The Fourteenth Amendment and its Due Process Clause were ratified in 1868. Shortly thereafter, the Court rejected a number of substantive due process challenges to state laws that interfered with property or economic liberty. See, e.g., Munn v. Illinois, 94 U.S. 113 (1877) (upholding state regulation of grain elevator rates); Slaughter-House Cases, 83 U.S. (16 Wall.) 36 (1872) (upholding Louisiana law conferring monopoly on butchering in New Orleans). In Munn, the Court declared that, while state economic regulation may at times be excessive, “[f]or protection against abuses by legislatures the people must resort to the polls, not to the courts.” 94 U.S. at 134.
By 1887, however, the Court’s personnel and its thinking had undergone a dramatic change. In Mugler v. Kansas, 123 U.S. 623 (1887), the Court rejected a substantive due process challenge to an Iowa law that banned the future manufacture or sale of liquor. However, in sharp contrast to the hands-off approach of Munn, the Court declared that when states exercise their police powers, the judiciary has a “solemn duty to look at the substance of things”; if it appears that a law “has no real or substantial relation to those objects, or is a palpable invasion of rights secured by the fundamental law, it is the duty of the courts to so adjudge, and thereby give effect to the Constitution.” Id. at 661. Federal and state courts were soon using substantive due process as a tool for striking down an array of Populist and Progressive reform measures that regulated corporations and businesses in the interest of farmers, consumers, workers, and children. Among the statutes declared unconstitutional were rate and price controls, measures protecting women and children in the workplace, wage and hour standards, and laws that promoted collective bargaining.
Liberty to Contract
While some of the Court’s economic due process decisions hinged on a determination that the government had unreasonably interfered with property, many cases found that there had been a deprivation of an economic liberty, the liberty to contract. This liberty interest was first recognized by the Court in Allgeyer v. Louisiana, 165 U.S. 578, 589 (1897), which held that among the liberties protected by the Due Process Clause is the freedom “to enter into all contracts which may be proper, necessary and essential” to pursue a livelihood. The Court later suggested that liberty to contract is also implicit in the Due Process Clause’s “right of private property,” Coppage v. Kansas, 236 U.S. 1, 14 (1915), for the freedom to enter into contracts is essential to acquiring, exploiting, and disposing of property.
The liberty to contract protected by the Due Process Clauses of the Fifth and Fourteenth Amendments involves the freedom to enter into contracts on terms and conditions of one’s choosing. This liberty interest should not be confused with the Contracts Clause of Article I, §10, which prohibits a state from “impairing the Obligation of Contracts” by interfering with the terms of preexisting contracts. See Chapter 4.