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Fighting Foreclosure: The Blaisdell Case, the Contract Clause, and the Great Depression

Author(s):Fliter, John A.
Hoff, Derek S.
Reviewer(s):Wheelock, David C.

Published by EH.Net (January 2013)

John A. Fliter and Derek S. Hoff, Fighting Foreclosure: The Blaisdell Case, the Contract Clause, and the Great Depression. Lawrence, KS: University Press of Kansas, 2012. x + 222 pp. $20 (paperback), ISBN: 978-0-7006-1872-9.

Reviewed for EH.Net by David C. Wheelock, Federal Reserve Bank of St. Louis.

John A. Fliter and Derek S. Hoff, professors of political science and history, respectively, at Kansas State University, have written an engaging history of mortgage foreclosures during the Great Depression ? Fighting Foreclosure: The Blaisdell Case, the Contract Clause, and the Great Depression.? The focus of Fighting Foreclosure is on the Minnesota Mortgage Moratorium Act of 1933 and its adjudication in state and federal courts, all the way through to the U.S. Supreme Court decision that deemed the act constitutional. That decision, Home Building and Loan Association v. Blaisdell (1934), was precedent setting and, the authors argue, revealed the Court?s ?increased willingness to uphold state efforts to respond to the Great Depression and augured the Court?s complete acceptance of the New Deal?; that acceptance would culminate in the Court?s later and more famous decisions, West Coast Hotel v. Parrish (1937) and NLRB v. Jones and Laughlin Steel (1937).

Twenty-seven states enacted mortgage foreclosure moratoriums during 1933-34 after a collapse of incomes and property values had caused farm and residential mortgage delinquencies and foreclosures to soar. Mortgage lenders argued that state foreclosure moratoriums violated the Contract Clause (Article 1, Section 10) of the U.S. Constitution. However, in the Blaisdell case, the U.S. Supreme Court ruled that temporary moratoriums, enacted in national emergencies, did not violate the Clause.

The book?s first two chapters discuss the origins of the Contract Clause and its legal history prior to the Great Depression. Although states sometimes enacted debtor-relief laws during economic crises, Fliter and Hoff argue that the courts generally limited state interference in private contracts until the Great Depression. The authors point to the 90-year precedent set by Bronson v. Kinzie (1843), in which the Supreme Court struck down two Illinois laws that restricted mortgages and extended redemption periods as violations of the Contract Clause.

Chapters 3 through 5 review the farm protest movement of the Great Depression, the legislative history of the Minnesota Mortgage Moratorium Act of 1933, and its adjudication in Minnesota state courts. Most of the remainder of the book focuses on the consideration of the Blaisdell case by the U.S. Supreme Court. Chapter 6 describes the views of the individual members of the Supreme Court, particularly views related to the Contract Clause, private property, and state police powers. Chapter 7 focuses on the oral and written arguments by each side in the Blaisdell case and the Court?s decision.

The sharply divided Supreme Court upheld the Minnesota foreclosure moratorium in a 5-to-4 decision, written by Chief Justice Charles Evans Hughes. Hughes argued that the ambiguities of the Contract Clause allowed for states to exercise their implied police powers to alter the terms of contracts in emergency situations. Hughes concluded that the Minnesota law was constitutional in that 1) an emergency existed that provided an occasion for the use of government police powers; 2) the foreclosure moratorium was in the public interest and did not privilege a particular group; 3) the relief to mortgagors by the act was commensurate with the scale of the emergency; 4) the provisions of the act were reasonable; and 5) the act was temporary and limited to the existing emergency. Fliter and Hoff show that Hughes? published opinion had been influenced by the Court?s liberals, especially Benjamin Cardozo, who argued for interpreting the Constitution ?in light of our whole experience and not merely what was said a hundred years ago.?

The dissenting opinion in the Blaisdell case, written by George Sutherland, argued that the ?meaning of constitutional provisions is changeless? and noted that the authors of the Constitution inserted the Contract Clause precisely to prevent governments from relieving debtors of their obligations, especially during times of distress. Clearly, the Blaisdell case struck at the heart of the long-standing debate over whether the Constitution should be interpreted literally, with considerable emphasis on the framers? intent, or with flexibility and less reliance on the framers? intent than on current circumstances.

The book?s final chapters discuss the immediate reaction to the Blaisdell decision and consider whether that decision and subsequent rulings have meant the death of the Contract Clause. The authors note that the clause has been ?on life support? since the Blaisdell decision and that the Supreme Court has not decided a Contract Clause case in some thirty years.

The book includes a postscript about the mortgage crisis that began in 2007. The responses of federal and state governments to the home mortgage crisis of 2007-08 differed from those during the Great Depression. To a much greater extent, resolution of the recent crisis was left to market forces, including protracted foreclosures. Relatively few delinquent mortgages were resolved under any of the federal programs created to ease the crisis, and though some states considered imposing moratoriums on foreclosures, only a few states adopted them. Fliter and Hoff attribute the comparatively tepid response of states and the federal government to the recent mortgage crisis to a long-ongoing ideological shift in which ?conservatives have set the terms of the nation?s major policy discussions, especially those regarding the economy.?

Many economic historians will find this conclusion either inaccurate or too simplistic an explanation for the comparatively weaker responses of states and the federal government to the recent mortgage crisis. Fliter and Hoff acknowledge that ?conservative? economists and historians have shown that state interventions in credit markets, including the foreclosure moratoriums of the Great Depression, impose real costs by reducing the supply of credit. Further, they note the presence of other forms of social insurance, such as unemployment benefits, that did not exist during the Depression. Indeed, perhaps the comparison of the recent crisis with the Great Depression has been overplayed and the comparatively limited response of governments has been less due to shifting ideology than to the fact that the recent mortgage crisis and recession, though severe, pale in comparison with the Great Depression. Despite some quibbles about the book?s interpretation of recent events, I recommend Fighting Foreclosure to economic historians of property rights and institutions, as well as those who study mortgage markets and the Great Depression. The book is highly readable and informative.

David C. Wheelock is vice president and deputy director of research at the Federal Reserve Bank of St. Louis (David.C.Wheelock@stls.frb.org). His research interests include U.S. monetary and financial history, the Great Depression, banking, and monetary policy (http://research.stlouisfed.org/econ/wheelock/).
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Subject(s):Financial Markets, Financial Institutions, and Monetary History
Government, Law and Regulation, Public Finance
Geographic Area(s):North America
Time Period(s):20th Century: Pre WWII