Affected With a Public Interest; R. Foley. Jr.

Ridgway K. Foley, Jr. "AFFECTED WITH A PUBLIC INTEREST" JURISTS often weave erratic seams in the legal fabric we call jurispru dence. Once rooted in the law, error seems to possess all the tenacity of crabgrass; aided by the concept of stare decisis (stand by previous deci sions) and the juridical tendency never to undo what has once been accomplished, error takes suste nance and proliferates, until a whole body of normative rules wells up and covers the terri tory. This article deals with just such a concept: the doctrine that govern ments can regulate and control business enterprises ttaffected with a public interest." In varying guises, this postulate with its myriad tentaMr. Foley, a partner in Souther, Spaulding, Kinsey, WIlliamson & Schwabe, practices law In Portland, Oregon. cles has strangled freedom for al most a century, although its antece dents can be discerned in earlier Anglo-American reports.

The American birth of the rule took place in 1876 in a decision by the Supreme Court of the United States entitled Munn v. Illinois, 1 the most important of the so-called HGranger" cases presented to the Court at the same time. The Su preme Court of the United States upheld a Minnesota law which re quired grain warehouses to secure a license and to comply with price restrictions in order to operate as a business. The rationale of the court: grain warehouses were Haffected with a public interest." In 1933, during the throes of de pression occasioned by government interventions into the economy, the 515 516 THE FREEMAN September doctrine received impetus to strangle all manner of economic concerns in the case of Nebbia v. New York 2 which prohibited price reductions in enterprises cCaffected with a public interest." The lack ofjudicial understanding of economic and moral values ap pears in the following statement: The court has repeatedly sustained curtailment of enjoyment of private property,· in the public interest. The owner's rights inay be subordinated to the needs of other private owners whose pursuits are vital to the paramount in terests of the community.3 A wiser decision, and one justified by sound reason of political economy and morality, permits anyone to en gage in any business at any time unless he initiates aggression or practices fraud upon another.

The overweening coercion emanating from, and justified by, Munn v. Illinois and Nebbia v. New York impels us, even at this late stage, to examine the foundations of the doctrine. What does cCaffected with a public interest" really mean? All Businesses Which Survive Serve the Public What businesses are cloaked with a public interest? A better inquiry: what enterprises are not affected with a public interest? Upon exami nation, one finds that he can make an equally good case for the public interest in all endeavors, and not just grain warehouses, wharves and taverns. The only business not af fected with a public interest is one which fails to serve the public. The sole business I can conceive of which does not serve the public is one which sinks into bankruptcy. Once again, we discern a judicial decision which fails to accord with sound principles of economics and human action. The majority in Munn v. Illinois could not perceive that the only reason for the exis tence of any business enterprise is to create and transfer goods or services to willing recipients.

A successful business is one which satisfies enough consumers or customers at a high enough price so that the enterprise returns a profit to those individuals who have con tributed to the entrepreneurial ac tivity. An unsuccessful business is one which does not attract and satisfy sufficient customers at a suf ficient price to generate a profit and encourage maintenance of the necessary capital investment. To the extent that customers ex press satisfaction in a product or a service, in continued purchases, the producer serves the cCpublic inter est." To the extent that no customers seek the creations of a business, there exists no ccpublic interest." Thus, we can say with some cer tainty that Edsel Motor Division of Ford Motor Company was not a business Hclothed with a public 1978 CCAFFECTED WITH A PUBLIC INTEREST" 517 interest." On the other hand, any individual or corporate business which does attract and hold custom ers is, at least to that extent, CCaf_ fected with a public interest."

All Interests Are Truly Private But the problem demands deeper consideration: How should we define ((public interest"? What is the pub lic? In a very real sense, all inhabit ants of a given community or terri tory constitute that particular pub lic, for a public refers to a commu nity or populace at large in their common, nonprivate characters and capacities. As with other terms, however, the phrase ((public interest" has under gone a certain corruption at the hands of the illiberal element. Cur rently the words seem to convey a belief that the public interest over rides any personal or individual interests. Yet, all interests derive from persons. In that sense, all interests are private interests, at least at their genesis. You like ballet; you band with others to form a civic ballet associa tion to promote the art. Seminally, the communi ty interest in ballet existed as a wholly private interest: yours. As you gain adherents, does the interest take on an altered character, or does it remain a dis tinctly individual undertaking? If the private interest changes into a public interest, do we measure such dynamism by the number of supplicants or the character of the interest, or in some other manner? In other words, what is it which trans mutes a purely personal individual value or desire into one of such overpowering essence and force that it can be termed a ccpublic inter est" and justify the limitation upon the freedom of individuals?

Private and Public Interests Are Not Susceptible to Differentiation ..The difficulty in responding to these rhetorical questions lies not in the answers but in the inquiries themselves. It is a difficult task to state a question neutrally, and these particular questions rest on a pre sumption that we can define and differentiate private and public interests. In truth, we cannot do so. As commonly used, a private interest may be defined as a value 4 held by an indi vidual. Since each man is a unique and discrete being, each man possesses a separate set of values or interests. I may be in terested in baseball, you may prefer ice hockey. I may enjoy picking a guitar and singing; you may con sider my renderings anything but musical. Each person, by his ideas, his words, and his conduct, holds and expresses these values which make up his private interests. He seeks to advance these interests, to enjoy them, to introduce others to them. Nonetheless, these interests 518 THE FREEMAN September never lose their individual private character.

The True Meaning of Public Interest: Coercion Writ Large On the other hand, no such thing as a public interest exists, despite continual use of the phrase. 5 When one utters that pair of words, he means to' convey a thought most aptly derived from Munn v. Illinois: he means that some private, per sonal, individual interest or value of one or more persons is, in the speaker's subjective opinion, of such overwhelming importance that all members of society should embrace it as eternal verity and that if any other private, personal, individual interest or value conflicts with the advancement of the first interest, the conflicting interest must be shunted aside, depriving the holder or holders of that second interest of their liberty or right to enjoy and advance the second interest. In plain language, the ((public interest" represents a power tool to coerce those who disagree with the idea or sub jective value advanced by the statist.

Consider this definition in analysis of some of our ear Her examples. My pleasure in baseball may exist side by side with your interest in ice hockey; each private interest receives and satisfies its own followers. Should too few per sons share my interest in baseball, and refuse to patronize supporting advertisers and to buy grandstand seats, my favorite home team may move away to Spokane, for the owner has a private interest in mak ing a return on his capital invest ment. If he does not make a return in Milwaukee, he will move to At lanta; if he makes an insufficient return in the latter city, he may travel elsewhere or he may reinvest his remaining capital in an entirely different venture, one which at tracts and pleases more people. Now notice what will happen if I am able to convince the government that baseball is an enterprise ((affected with a public interest." I may attend the games because they ac cord with my personal, private, in dividual interest. You, however, prefer to spend your earnings on the hockey games. If you and others who do not share my interest in baseball preponderate, the owner and operator of the team will lose money . Yet, if his business is uaf_ fected with a public interest," he cannot move the team to the most fa vorable location, or raise his prices, or take any other ameliora tive steps. Instead, he must either remain captive and lose money (de struction of his capital), sell to someone else who will remain and lose money, or secure a subsidy or other favors from the government.

Most ((public enterprises" follow the latter course.

1978 ((AFFECTED WITH A PUBLIC INTEREST" 519 Subsidy and monopoly inevitably lead to regulation and disallocation of economic goods. One common re sult: increased taxes for all members of the community to support the team in the upublic interest." I might well be willing to pay extra taxes to advance my private interest turned public, but chances are, I would rather mulct my neighbors, thinking that this endeavor repre sents the greatest good. In any event, you will be deprived of your capital (which you would ordinarily use to support the hockey team) against your will, and you will be compelled to watch your privately and justly earned funds spent on an endeavor you dislike, an endeavor which cannot carry its own weight in the free market. Let Each Support His Own, Without Forcing Others The only fair method of allocating scarce resources between numerous activities commands each man to support that which he values with that which he has created, and to compel no other man to act contrary to his desires. Justifiable societal action consists of the coercive pre vention of force and fraud and the preservation of a system of settling disputes, and no more. Myriad ac tivities can take place concurrently, with no forced adherence to any par ticular one. If any endeavor lacks supporters, it must pass from the scene until new support appears.

When this concept replaces the doc trine of ((public interest," when the ((public interest" shibboleth reveals its true nature, freedom regains its exalted place. As demonstrated earlier, any business not in bankruptcy is uaf_ fected with a public interest" in the sense that some customers (the ((public" of that enterprise) find satisfaction in the products supplied. Mr. Justice Field recog nized this a century ago when he declared: The public is interested in the man ufacture of cotton, woollen, and silken fabrics, in the construction of machinery, in the printing and publication of books and periodicals, and in the making of utensils of every variety, useful and or namental; indeed, there is hardly an enterprise or business engaging the at tention and labor of any considerable portion of the community, in which the public has not an interest in the sense in which that term is used by the court in its opinion. . . .8 Thus, the.phrase not only connotes a coercively imposed choice by some adherent of a cause, but also de scends into meaninglessness. It be comes a catch-phrase employed by courts to justify the unseemly result of depriving someone of his liberties, a juridical make-weight. Of course, the community possesses the naked power to pilfer and destroy. That is not to say that looting and coercion 520 THE FREEMAN September is justified, nor can one honestly credit a grain warehouse or a milk seller with cloaking their enterprise with a public interest. Such a state ment reminds one of a robbery vic tim pilloried by the community for owning property of interest to the miscreants.

No entrepreneur cloaks his busi ness with a public interest. Each person evaluates his talents, creates capital, and plunges into an enter prise which he believes will satisfy the public and produce a subjec tively acceptable rate of return. Employing the jabberwocky of the Supreme Court, one cloaks his busi ness with a public interest when he serves the public well. The Concept Extended; Public Utilities Venturing forth from the holding of Munn v. Illinois, the courts in the past one hundred years have jus tified all manner of regulation of, and intrusion into, the private af fairs of those businesses denomi nated upublic utilities." A public utility has been defined as a busi ness regularly supplying the public with a particular commodity or ser vice of upublic consequence or need."7 In simple terms, a public utility supplies a product which some of the public believes that all must have.

The mere statement of the defini tion expresses the ambiguous and tautological nature of the phrase, similar to that encountered in defin ing ttpublic interest." Anything and everything can fit the definition, de pending on the values of the speaker. Early inroads occurred in medieval England in the realm of food, drink and lodging. 8 Inadver tent poisonings occurred with some frequency and the traveler often found himself at the mercy of the innkeeper. Because sustenance and lodging formed the ttnecessities" of life, those who supplied these goods and services soon came to be labeled as ttaffected with a public interest" or some such nebulous phrasing sig naling a limitation upon the suppliers' freedom. Of course, laws preventing coercion and misrepre sentation amply protect the consumer. In subsequent centuries, all man ner of businesses fell in and out of the category of a ttpublic utility,"

depending on the current whims and fads of those in power. Companies supplying water, fuel, power, energy, and transportation quickly come to mind. In almost every in stance, the so-called public utility supplied goods or services which were greatly in demand; this factor seems to make one of the two dis tinctions between upublic utilities" and other endeavors. The other ap parent criterion for speaking of a particular business as a public util1978 UAFFECTED WITH A PUBLIC INTEREST" 521 ity appears to rest on the fact that, while many individuals seek the goods or services provided, only a relatively few producers choose to offer such wares. These two reasons require analysis in order to determine if any veraci ty resides in the rule singling out some·businesses as ((public" and limiting their freedom of action. We have already discerned that the mere attribution of the term ((pub lic" to a business presents an exer cise in banaH ty, since all businesses which sell goods or offer services demanded by someone else serve that portion of the ((public." Never theless, is there any reason why we should treat some activities differ ently because (1) many persons de sire the product or (2) few persons supply the product?

Universality of Demand First, consider the universality of desire. Economics considers the dis tribution of scarce goods, not free (abundant) goods. This science posits, as a first principle, the prop osition that human wants are insat iable and competing, and economic goods (the subjects of those wants) are scarce. Values, being subjective, vary from person to person. Some desires crop up more frequently than others: the need for food, cloth ing, shelter, transportation. Yet the mere universality of these wants af fords no rational basis for treating the supplier with disdain or coer cion. Let us accept the postulate that man requires food to survive. It does not logically follow that the pro ducer of grain, a farmer, must be restricted in his liberty merely be cause others gain sustenance from the grain. Suppose the farmer de sires not to sell; he created the value (grain)-he should be able to eat it, hoard it, destroy it, do with it as he pleases. Such a right accords with justice and with the axiom that each man owns the absolute right to live his own life and to choose his own destiny without interference from any other human being, so long as the actor does not coerce or defraud another individual.

The farmer does not coerce or de fraud the would-be consumer by holding onto his grain. The con sumer retains the choice to eat beef, or olives, or jello, or to purchase grain from another farmer. Or, if he really wants the first farmer's grain, he will pay the price which repre sents the concatenation of values between farmer and producer. After all, grain is a perishable commodity and the first farmer will not want to store his crop forever lest he lose his entire capital investment. And, the first farmer cannot exist on grain alone; he requires a balanced diet, shoes for his children, blankets for his bed, tobacco for his pipe, books for his pleasure, and countless other 522 THE FREEMAN September items which grade from necessity to luxury, depending upon the particu lar set of values held by the actor. One may urge that individuals cannot survive without food and drink and, therefore, these products demand special dispensations. True, persons cannot survive for long periods without food and water; that fact does not justify restriction upon the liberties of others, so long as the others do not employ force or fraud.

We might conjure up a hypotheti cal example where a cruel creature hoarded food while others starved. Yet those who desire the food pos sess no moral right to take from the producer that which he has created. One need not evidence much percep tion to discern that few persons, if any, will fit the hypothetical mold of evil, and that other citizens abound who possess sufficient food and bev erage to alleviate any impending starvation and who display a will ingness to do so. Sympathy etches the character of the free man. The supposition that one miscreant would and could corner the supply of food and drink (or any other prod uct) and sit idly by while others go without sustenance remains the wildest sort of whimsey, wholly· out of union with reality. The Apparition of Monopoly9 Second, consider the possible monopoly of production. Those who employ the concept of upublic util ity" fear the concentration of power Competition Assures Efficiency It is apparent that a change in transportation costs, production technology, management, or any other cost factor can upset a monopolistic position.

Also, a concentration beyond the optimum point is an invitation to failure, for the unit costs of production tend to increase again. The monopolist who disregards this fact invites potential competitors to invade his field and reduce him to his optimum size. There is no need for government to break up a giant enterprise; if it were too large, the competitors would reduce it. ... . . .Of course, it is most unnatural and unlikely for a businessman to rise to eminence through product improvements and lower prices, and then sud denly to turn toward output curtailment and price increases. But if he should act in such a manner, which is conceivable, he practices self-destruction. HANS F. SENNHOLZ, "The Phantom Called Monopoly"

1978 HAFFECTED WITH A PUBLIC INTEREST" 523 over the supply of a given product in one or a few men. 1O If a concentra tion appears, history proves it likely to be ephemeral. ll If one man pro duces goods or services so much in demand that he makes a profit, other entrepreneurs will follow him into the field and reduce the cost to the consumer. If only a few supply the many, it is simply because those few are the only ones who freely desire to invest their capital in the enterprise, probably because the po tential return lacks sufficient at traction to other enterprising ven turers. Proponents of the public utility concept often tender a collateral ar gument: public utility monopolies justify on the basis not only of the need of the public (demonstrated heretofore to be sham), but also on the preservation of capital. This con tention assumes that competing public utilities would duplicate ser vice and thereby act uneconomically because of the extensive capital in vestment commanded. Such a sug gestion raises the immediate in quiry of whether, assuming the truth of the argument, such facts really justify the destruction of free dom.

More saliently, however, every producer competes with myriad others, both for the entire consumer dollar and for that part of the con sumer dollar normally expended on such products. To this extent, each producer duplicates investment with others, yet no one decries the competition between Montgomery Ward and Sears, Roebuck, or be tween Albertson's, Fred Meyer, Safeway, and A & P. Indeed, those most vociferous in favor ofcCcompeti tion" as a goal often inconsistently acclaim virtue for monopoly in the Hpublicutility" arena. If two power companies serve the same area, and duplicate transmis sion lines, so what? Each will re main ensconced in business only so long as it provides a satisfactory service to its customers. Indeed, in creased competition inevitably leads to better service at a lower cost, with ultimate benefit to the purchaser. If one of the power companies cannot compete effectively, it will leave the industry and convert its capital to other, more favorable uses.

Competition no more destroys capital here than in any other busi ness milieu; if capital is wasted or destroyed, that amounts to one of the costs we must be willing to pay for freedom. If one of the competing power companies leaves the field, the public utility proponents ap prehend the increased cost to the cCpublic" of this cCnecessary"service. Of course, the cCpublic"possesses the ultimate wea:p.on: it can refuse to purchase the service and thus drive the producer out of business (even if the service constitutes a cCnecessity," substitutes generally exist). Or, 524 THE FREEMAN more likely, a competitive producer, attracted by profit, will enter the field and offer the same service for a lower price. Thus, we perceive that reason en titles no enterprise to the appella tion ((public utility" or the special advantages and regulations which attend such a designation. No busi ness can be truly said to be ((affected with a public interest" in the sense that such an endeavor should be subjected to special rules. Equal treatment should be the bench mark of statelbusiness relations.

Persistent repetition of the ((pub_ lic" concept of business enterprises permeates the past century of American history, rendering the hypothesis of almost universal ac ceptance. One can only pray that succeeding generations will visit the issue with precision and clarity of analysis and not be betrayed by the hoariness of age. Old myths die hard, but pass away they must if freedom is to become enthroned. One can pierce the fiction of a ((pub_ lic" business by recognizing that no business possesses ((public" func tions; the only business of business is business, the supplying of the best possible goods and services at the highest possible return to the greatest number of customers. If any business performs this function, it will amply serve the public interest. i -FOOTNOTES194 U.S. 113, 24 L. Ed. 77 (1876). "Nebbia v. People of State of New York, 291 US 502, 54 S. Ct. 505, 78 L.Ed. 940 (1934).

3Ibid., 291 U.S. at 525. 4The concept of value provides a separate topic of discussion beyond this essay. sODemay wonder ifman can conceiveofthat which does not exist. Unicorns on the moon and the vagaries of science fiction should·dis pel this question. Man seems destined to con ceive, and act upon, political and economic fantasies. 'Note 1, op. cit., 94 U.S. at 141. 7SeeGulf States Utilities Co. v. State, 46 SW 2d 1018, 1021 (Tex Civ App 1932);Black's Law Dictionary (4th Ed., West Publishing Com pany, St. Paul, Minn., 1957) 1395. sOne should not lose sight of the fact that English law, while possessing similar roots, differs markedly from the American experi ence, the latter stressing human liberty and the free market to a greater degree. 9See Note 1, op. cit., 94 U.S. at 130-132, where Mr. Chief Justice Waite stresses the ttmonopoly"aspects of grain warehouses. IOHow singular that most of these theorists express no concern over the concentration of monopoly power of coercion (government) in the hands of the few and the incompetent, yet quake with the thought of free market concen trations.

I1Better minds than mine have exposed the illusions which pockmark the chimera of monopoly. See, e.g., Sennholz, Hans F., tThe Phantom Called Monopoly," VII Essays on Liberty 295-317 (Foundation for Economic Ed ucation, Inc., Irvington-on-Hudson, New York 1960); Armentano, Dominick T., The Myths of Antitrust (Economic Theory and Legal Cases) (Arlington House, New Rochelle, New York, 1972); Rogge, Benjamin A., tlWill Capitalism Survive?" III Imprimis No.5 (May 1974), dis cussing Joseph Schumpeter's Capitalism, Socialism and Democracy (1942).