection to the act of 1893. The title of the act construed in Rippe v. Becker was, ‘An act to provide for the purchase of a site and for the erection of a State elevator or warehouse at Duluth for public storage of grain.’ The syllabus of the case prepared by the court states: ‘The police power of the State to regulate a business is to be exercised by the adoption of rules and regulations as to the manner in which it shall be conducted by others, and not by itself engaging in it.’ The language of the court as applying to that case was proper, and we think the case was properly decided in the light of the distinction between liquor and the ordinary commodities of life which we have pointed out. There was nothing in the business dangerous to the health, morals, and safety of the people, and the act should have been declared null and void.”

I believe the latter South Carolina case to be sound law.1 But the reader must bear in mind that this opinion is predicated upon the proposition, that the liquor trade is so inherently injurious to society, when it is permitted to be the object of private enterprise, as that the State is for that reason justified in prohibiting altogether its prosecution by private individuals as an ordinary calling. This I do not believe to be the case, and I adhere to the opinion expressed in the preceding section2 that all laws, which prohibit altogether the private manufacture and sale of intoxicating liquors, are unconstitutional as an unjustifiable interference with the liberty of the individual to engage in any lawful calling.

A case in the Minnesota Supreme Court, which is referred to in the South Carolina cases on the Dispensary Law, as aptly illustrates the limitations of the legislative power to convert private businesses into government monopolies, as do the Massachusetts cases, heretofore referred to in the present section, point out the limitations in the same direction of the power of municipal governments.3 The legislature of Minnesota had provided for the erection and maintenance by the State of a grain elevator at Duluth. It will be remembered that these grain elevators have been pronounced by the United States Supreme Court and by the Court of Appeals of New York, to be virtual monopolies, and properly subjected to the police regulation of rates and charges.4

The intention of this novel legislation, as stated in section 4 of the Minnesota act, authorizing the establishment of the government elevators, is as follows: it being the intention of this act to prevent monopolization and the unjust control of the markets of the State for farm products. The Supreme Court declared the act to be unconstitutional and said:—

“The keynote to the object of the law is, we apprehend, to be found in the last clause of section 4 above quoted as to the intention of the act; and, so far as it relates to the right of the State, under the police power, to regulate this business the position of defendant’s counsel really amounts to this: that whenever those who are engaged in any business which is affected with a public interest and hence the subject of governmental regulation, do not furnish the public proper and reasonable service, the State may, as a means of regulating the business, itself engage in it, and furnish the public better service at reasonable rates, or by means of such State competition, compel others to do so. * * * The police power of the State to regulate a business does not include the power to engage in carrying it on. Police regulation is to be affected by restraints upon a business, and the adoption of rules and regulations as to the manner in which it shall be conducted.”

The Supreme Court of Minnesota very correctly declares the act to be unconstitutional, but assigns what appears to me to be an erroneous reason for its judgment, so far as it declares that the police power does not include the power to make a government monopoly of a business, when that is in the estimation of the government the only effective measure for the prevention of the injuries and wrongs, which the public suffer from the prosecution by private individuals of a business which is inherently and necessarily injurious to society, when it is left open to private enterprise. But the business of storage of grain in elevators is not of that kind. It is not inherently and necessarily injurious when left open to private enterprise. The only danger with which the public is threatened in such a business, is that of extortionate charges for the storage of grain. Police regulation of the maximum charges is unquestionably an ample protection, and the legislature is not justified in converting such a business into a government monopoly, or in providing for the engagement of the government in the business, in competition with the private grain elevators.

Before concluding this discussion of the power of the legislature to create government monopolies, I have one more reflection to make. In preceding sections1 I have set forth at considerable length the governmental efforts to suppress trade combinations, and the principles of constitutional law, which limit and justify these police regulations. In other preceding sections2 I have explained how the constitutional declarations, of the equality of all men before the law, constrain the courts in a variety of cases to declare unconstitutional statutes, which interfere with the liberty of contract of the individual. In another section3 I pointed out that all attempts to suppress and prevent combinations in restraint of trade must necessarily prove futile, as long as the statutes of the State permit the creation of private corporations, for the prosecution of businesses, which can be successfully carried on by private individuals without the aid of a charter of incorporation. The grant of charters of incorporation in such cases only serves to intensify the natural power which the capitalist in his individual capacity posseses over the non-capitalist, by the mere possession of the capital. I advocate, as a return to a uniform recognition of the constitutional guaranty of equality before the law, the repeal of the statutes which provide for the creation of private corporations. But there are, undoubtedly, businesses, which, on account of their immense proportions and wide scope, cannot be successfully and safely conducted by private capitalists, without the aid of a charter of incorporation, and where the business is not at all dependent upon the grant by the legislature of any special privilege or franchise, such as the railroad or telegraph company. As possible examples of that kind of business, may be mentioned the business of insurance and of banking.1

It is possible for the banking business and the business of all kinds of insurance other than life to be successfully carried on by private enterprise; it is absolutely impossible on account of the long duration of its policies, for life insurance to be so conducted. I may be wrong in this distinction; I do not care to be insistent upon it. But if it should be judicially declared to be impossible for these businesses to be carried on by private capitalists in their individual capacity; and that incorporation is necessary to their successful prosecution; I insist that the grant of a charter of incorporation of a bank or of an insurance company is as much a grant of a special privilege or franchise, in violation of the constitutional guaranty of equal privileges and immunities, as is the grant of a charter to a railroad or street railway company. Assuming it to be true that banking and insurance, or either of them, cannot be successfully conducted by natural persons without the aid of incorporation, the only method of providing for such businesses, which is consonant with the democratic principles of equality, is by their conversion into government monopolies.

But I do not desire to be understood as justifying the creation of a government monopoly in a case, in which the individual cannot in his individual capacity successfully conduct the business on so large a scale as it is now being managed under a charter of incorporation. If the business can be successfully conducted by a private individual on a smaller scale, and with a reasonable protection to parties having dealings with him—according to the principles here advocated, and laid down in adjudications on kindred propositions of law,—that business cannot be converted into a government monopoly, without infringing the constitutional right of the individual to pursue any lawful calling he may select. The demonstration of the fact, that when the business is conducted on a larger scale, there is a marked saving of the expense, and a consequent reduction in the price to the consumer, does not affect the constitutional aspect of the question. The Supreme Court of the United States, in the Trans-Missouri Freight Association case,1 does not declare it to be of any concern to the government that the prices of products should be reduced at the expense of the liberty of the individual to pursue a lawful calling; it asserts the contrary proposition, that it is the concern of the government, which is manifested by the legislation against trusts and trade combinations, that the small tradesman, manufacturer and artisan, shall not be driven to the wall, overpowered by the giant combinations.

The application of these principles to practical politics is very likely to result in an abuse of them. The student of European politics meets with all sorts of monopolies, almost as varied as they were in France under the ancient régime, the only difference being that the general government, and not the privileged classes, own the monopolies. There may in the future be attempts in this country to create monopolies out of trades and occupations, the prosecution of which by private individuals would be successful, and would not necessarily inflict injury upon the public. But a resort to the courts will furnish an ample remedy, if public opinion has not grown accustomed to a disregard of constitutional limitations and of the rights of individuals. It is confidently believed that the exposition in this chapter of the adjudications, bearing upon the constitutionality of police regulations of trades and occupations, reveals such a clear desire on the part of the courts to strengthen the constitutional limitations upon legislative tyranny, that we can look with assurance to the judicial veto as an insuperable barrier, at least for years to come, to the establishment of State socialism.

[1]Tiedeman Municipal Corporations, § 144a.

[1]See also Tiedeman’s Municipal Corporations, § 9.

[2]Mauldin v. City Council of Greenville, 33 S. C. 1.

[3]Since the rendition of that decision, cities have been expressly authorized by a provision of the South Carolina constitution to erect and maintain water and electric light works.

[1]In re Rochester Water Works, 66 N. Y. 413; Dayton v. Quigley, 29 N. J. Eq. 77; Atlantic City Water Works v. Atlantic City, 39 N. J. Eq. 367; Thompson-Houston Electric Co. v. Newton, 42 Fed. 723; Hale v. Houghton, 8 Mich. 451; City of Crawfordsville v. Braden, 130 Ind. 149; Smith v. Mayor, etc., City of Nashville, 88 Tenn. 464; State v. City of Hiawatha, 53 Kans. 477; Springfield v. Fullmer, 7 Utah, 450 (27 Pac. 577); Opinion of Justices, 150 Mass. 592.

[2]88 Tenn. 464.

[3]Opinion of Justices, 150 Mass. 592.

[1]Opinion of Justices, 155 Mass. 598.

[1]State v. Brennan’s Liquors, 25 Conn. 278. See post, current section the discussion of the South Carolina Dispensary law.

[2]§ 125.

[1]110 U. S. 421; the principle is, that the government may exercise any power, which was commonly recognized as a function of government by the civilized nations of the last century, unless it was prohibited by the constitution. See ante, § 91, for a full discussion of the case, and post, § 215, for a fuller and more accurate statement and discussion of the principle of constitutional construction.

[1]I do not wish to be considered as giving a full and unqualified sanction to these charges.

[2]Pensacola &c. R. R. Co. v. West. Union Tel. Co., 96 U. S. 1; State of California v. Central Pac. Ry. Co., 127 U. S. 1.

[1]In State v. City of Charleston, 10 Rich. L. (S. C.) 491, Mr. Justice O’Neall said: “That the general assembly have all the powers which the corporation (City of Charleston) have exercised in their corporation and for the whole State, I have no doubt. If they (the general assembly), thought proper, they could build a railroad with just as much propriety as a granite State house. Both might lead to an extravagent waste of money, but still the power cannot be questioned. They have dug canals, and built roads, and I have no doubt they will do so again.”

[2]McCullough v. Brown, 41 S. C. 220.

[1]In the present edition, this clause is qualified so as to read: “There is no doubt that a trade or occupation, which is inherently and necessarily injurious to society, when it is unrestricted and left open to private enterprise,” etc.

[1]State ex rel George v. Aiken, 42 S. C. 222.

[1]§ 41, art. I, Constitution of S. C.: “The enumeration of rights in this Constitution shall not be construed to impair or to deny others retained by the people, and all powers not herein delegated remain within the people.”

[1]This position of the South Carolina court has been recently sustained by a decision in North Carolina in which it was held that State control of the liquor traffic in a county was a lawful monopoly. Guy v. Commissioners of Cumberland County, 122 N. C. 471.

[2]§ 125 (§ 103 of the first edition).

[3]Rippe v. Becker, 56 Minn. 100.

[4]See ante, §§ 96, 97.

[1]§§ 108, 110-113.

[2]§§ 94, 96-106.

[3]§ 111.

[1]See ante, § 129.

[1]166 U. S. 290; see ante, § 112.