In the Martin case the Virginia Court of Appeals had refused to obey an earlier decision of the U.S. Supreme Court. But it also had denied the right of Congress in the Judiciary Act of 1789 to grant authority to the Supreme Court to hear appeals from the state courts. In a masterful opinion written by Justice Joseph Story (with Marshall absenting himself because of a conflict of interest), the Court asserted the supremacy of the nation. It said that the people, not the states, had created the Constitution, and therefore they had the right to grant to the national government whatever powers they chose and to prevent the states from exercising powers they believed incompatible with the authority of the central government. From these premises the Court went on to declare that no state decision involving federal matters could be final. To enforce the supremacy clause of the Constitution and to maintain the uniformity of national law throughout the country, the Supreme Court had to have the ultimate authority to hear appeals from state courts on federal issues. This became the cornerstone of the American judicial system.
At the same time, following the test case Fletcher v. Peck (1810), the Court overturned a series of state laws that interfered with private contracts and thus violated Article I, Section 10 of the Constitution. The Fletcher case was the result of a twenty-year process of legal and political manipulations arising out of the Yazoo land scandal of the 1790s. In the early 1790s the corrupt Georgia legislature had sold thirty-five million acres of land to several Yazoo land companies for $500,000, the price adding up to something less than two cents an acre. In 1796 the outraged voters of Georgia elected a new legislature that voided the sale and burned all records of it. In the meantime, however, the speculative land companies had sold many acres to good faith buyers, many of whom were New Englanders. Confusion and lawsuits followed. The Jefferson administration tried to work out a compromise among the various interests, which enraged John Randolph, who, according to William Plumer, lashed out at everyone, “demo’s and feds indiscriminately,” in the most “coarse & vulgar” manner, charging everyone “with peculation, bribery, & corruption.” By 1810 the Supreme Court had received a contrived case that sought to settle the whole matter, at least legally.65
In his opinion in the Fletcher case Marshall decided that the Georgia legislature’s rescinding of a previous corrupt legislative sale of the Yazoo lands had violated the contract clause in Article I, Section 10 of the Constitution, and was thus invalid. The legislature’s original sale, however corrupt, was in the nature of a contract that gave the buyers vested rights in the property, and no subsequent state law could divest those rights. Not only was this the first major Supreme Court decision to declare a state statute in violation of the Constitution, but Marshall also shrewdly stated that the Court had no business getting into the motives of the Georgia legislature, thus helping to underline the idea that law and politics were separate spheres.
In the Fletcher decision Marshall also argued that it was not simply “the particular provisions of the Constitution of the United States” that nullified the Georgia statute but also those “general principles which are common to our free institutions.” The Court, he said, could draw upon these principles to protect individual property rights from the “sudden and strong passions” of the popular state legislatures. The Constitution, said Marshall, contained “what may be deemed a bill of rights for the people of each state.” Justice William Johnson in a concurring opinion carried this point of fundamental principles much further. He agreed with Marshall that the state of Georgia did not have the power to revoke its grant once made. He agreed, however, not on the basis of the contract clause of the Constitution, but “on a general principle, on the reason and nature of things; a principle which will impose laws even on the Deity.”66
These kinds of judicial appeals to reason and the nature of things became increasingly common in the early Republic. They grew out of the Americans’ ambiguous and unusually instrumental attitude toward law that had its roots in the colonial period. Each of the states began developing its own non-statutory body of rules and procedures—its own common law. In place of the customs and technicalities of the English common law, the courts offered prudent and pragmatic regulations and justified them by what Connecticut jurist Jesse Root in 1798 called the “the reasonableness and utility of their operation.”67 By the early decades of the nineteenth century some Americans regarded their common law as something that could be self-consciously created and manipulated, but of course only in a piecemeal fashion; indeed, some were even expanding Lord Mansfield’s view that judges ought to be the chief agents of legal change. Only the courts, Zephaniah Swift, chief justice of the Connecticut supreme court, declared in 1810, “possess a discretion of shaping the rules . . . [and] furnishing remedies according to the growing wants, and varying circumstances of men, . . . without waiting for the slow progress of Legislative interference.”68
Although most judges continued to deny that they made law in the way legislatures did, it became increasingly obvious that they did something more than simply discover it in the precedents and customs of the past. Indeed, many judges soon came to realize that they had the primary responsibility to make new law to meet new circumstances.69 Judges could justify this extraordinary role for themselves only by claiming that they were pulling back from overt participation in politics and by designating as issues of law some particular things that were now within their special jurisdiction.70
Jurists and politicians in the early Republic began to draw lines around what was political or legislative and what was legal or judicial and to explain the distinctions by the doctrine of separation of powers. In his Marbury decision Marshall clearly drew this distinction. Some questions were political, he said; “they respect the nation, not individual rights,” and thus were “only politically examinable.” But questions involving the vested rights of individuals were different; they were in their “nature, judicial, and must be tried by the judicial authority.”71 By turning all questions of individual rights into exclusively judicial issues, Marshall appropriated an enormous amount of authority for the courts. After all, even Jefferson in 1789 had conceded the authority of judges, “kept strictly to their own department,” to protect the rights of individuals. Of course, Jefferson had not anticipated Marshall’s expansive notion of rights.72
Although Marshall had the extraordinary rhetorical ability to make everything he said seem natural and inevitable, his separation of law from politics would not have been possible without large numbers of influential people becoming increasingly disillusioned with the kind of legislative democracy that was emerging in the early Republic. This abhorrence of democratic politics and reliance on the judiciary were, of course, much easier for Federalists who were having more and more difficulty getting elected. As Virginia jurist St. George Tucker pointed out in his annotated edition of Blackstone’s Commentaries of 1803, because the men of greatest talents, education, and virtue were not able to compete as well as others in the new scrambling, pushy, and interest-mongering world of popular electoral politics, they necessarily had to look to the law for security.73
Marshall himself, like all “honest men who have honorable feelings,” was increasingly “disgusted with . . . the political world” he saw around him, and was “much more gloomy” about the democratic future.74 Everywhere the growth of democracy demanded the insulating of legal issues from popular politics; “for,” as Marshall put it, “nothing is more to be deprecated than the transfer of party politics to the seat of Justice.”75 But even Marshall did not foresee all the implications of what was happening. In 1805, on the eve of the impeachment trial of Justice Samuel Chase, Marshall continued to concede that a legislature possessed judicial capacities and could overturn judicial opinions that it deemed unsound. So the separation of legislation from jurisprudence, politics from law, came hard to those reared in the old-fashioned tradition that legislatures were at heart just courts.
Yet, as American society became more commercial, with increasing num
bers caught up in buying and selling and creating new modern sorts of property—property as venture capital, as a product of a person’s labor and entrepreneurial skills—the judiciary’s role in protecting property from capricious and irresponsible popular legislatures at both the state and federal levels became increasingly attractive to more and more people.76 Consequently, many members of Jefferson’s own party, who always talked about equal rights, began to accept the Marshall Court’s message that all issues involving property rights were legal questions cognizable only by the courts, in effect, isolating these issues from partisan debate and the clashes of interest-group politics. Even the strongly pro-Jefferson Virginia Court of Appeals in 1804 acknowledged that the state legislature could do many things, but it could not violate private and vested rights of property.77
But could the state itself create private property? State legislatures could grant charters of incorporation, but once vested in individuals did these charters become rights that could no longer be touched by the granting agency? These questions bedeviled the politics of the states and eventually produced one of the most important legal developments of the first decade and a half of the Marshall Court.
AMERICANS WERE FAMILIAR with the use of public corporate charters. In the past the English crown and the colonial governments had often granted monopolistic charters of incorporation to private persons and associations to carry out a wide variety of endeavors presumably beneficial to the whole society, such as founding a colony, maintaining a college, or creating a bank. In 1606 the English crown had given just such a charter to the Virginia Company to settle parts of North America. These corporate privileges had not been frequently granted or widely available; they had been made at the initiative of the government, not private interests; and they had recognized no sharp distinction between public and private. Although the Virginia Company had been composed of private entrepreneurs, it was as much public as it was private. The same was true of the seventeenth-century corporate charters of Massachusetts Bay, Connecticut, and Rhode Island, as well as those of Harvard, Yale, Dartmouth, and all the other colonial colleges. Although in the nineteenth century most of the colleges, especially those with religious affiliations, eventually became private institutions, at the time of the Revolution they were still regarded as public institutions with communal responsibilities, and as such they received tax money and public support.
Since these corporate charters tended to be exclusive monopolies given to a favored few, most of the American Revolutionary leaders in 1776 had viewed them with suspicion. In a republic, they believed, no person should be allowed to exploit the public’s authority for private gain. Consequently, several of the states had written into their Revolutionary constitutions prohibitions against any man or group of men receiving special privileges from the community. The Massachusetts constitution of 1780, for example, had stated that “no man, nor corporation, or association of men, have any other title to obtain advantages, or particular and exclusive privileges, distinct from the those of the community, than what arises from the consideration of services rendered to the public.”
Although the new Revolutionary states had expected to involve themselves directly in economic life and education, they soon discovered that what they wanted to do was more than they could handle, both administratively and fiscally. Because the new democratically elected legislatures were often unwilling to raise taxes to pay for all that the governmental leaders desired to do, the states were forced to fall back on the traditional pre-modern practice of enlisting private wealth to carry out public ends. Instead of doing the tasks themselves, as many devout republicans had expected, the states ended up doing what the crown and all pre-modern governments had done—granting charters of incorporation to private associations and groups to carry out a wide variety of endeavors presumably beneficial to the public, in banking, transportation, insurance, education, and other enterprises. The states did not intend to abandon their republican responsibility to promote the public good; they simply lacked the money to do it directly. And of course there were many private interests that were only too eager to acquire these presumably exclusive corporate privileges.
Yet because of a republican aversion to chartered monopolies, the creation of corporations in the years following the Revolution provoked strenuous opposition and heated debate. In these decades attempts by the states to grant such corporate privileges to select individuals and groups immediately raised storms of protest.78 Critics charged that such grants, even when their public purpose seemed obvious, such as those for the College of Philadelphia or the Bank of North America or the city of Philadelphia, were repugnant to the spirit of American republicanism, “which does not admit of granting peculiar privileges to any body of men.” Such franchises and privileged grants may have made sense in monarchies as devices serving “to circumscribe and limit absolute power.” Certainly the colonists had seen their various crown and corporate charters in just this defensive way. But now that only the people ruled, these grants of corporate privileges seemed pernicious, for, as Justice John Hobart of New York declared, “all incorporations imply a privilege given to one order of citizens which others do not enjoy, and are so far destructive of the principle of equal liberty which should subsist in every community.”79
As a consequence of this kind of opposition, these corporations were radically transformed. As American society, in the North at least, spawned a variety of interests and became more democratic, it became increasingly difficult for the state legislatures to resist appeals to bestow these corporate privileges ever more widely, especially since many of their members were themselves involved in the businesses they were incorporating. With a huge proportion of the representatives in the state legislatures turning over annually, each special interest in society began clamoring for its own cluster of legal privileges. Eventually the corporate charter became, as James Sullivan of Massachusetts complained in 1792, merely “an indulgence to a few men in the state, who happened to ask the legislature to grant it to them.”80 What one community or group of entrepreneurs had, others wanted as well, and so the corporate charters multiplied in ever increasing numbers.
Only about a half-dozen business corporations had been chartered in the entire colonial period. Now such corporate grants for businesses virtually turned into popular entitlements. The legislatures incorporated not just banks but insurance companies and manufacturing concerns, and they licensed entrepreneurs to operate bridges, roads, and canals. The states issued 11 charters of incorporation between 1781 and 1785, 22 more between 1786 and 1790, and 114 between 1791 and 1795. Between 1800 and 1817 they granted nearly 1, 800 corporate charters. Massachusetts alone had thirty times more business corporations than the half dozen or so that existed in all of Europe. New York, the fastest-growing state, issued 220 corporate charters between 1800 and 1810.
It seemed clear as early as 1805, as a committee of New York City justifying multiple ferry leases put it, that “the only effectual method of accommodating the public is by the creation of rival establishments.” “Thus,” as one American noted in 1806, “if two baking companies are thereby permitted, where there was but one, bread may be cheaper in consequence; or if there are two banks thus instituted, and neither of them taxed, more of the people will be favoured by loans, than where there is but one bank; and a further increase will reduce even the rate of interest.” Competition among corporations, including literary and scientific bodies, now seemed the best way of promoting the welfare of the whole community. In other words, the thinking behind the Charles River Bridge decision of the Supreme Court in 1837—that competition among corporations was good for the public—was already present a generation earlier.81
Eventually the pressure to dispense these corporate charters among special interests became so great that some states sought to ease the entire process by establishing general incorporation laws. Instead of requiring special acts of the legislature for each charter specifying the persons, location, and capitaliza
tion involved, the legislatures opened up the legal privileges to all who desired them. Beginning first with religious associations in the 1780s, the states, led by New York in 1811, extended the privileges of corporation to manufacturers, and later to banks and other entrepreneurial activities. With this multiplication not only was the traditional exclusivity of the corporate charters destroyed, but the public power of the state governments was dispersed. As early as 1802, James Sullivan, the perennial Massachusetts attorney general, warned that “the creation of a great variety of corporate interests . . . must have a direct tendency to weaken the powers of government.” But the numbers only increased to the point where the governor of Massachusetts expressed the fear that so many corporate grants were being created “unsparingly and with an unguarded hand” that there was a real danger of the state government’s ending up with “only the very shadow of sovereignty.”82
Since many states were bewildered by the nature of these multiplying corporations—Were they public, were they private? Could the charters be revoked after they were granted? Were they vested rights?—the Supreme Court sooner or later had to try to sort the matter out.
In 1804 the Marshall Court grappled with the nature of a corporation for the first time. In Head v. Providence Insurance Company, Marshall stressed the traditional view of a corporation, that it was a public entity that presumably could be changed by the legislature that originally chartered it. By a corporation the Court meant all entities chartered for public purposes—towns, turnpikes, canals, insurance companies, and colleges.
This stress on the need for a “public purpose” behind the state’s activity, however, eventually forced the Supreme Court in Terrett v. Taylor (1815) to separate corporations into two kinds, public and private, a distinction new to American law. Legislatures could modify charters of public corporations, declared Justice Joseph Story, who wrote the decision; but such public corporations included only counties, towns, and cities. The charters of all the other corporations, including businesses and colleges, were private property. In overturning a Virginia statute in Terrett, Story’s decision concluded by saying that “we think ourselves standing upon the principles of natural justice, upon the fundamental laws of every free government, upon the spirit and letter of the constitution of the United States, and upon the decisions of most respectable judicial tribunals.” Story, however, never specified what “letter” of the Constitution he was referring to.83
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