John Locke Update / Research Brief

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

posted on in Law & Regulation, Legal Update
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Perpetuities and monopolies are contrary to the genius of a free state and shall not be allowed. – North Carolina State Constitution, Article I, Section 34

As I explained in Part one of this series, the declaration quoted above (commonly known as the “anti-monopoly clause”) has been part of North Carolina’s constitutional endowment ever since the Fifth Provincial Congress added it to the first state constitution in 1776. In my previous discussion, I raised two questions about the clause:

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

And I answered those questions by saying:

  • When the members of the Fifth Provincial Congress added the anti-monopoly clause to North Carolina’s constitution in 1776, they were using the word “monopolies” to refer specifically to monopolies created and enforced by government.
  • They thought such monopolies should not be allowed because: (1) they violate a right protected by English law, namely, the right to earn an honest living by engaging in a lawful occupation; (2) they unfairly enrich the monopolists themselves; (3) they unfairly harm the monopolists’ potential competitors; and (4) they harm society as a whole by forcing consumers to pay higher prices for inferior goods and services.

In today’s Update, I will explain why the original understanding and purpose of the anti-monopoly clause are still relevant today.

On one level, of course, the explanation is straightforward. The anti-monopoly clause didn’t disappear when the 1776 constitution was replaced by a new one in 1868. On the contrary, it was reaffirmed in the 1868 constitution and was reaffirmed again when the current constitution was ratified by the voters in 1971. The anti-monopoly clause is, therefore, the law of the land. Because it is the law of the land, the legislative and executive branches of state government have a legal duty to obey it. And if either of those branches violates that duty, the judicial branch has a moral duty to hold them to account.

While that much seems clear, further questions remain, including this one: given the semantic changes that have taken place over the years, does the clause still mean today what it meant in 1776? To be more specific, does it still forbid monopolies conferred and enforced by the government? “Living constitutionalism” notwithstanding, the answer is to that question is clearly yes.

Of course, it is true that the meaning of the word “monopoly” has expanded since 1776. Then, it was used more or less exclusively to refer to government-granted monopolies. Since the late 19th century, however, it has been commonly used to refer, not only to government-granted monopolies but also to business organizations that have achieved market dominance without government assistance by combining with or out-performing their competitors.

In 1896, writing in the newly created American Journal of Sociology, a University of Chicago scholar named J.D. Forrest noted this semantic change with approval:

Monopoly now means something vastly different from that which [was] so vigorously opposed in the times of Elizabeth and James, and against which the founders of our nation had such a deep-rooted antipathy. Then it meant an institution founded and kept in existence by royal favoritism; now it means an institution which may have come into existence without direct governmental assistance, and which may have maintained itself in spite of administrative and legislative opposition.

Given this change in meaning, one could conceivably argue that the clause ought to be interpreted to forbid the government-granted monopolies that were its original target and corporations like Google and Facebook. Even if it were successful, such an argument wouldn’t have much substantive impact because federal anti-trust law preempts state law in this area, but it could at least be made.

What couldn’t seriously be argued, however, is that the clause now applies only to corporations that have achieved monopoly power without government assistance and not at all to government granted monopolies at all. From the late 19th century to the present day, dictionary definitions for the word “monopoly” have invariably included language like: “an exclusive privilege of engaging in a particular business or providing a service, granted by a ruler or by the state.” It would be strange for a court to conclude that the voters who ratified the state constitution in 1971 intended to narrow the scope of the anti-monopoly clause in a way that frustrated the purpose for with the clause was originally adopted by arbitrarily excluding a conventional meaning of the word “monopoly.”

There’s one last reason why the meaning and purpose of the anti-monopoly clause remains relevant today. The right it protects – the right to earn an honest living by engaging in a lawful occupation – continues to be violated by would-be monopolists and their cronies in the state legislature and licensing boards. The proliferation of licensed occupations is the most common way the right to earn a living is violated. Every time the legislature creates another licensed occupation, it grants a legal monopoly to the licensees. However, the right to earn a living is violated in other, more subtle ways as well.

One example is a state law that creates a monopoly by forcing brewers and vintners to turn over the distribution of their products to state-approved wholesale distributors. Another is the state law certificate of need law (CON) that creates a monopoly by giving the owners and operators of existing medical facilities the power to exclude potential competitors within their regions.

At the John Locke Foundation, we have argued for many years that these laws violate the rights of the excluded parties: the brewers and vintners who are unfairly denied the right to distribute their own products and the medical service providers who are unfairly denied the right to provide the services for which they were trained. These laws also unfairly enrich the members of the relevant cartels—the wholesale distributors in the first instance and the owners and operators of the existing medical facilities in the second. And, finally, these laws harm the public by making beer, wine, and medical services more expensive and harder to obtain than they would otherwise be. (For more on the wholesale distribution monopoly, see here, here, and here. For more on the CON law and its effects, see here, here, here, here, and here.)

Like their fellow revolutionaries throughout the colonies in 1776, the North Carolinians who adopted the state’s original constitution believed that legally-granted monopolies violate an ancient and fundamental right – the right to earn an honest living by engaging in a lawful occupation. They inserted the anti-monopoly clause into North Carolina’s constitution to protect that right, and it is fortunate for us that they did. The vast number of legally-granted monopolies in North Carolina makes one thing perfectly clear: politicians and their cronies will never stop trying to create government-granted monopolies. The profit-sharing potential is irresistible. Thanks to the anti-monopoly clause, however, the people whose right to earn a living is violated by such monopolies have a powerful weapon they can wield in self-defense.

Jon Guze is Director of 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 in… ...

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