Balkinization: Constitutional political economy in the New Gilded Age: A revival of legal realism?

Constitutional political economy in the New Gilded Age: A revival of legal realism?

Guest Blogger

For the Symposium on the Constitution and Economic Inequality

K. Sabeel Rahman

From the Occupy movement to the Fight for 15 to Black Lives Matter, the politics of the current moment have cast into relief deep structural inequalities in American politics, economy, and society. At the same time, the Supreme Court’s recent track record on labor rights, voting rights, campaign finance, and class actions evoke for some commentators the specter of “neo-Lochnerism.” The Roberts Court, to these critics, is furthering a business-friendly view of constitutionalism that, while it avoids the formalisms of Lochner, nevertheless evinces a similar disregard for the kinds of underlying power disparities that might make these policies necessary. What might an alternative, more egalitarian and democratically-inclusive constitutionalism for today look like? In their forthcoming book The Anti-Oligarchy Constitution, Joseph Fishkin and Will Forbath attempt to develop one such alternative, arguing for a constitutional tradition emphasizing economic opportunity that draws on the New Deal and on Constitutional legacies back to the Founding.

But I think it is important to understand this larger project that Fishkin, Forbath, and a growing cohort of legal scholars and reformers are engaging in is about more than constitutional text, interpretation, or doctrine. It is, rather, a more fundamental project about the literal constitution of our economic and political structures, and about the moral values that we want to animate these structures. In this, the growing scholarship on law and inequality is best understood as a more modern manifestation of a familiar legacy: that of legal realism and Progressive Era political economy.

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In the late nineteenth and early twentieth centuries, the upheavals of industrialization generated an extraordinarily rich ferment in intellectual thought and reform politics. We are familiar with the legal realist attack on laissez-faire constitutionalism and the conservative Lochner court through its methodological critique of formalism, and a social scientific interpretation of judicial behavior as fundamentally subjective and political. But this conventional reading of legal realism undersells its intellectual contributions and relevance for today. A number of more radical legal realists, alongside other thinkers in economics, philosophy, and reform politics, developed a surprisingly compelling and prescient account of economic power and democracy.

For these thinkers, the problem of the modern economy was first and foremost understood not as a matter of income inequality per se, but rather as a deeper problem of unaccountable and concentrated power. Louis Brandeis, for example, captured this concern with large corporations, monopolies, and trusts, arguing that large corporations enjoyed immense profits while paying below subsistence wages, creating a disparity in political power that was akin to slavery where workers were “absolutely subject” to the will of the corporation.^{^[1]} Even if corporations acted in the interests of consumers and laborers, this would be at best a “benevolent absolutism,” still leaving in place the root problem that “within the State [there is] a state so powerful that the ordinary social and industrial forces existing are insufficient to cope with it.”^{^[2]}

In addition to the concentrated power of discrete actors like corporations, trusts, and wealthy elites, the realists and their fellow critics of industrial capitalism also saw this same problem of unequal power in the very fabric of the market system itself. Robert Hale argued that unequal income distributions were a result not of natural forces, but of disparities in power: “the relative power of coercion which the different members of the community can exert against one another.”[3] Economists like John Commons and Richard Ely, as well as philosophers like John Dewey shared this power analysis of market transactions.

This diagnosis of unequal economic power recasts the problem of modern capitalism as one not of income inequality, but rather one of domination—the accumulation of arbitrary, unchecked power over others. Domination, for these Progressive Era critics, manifested in both the concentrated form of corporate power, and the diffuse form of the market system itself. The realist critique of the public/private distinction was therefore not just a critique of formalism. Rather, it was an argument for opening up these “private” forms of economic power to the same demands for democratic justification, legitimacy, and accountability normally expected of exercises of “public” power.

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In their response to this problem of domination, the reform politics of the Progressive Era represented a large-scale, structural, attempt to redress this problem of domination in two respects: first, by restructuring the market system to curb private power; and second, by restructuring the political system to expand popular sovereignty. Taken together, these reforms sought to both reduce the threat of domination and expand the capacities of the democratic citizenry to better hold economic actors accountable.

In the economic realm, the Progressive Era established radical changes to the very structure of the emerging industrial economy. From the battles to create a meaningful antitrust law, to the establishment of the Federal Reserve as a way to reassert some degree of public control over finance, to the widespread adoption of public utilities as a mode of social control over the production and distribution of necessities like ice, milk, transportation, and communications, Progressive Era reformers sought to change the allocation of economic power and the dynamics of market forces. While we are accustomed to viewing the Progressive Era as the rise of ideals of regulatory expertise in areas like consumer protection and worker safety, it is this effort to structurally shift economic power that were most central.

In the political realm, Progressive reformers experimented with various measures to reassert popular sovereignty against the perceived threats of economic power, as well as political corruption and dysfunction. Thus, reformers succeeded in institutionalizing ballot, recall, initiative, and referenda procedures in many state constitutions. In a similar vein, many activists and reformers in this period sought to mobilize citizens through political association as a way to create a more equitable balance of political power. Others established for the first time Home Rule powers for local government bodies as a way to expand participation and bypass the corruption of state legislatures and party machines. The era was dense with robust, active, and mass membership associations that offered both civic cultivation for their members, as well as a source of countervailing political power to represent the interests of their members in electoral politics. These same aspirations drove the development of new expert-led regulatory agencies and commissions at state, local, and national levels, offering reformers the hope of an effective new tool for managing the increasingly complex modern economy, asserting the public good against powerful private actors such as trusts or corporations, and sidestepping the problems of political corruption and capture within legislatures.

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The realists and Progressive thinkers of the era were by no means uniform in their views, and this brief account above cannot do justice to the diversities and complexities of political economic thought in this period. But by situating the legal realists, the early law and economics scholars, and Progressive Era philosophers all in context of the politics of industrial capitalism, we can see some important implications for contemporary legal scholarship grappling with this new Gilded Age of economic and political inequality.

First, there is a substantive, moral vision of political economy to be excavated from the turn-of-the-century Progressive thinkers and reformers, revolving around the problem of economic domination, and the solution of democratic agency. This is more than simple anti-formalism or social scientific realism. Rather, both of these elements serve a larger moral account of economic and democratic freedom.

Second, this moral account is paired with an implicit theory of change that is decidedly not court-centric. The thinkers and reformers of this period were by and large hostile to the judiciary as conservative, formalist, and neither politically accountable nor expert enough to be the lead institution in shaping American political economy. But there is a way in which the reform vision of Progressive Era thinkers can still be understood as constitutional—not the Constitution of text, doctrine, and courts, but rather the literal “constitution” of economic and political structures. The reformers of this period were fundamentally structural in their approach. They sought to reshape the foundational structures and dynamics of both economic and political order. Landmark statutes like the Sherman Act and the Federal Reserve Act can be thought of as a form of popular and legislative constitutionalism in that they fundamentally altered American political economy, were central matters of political contestation and validation, and were seen at the time as having a foundational, near-constitutional status as more than ordinary public policies. At the same time, the method of social change is distinctive, seeking to radically restructure American political economy through a combination of social movements, normative shift, and super-statutes that, though not tied to Constitutional doctrine, have a kind of quasi-constitutional import. The New Deal later codified similarly structural, quasi-constitutional changes in political economy through its financial reform statutes, the Social Security Act, and the National Labor Relations Act, and the Fair Labor Standards Act, among others. These statutes continued both the substantive normative thrust of Progressive Era thought, as well as its theory of social change.

This is the tradition in which Fishkin and Forbath’s intervention can be placed. Their account of constitutional political economy is better understood as constitutional in these two senses: as engaging the fundamental moral questions of what freedom, opportunity, and democracy mean in today’s society; and as securing this moral vision through laws that alter the basic structure of our economy and politics. Such moral and structural change can be accomplished through a particular approach to law and social change, prioritizing the synergies between normative argument, social movements, and legislative and regulatory changes to the basic structure.

Nor are Fishkin and Forbath alone in this. In the aftermath of the financial crisis and in the face of the Roberts Court, we are at the beginning of what might well become a new wave of legal realism, as scholars from business law, labor law, political law, public law, and elsewhere are increasingly turning their attention to both the moral challenges of inequality, and to questions of fundamental structural and system design. While some of these scholars’ arguments do involve battles in the Supreme Court, many of them take place on the terrain of regulation, legislation, state and local level policy, and social movement advocacy. If we are lucky, these scholars can have the kind of lasting impact as their forbears a century ago.

K. Sabeel Rahman is an Assistant Professor of Law at Brooklyn Law School and a Fellow at the New America Foundation. You can reach him by e-mail at sabeel.rahman@brooklaw.edu

[1] Louis Brandeis, “Big Business and Industrial Liberty,” in Osmond Fraenkel, ed., The Curse of Bigness: Miscellaneous Papers of Louis Brandeis (New York: Viking Press, 1935), 38-39, at 39.

[2] Brandies, “On Industrial Relations,” in Curse of Bigness, 73.

[3] Robert Hale, “Coercion and Distribution in a Supposedly Non-Coercive State” (1923), in William W. Fisher III, Morton Horwitz, Thomas Reed, eds., American Legal Realism (New York: Oxford University Press 1993), 101-8, at 108.

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