6.6.4 Deep South (1920-1965): Struggling With the Depression

Mortgage moratorium and unemployment compensation laws

McConville v. Fort Pierce Bank & Trust Co. – Florida, 1931 (135 So. 392); Slaughter v. CIT Corporation – Alabama, 1934 (157 So. 462)

During the Depression, many Americans were unable to make their mortgage payments due to lost jobs and plummeting crop prices, and they soon faced loss of their homes and farms through foreclosure. Legislatures across all regions of the nation, including the Deep South, reacted quickly to the crisis by enacting “mortgage moratorium” laws. The laws varied in their details, but all of them delayed foreclosure for periods of several years – enough time, lawmakers hoped, for debtors to ride out the Depression.

The U.S. Supreme Court quickly upheld moratorium laws in Blaisdell v. Home Building & Loan Association (1933), and as a result Deep South courts did not have to deal with challenges to moratorium laws. However, the courts made their sympathy toward such laws clear in other contexts. In Slaughter, Alabama’s court of appeals upheld a 1933 “bank holiday” law that temporarily closed all banks, stating in blunt terms that emergency conditions justified the measure; and in McConville, Florida’s supreme court upheld a pre-Depression law that allowed insolvent banks to refuse to repay deposits during their reorganization. The court reasoned that banks, although private corporations, had enough of a public interest that such regulation was permissible and did not unconstitutionally deprive depositors of their property.

Banks, although private corporations, have become “indispensable agencies through which industry, trade, and commerce are carried on, and while they exist mainly for private profit, it cannot be denied that they are pre-eminently of a public nature and therefore universally recognized as … subject to statutory regulation for the protection of the public.” Commissioner __ Andrews, in McConville

Fair competition codes

Louisiana Farm Bureau Cotton Growers Co-op Association v. Clark – Louisiana, 1926 (107 So. 115); Franklin v. State ex rel. Alabama State Milk Control Board – Alabama, 1936 (169 So. 295); State ex rel. Fulton v. Ives – Florida, 1936 (167 So. 394); Miami Laundry Co. v Florida Dry Cleaning & Laundry Board –Florida, 1938 (183 So. 759); In re Opinion of the Justices – Alabama, 1939 (187 So. 244); Robbins v. Webb’s Cut Rate Drug Co. – Florida, 1943 (16 So.2d 121)

It was an article of faith among New Deal-era economists that falling prices and rising unemployment were largely due to predatory competitive practices and that those problems could be solved by enacting fair trade practice codes for major industries, including statutory price restrictions. Franklin Roosevelt and Congress implemented the theory in several New Deal laws, and after the U.S. Supreme Court upheld a milk dealer fair-competition code, including price restrictions, in Nebbia v. New York (1934), many states followed suit.

The New Deal-era competition laws were largely unsuccessful, and during their heyday they generated much legal controversy. At first they were popular in the Deep South and the region’s courts had little difficulty upholding them. Several years before the Depression, Louisiana’s supreme court paved the way in the Clark case by upholding a law allowing cooperatives to organize and fix prices. The court had little difficulty concluding that this was a legitimate exercise of state power to promote the public welfare. In Franklin, Alabama’s supreme court readily upheld a milk-dealer competition code based on the Nebbia decision, and in Fulton and Florida Dry Cleaning, Florida’s supreme court upheld (with some misgivings) a similar code for dry cleaners.

As the Depression gradually receded, so did judicial support for codes in the Deep South. In Opinion of the Justices, Alabama’s court struck down a law authorizing a state board to create a competition code for produce markets and signaled in strong language that its permissive attitude had changed. For some reason barber competition codes, including detailed price schedules, attracted challenges in many states and were generally struck down by the courts as too remote from the public welfare. In Fulton and Robbins, Florida’s supreme court joined the majority on this issue.

“It has been the policy of our government to exalt the individual rather than the state … Our Const was framed and our laws enacted with the idea of protecting, encouraging, and developing individual enterprise.” - Alabama Supreme Court in Opinion of the Justices

“Maximum prices may be fixed to protect the public against the cupidity of those who engage in the sale and distribution of essential commodities and this may be done although the right of individual contract is thereby limited … [prices may be fixed] so as to protect those within the classification from unfair and ruinous competition so that the standards of such service to the public may be maintained at a height which will protect the public from the hazards incident to attempting to meet ruinous competition.” – Justice Rivers Buford (dissenting), in Webb’s

Struggling with the Depression: unemployment compensation

Beeland Wholesale Co. v. Kaufman – Alabama, 1937 (174 So. 516)

Unemployment compensation laws, first proposed in the United States in 1920, gained traction during the Depression. In some regions employers argued that unemployment fund assessments deprived them of property without due process of law. Beeland was the most prominent American state case in which this challenged was addressed; it had national importance because a decision against Alabama’s law would also imperil parts of the recently-enacted Social Security Act.

In Beeland, a divided Alabama supreme court upheld the state’s unemployment compensation law, even though (unlike many other states) assessments against employers were not proportional to the number of employees they had. The court’s majority held in broad terms that the law served a public purpose and that assessments did not have to be proportional; it noted that the law was an experiment designed to relieve economic crisis and reasoned that as flaws emerged, they could be corrected. Soon afterward the U.S. Supreme Court upheld Alabama’s law in related case, and constitutional challenges to unemployment compensation then faded away.

Up from poverty: industrial development laws

Albritton v. City of Winona – Mississippi, 1938 (178 So. 799); City of Fernandina v. State – Florida, 1940 (197 So. 454) –

During the Depression Hugh White, the mayor of Columbus, Mississippi devised a “Balance Agriculture with Industry” (BAWI) law to help lift Mississippi cities out of their economic doldrums. The law, which propelled White to the governorship, helped provide a short-term boost to Columbus’s economy soon caught in other states. BAWI laws created local agencies to build new plants and give financial incentives for companies to use the new facilities, thus creating new jobs.

BAWI laws were challenged as an impermissible state intrusion into private enterprise, laws that interfered with market forces and were not sufficiently related to public welfare to come within the police power. Mississippi’s supreme court rejected this argument and upheld its state’s BAWI law in strong terms (§ ___), reasoning that desperate economic times required a broad view of the scope of state’s police power and tolerance of experimental laws. In Fernandina, Florida’s supreme court agreed.

“Every intervention of any consequence by the state and national governments in the economic and social life of the citizens has been so branded [as socialism] … We must not permit ourselves to be subjected to the tyranny of symbols. The due process of law provisions of our consts do not enact Adam Smith’s concept of the negative state, one of the main functions of which would be to stand aloof from intervention in the social and econ life of its citizens. … It is manifest … that there has been a growing appreciation of public needs and of the necessity of finding ground for a rational compromise between individual rights and public welfare.” – Chief Justice Sydney Smith, in Albritton

“[T]he state could take over all property and business of every kind within its boundaries and manage and control it as a public utility. That would indeed be giving Soviet Russia an approving handshake. Mississippi would be safe not for democracy but for communism. … We would have a commonwealth of serfs instead of freemen – parasites instead of patriots … This is not a case of stretching the Const to meet new conditions, but it is a case of breaking it.” – Justice William Anderson (dissenting), in Albritton

Bank depositors notified of closing (1933) - Courtesy New York World-Telegram Archives and Library of Congress

Milk strike

Milk strike (1936) - courtesy Library of Congress

"Constitutional guaranties have never been thought to be immune from regulation or limitation in the interest of the common good. When limited, the process has been evolutionary rather than spontaneous. Regulation might be appropriately denied today that could be just as appropriately granted tomorrow.” - Justice William G. Terrell, in Florida Dry Cleaning

“Extensive unemployment depreciates consumer purchasing power, and tends to demoralize a large class of citizens, and to stimulate crime, disorder, and social degradation. That is the rationale of the program, as we understand it. Whether it will work is not a judicial inquiry, if it is a legit end, and the means are reasonably related to that end. … [A state constitutional prohibition on public subsidy of private enterprise] could not have meant that a vast economic scheme of stabilization cannot be maintained by the state, though it is necessary that to accomplish that purpose for the benefit of all, some individuals may receive more immediate benefits than others, when all are intended to be benefited.” – Justice A.B. Foster, in Beeland

Hugh White (right) being sworn in as Governor of Mississippi (1952) - courtesy Wikipedia

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