“Hard cases make bad law,” is a legal maxim Justice Oliver Wendell Holmes popularized in his 1904 dissenting opinion in Northern Securities Co. v. United States.[1] The Theodore Roosevelt Administration sued under the Sherman Act to block J.P. Morgan’s plan to consolidate three important Western railroads, saying the combination would create an illegal monopoly. The case was the opening salvo in Roosevelt’s trust-busting campaign. Every U.S. Supreme Court justice knew his vote would make history. Splitting 5-4, the Court blocked the railroad merger and laid down a series of rules that shaped business conduct for decades. Northern Securities marked a turning point in the Supreme Court’s conception of the public interest.

Writing for four dissenting justices, including Chief Justice Fuller, Holmes opened with a rhetorical flourish that trivialized the case and denigrated the majority’s decision. “Great cases like hard cases make bad law. For great cases are called great, not by reason of their importance . . . but because of some accident of immediate overwhelming interest which appeals to the feelings and distorts the judgment.”[2]

Holmes presented his argument as one delivered from a jurisprudential Mt. Sinai. Neither the plain words of the Sherman Act nor legal precedent supported the Court majority’s decision to expand federal authority over railroad combinations. He was correct on both counts. The Sherman Act outlawed contracts in restraint of trade, but not stock acquisitions or statutory mergers that had the same effect. In the leading case precedent, United States v. E.C. Knight Co.,[3] the Court in 1895 ruled 8-1 against the government’s effort to break up the sugar monopoly created when U.S. Sugar bought a series of competitors. The Court said manufacturing was a local enterprise rather than interstate commerce, and so was beyond the reach of the Sherman Act. Chief Justice Fuller authored the majority opinion.

What Holmes’ dissent in Northern Securities failed to say was that the Sherman Act predated widespread revision of state corporation laws to facilitate corporate mergers and acquisitions. Previously, corporation laws were restrictive, e.g., requiring an act of the state legislature to create a company. Beginning in New Jersey in 1893, state legislatures rewrote corporation laws to be permissive rather than restrictive, including by making stockholders, directors and officers (rather than state legislatures) the arbiters of how corporations functioned. Indeed, Northern Securities Co. was incorporated under the 1893 New Jersey corporation law.

Had the Sherman Act been written after corporation laws were modernized, the Act likely would have been drafted to reflect the new paradigm. As for the Knight precedent, public opinion coalesced against monopoly power following a wave of corporate mergers and acquisitions that created monopolies in oil, steel, agricultural implements, tobacco and many other industries. Lady Justice is blind; but justices read the newspapers.

J.P. Morgan was the villain of Northern Securities. Three years later, he was a hero when he provided extraordinary liquidity to a collapsed financial market, staving off a depression. The Panic of 1907 revealed the private sector’s limitations in the face of financial pandemic. When Morgan died six years later, Congress created the Federal Reserve System to undergird the national economic enterprise. The decade from Northern Securities to birth of the Federal Reserve System set the stage for seven decades that followed.

Big government and big business skirmished often, but mostly they worked as partners that needed one another. The federal government served and protected business by fiscal appropriations and legal regulation—from agricultural price stabilization to geographic and product price protection for banks, to engineering programs that sustained military and civil contractors, and their suppliers. Big business made sure big government got what it needed—taxes, production and full employment. Big government tolerated big business oligopoly power and pricing as long as it did not get out of hand.

Manufacturing employment peaked in 1975. Congress in 1979 heard testimony from General Electric, Caterpillar and other big companies that urged extension of the Sherman Act and other laws to block foreign government-sponsored businesses’ anticompetitive behavior in the U.S. market. Nothing came of the effort. U.S. companies shifted production to low-wage Asian nations. Meanwhile technology companies rose, displacing manufacturers as the primary source of new jobs, just as manufacturers displaced agriculture a century earlier. Similarities between the two periods of U.S. history prompted commentators to call ours the Second Gilded Age, the last decades of the 19th Century being the first.

Has the Second Gilded Age run its course? Are we at an inflection point like Northern Securities, when the Supreme Court tacitly overruled its decision in Knight only nine years later? In my opinion, we are there. The precipitating events are not oft-cited economic conditions of the moment, such as income inequality, export of manufacturing jobs and big tech companies’ tax avoidance by keeping large cash balances offshore. The cause is pandemics and, particularly, the scale of the required response.

Covid-19 is the second pandemic of our time. We imported it from China by way of Europe. We—most of us—gave it short shrift, because it was there and we are here. But the world is smaller now than it was. Today’s longest range commercial aircraft can fly nonstop nearly half way around the world, twice the distance Boeing’s 747 planes could fly when introduced in 1970.

The first pandemic was the Global Financial Crisis of 2008. We created and exported that one to other nations. The interconnectedness of financial institutions around the world caught us by surprise. Then as now, only trillion-dollar-scale, multi-nation-state action ended the contagion. Now as then, private sector action is necessary, but not sufficient. And the private sector’s return to health requires unprecedented public investment. Eventually, the public will earn a return many times its investment—as civilian employment recovers and governments collect taxes and reap other benefits. In the meantime though, the federal government needs to shoulder the load because nobody else has shoulders broad enough to bear it.

The current crisis is so fresh, its scale and lasting effects are yet to be fully absorbed. Likely, a vaccine will emerge to blunt Covid-19’s effect. What will not change is our newfound sense of vulnerability to international contagion. That will remain, just like the bollards that now ring fence federal buildings in every American city.

In Knight, Chief Justice Fuller wrote confidently for his 8-1 majority. He was certain about the verities of his world. Outvoted 5-4 in Northern Securities, he allowed Justice Holmes, the second most junior justice on the Court, to author the stronger of the two dissenting opinions. For Fuller, the defeat must have been a bitter pill. Seldom has a chief justice seen his work in a landmark case reversed during his own Court tenure.[4]

The different result from Knight was not due to change in Court personnel. The four associate justices seated after the Court decided Knight split 2-2 in Northern Securities. Rather, the difference was Justices Brewer and Brown, who were in the majority in both cases. To them, the world had changed around them and their decision changed with it. Fuller stoically, silently remained rooted in the Gilded Age. By 1910, he was dead.

Like the Court in Northern Securities, we are called to reconsider beliefs and behaviors we have experienced as normative for a lifetime. We are also called to create new patterns for our future and that of our descendants. The world will adapt. Will we?

[1] 193 U.S. 197 (1904).

[2] 193 U.S. at 400.

[3] 156 U.S. 1 (1895).

[4] Other examples include the Supreme Court’s switch during the Great Depression from scotching New Deal legislation on constitutional grounds to upholding it (see West Coast Hotel Co. v. Parrish, 300 U.S. 379 (1937)(the so-called “switch in time that saved nine”)) and the Legal Tender Cases, Hepburn v. Griswold, 75 U.S. 603 (1870) and Knox v. Lee, 79 U.S. 457 (1871).