What are the 10 powers granted to Congress under the Articles of Confederation?

It is commonly said that John Locke, the champion of social contract theory and natural rights, was one of the intellectual godfathers of the American Constitution. Yet for Locke and other social contract theorists, the major challenge was to figure out how ordinary individuals could form a state that allowed them to escape the uncertainties of living in the state of nature. The influence of natural rights theory is evident in many state constitutions, like the Massachusetts Constitution of 1780, whose explicit purpose is to form a stable order to protect “the natural rights” of its members. See Preamble, Massachusetts Constitution of 1780.

The formation of a national government is not intended primarily to secure a safe passage out of the state of nature, a task which should already have been successfully done by the states.  Rather it was to put into place a complex agreement among states that equitably distributes powers among coequal sovereigns. That second inquiry has little to do with the preservation of natural rights as such. The difficulty of undertaking this is reflected in the structure of Article I, which begins by defining the legislative power, and concludes in Section 10 by listing the prohibitions of activities that can be undertaken only by the states.

The confusion, however, only deepens because some of the most important provisions of Article I, Section 10, may address individual rights if they are understood, as Professor Rakove notes, as federal checks on what sovereign states are allowed to do to their citizens. In some of these cases, as with the adoption of ex post facto laws and bills of attainder, the concern is not with reserving to the national government certain tasks by denying them to the states. Article I, Section 9, Clause 3 prohibits the Congress from passing either bills of attainder or ex post facto laws, in the same fashion that Article I, Section 10, Clause 1 does for the states. The identical nature of the two prohibitions has nothing to do with the distribution of powers between levels of government and everything to do with the conviction that singling out certain people for special treatment, or imposing criminal punishments retroactively for actions that were legal when undertaken, reads very much like a natural law protection capable of universal application. Indeed, much of the debate at the Constitutional Convention was not about the propriety of these prohibitions, but about whether they were needed at all, given that the prohibited activities were universally condemned as odious in the natural law tradition. See Daniel Troy, Ex Post Facto, in The Heritage Guide to the Constitution.

One happy circumstance is that, for the most part, these two clauses have not played a central role in constitutional litigation. The same cannot be said of the Contracts Clause, which reads in part like a jurisdictional limitation and in part like a protection of the natural right to contract. The Clause itself was adopted from the earlier provision in the Northwest Ordinance of 1787, which provided: “It is understood and declared, that no law ought ever to be made, or have force in the said territory, that shall, in any manner whatever, interfere with or affect private contracts or engagements, bona fide, and without fraud, previously formed.”

One interpretive challenge asks which elements mentioned in the Northwest Ordinance carry over to the slimmed-down Contracts Clause, evidently written in more categorical terms. Part of the difficulty stems from the confusion over why the Framers included this Clause in the Constitution in the first place. One common explanation, offered by Professor Michael McConnell, is that it was intended to protect interstate contracts from assaults by state governments. See Michael W. McConnell, Contract Rights and Property Rights: A Case Study in the Relationship Between Individual Liberties and Constitutional Structure, 76 Cal. L. Rev. 267 (1988).

This essay is part of a discussion about Article I, Section 10 with Jack Rakove, Professor of History, Political Science and, by courtesy, Law, William Robertson Coe Professor of History and American Studies, Stanford University. Read the full discussion here.

While true, it does not explain why the Clause applies to all local contracts as well. A second explanation, which McConnell also discussed, is directed toward local abuses such as debtor’s relief laws. Thus in speaking about Article I, Section 10 in The Federalist No. 44, James Madison denounced states’ “sudden changes and legislative interferences” in the business affairs of their citizens, even for transactions that take place wholly within one state.

The Northwest Ordinance of 1787 also raises more specific interpretive difficulties. The Ordinance only protected those contracts in place before the law went into effect, which was adopted for the Contracts Clause in Ogden v. Saunders (1827) over the dissents of both Justices Marshall and Story. The issue bristles with difficulties. One powerful objection to the Marshall/Story position is that it flies in the face of hundreds of years of legal history by refusing to give credit to statutes of limitations, recordation statutes, and the statute of frauds, all of which necessarily impair certain contracts that lack the requisite formalities in order to increase the security of exchange overall. But it hardly follows that the prospective reading of the Contracts Clause has to be rejected in order to accommodate these common-sense cases. In this regard, it is instructive to compare the Contracts Clause with the Takings Clause, where the latter allows for the taking of property for public use on payment of just compensation. Why not therefore read a just compensation exception into the Contracts Clause?

That position is not as far-fetched as it sounds. In West River Bridge Co. v. Dix (1848) the question was whether the United States could condemn a bridge that had been authorized by government charter. It had earlier been held that the Contracts Clause applied to government charters in Dartmouth College v. Woodward, (1819), in which New Hampshire simply sought to take over Dartmouth College, causing harm that could not be easily cured by paying compensation. But in Dix, it would have been absurd to say that no state could ever condemn any property for public use on payment of just compensation whenever that property had been acquired by contract, either from the state or from some private party. Hence the Court read in a just compensation exception that brought the Contracts Clause closer to the Takings Clause, again by a process of textual implication.

In an earlier work I articulated an intermediate position that first gives the Contracts Clause prospective effect, but then allows for statutes that meet a general just compensation test. See Richard A. Epstein, Toward a Revitalization of the Contract Clause, 51 U. Chi. L. Rev. 703 (1984). Thus, the additional security of transaction from the statutes of limitation and the like improve the lot of all individuals governed by them, so long as they do not selectively apply to benefit one group of individuals, say debtors, at the expense of others, say creditors.

That same position can apply to efforts to limit the remedies given for breach of existing contracts, as in United States Trust Co. of New York v. New Jersey (1977). In that case, the Court refused to let states eliminate bond covenants in loan agreements intended to prevent the diversion of cash to other purposes without also offering some substitute protection to the lenders. Adopting this approach for both prospective and retroactive changes of contract terms allows for a consistent application of the Contracts Clause to all contracts, and thus meets a major concern of both Marshall and Story: that a general law banning all future contracts would, under the majority opinion, escape any possibility of invalidation.

It is also clear that a just compensation exception is not the only one that has to be read into the Contracts Clause for it to make sense. Some contracts are formed by fraud or duress, and surely these common law defenses to their enforcement are not upset by the constitutional requirements. At the very least, that simple observation means that some version of the police power must be read into the Constitution to cover these eventualities. It was generally addressed in Brown v. Maryland (1827), which dealt with the import/export clause in Article I, Section 10, Clause 2, and recognized that “the police power” covered at the very least “the removal of gunpowder.” Brown gives rise in turn to the interpretive challenge of how to identify what forms of regulation survive the literal application of the Contracts Clause beyond the obvious cases of gunpowder and other potential nuisances.

It is on this issue that the difference between the classical liberal and progressive view is most vivid. The key case for these purposes is Home Building & Loan Ass’n v. Blaisdell (1934), which held that “emergency legislation” that allowed for the postponement of interest payments on a mortgage was not an impairment of contract because of the dodgy rationale that merely “modifying the remedy” does not necessarily impair the obligation of contract, even if the creditor is left worse off in consequence.

At this point the just compensation requirement in Dix is effectively eliminated in many cases of preexisting contracts. The upshot is that it leads to the adoption of a general “rational basis” test in contract cases—similar to that which the Supreme Court adopted with respect to other forms of retroactive legislation in connection with the Due Process Clause of the Fifth Amendment in Pension Benefit Guaranty Corp. v. R.A. Gray & Co. (1984) and the Takings Clause of that same Amendment in  Connolly v. Pension Benefit Guaranty Corp. (1986), as they applied to the federal government. The importance of this shift in connection with both the Contracts and the Takings Clause cannot be overestimated, given the huge shift in power from private parties to the national government.

For those, like myself, who believe in The Classical Liberal Constitution, this constitutional transformation energized huge political factions that, as Madison saw, worked against the interest of the public as a whole. In contrast, progressive thinkers tolerated the increased level of government activity. As Justice Thurgood Marshall wrote in Usery v. Turner Elkhorn Mining Co. (1976), virtually “all legislative Acts adjusting the burdens and benefits of economic life,” subject to a narrow exception for laws found “arbitrary and irrational,” fall within Congress’s authority. By implication the same level of deference was afforded to state legislatures. At this point, there is little distinctive left to the Contracts Clause, which is unwisely swallowed up by the general presumption in favor of all economic regulations.