After the Civil War, different regions took very different approaches toward regulation of the economy.  In the 1870s, as railroads and industry grew in the Midwest and east, those states enacted a series of “Granger laws” to check corporate power.  Granger laws provided for creation of corporations by general rules rather than special charters containing special favors; and for railroad commissions, which in some cases were granted power to regulate railroad rates and operations.  Other laws directly regulated railroads and grain exchanges. 

The tide of regulation continued to rise after the 1870s.  An increasing number of states enacted pure-food and public health laws; laws regulating physicians, pharmacists and other professions; laws for conservation of fish, game and soil; and laws regulating labor-management relations, unfair business practices and workplace safety.  The regulatory tide peaked during the Progressive era (1900-1925).

Railroads and businesses frequently challenged such laws as unconstitutional.  They usually argued that the laws violated one or more of the following legal doctrines, collectively known as “substantive due process”: 

• Due process and freedom of contract, because the laws deprived them of their property and contract rights to conduct their business and make bargains with others on terms of their own choosing.
• Equal protection, because the laws unfairly singled out their businesses for regulation and thus discriminated against them.
• The delegation doctrine:  only legislatures could create regulations, and they could not let agencies do the job for them. 

In the 1890s, the U.S. Supreme Court and many American state courts began examining regulatory laws critically.  The courts upheld most laws but struck down enough that reformers complained they were improperly interfering with necessary social change.  Some reformers even argued that courts should not be allowed to examine reform laws at all. 

The Old South and the Deep South were much less industrialized and joined the regulatory movement more slowly and cautiously than other regions.  Even Southern reformers believed that preserving the established racial order was paramount and were careful not to push reforms that might upset it. 

Beginnings of substantive due process:  scrip laws

State v. Goodwill – West Virginia, 1889 (10 S.E. 285); Peel Splint Coal Co. v. State – West Virginia, 1892 (15 S.E. 1000); State v. Loomis – Missouri, 1893 (22 S.W. 350); Avent Beattyville Coal Co. v. Commonwealth – Kentucky, 1894 (28 S.W. 502); Harbison v. Knoxville Iron Co. – Tennessee, 1900 (53 S.W. 955), affirmed, 183 U.S. 13 (1901); State v. Missouri Tie & Timber Co. – Missouri, 1904 (80 S.W. 933)

• Mining law was a central, and controversial, focus of reform in the mountain South.  Mining companies and large manufacturers often tried to control the lives of their workers by paying them in the form of company housing and scrip which could only be redeemed at company-operated stores.  In the 1880s and 1890s, many mountain South legislatures enacted laws giving employees the right to insist on payment in cash rather than scrip.  In Goodwill and Loomis, the West Virginia and Missouri supreme courts struck down early scrip laws as an unconstitutional interference with freedom of contract.

• But three years later, in Peel Splint, the West Virginia court (which by then had two new judges) changed its mind.  As the regulatory era advanced, other supreme courts in the region, including Kentucky’s court in Avent and Tennessee’s court in Harbison, had little difficulty upholding such laws.  In 1901, when the Harbison decision was appealed, the U.S. Supreme Court settled the matter by agreeing with Tennessee that the laws were a legitimate public safety measure and thus were constitutional.  But Missouri continued to hold out:  three years later, in Missouri Tie & Timber it reaffirmed that it viewed mining as a purely private business.  The Missouri court later moved away from its early due-process philosophy (see below), but it never overruled Loomis.

“[Scrip laws] say to the mining and manufacturing employees:  ‘Though of full age, and competent to contract, still you shall not have the power to sell your labor for meat and clothing alone, as others may.’  … They undertake to deny to the persons engaged in the two designated pursuits the right to make and enforce the most ordinary, everyday contracts – a right accorded to all other persons.” – Justice Francis Black, in Loomis

Substantive due process:  prompt-payment laws

Leep v. St. Louis, Iron Mountain & Southern Railroad Co. – Arkansas, 1894 (25 S.W. 75); Commonwealth v. Reinecke Coal Mining Co. – Kentucky, 1904 (79 S.W. 287); Arkansas Stave Co. v. State – Arkansas, 1910 (125 S.W. 1001); State v. Missouri Pacific Railroad Co. – Missouri, 1912 (147 S.W. 118)

• Many companies paid their workers irregularly and avoided paying them wages due at termination.  In response, most mountain South states passed “prompt payment” laws.  Some of the laws required that workers be paid at regular intervals (usually least once every two weeks); others imposed heavy penalties if workers were not paid wages due at termination. 

• In Leep, the first mountain South decision to consider such laws, Arkansas’ supreme court upheld its state’s law even though it believed employers and employees had a due process right to contract freely.  The court reasoned that because corporations operated in Arkansas only with the state’s permission, the state could impose payment regulations on them as a condition of doing business.  In later decisions such as Reinecke, Arkansas Stave and Missouri Pacific, mountain South courts had little trouble concluding that wage payment regulations were legitimate police regulations that promoted public safety and public welfare, including a stable economy.

“These corporations represent aggregations of capital, and the employees are the laborers who are dependent on their wages for their livelihood.  The inconvenience to the corporation to pay the wages semimonthly could not be as great as it would be to those, whose actual necessities require the frequent payments, not to receive such payment.”  - Justice Sam Frauenthal, in Arkansas Stave

Substantive due process:  coal screening laws

Peel Splint Coal Co. v. State – West Virginia, 1892 (15 S.E. 1000); Woodson v. State – Arkansas, 1900 (65 S.W. 465); McLean v. State – Arkansas, 1906 (98 S.W. 729), affirmed, 211 U.S. 539 (1909)

• In the late 19^th and early 20^th centuries, coal miners were paid based on the weight of coal they mined.  Most companies paid only for coal that was “screened,” ostensibly to eliminate dirt and refuse but often, in reality, to evade paying workers for lower grades of coal.  Many states enacted laws prohibiting pay calculations based on screened coal; the laws were promptly challenged as an unconstitutional interference with employers’ right to contract on their own terms.  Mountain South courts uniformly upheld the laws, sometimes reasoning that a state could impose such regulations as part of its general power of licensing business and sometimes reasoning that the laws were police measures necessary to prevent fraud.  Early cases such as Peel Splint and Woodson drew vigorous dissents from conservative justices who believed the laws were economic redistribution laws, not safety laws, but after the U.S. Supreme Court affirmed the validity of such laws on appeal of Arkansas’s McLean case, judicial opposition came to an end.
  

“[W]hen … the biz is of such a character that the parties do not deal upon an equal footing, and that the many are at a disadvantage in their contractual relations with the few, the legis may regulate these relations, with a view to prevent fraud, oppression, or undue advantage.”  - Justice Daniel Lucas, in Peel Splint

  “The plain purpose of the act … is not to prevent the parties from contracting in any manner they deem proper for the production of coal, but rather, after they have contracted for its production according to the quantity produced, to see that such quantity is ascertained by a fixed and definite standard by which neither of the parties can be defrauded.”  - Justice Carroll Wood, in McLean

Shifting judicial views of reform:  the case of Missouri

State v. Julow – Missouri, 1895 (31 S.W. 781); McCully v. Chicago, Burlington & Quincy Railroad Co. – Missouri, 1908 (110 S.W. 711); State ex rel. Equitable Life Assurance Society of the U.S. v. Vandiver – Missouri, 1909 (121 S.W. 45); House v. Mayes – Missouri, 1910 (127 S.W. 305), affirmed, 219 U.S. 270 (1911); State ex rel. Barker v. Merchants’ Exchange of St. Louis – Missouri, 1916 (190 S.W. 903), affirmed, 248 U.S. 365

• Progressive critics of substantive due process often charged that conservative state judges used the doctrine to subvert needed reforms.  The courts’ defenders claimed that it was the reformers, not the courts, who were acting politically.  The truth was somewhere in between:  no state court systematically struck down reform laws, and most judges made a genuine effort to decide cases objectively, but outcomes were inevitably influenced by their temperament and life experiences.  Judges’ views also changed with the times:  as the Progressive era went on, many courts viewed reform laws more indulgently than they had at the beginning of the era.  Missouri provides one of the most striking examples of this trend.

• During the Progressive era an unusually high number of reform law challenges came before Missouri’s supreme court.  Between 1890 and 1909 the court gave very little deference to such laws.  For example, it struck down scrip laws (Loomis, 1893) and a law prohibiting employers from blacklisting union members (Julow, 1895).  In McCully (1908) the court struck down a law requiring railroads to give stock shippers free passage as part of the freight charge so the shippers could tend their cattle on the way to market.  It did so over a vigorous dissent by Justice Archelaus Woodson, who argued the law was merely a species of railroad rate regulation.  

• But in 1909-10 – a time in which many Progressives across the nation were calling for reshaping of the courts and Wisconsin chief justice John Winslow was warning fellow judges that they must adopt a more flexible constitutionalism or risk watching those proposals become reality – Missouri did an about-face.  In Vandiver and House, Woodson and his supporters gained a 4-3 majority and upheld two controversial reform laws, one limiting the amount of compensation insurance companies could pay their executives and one prohibiting grain exchanges (like coal companies) from making payment deductions based on dirt and refuse in the delivered product.  Court conservatives saw these laws as blatant interference with freedom of contract, but Woodson saw them as reasonable measures to prevent known abuses in the insurance and grain industries, and he noted that other laws protected grain buyers from having to pay full price for dirty grain.  
   
• Once the tide turned, it did not turn back.  In Missouri Pacific (1912), the court upheld a new-prompt payment law and effectively overruled its 1892 Loomis decision to the contrary.  Led by Justice Waller Graves, the court’s conservative faction admitted that their philosophy was on the way out.  In Barker, Graves joined his colleagues in upholding a law that prohibited private companies from issuing official weight certificates at grain exchanges when government weighers were available, and he signaled that he too had modified his views to better fit the times.

“If this law is a rightful exercise of the police powers of Missouri, as held by my Brothers, then the right of private contract … has received its death knell in the state.”  - Justice Waller Graves (dissenting), in Vandiver (1909)

“In these days it would appear that the state is to assume the right to fix the terms of the contracts between private individuals … Buyers and sellers of … commodities … are upon equal footing. … The state is going beyond a reasonable and legit exercise of its police power when it attempts to prescribe the terms, or any portion of the terms, of such contracts between private individuals.”  - Graves (dissenting), in House (1910)