John Locke Update / Research Brief

Understanding the Anti-Monopoly Clause of the N.C. Constitution, Part One

posted on in Law & Regulation, Legal Update
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Article I, Section 34 of the North Carolina Constitution states:

Perpetuities and monopolies are contrary to the genius of a free state and shall not be allowed.

Commonly known as the “anti-monopoly clause,” this provision has been part of North Carolina’s constitutional endowment from the very beginning. It was part of the original constitution of North Carolina that was adopted in 1776; it was part of the second constitution of North Carolina that was adopted in 1868; and, as noted, it is part of the current North Carolina Constitution, which was adopted in 1971.

Throughout most of its long history, the anti-monopoly clause was regarded as little more than a moribund vestige of a bygone era. However, as I noted in previous Legal Updates, the clause has recently been revived as a weapon in the fight against the invidious practice known as cronyism, i.e., the use of government power to confer special privileges on politically connected individuals or groups. Some readers have raised doubts about whether the anti-monopoly clause can really be effectively deployed as a weapon in this fight. Over two Legal Updates, I will attempt to show that it can. I will begin today by answering two questions:

  • Given the public understanding of the word “monopoly” in 1776 when the Fifth Provincial Congress added the anti-monopoly clause to North Carolina’s constitution, what can we conclude about the clause’s target, i.e., to what kind of monopoly does the clause refer?
  • Why did the members of the Fifth Provincial Congress think that kind of monopoly should not be allowed?

And I will conclude next week by answering one more:

  • Why are the answers to those questions still relevant today?

Nowadays, we often use the word “monopoly” to refer to a large private corporation that has—through fair means or foul—become the dominant provider of a particular product. However, it’s safe to assume that the members of the Provincial Congress weren’t using the word in that sense. They hadn’t somehow anticipated the future emergence of firms like Standard Oil or Google. So what did they mean when they used the word? To find out, we must consult the works of the most influential legal authority of their era, the great English jurist Sir Edward Coke.

As Steven G. Calabresi and Larissa C. Leibowitz explain in “Monopolies and the Constitution,” Coke played a crucial role in the development of monopoly law in 17th century England, and his writings went on to play an equally crucial role in the public understanding of that law by the American colonists in the 18th century. “Sir Edward Coke,” they say, “May be regarded as a hero for the colonists.” Not only did those colonists rely on him “for their understanding of the English common law,” they regarded him as “the palladium of their civil liberties.”

If, therefore, we want to know what the word monopoly meant for the members of the Fifth Provincial Congress, we need to look no further than the definition that appears in the third part of Coke’s widely read treatise, Institutes of the Laws of England:

A monopoly is an institution, or allowance by the King … to any person or persons, bodies politick or corporate, of or for the sole buying, selling, making, working, or using of any thing, whereby any person or persons, bodies politick or corporate, are sought to be restrained of any freedom … or liberty that they had before, or hind[e]red in their lawful trade.

When the drafters of North Carolina’s 1776 constitution used the word “monopoly,” they used it to refer to this specific form of cronyism, and, when they added the monopolies clause to the 1776 constitution, they meant that this specific form of cronyism “ought not to be allowed.”

The inclusion of the monopolies clause in the 1776 constitution was the culmination of a long struggle. For more than 200 years, ordinary citizens in England and in England’s North American colonies had tried without success to put a stop to the practice of conferring a monopoly on privileges on government cronies. In the article cited above, Calabresi and Leibowitz quote a 1571 speech in Parliament by Robert Bell in which he urged his fellow members to reform the system of royal monopolies because under that system “a few only were enriched, and the multitude impoverished.”

The drafters of the 1776 constitution may not have been familiar with that speech, but they were certainly familiar with the case of Darcy v. Allen because of the widely read report of the case that was published by Edward Coke under the title, “The Case of Monopolies.” According to Calabresi and Leibowitz, “Coke’s rationale and reasoning became the accepted rule of the common law,” and, what’s more, “[I]t was Sir Edward Coke’s report of The Case of Monopolies —and no other report—that influenced … the American state governments when they adopted or amended their own constitutions.”

What did the American colonists learn from “The Case of Monopolies”? They learned that “Edward Darcy, Esquire, a Groom of the Chamber to Queen Elizabeth,” had been given an exclusive right to “the whole Trade, Traffic and Merchandize of all playing Cards … within the Realm.” They learned that Darcy sued “Thomas Allein, Haberdasher of London” for lost revenue, claiming that, “The Defendant … Knowing the said grant and prohibition … did cause playing Cards to be made and … imported within the Realm, and had sold and uttered them to sundry persons unknown.” And, they learned that when Darcy’s complaint was heard by the Court of King’s Bench in 1602, the court found for the defendant and held that, “[T]he said Grant to the Plaintiff of the sole making of Cards within the Realm was void. … The same is a Monopoly, and against the Common Law.”

As reported by Coke, in the course of explaining its holding, the Court of King’s Bench identified “four causes” about public policy. It’s a brilliant piece of policy analysis that must surely have impressed the American colonists in the 18th century.

The first “cause” for the court’s holding is an explanation of why there is and ought to be a strong presumption in favor of free enterprise:

All trades … which … exercise men and youth in labour, for the maintenance of themselves and their families, and for the increase of their substance … are profitable for the commonwealth … and the benefit and liberty of the subject.

The other three causes explain three reasons why there is and ought to be a strong presumption against monopolies, namely:

Monopolies confer an unfair and unmerited benefit on the monopolists:

 The end of all these monopolies is for the private gain of the patentees; and although provisions and cautions be added to moderate them, yet … it is mere folly to think that there is any measure in mischief or wickedness.

Monopolies unfairly harm those who would otherwise compete with the monopolists:

[Monopolies] leadeth to the impoverishment of divers artificers and

others, who before, by the labour of their hands in their art or trade, had maintained themselves and their families, who now will of necessity be constrained to live in idleness and beggary. …

Monopolies harm the public by raising prices and reducing quality:

[T]he price of the said commodity shall be raised, for he who hath the sole selling of any commodity, may make the price as he pleaseth. … [And] after the monopoly [has been] granted, the Commodity is not so good and merchantable as it was before; for the patentee having the sole trade, regardeth only his private, and not the publicke weale.

The court’s analysis would have resonated with the framers of North Carolina’s 1776 constitution. As Calabresi and Leibowitz note:

The North American colonists generally considered themselves Englishmen, and they believed that English statutes and common law rights and privileges should extend to them as they had applied to their English ancestors. Their inability to vindicate these same rights and privileges was one of the many grievances expressed by the colonists around the time of the writing of the Declaration of Independence.

And the continuing existence of monopolies in colonial America must have made this grievance particularly salient:

England enacted an extensive set of laws granting English merchants monopolies in colonial trade for a variety of markets—from manufactured goods to all kinds of raw materials. Black markets arose in the colonies as a response to England’s mercantilist trade policy.  As a result, the English mercantile laws were enforced with great intrusiveness, which in turn had grave consequences for England’s relationship with the American colonies. … The havoc wreaked by the English monopoly system on England’s relationship with the American colonies cannot be overstated.

One particularly vivid example of that havoc would have been fresh in the minds of members of North Carolina’s Fifth Provincial Congress in 1776: the Boston Tea Party. While it is often described as a tax protest, what happened at Boston Harbor in 1773 was also very much a protest against the British East India Company’s exclusive monopoly on the tea trade, a monopoly that unfairly discriminated against American merchants and raised the price of tea for everyone.

It seems clear, then, that when the members of the Provincial Congress added the anti-monopoly clause to the state constitution in 1776, they weren’t worried about the future emergence of firms like Standard Oil or Google. They were worried about something more immediate and familiar—the use of government power to give politically connected individuals and groups the exclusive right to engage in certain trades and businesses. From their knowledge of English history and English law, and from their direct experience, they knew how dangerous and destructive such monopolies could be. That is why they declared that such monopolies should not be allowed.

Jon Guze is Senior Fellow in Legal Studies at the John Locke Foundation. Before joining the John Locke Foundation, Jon practiced law in Durham, North Carolina for over 20 years. He received a J.D., with honors, from Duke Law School… ...

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