From 1842, when the U.S. Supreme Court decided Swift v. Tyson, until 1938, when the U.S. Supreme Court decided Erie Railroad v. Tompkins, almost a century, the doctrinally correct assumption that there existed general principles of law that could be discovered and constituted the "common law" which applied in the absence of state or federal statutes to the contrary. This "common law" did not know geographical bounds; it was as relevant in California as it was in Maine. Judges were bound by precedent, but applied with a free hand, guided by a common sense moral intuition that was external to, and perceived to guide common law jurisprudence.
After Erie, the doctrinally correct assumption was that the "common law" was actually made, rather than merely discovered by courts, as a body with the power to make law much like a regulatory agency does. The supposed freedom that an post-Erie conception of law gives to judges, however, also limits them. They no longer have an external body of moral common sense to which they are permitted to appeal when precedents fail them, although policy discussions of the law and economics type have sometimes rushed in to fill the vacuum. Even marginally relevant precedents assume greater weight in the absence of competing principles to guide them.
The pre-Erie conception of the "common law" wasn't exclusive to the federal courts either. In the era when Swift was applicable to differ over the substance of the common law with a sister state was more comparable to ruling that a prior precedent in one's own state was incorrect or misunderstood, than it was to determination that a court with the appropriate authority simply preferred another rule of law as a matter of policy in a case of first impression.
Even today, state courts accept common law decisions from sister states as persuasive. While there are cases when common law rules frankly differ between states, the common law remains harmonious enough between states, as a consequence of its common origins, that courts routinely cite a series of treatises called the Restatements of Law, which purport to set in codified form majority rule doctrine in a variety of common law subject areas. Neither sister state rulings nor Restatements officially have the force of binding law, but courts in practice still give these determinations more weight than the mere force of the ideas behind them.
In summary, Erie represented the triumph of a "positive law" conception of law, which argues that all laws exist because someone with authority created them, from a "natural law" conception of law, which holds that some rights really are self-evident.
Some parts of federal law, like admiralty and constitutional law, have only a thin scaffold of express constitutional language or statutory text to support the elaborate common law-like doctrine that courts apply in those fields (French and German civil codes develop the law of torts similarly), but in the post-Erie era it is seen as necessary to have some sort of legislative or constitutional touchstone for any legal ruling.
A positive law philosophy, in theory, encourages honesty. But, in practice, almost every judge facing a confirmation vote asserts that judges are mere umpires bound to uphold the law who have very little discretion, despite abundant evidence to the contrary. Judges are routinely appointed because their expected positions on the discretionary issues of the day believed to be important are right, and then promptly claim to be appolitical.
Historically, Western philosophy has felt that the ideal of "rule of law" is attainable, while Eastern philosophy has taken a more Faustian view of law as something that can be twisted to confound what is right. Instead, Eastern political philosophy has argued that the problems with "rule of man" are not inherent, but are instead of product of bad men. Westerners have doubted that they were capable of installing Platonic philosopher kings to guide them, enshrining the aphorism, "Power Corrupts and Absolute Power Corrupts Absolutely" into their canon of wisdom. The classic Confucian system took the stance that it was easier to select good men than it was to utilize lawyers to compel bad men to rule justly.
American politics has also places great weight on constitutions, and relegated those who apply the constitution and the laws adopted under it, to a secondary role.