tion as to the right of the state to regulate the business of insurance, even to the extent of fixing the rates of premium.1 .17 Can this power of regulation be carried so far as to assume the trusteeship of the "life fund," and pay out of the public funds the initiation and maintenance of such fund? Many private occupations, such as the construction of private dwellings along the streets of a city, the sale of illuminating oil,18 the inspection of products offered for sale,19 the exhibition of children below a certain age on the stage,20 the plumbing trade,21 bear such a relation to the public welfare that they may be regulated under the police power of the state. However, no one would urge that the state may construct private buildings, sell illuminating oil, exhibit children, or engage in raising them on a baby farm, or engage in the plumbing business. It may be urged that the insurance business is subject to a greater degree of regulation. Certainly the state's supervision over the insurance business is not broader than over banks and trust companies. Still it has never been held that the state may go into the banking business. As the right of the Federal government to conduct the Postal Saving Bank has never been passed upon, the mere fact that it does so is no argument in favor of the validity of state insurance. Both may be open to the same constitutional objections.

Finally, the position may be taken that, inasmuch as it has been decided by the United States Supreme Court that the public interest is involved in the insur

17 German Alliance Ins. Co. v. Lewis, 233 U. S. 389, 58 L. ed. 1011, 34 Sup. Ct. Rep. 612, L.R.A. 1915C, 1189.

18 United States v. Dewitt, 9 Wall. 41, 19 L. ed. 593.

19 Com. v. Carter, 132 Mass. 12.

20 People v. Ewer, 141 N. Y. 129, 38 Am. St. Rep. 788, 36 N. E. 4, 25 L.R.A. 794.

21 Singer v. Maryland, 72 Md. 464, 19 Atl. 1044, 8 L.R.A. 551.

22 The right of the state or city to own and operate public utilities is recognized in many cases, e. g., Walla Walla v. Walla Walla Water Co. 172 U. S. 1, 43 L. ed. 341, 19 Sup. Ct. Rep. 77; Knoxville Water Co. v. Knoxville, 200 U. S. 22, 50 L. ed. 353, 26 Sup. Ct. Rep. 224; Vicksburg v. Vicksburg Water Works Co. 202 U. S. 453, 50 L. ed. 1102, 26 Sup. Ct. Rep. 660, 6 Ann. Cas. 253; Jopplin v. Southwest Missouri Light

ance business to such a degree as to justify state rate making, that this puts insurance in the same class with those activities, such as public utilities,22 which may be either owned and operated by the government, or left to private initiative subject to a large degree of governmental regulation, including the regulation of rates. Probably the Federal government may also own and operate. interstate railroads, telegraph, and telephone lines. From this it does not necessarily follow that the state may engage in the business of insurance. The right to regulate in the instances above enumerated grows out of the right of the state to perform the function itself. The right to regulate insurance companies grows out of the public interest involved. This is made clear by other instances in which state regulation of rates was upheld. We are told that "it has been customary in England from time immemorial, and in this country from its first colonization, to regulate ferries, common carriers, hackmen, bakers, millers, wharfingers, innkeepers, etc., and in so doing to fix a maximum of charge to be made for services rendered, accommodations nished, and articles sold." That "to this day, statutes are to be found in many of the states upon some or all of these subjects.23 A curious instance of this is a case in Louisiana 24 in which the regulation by the state of the price of bread was upheld. Again government regulation of charges for the use of stockyards,25 and for grain elevator service,26 have been upheld because of the public inter

fur

Co. 191 U. S. 150, 48 L. ed. 127, 24 Sup. Ct. Rep. 43; Helena Waterworks Co. v. Helena, 195 U. S. 383, 49 L. ed. 245, 25 Sup. Ct. Rep. 40; Atty. Gen. v. Eau Claire, 37 Wis. 400; State v. Eau Claire, 40 Wis. 533; Wisconsin Water Co. v. Winans, 85 Wis. 26, 41, 39 Am. St. Rep. 813, 54 N. W. 1003, 20 L.R.A. 662.

23 Budd v. New York, 143 U. S. 517, 36 L. ed. 247, 4 Inters. Com. Rep. 45, 12 Sup. Ct. Rep. 468.

24 Guillotte v. New Orleans, 12 La. Ann. 432.

25 Munn v. Illinois, 94 U. S. 113, 24 L. ed. 77; Brass v. North Dakota, 153 U. S. 391, 38 L. ed. 757, 4 Inters. Com. Rep. 670, 14 Sup. Ct. Rep. 857; Budd v. New York, supra.

26 Cotting v. Kansas City Stock Yards Co. (Cotting v. Godard) 183 U. S. 79, 46 L. ed. 92, 22 Sup. Ct. Rep. 30.

est involved. In none of these cases and at no time has it been contended that the state could constitutionally engage in these occupations because it has the undoubted right to fix the rate of charges. Thirty-eight years have not yet elapsed since Chief Justice Waite of the United States Supreme Court extracted the doctrine that "when . . one devotes his property to a use in which the public has an interest, he .. must submit to be controlled by the public for the common good" from an old English law treatise and some old English cases 28 and applied it to grain elevators. Still in all this time it has never been sought to be applied, except in one instance, in such a way as to authorize the government to engage in this occupation. In that case the court held that the right to regulate a business in its most minute detail, including the fixing of rates of charge, did not carry with it the right to engage in that business. In that case the legislature of Minnesota had provided for the erection and operation of a grain elevator by the state. The following quotation from the opinion of that case is pertinent in this connection:

"The position of defendant's counsel really amounts to this: that whenever those who are engaged in any business which is affected with a public interest, and hence the subject of government regulation, do not furnish the public proper and reasonable service, the state may, as a means of regulating the business, itself engage in it, and furnish the public better service at reasonable rates, or, by means of such state competition, compel others to do so. The very statement of the proposition is sufficient to show to what startling results it necessarily leads. . . . The police power of the state to regulate a business does not include the power to engage in carrying it on." 29

From what has been said it seems clear, first, that even conceding the state may spend public funds to anticipate poverty, which is exceedingly doubtful, the Wisconsin law creating the "life fund" cannot be upheld on this ground, because it

27 Munn v. Illinois, 94 U. S. 113, 24 L. ed. 77.

28 Hale, Sir Matthew, De Portibus Maris, 1 Hargrave's Law Tracts, 78; Bolt v. Stennett, 8 T. R. 606, 5 Revised Rep. 486; Allnutt v. Inglis, 12 East, 527, 11 Revised Rep. 482.

Rippe v. Becker, 56 Minn. 100, 57 N. W. 331, 22 L.R.A. 857.

has no direct tendency to bring about such a result. Second, that although insurance is subject to the most minute regulation at the hands of the state, including the fixing of the rates of premium, this power of regulation may not be exercised by going into the insurance business. The result of these two propositions is that the Wisconsin act creating the "state life fund" cannot be upheld as an exercise of the police power of the state. Consequently the expenditure of public funds for the purpose of carrying into effect this law cannot be justified as in aid of the police power of the state. It remains to be shown that the expenditure of public funds in aid of private individuals, and not in the exercise of the state's police power, is illegal.

The expenditure of public funds in aid of private individuals, and not in the exercise of the state's police power, is illegal.

It is elementary and too well settled in this state and elsewhere to require a citation of the numerous authorities to that effect, that the state's power of taxation may be exercised only for a public purpose, and that the proceeds of taxation may not be devoted to a private use. It is equally clear that "a legislature which has no power to authorize the levy of a tax .. for a private purpose, has no power to draw that authority to itself, or to create it by its mere declaration that a private purpose is a public one. . . A legislature cannot make a private purpose a public one by its mere fiat."80 Does state insurance as provided for by the Wisconsin act in question condetermining this question is indicated in stitute a public purpose? The test for several well-known cases.31 To quote from one:

"It (the term public purpose) is ... merely a term of classification, to distinguish the object for which, according to settled usage, the government is to provide, from those which,

30 Dodge v. Mission Twp. 54 L.R.A. 242, 46 C. C. A. 661, 107 Fed. 827.

31 People ex rel. Detroit & H. R. Co. v. Salem Twp. 20 Mich. 452, 4 Am. Rep. 400; Citizens Sav. & L. Asso. v. Topeka, 20 Wall. 655, 665, 22 L. ed. 455, 461.

by like usage, are left to private inclination, interest, or liberality." 88

Neither in this country nor in England has life insurance ever been considered a public purpose entitled to be aided by taxation.38 No case is on record in which insurance was held to constitute a public purpose and consequently entitled to be aided by taxation, except those few recent ones later discussed, in which the

expenditure of public funds was justified as in aid of the police power. It seems clear, therefore, that state insurance does not come within the test above laid down.

State insurance has been shown not

to be an exercise of a governmental function. Likewise, it has been shown that the Wisconsin statute establishing the "life fund" cannot be upheld as an exercise of the state's police power. Furthermore, as shown above, it has never been held to constitute a public purpose in the aid of which the expenditure of public funds is permissible. It follows that it is a scheme for extending governmental aid to certain individuals, a device for taxing the great mass of people for the benefit of a select few, a contrivance for taking money out of the pocket of one citizen and putting it into the pocket of another, justified probably on the ground that it is in furtherance of some vague, illusive, socialistic, and communistic ideal of social justice. That this is its purpose can be gathered from the following statement of an advocate of compulsory state insurance:

"Another advantage to be gained from governmental insurance may lie in the fact that

32 People ex rel. Detroit & H. R. Co. v. Salem Twp. supra.

33 Vance, Handbook on the Law of Insurance, chapter I.

84 Farnam, Henry W., Governmental Insurance, in Yale Insurance Lectures, vol II. page 285.

35 Beach v. Bradstreet, 85 Conn. 344, 82 Atl. 1030, Ann. Cas. 1913B, 946; Lowell v. Boston, 111 Mass. 454, 15 Am. Rep. 39; State ex rel. Griffith v. Osawkee Twp. 14 Kan. 418, 19 Am. Rep. 99; Lucas County v. State (Davies v. State) 75 Ohio St. 114, 78 N. E. 955, 7 L.R.A. (N.S.) 1196; William Deering & Co. v. Peterson, 75 Minn. 118, 77 N. W. 568; State ex rel. Garth v. Switzler, 143 Mo. 287, 65 Am. St. Rep.

the government can make use of its taxing and of its governing power to carry it through. In other words, it need not conduct the business on actuarial principles exclusively. It can give certain classes benefits out of proportion to the premiums which they pay. In other words, it can combine the quasi-tax of the insurance company with the real tax imposed by sovereignty. If it decides to do this, it is not guided by merely commercial considerations. It hopes to influence the distribution of wealth." 34

aid to individuals except in the exercise It is settled beyond all question that of the state's police power or in the exercise of a governmental function, even though the community may indirectly and incidentally be benefited by such aid, does not constitute a public purpose.3 Quotations from a few of the cases cited

are in point.

"The power to levy taxes is founded on the right, duty, and responsibility to maintain and administer all the governmental functions of the state, and to provide for the public welfare. To justify an exercise of the power requires that the expenditure which it is intended to meet shall be for some public purpose, or some object which concerns the public welfare. The promotion of the interests of individuals, either in respect to property or business, although it may result incidentally in the advancement of the public welfare, is, in its essential character, à private and not a public object. However certain and great the resulting good to the general public, it does not, by reason of its comparative importance, cease to be incidental. The incidental advantage to the public, or to the state, which results from the promotion of private interests, and the prosperity of private enterprises and business, does not justify their aid by the use of public money raised by taxation, or for which taxation may become necessary. It is the essential character of the direct object of the expenditure which must determine its validity, and justify a tax, and not the magnitude of the interest to be affected, nor the degree to which the general 653, 45 S. W. 245, 40 L.R.A. 280; Deal v. Mississippi County, 107 Mo. 464, 18 S. W. 24, 14 L.R.A. 622; Atty. Gen. v. Eau Claire, 37 Wis. 400; Curtis v. Whipple, 24 Wis. 350, 1 Am. Rep. 187; Jenkins v. Andover, 103 Mass. 94; Weismer v. Douglas, 64 N. Y. 91, 21 Am. Rep. 586; Opinion of Justices, 204 Mass. 607, 91 Ñ. E. 405, 27 L.R.A.(N.S.) 483; Re Eureka Basin, Warehouse & Mfg. Co. 96 N. Y. 42, 48, 49; Turner v. Althaus, 6 Neb. 54, 71; Good v. Zercher, 12 Ohio, 367; Norman v. Heist, 5 Watts & S. 171, 40 Am. Dec. 493; Denny v. Mattoon, 2 Allen, 361, 79 Am. Dec. 784; Greenough v. Greenough, 11 Pa. 494, 51 Am. Dec. 567; Shawnee County v. Carter, 2 Kan. 131; Holden v. James, 11 Mass. 396, 6 Am. Dec. 174.

advantage of the community, and thus the public welfare, will be ultimately benefited by their promotion." 36

Equally if not more pertinent, especially in view of the fact that the state which created the "life fund" has also sought to extend the term "public purpose" in many other directions, is a quotation from a brief of a former chief justice of the Wisconsin supreme court, L. S. Dixon, filed in the case of Atty. Gen. v. Eau Claire,37 and printed in full in the reports:

"The revenues of the state are a portion that each subject gives of his property in order to secure or to have the agreeable enjoyment of the remainder. To fix these revenues in a proper manner, regard should be had to the necessities of the state, and those of the subject. The real wants of the people ought never to give way to the imaginary wants of the

state.

"Imaginary wants are those which flow from the passions and weakness of governors, from the charms of an extraordinary prospect, and from the distempered desire of vainglory, and from a certain impotency of mind, rendering it incapable of withstanding the attacks of fancy. Often has it happened that ministers of a restless disposition have imagined that the wants of their own little and ignoble souls were those of the state. Montesquieu, Spirit of Laws, Book XIII. chap. I.

"Here, where all citizens are, in a certain sense 'governors' and 'ministers,' as well as 'subjects,' and projects of legislation looking mainly for private gain and emolument, though well cloaked under specious pretenses of regard for the public weal, are as numerous as the locusts in Egypt, these suggestions of the wisdom and prudence of our old days ought to be carefully regarded; and it is especially becoming to our legislators to be cautious not to overstep the constitutional boundaries of their authority, nor to inaugurate a system of legislation the manifest aim and end of which is to enhance private gain at the public expense. Opinion of Justices, 58 Me. 608-609."

Apparently contra to the principle stated, and in support of which the foregoing remarks were quoted, are State ex rel. New Richmond v. Davidson,38 and State v. Nelson County.39 In the first of these it was held that the legislature might lawfully appropriate the public money to pay a debt incurred by a municipality which was stricken by a cyclone, for burying its dead, removing débris,

36 Lowell v. Boston, 111 Mass. 454, 461, 15 Am. Rep. 39.

37 37 Wis. 400.

and caring for the injured and homeless. In the other case, an act authorizing counties to issue bonds to procure seed grain for needy farmers who might be unable to procure the same was held valid as authorizing taxation for a public purpose. It is submitted that both of these cases can be supported under a liberal definition of the police power, which finds further support in the state insurance cases hereafter discussed, and that they do not militate against the general principle above stated. It follows that the use of public funds for the initiation and promotion of the Wisconsin "life fund" is unconstitutional.

Cases involving the question of state insurance.

Several decisions handed down within the last three or four years directly involve the question of state insurance. It is proposed now to examine these in some detail. In 1909 the legislature of Montana passed an act which provided that each coal-mine operator should make certain monthly payments to the state auditor. Part of these payments was to come out of the wages of employees, withheld from them, and part from the operators. These payments were to be used to constitute a fund out of which employees were to be compensated for injury and total disability, and their dependents for their death. Employees resorting to an action at law were to lose their right to compensation. Certain duties were imposed by this act upon the state auditor, the state treasurer, and the state board of health, in connection with the administration of the fund thus created. An action was brought by the state auditor against a corporation within the purview of this act for the payments provided for. The court sought to justify the act as a proper exercise of the police power, but finally held it unconstitutional because it did not abolish actions at law for injuries or death, and as a result, employers, after full compliance with the act, were still subject to be sued and compelled to pay damages. This was

38 114 Wis. 563, 88 N. W. 596, 90 N. W. 1067, 58 L.R.A. 739.

391 N. D. 88, 26 Am. St. Rep. 609, 45 N. W. 33, 8 L.R.A. 283.

held to deprive employers of the equal protection of law. 40

It is to be noted, first, that everything said by the court as to the constitutionality of the act as a proper exercise of the police power is dicta, pure and simple, as it was necessary to declare the act unconstitutional on another ground. In the second place, the argument seeking to uphold the act as a proper exercise of the police power was based on a statement in the opinion of Noble State Bank v. Haskell, ❝ to the effect that the police power "may be put forth in aid of what is held by the prevailing morality or strong and predominant opinion to be greatly and immediately necessary to the public welfare." This novel reason loses much of its force because the decision in Noble State Bank v. Haskell was based also on other reasons better sanctioned by authority. In the third place, even conceding, for the sake of argument, that the act can be upheld as a proper exercise of the police power, it has been shown that because the Wisconsin act is general in its application, and not limited to a particular class engaged in an extrahazardous occupation, as the Montana act undoubtedly is, it cannot be so upheld. Finally, the question whether or not the people generally may be taxed for the administration of such a fund was not raised and not discussed or passed upon.

42

The Montana act was very similar to the Washington act dealing with the same subject, and which had been held constitutional 12 when the constitutionality of the Montana act was raised. In the case upholding the constitutionality of the Washington act, it was decided, although that point was not discussed by the court except in the dissenting opinion, and apparently not argued, that the state auditor could be compelled by mandamus to pay for furniture provided for the "Industrial Insurance Department," which was to administer the fund. appropriation had been made for the sal

An

40 Cunningham v. Northwestern Improv. Co. 44 Mont. 180, 119 Pac. 554, 1 N. C. C. A. 720. 41 219 U. S. 104, 55 L. ed. 112, 31 Sup. Ct. Rep. 186, Ann. Cas. 1912A, 487, 32 L.R.A. (N.S.) 1062.

42 State ex rel. Davis-Smith Co. v. Clausen, 65 Wash. 156, 117 Pac. 1101, 2 N. C. C. A. 823, 3 N. C. C. A. 599, 37 L.R.A. (N.S.) 466.

aries and expenses of this department. The opinion itself is devoted to upholding the act as an exercise of the police power. It should be noted in connection with this case, first, that as the point was not argued or discussed by the court, this case is only a very weak authority for the proposition that public money may be used for the administration of a state insurance scheme. Second, this act confines its benefits to a particular class, and is therefore different from the Wisconsin statute, which is general in its application.

Al

The Ohio act, also involving the subject of workmen's compensation by means of a state fund, was upheld in State ex rel. Yaple v. Creamer.13 though including all employers of five or more employees, it was upheld as a proper exercise of the police power. Consequently it was decided that public money may be used in Ohio for the administration of a state insurance scheme. The only difference between the Ohio act and the Wisconsin act is that the former is less general in its nature. Probably in these days of rapid changes and of an ever increasing sense of social responsibility, all employees may be considered more or less likely to become poverty stricken, and hence proper subjects for protection under the paternalistic wing of the state. It must have been on some such altruistic or exaggerated humane theory of the duty of the state as this that the Ohio act was upheld.

We come now to a group of cases which, if not carefully studied to determine exactly what is decided, may cause considerable difficulty. considerable difficulty. These opinions, when read in connection with the opinions of the lower Federal courts, of the state supreme courts which passed upon the question, and the opinion on the petition for a rehearing, present no real difficulty. Although Justice Holmes used some unusually radical language as to the scope of the police power in the

48 85 Ohio St. 349, 97 N. E. 602, 1 N. C. C. A. 30, 39 L.R.A. (N.S.) 694. This case was decided before the Ohio Constitution was amended so as to provide for the enactment of a compulsory compensation act including the state insurance feature.