Experimenting with economic cures

• During the Depression, state governments tried many novel measures to alleviate business stagnation, unemployment and poverty.  Some of the measures copied laws created by President Franklin Roosevelt and Congress at the federal level; others were unique to the states.   The most popular types of laws included mortgage "moratorium" laws; unemployment compensation laws; and laws establishing codes of fair competition for troubled industries.
  

Key cases:

Blaisdell v. Home Building & Loan Ass’n – Minnesota, 1933 (249 N.W. 334), affirmed, 290 U.S. 398 (1933); Des Moines Joint Stock Land Bank v. Nordholm – Iowa, 1934 (253 N.W. 701); Town of Cheney’s Grove v. Van Scoyoc – Illinois, 1934 (191 N.E. 289); Fisher v. Harpold – Ohio, 1937 (34 N.E.2d 476)

• During the Depression, many Midwesterners were unable to make their mortgage payments due to lost jobs and plummeting crop price, and they soon faced loss of their homes and farms through foreclosure.  Legislatures across the region reacted quickly 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. 

• Banks and other creditors did not want to wait that long.  They challenged the moratorium laws, claiming that they had a constitutional right to foreclose under the shorter time periods in effect when the mortgages were made.  Minnesota’s law was the first to be tested in court.  In Blaisdell, the Minnesota supreme court frankly admitted that the law impaired creditors’ rights but concluded that due to the national emergency, shortening foreclosure periods was a reasonable exercise of state’s police power.  The U.S. Supreme Court agreed, thus paving the way for moratorium laws across the nation.  Some courts saw no need even to concede that moratorium laws impaired mortgage contracts:  Illinois’ supreme court held in Van Scoyoc that shortening foreclosure periods was merely a change of remedy which did not impair creditors’ underlying contract rights.

• Not all judges took as liberal a view of moratorium laws as did Minnesota and Illinois.  In Nordholm, the Iowa supreme court upheld Iowa’s moratorium law by a narrow 5-4 margin.  The dissenters complained that at at a minimum, the law should provide (as did Minnesota’s) that all money paid by the debtor should go to the creditor.  Judges in other states made similar complaints.
   
• By the middle of the Depression, these complaints died down: moratorium laws were generally accepted even by creditors, and legislatures repeatedly extended moratorium terms with little opposition.  The Ohio Court of Appeals’ decision in Harpold was typical of the court decisions accepting moratorium extensions with little constitutional scrutiny.