This is the fifth in a series of Schoone Fellowship Field Notes.
Eastern jurists such as John Marshall, James Kent, Oliver Wendell Holmes, and Benjamin Cardozo have received the lion’s share of attention from law professors and historians over the years. Two fellow giants from the Midwest, Michigan’s Thomas Cooley and Iowa’s John Dillon, have been relegated to comparative obscurity.
Cooley and Dillon played a central role in shaping the contours of modern American constitutional law. They forged their philosophies in the heat of two critical judicial debates over the role of railroads in American society. Two Wisconsin justices, Luther Dixon and Edward Ryan, were also leaders in those debates, and their contributions to American constitutional law deserve to be better known.
Government railroad subsidies. When railroads first appeared in the 1830s, many states and municipalities, including the states of Illinois and Michigan, built their own railroads or gave generous subsidies to private builders. The subsidies usually consisted of bonds or promissory notes in return for which they received railroad stock. States and municipalities hoped that returns on the stock would help pay their bond and promissory-note obligations. The railroads generally sold the bonds and notes to eastern and British financiers in return for cash that could be used to meet building and operating expenses.
Disaster ensued in 1837 when a depression bankrupted many roads and left many states and municipalities saddled with huge debts to the financiers, debts backed only by now-worthless railroad stock. Some states and municipalities tried to escape their predicament by arguing that their subsidies were unconstitutional, but most courts held that the subsidies were permissible (and the related obligations to financiers were enforceable) because railroads served a public purpose. History repeated itself when a new depression arrived in 1857. Wisconsin municipalities argued that they should be excused from their debts because their subsidies violated the state constitution, but the Wisconsin supreme court held that the subsidies were legal.
Shortly after the Civil War, Cooley, Dillon, and Dixon led a revolt against the prevailing rule. In 1868, Cooley published his Constitutional Limitations, perhaps the most influential treatise of the late 19th century. In it, he conceded the rule that governments can spend to promote the public interest but suggested the concept applied only to protection of individual liberty and property, not to community interests. In Hanson v. Vernon (1869), Iowa’s Dillon applied Cooley’s concept: he confirmed that past obligations must be honored but held that because most railroads were private corporations, subsidies did not serve a public purpose. Cooley and his Michigan colleagues followed Dillon’s lead in People v. Township Board of Salem (1870).
The same year, in Whiting v. Sheboygan & Fond du Lac Railroad Co. (1870), Dixon also joined the revolt — but on his own terms. Dixon did not want to repudiate the Wisconsin court’s earlier decisions, so he attempted to draw a line between subsidies of purely private companies (not allowed) and of railroads that were subject to rate controls and other forms of government regulation. Dixon’s colleague Byron Paine, who dissented, reflected the continuing sentiment of most American judges. Paine argued that railroads “have done more to . . . promote the general comfort and prosperity of the country . . . than all other mere physical causes combined” and that that, without more, was sufficient to create a public interest and justify subsidies. Dixon recognized that the line between public and private interest was indistinct when it came to railroads, but he concluded that a line must be drawn: “Thus far shalt thou go, and no further.”
Whiting had enduring importance: Dixon was perhaps the first American judge to suggest that government subsidies carried with them a correlative right of governmental regulation. Other courts criticized Whiting, but the link Dixon forged between governmental subsidy and control gradually took hold. It was the only enduring legacy of the Midwestern judicial revolt against subsidies.
The Granger Laws. The movement for more government control of railroads was already underway when Whiting was decided. Upper Mississippi Valley states (Wisconsin, Minnesota, Iowa, and Illinois) enjoyed a railroad boom after the Civil War, but rate increases and perceived rate discrimination led to political revolt in those states. In 1871, Illinois enacted the nation’s first “Granger law,” regulating railroad shipping rates and practices. Legislators reasoned that corporations that accepted state authorization to operate must also accept the limitations the states imposed on their operations.
Iowa and Minnesota also enacted Granger laws, and in 1874 Wisconsin enacted the Potter Law, the last but strongest of the region’s Granger laws. One national railroad expert denounced the Potter Law as “the most ignorant, arbitrary and wholly unjustifiable law to be found in the history of railroad legislation.” The Potter Law set maximum freight and passenger rates and allowed no exceptions even if the rates prevented a railroad from making a profit. When the Granger laws were challenged as unconstitutional, Illinois’ supreme court struck down the first version of that state’s law for lack of an exception provision, and the Potter Law’s supporters feared the Wisconsin supreme court might do the same.
But in the Potter Law Case (1874), Ryan upheld the law in ringing terms. He dismissed the railroads’ claim that the Law would ruin them: “These wild terms,” he said, “are as applicable to [the Law] as the term murder is to the surgeon’s wholesome use of the knife, to save life, not to take it.” Ryan also dismissed concerns about lack of an exception provision, hinting that the court would carve out exceptions in future if that proved necessary. Three years later, in Munn v. Illinois and a series of related cases (1877), the U.S. Supreme Court upheld all of the midwestern Granger Laws, using reasoning very similar to Ryan’s. Debate would continue in legislatures and courtrooms over the details of corporate regulation, but Ryan had irrevocably established that states, as granters of corporate charters, have near-absolute power to set reasonable conditions for corporate operations.