When America Was Free of the Minimum Wage

In today’s society, there are incessant debates over how much the minimum wage should be. I sometimes wonder how many Americans realize that there was once a time when Americans lived without minimum-wage laws. Indeed, how many people realize that the U.S. Supreme Court once held that minimum-wage laws violated the U.S. Constitution, the document that called the federal government into existence?

In 1918, Congress approved a bill that created a board to investigate wage conditions in the District of Columbia and to establish a minimum wage for women and minors working within the district. President Woodrow Wilson signed the bill into law.

The D.C. minimum-wage law was a good example of the interventionist/regulatory philosophy that was gaining ground in the United States. For more than 100 years, the United States had existed without minimum-wage laws or, for that matter, most other governmental regulations. That’s because the American people had adopted what was known as a “free enterprise” economic system, one in which economic enterprise was largely free of government control, management, and regulation.

In fact, it is impossible to overstate the highly unusual nature of the economic system of our American ancestors. Setting aside the obvious exception of slavery, the American people were, by and large, free to engage in any economic enterprise without governmental permission or interference. They were also free to accumulate unlimited amounts of money and decide for themselves what to do with it.

Consider, for example, the period 1880 to 1910, which is my favorite time in American history when it comes to freedom. Imagine: no income tax, IRS, Social Security, Medicare, Medicaid, welfare, farm subsidies, education grants, minimum-wage laws, licensing laws, drug laws, Federal Reserve, paper money, Pentagon, CIA, NSA, foreign aid, foreign military bases, foreign wars in Europe and Asia, and gun control. Additionally, there were very few economic regulations, minimal immigration controls, and almost no public (i.e., governmental) school systems.

Needless to say, that American society shocked the world. Nobody had ever seen or heard of that type of society. It was one-of-a-kind and the first time in history that such a society had existed. The results of this unusual society also shocked the world. It caused the greatest outburst of economic prosperity that mankind had ever seen — despite the fact (or, actually, partly because of the fact) that thousands of penniless immigrants, many of whom could not speak English, were flooding American shores every day. In fact, many of the poor were becoming wealthy — after one, two, or three generations — something the world had never experienced.

With their strange economic system, Americans had, in fact, discovered the way to end or drastically alleviate poverty, which had afflicted mankind since the dawn of civilization.That’s not all. Americans also created the most charitable society in history. When people were free to accumulate unlimited amounts of wealth, many of them used it to help out others on a purely voluntary basis.

This was how the hospitals, museums, opera houses, libraries, soup kitchens, and other charitable activities came into existence. One man — John D. Rockefeller, who statists have long reviled as a “robber baron” — actually gave away half-a-billion dollars — and not to get an income-tax deduction because there was no income tax.

During that same period of time, however, a small number of Americans began agitating for a different type of economic system, one in which government, at both the federal and state levels, would wield the power to regulate, manage, and control economic activity, which had been the typical way societies had operated throughout history.

Moreover, these “progressive” Americans wanted an economic system in which people could be forced through the power of taxation to care for others, whether they wanted to or not. That’s what the “welfare-state” way life they favored was all about. Moreover, some of them were not satisfied with the limited-government republic that the Constitution had created, which included a relatively small military force. They wanted a vast empire of overseas possessions and an enormous, permanent military establishment to govern it.

Thus, in the late 1800s, the battle lines were being drawn between those who favored a genuine free-enterprise, limited-government system — one in which economic activity was free of governmental control, regulation, and management and people were free to accumulate the fruits of their earnings and decide for themselves what to do with them — and those, on the other hand, who favored a system in which economic activity was controlled, managed, and regulated by governmental officials and in which people would be forced to care for others through a tax-and-welfare system.

The statists — those who looked to the state to provide “safety” and “security” to people — had an uphill battle. After all, they were facing more than 100 years of a system that had succeeded in bringing unbelievable increases in people’s standard of living and in voluntary charitable activity, while protecting the freedom of people to live their lives the way they wanted. Why would anyone want to give up that way of life in return for one in which the state was in charge of controlling, managing, and regulating people’s lives and resources?

Yet, the statists began making inroads. For example, there was the Sherman Antitrust Act of 1890. There were state commissions setting rates for railroads. There was the start of Jim Crow laws. There was the Chinese Exclusion Act, a brutal and racist piece of legislation that was the nation’s first immigration-control law. There was the Spanish American War.

The battle over the future direction of America was taking place not only in the political world. It was also taking place in the judicial system. One of the best examples of the judicial-world battle involved the minimum wage — the statist notion that the state should have the power to establish minimum wages for employees in the marketplace versus the free-market notion that economic enterprise should be free of governmental control, management, and regulation.

After Congress and President Wilson enacted the minimum-wage law in D.C., the newly formed wage commission set a minimum wage for women. The Children’s Hospital of D.C., which employed many women, sued Jesse Adkins and other members of the D.C. Wage Board, contending that the minimum-wage law violated the due process clause of the Fifth Amendment to the U.S. Constitution, which applied only to the federal government.

Adkins v. Children’s Hospital of D.C. reached the U.S. Supreme Court. On April 9, 2023, the court, in a 5–4 decision, held that D.C.’s minimum-wage law violated the Fifth Amendment to the Constitution. The majority included Justices Sutherland, van Devanter, Butler, and McReynolds, who would become known as the “Four Horseman” for their fierce opposition to economic interventionism under the principles of the U.S. Constitution.

The court held that people have the freedom to enter into mutually beneficial contracts with each other and called this aspect of freedom “liberty of contract.” It was a principle that the court had recognized 18 years before in the 1905 case of Lochner v. New York, where the state of New York had enacted a law establishing a maximum number of daily hours that bakeshop employees could work.

The court held that the law violated the “liberty of contract” that was guaranteed by the Due Process Clause of the Fourteenth Amendment, an amendment that applied to the states. Recognizing the growing trend toward economic interventionism, the court stated, “This interference on the part of the legislatures of the several States with the ordinary trades and occupations of the people seems to be on the increase.”

Writing for the majority in Adkins, Justice Sutherland also pointed out the growing trend toward economic interventionism:

But Sutherland then proceeded to point out that while those matters are of importance to legislative bodies, they are irrelevant to the judiciary, What matters to the judiciary is whether the law violates the Constitution or not. Sutherland stated:

However, there was one big problem with the court’s reasoning: the Due Process Clause of the Fifth Amendment, which applies to the federal government, and the Due Process Clause of the Fourteenth Amendment, which applies to the states, don’t say anything about “liberty of contract.” Instead, they say that the state cannot deprive people of liberty without due process of law. The term “due process of law,” which stretches back to Magna Carta in 1215, has historically meant procedural protections, such as formal notice and a hearing or trial before one’s life, liberty, and property could be taken away by the state.

With the D.C. minimum-wage law, people had had plenty of notice and hearings prior to the legislative enactment of these laws. Therefore, the court created one of the most controversial constitutional principles in the history of the Supreme Court, one called “substantive due process.” It held that there are certain rights that are so important and fundamental that they cannot be taken away by the state under any circumstances. Among these “substantive” rights was “liberty of contract.”

The court might have been on sounder ground in the D.C. case by pointing out that the federal government’s powers were limited to those enumerated in the Constitution. Since the Constitution did not delegate to Congress the power to regulate economic activity, the D.C. law was clearly invalid. In other words, it was unnecessary for the court to stretch the meaning of the Due Process Clause of the Fifth Amendment.

However, that argument would not have worked in the Lochner case, given that under the Constitution the states had the traditional police powers relating to the health, safety, morals, and welfare of the people. Therefore, the only way to invalidate such laws was to stretch the meaning of the Due Process Clause of the Fourteenth Amendment. Having done that in Lochner in 1905, my hunch is that the court felt it necessary and consistent to do the same thing in Adkins with the due process clause of the Fifth Amendment.

If the decision in Adkins had remained standing, there would be no minimum-wage laws in the United States today, at either the federal or state levels. Wage rates would be decided by free-market forces — that is, the laws of supply and demand — rather than by economic interventionism or central planning. Moreover, there would not be the chronic unemployment rate among black teenagers, who have long been priced out of the labor market by high minimum-wage laws.

As things turned out, the Adkins decision remained intact for 14 years. Those years included the 1930s, when the Franklin Roosevelt administration was revolutionizing America’s economic system by embracing economic paternalism and economic interventionism.

Led by the Four Horsemen, who were still on the court, the Supreme Court was declaring much of FDR’s “New Deal” programs unconstitutional, which infuriated the president. In response, FDR presented a proposal to Congress that would enable him to pack the court with his cronies, who would then sustain the constitutionality of what were, in actuality, socialist and fascist economic policies and programs. Examples included Social Security, a concept that originated among German socialists, and the National Recovery Administration, which could easily have come out of the economic playbook of Benito Mussolini, the fascist dictator of Italy.

FDR’s court-packing scheme went down to defeat. Nevertheless, even though he had lost the battle, FDR ended up winning the war. In 1937, the court decided the case of West Coast Hotel v. Parrish, which involved a minimum-wage law that had been enacted by the state of Washington. The case arose when Elsie Parrish, a hotel maid, sued the hotel for the difference between what she had been paid and the amount set forth by the state.

Overturning its decision in Adkins, the court, in a 5–4 decision, declared that Washington’s minimum-wage law was constitutional. This time, the Four Horseman were in the minority. The swing vote was that of Justice Owen Roberts, who had been expected, based on his votes in other cases, to vote to declare the law unconstitutional. Roberts, however, decided to vote with the majority, which caused his name to go down in judicial infamy because it appeared that he had changed his vote in response to public pressure and FDR’s court-packing scheme. In fact, Robert’s vote has gone down in judicial history has the “vote in time that saved nine,” referring to FDR’s scheme to expand the number of justices on the court. In a slam against Roberts, Sutherland, writing for the dissent, wrote:

To his dying day, Roberts denied that he did that, and the matter remains controversial to this day. From that fateful day in 1937, the Supreme Court made it perfectly clear that it would never again use the due process clauses of the Fifth and Fourteenth Amendments to declare any law regulating economic activity unconstitutional. And so it is that the American people continue to be besieged by endless debates over how high the minimum wage should be and the adverse economic consequences that come with a state-mandated minimum wage.