Commerce among the States

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A national power to regulate commerce, along with the closely connected need for national revenues, was the most immediate cause of the Philadelphia Convention that drafted the Constitution. Three attempts had been made to give Congress this power under the Articles of Confederation, and the 1786 Annapolis Convention that proposed the Philadelphia Convention was itself an outgrowth of commercial disputes among the states bordering the Chesapeake Bay. By 1787 many felt that the commercial plight of the nation was bad and deteriorating. The single biggest issue was the largely unexpected exclusion of Americans from most trade with the British Caribbean resulting from the Order in Council of July 2, 1783, which cut off the United States from its largest and most profitable export market. Americans depended on the island trade for profits in order to pay for British manufactured goods. Without this trade, Americans ran up a large trade deficit because of a flood of British manufactured imports as soon as the war was over, which also undercut infant American manufacturers. Britain’s policy was seen by many, especially Madison, as an attempt to keep the former colonies commercially dependent on the former mother country. In addition, as Madison bluntly adverted to in his Vices of the Political System of the United States, written on the eve of the Convention, the states were injuring their commerce with each other as well as foreign commerce by taxing and discriminating against each other’s trade, violating treaty obligations, and other measures. The power to regulate commerce, therefore, grew out of recognition of the need to create a national economic unit that could bargain as a whole with Britain, while eliminating internal barriers and discrimination.

Creating a national power over commerce and taking much of the power from the states required complicated compromises because it unleashed complex new dynamics. In particular, the slave states, especially North Carolina, South Carolina, and Georgia, deeply feared that the power over commerce might be exercised by a northern majority to endanger slavery. The commercially weaker states, such as New Jersey, Connecticut, Delaware, Maryland, North Carolina, and Georgia, all depended on the ports of neighboring larger states for their imports and exports, and therefore demanded an end to import, export and other fees and discrimination by their stronger neighbors. They also feared that their more populous neighbors would use the national power over commerce to continue to exploit them. Thus the delegates debated long over whether the power over commerce should require a supermajority, which the South wanted, or be exercised by simple majority, as eventually agreed; and they surrounded it with a constellation of clauses limiting state and federal power that both prohibited exploitation and promoted an open internal market, and still allowed for a state role, such as those dealing with no federal export taxes, no state import or export duties, no state tonnage or inspection duties or fees, no port preferences, protections of slavery, and others. Most of their attention was on foreign trade, with little discussion of commerce among the states.

The power that emerged was a power to regulate three kinds of commerce: among the several states, foreign, and with the Indian tribes, and implied a fourth kind left to the states, generally called the domestic, internal or later, the intrastate commerce power. (No paragraph here.) Because so much time was spent on limits on the power over commerce, virtually no time was spent in the Philadelphia Convention or in the state ratifying conventions discussing the extent of the power to regulate commerce itself, or on differences between or limits on its branches, allowing considerable room for disagreement and Court interpretations over the centuries of this very important power. In addition, as the nation’s economy shifted away from dependence on foreign trade during the 1780's to one largely oriented to developing a vast internal market a few decades later, the economy became more fully monetized, local markets became more fully integrated nationally, a tiny manufacturing sector grew to a dominant one a century later, technology produced new goods, dominant theories of national wealth production changed from mercantilism to laissez-faire to a somewhat more socially oriented government, and as federalism itself changed, the challenge of defining the regulation of commerce in connection with maintaining the federal system seemed to become ever more complex and difficult to connect to the Framers’ understandings.

EARLY INTERPRETATIONS

Until the passage of the 1887 Interstate Commerce Act regulating railroads, Congress exercised the power over commerce infrequently and narrowly, primarily over navigation and customs, so that the Court dealt largely with state laws that seemed to interfere with commerce among the states rather than evaluating federal laws. Gibbons v. Ogden (1824) was the Marshall Court’s first and main opportunity to define the power over commerce. The State of New York had granted a monopoly of steamboat transportation to Robert Fulton and his successor, Aaron Ogden. In retaliation, New Jersey and Connecticut imposed fines on anyone sailing under protection of such a monopoly. To Supreme Court Chief Justice John Marshall, this “threatened to revive all the defects of the Confederation” and was precisely the kind of situation that the power over commerce was designed to prevent. Marshall struck down the monopoly as being preempted by the federal Coastal Licensing Act, which licensed Thomas Gibbons’s boat. The decision established that the federal power over commerce among the states certainly applied to transportation, including new technologies such as steam, but that it included buying and selling and more, “the commercial intercourse between nations, and parts of nations, in all its branches.” Rejecting the argument that the power over commerce among the states could regulate only on the border between states, Marshall said that “among” meant “intermingled with” and could reach inside a state where necessary, and that the national power was complete in itself, like the power wielded by a unitary government. He acknowledged a sphere of state internal powers including powers over commercial objects, but argued that the national government could regulate local activities when they affected commerce among the states. While popular, broad, and nationalist, the decision did not clearly resolve issues such as precisely what activities were considered to be commercial, whether in the absence of a clear conflict with federal statutes a state could continue to exercise a concurrent state power over commerce or whether the federal power was exclusive, and how far activities not commercial in themselves might be regulated in order to regulate commerce among the states. In large part, these issues still occupy the Court.

In Willson v. Black-Bird Creek Marsh Co. (1829), where Delaware had authorized the damming of a navigable stream, Marshall accepted under the circumstances of that case the right of states to regulate activities that might affect commerce among the states, where the congressional power over commerce was in “its dormant state,” meaning that Congress had not legislated in that particular area. However, the power over commerce as interpreted by the Court could still preempt state laws that seemed to interfere with commerce among the states sufficiently.

After Marshall, under Chief Justice Roger Brooke Taney, a more state-oriented Court seeking to minimize federal power so as to avoid possible federal interference with slavery developed themes that came to be called “dual federalism” and which, though obviously no longer applicable to slavery, provided a basis for many of the decisions after the Civil War that limited federal power. Decisions were generally pro-state though often unclear as to why, as the Court tried to avoid decisions that might imply a federal power to regulate slavery, the New York v. Miln (1837), License Cases (1847) and the Passenger Cases (1849) being good examples. In New York v. Miln (1837), the Court found that a New York law imposing bonds and fines on ship captains who brought pauper immigrants into the city did not interfere with the power over commerce because people were not articles of commerce, and instead was an exercise of the state police power, the first time this power was used to allow states to regulate the content of vessels moving among the states. In Cooley v. Board of Wardens (1852), involving the right of the Port of Philadelphia to impose charges on ships entering the port but not hiring local pilots, the Court formulated a rule of “selective exclusiveness” whereby matters that were “in their nature national, or admit only of one uniform system,” would preempt state action even without congressional action, while other types of state actions might not necessarily be prohibited by the Court. This doctrine seemed to reinforce the dualistic interpretation of the Tenth Amendment, but unfortunately the Court did not provide much guidance on how to tell what was “national” and what was not.

THE POST–CIVIL WAR AND THE GROWTH OF THE NATIONAL ECONOMY ERA

After the Civil War the economy became increasingly manufacturing based, with national enterprises and railroads. In 1886 the court struck down state regulation of railroads under Cooley if the railroads were “interstate” in Wabash, St. Louis & Pacific Railway Co. v. Illinois. This left the (by now largely national) railroad network unregulated, and impelled Congress to pass the Interstate Commerce Act the next year. The Court now began to interpret how far federal law could go under the power over commerce. In the Shreveport Rate Cases (1914), the court upheld regulation of railroads inside states under this act as a necessary adjunct of interstate regulation. Chief Justice Charles Hughes wrote that the intrastate activities of carriers “having a close and substantial relation to interstate traffic” were subject to national regulation, “not because Congress possesses the authority to regulate the internal commerce of a State, as such, but that it does possess the power to foster and protect interstate commerce.”

In addition to railroads, the Court also allowed some expansion of federal power over commerce into the previously untouched areas of morals or social activities, creating a federal police power that might compete with that of the states. In Champion v. Ames (the Lottery Case; 1903), the Court upheld against Tenth Amendment challenges, instead accepting a national law prohibiting the transportation across state lines of lottery tickets because the tickets as articles of commerce were evil in themselves. In Hipolite Egg Company v. United States (1911), the Court upheld the Pure Food and Drug Act’s bans on interstate transportation of dangerous food; and in Hoke v. United States (1913), the Court validated the Mann Act, prohibiting the transportation of women across state lines for immoral purposes.

Otherwise, however, the court was less favorable to federal legislation. For example, in United States v. E. C. Knight Company (1895), the case whose name stands for the Court’s restrictive policies toward national legislation during this era, the Court eviscerated the new Sherman Antitrust Act by declaring that even though a monopoly of manufacturing—98 percent of the nation’s sugar refining capacity—was proven, Congress could not regulate it or break it up because manufacturing itself was not commerce and only indirectly affected it, a distinction widely felt to be artificial. As a result, regulation of manufacturing was reserved to the police powers of the states, and the commerce-prohibiting power upheld in the morals and police power cases mentioned above could not reach manufacturing, the largest sector of the economy. In Hammer v. Dagenhart (the Child Labor Case; 1918), the Court narrowly overturned a law prohibiting the interstate transportation of goods manufactured by child labor. However, in Swift & Company v. United States (1905) the Court did approve Sherman Act prohibitions of price fixing in meat dealing, finding that even though individual transactions involving cattle going to market were largely inside states, the whole business was part of a single national “current of commerce” that could be nationally regulated.

While the Court often struck down federal laws based on deference to federalism, it was not particularly supportive of state regulation of commerce either. In Lochner v. New York (1905), for example, the Court overturned New York’s restrictions on hours and conditions of bakery workers as exceeding the state police powers and as violating Fourteenth Amendment due process–based “freedom of contract” limits on state power. Lochner’s restrictions on state policies combined with court restrictions on federal laws such as Knight created the sense that the court’s defense of the states against the federal power over commerce was secondary to its interest in laissez-faire policies.

THE NEW DEAL ERA

Thus, the status of the power over commerce among the states versus federalism was a complicated one as Franklin D. Roosevelt took office in 1933 with an unprecedentedly broad agenda to counter the effects of the Depression, to create the rudiments of a national welfare system and to broadly promote economic development. At first there were major confrontations as the Court struck down many, though not all, of Roosevelt’s early programs under the power over commerce. The Court often cited federalism as the reason, though many felt that the Court’s ideological commitment to laissez-faire was as much if not more the explanation. In Schechter Poultry Corporation v. United States (1935), the Court applied the Knight direct-indirect, commerce versus production distinction, as well as the argument that Congress had wrongly delegated its own legislative power, striking down the National Industrial Recovery Act, a key New Deal law that regulated wages, hours, and industry practices, for intruding on “intrastate business.” The next year in Carter v. Carter Coal Co., the Court applied the same logic to strike down the Bituminous Coal Conservation Act setting wage and hour controls for coal mining. After his massive 1936 electoral victory, a frustrated Roosevelt proposed his “court-packing” plan to save his domestic programs. While Congress was still debating the plan, however, in April 1937 the Court made a momentous change of direction. In NLRB v. Jones and Laughlin Steel Corporation, which challenged new federal rules requiring corporations to recognize and deal with unions under the 1935 Wagner Act, the Court by 5–4 explicitly abandoned the rigid and impractical Knight approach, and instead extended the practical approach of Shreveport and Swift, looking less to artificial distinctions than to how something affected commerce among the states. In upholding the Act, the Court recognized that it “is the effect upon commerce, not the source of the injury, which is the criterion.” In United States v. Darby (1941), the Court relied on Shreveport to uphold wage and hour restrictions under the 1938 Fair Labor Standards Act, and specifically overruled Hammer v. Dagenhart in upholding the act’s ban on the shipment of goods made without complying with the law. Justice Harlan Stone took specific aim at the Tenth Amendment, asserting it was but “a truism that all is retained which has not been surrendered,” ending for several decades the idea that certain areas of commercial activity or state activities that affected commerce were inherently reserved to the states.

The broadest application of the power over commerce came in Wickard v. Filburn (1942). Roscoe Filburn was fined for growing wheat in excess of the quota allowed under the Agricultural Adjustment Act, which tried to help raise depressed farm prices by limiting the supply of grain. He argued that because the excess wheat he grew was for his personal consumption and use, it was local and noncommercial activity and not under the power over commerce among the states. The Court found that “even if [Filburn’s] activity be local and though it may not be regarded as commerce, it may still, whatever its nature, be reached by Congress if it exerts a substantial economic effect on interstate commerce.” Moreover, “That [Filburn’s] own contribution to the demand for wheat may be trivial by itself is not enough to remove him from the scope of federal regulation where, as here, his contribution, taken together with that of many others similarly situated, if far from trivial.” Thus trivial, local, noncommercial activity could trigger federal regulation if it affected commerce in the “aggregate.”

For nearly seventy years, the Court deferred almost totally to broad regulation by Congress under the power over commerce. In the vitally important cases Katzenbach v. McClung (1964) and Heart of Atlanta Motel v. United States (1964), the Court resoundingly endorsed the use of the affecting commerce test as well as the aggregation test of Wickard to sustain the public accommodations sections of the landmark 1964 Civil Rights Act. In both cases the Court endorsed reaching inside a state to regulate activities such as renting hotel rooms and restaurant service that, while commercial, might be only marginally “interstate” in themselves, on the grounds that the activities collectively affected commerce among the states. A federal police power was strengthened based on the Wickard rationale in 1971 in Perez v. United States, which upheld a federal criminal law against loan sharking. In 1981 the court similarly upheld an environmental law regulating strip mining in Hodel v. Virginia Surface Mining and Reclamation Association. Little seemed to stand in the way of Congress using the power over commerce for virtually any regulation of the economy, or of non-commercial matters that affected the economy.

However, directly regulating states themselves as economic actors gave the Court more difficulty. In National League of Cities v. Usery (1976), Justice William Rehnquist, writing for a closely divided Court, did try to set a limit by protecting “traditional” and “integral governmental functions” of state and local government from application to them as employers of the Fair Labor Standards Act provisions on hours and wages. To be sure, the Court had always noted that there were limits to the power over commerce, as it did even in Wickard. The Usery test proved unworkable, however, and was rejected in 1985 in Garcia v. San Antonio Metropolitan Transit Authority. Garcia adopted Herbert Wechsler’s “political safeguards of federalism” doctrine—meaning that the electorate’s hold over Congress and the president should be the main check on the power over commerce where it impinged on state and local government.

LOPEZ V. UNITED STATES

But the Court was still closely divided over federalism and the regulation of commerce. In 1992, in New York v. United States, the court struck down part of a federal commerce power-based law requiring New York to take title to nuclear waste, with Justice Sandra Day O’Connor finding that the national government could not simply “commandeer” state governments to follow federal directives on something as fundamental as taking title to property. The anticommandeering principle again was employed in Printz v. United States (1997), where the Court struck down part of the Brady Gun Control Bill requiring local police to do background checks on gun purchasers.

But the Court’s most significant decision limiting the power over commerce among the states since 1937 came in Lopez v. United States (1995). Finding that the Gun-Free School Zone Act of 1990 went too far by making it a federal crime to possess a gun within 500 feet of a school, an activity neither commercial nor among the states, the Court posed new limits on Congress’s power to regulate commerce in order to prevent the power over commerce becoming “a general police power of the sort retained by the States.” Writing for the five-member majority, Chief Justice Rehnquist addressed the question of whether things affecting commerce needed to substantially or significantly affect commerce, choosing “substantially.” The Court also posed the additional requirement that the power over commerce among the states could only apply to things that were “economic in nature.” Rehnquist’s majority and the concurring opinions by Justices Anthony Kennedy and O’Conner focused heavily on the need to protect federalism from limitless federal power, while Justice Clarence Thomas’s concurrence urged a return to what he asserted was the framers’ intent that the power over commerce only regulate buying, selling, barter, and transportation.

Lopez was precedent for U.S. v. Morrison (2000), striking down the Violence against Women Act as exceeding the power over commerce among the states, because violence against women was not economic in nature. Rejecting federalism principles, however, and extending the commerce power at least as far as Wickard, the Court in Gonzales v. Raich (2005) decided that the Federal Controlled Substances Act’s ban on marijuana overrode state laws legalizing medical marijuana and even the right of an individual to grow her own marijuana for medicinal purposes. The justification was the need to support the overall Controlled Substances Act.

Following New York v. United States’ expanded view of inherent state sovereignty and Lopez, however, came a series of “new federalism” decisions, striking down parts of the Age Discrimination in Employment Act (Kimel v. Florida Board of Regents (2000)), the Fair Labor Standards Act (Alden v. Maine (1999)), and other acts granting citizens rights to sue states for violation of these laws under federal laws passed under the power to regulate commerce among the states.

Following Lopez, it was thus not surprising that in the Obamacare decision, National Coalition v. Sebelius (2012), the Court struck down use of the power over commerce to mandate that persons without health care purchase it or pay a fine. The government defended this use of the commerce power arguing that everyone would need health care at some time in their life. Chief Justice Roberts, however, for a bare majority of the “conservative” justices cited Lopez for the conclusion that the power over commerce did not reach as far as compelling individuals to participate in commerce. Roberts then formed a bare majority with the “liberal” justices to sustain the mandate under the tax power! The majority also struck down as coercive under the spending power cutoff of all Federal Medicaid funds to states if they did not join Obamacare. Sebelius confirmed the Court’s willingness to uphold Lopez and limit the federal government’s power under the Commerce clause, but also confirmed broader federal power under the taxing power.

In environmental law, the Court slightly narrowed the jurisdiction claimed by the EPA and the Army Corps of Engineers under the commerce power in Solid Waste Agency of Northern Cook County v United States (2001). While already having jurisdiction over navigable waters of the US and waters adjacent to them, the agencies also sought jurisdiction over isolated bodies of water if they were used by waterfowl that crossed state lines. But citing Lopez and Morrison, the Court’s “conservatives” narrowly rolled back the agencies’ extension of jurisdiction.

The Court has used similar logic to weaken the power over Indian commerce. Though these decisions are based on the Court’s desire to give greater scope to the inherent sovereignty or dignity of the states, the practical effect of these “state sovereignty” and “anticommandeering” decisions is to somewhat limit the reach of the power to regulate commerce among the states, since most of the laws struck down were passed under the power over commerce.

In sum, limits (though broad) on the power over commerce among the states and some deference to federalism developed since the 1990’s still loosely dominate Court decisions.

THE DORMANT COMMERCE CLAUSE AND PREEMPTION

In Willson v. Black-Bird Creek Marsh Co. (1829), where Delaware had authorized the damming of a navigable stream, Supreme Court Chief Justice Marshall accepted under the circumstances of that case the right of states to regulate activities that might affect commerce among the states, where the congressional power over commerce was in “its dormant state,” meaning that Congress had not legislated in that particular area. However, in principle this power over commerce as interpreted and applied by the Court could still preempt state laws that sufficiently interfered with commerce among the states. This gave rise to what is called the Dormant Commerce Clause Doctrine (DCCD).

A few years later, with Marshall gone, the country rapidly growing internally, aided and regulated largely by state and local government, and the slavery issue increasingly polarizing national politics, the court moved under Chief Justice Roger Brooke Taney’s leadership to a position less nationalist than under Marshall and more explicitly favorable to state freedom to pass laws that affected commerce where there was no congressional statute involved, an attempt to avoid any possible entanglements over slavery. In New York v. Miln (1837), the Court found that a New York law imposing bonds and fines on ship captains who brought pauper immigrants into the city did not interfere with the power over commerce because people were not articles of commerce, and instead was an exercise of the state police power, the first time this power was used to allow states to regulate the content of vessels moving among the states. Decisions over the next few years were generally pro-state though often unclear as to why, as the Court tried to avoid implying a federal power to regulate slavery, the License Cases (1847) and the Passenger Cases (1849) being good examples. In Cooley v. Board of Wardens (1852), involving the right of the Port of Philadelphia to impose charges on ships entering the port but not hiring local pilots, the Court formulated a rule of “selective exclusiveness” whereby matters that were “in their nature national, or admit only of one uniform system,” would preempt state action even without congressional action, while other types of state actions might not necessarily be prohibited by the Court. This doctrine seemed to reinforce the dualistic interpretation of the Tenth Amendment, but unfortunately the Court did not provide much guidance on how to tell what was “national” and what was not.

The modern DCCD attempts to balance the fact that on the one hand, states are and have always been active in a wide range of economic regulation and activity which may reflect their own character as well as develop creative policies. For example, states regulate nearly two hundred professions, and set all kinds of environmental, construction, land use, public health, legal liability, corporate law, procurement, insurance, finance, securities, transportation, alcoholic beverages, banking, food, and other rules that have economic effects on commerce among the several states. To deny states power in these areas would greatly diminish their role. On the other hand, the nation has a strong commitment to an open and free national market from which states also benefit.

The Court’s DCCD now focuses on striking down state laws that either facially discriminate against commerce, laws that are facially neutral but that in fact have a protectionist purpose or effect, and those that are facially neutral but still burden commerce. The first category is exemplified by Granholm v. Heald (2005), which struck down a Michigan law favoring in-state wineries, despite the Twenty-First Amendment. In Camps Newfound/Owatonna, Inc. v. Town of Harrison (1997), the court struck down as facially discriminatory a state exemption from property tax for in-state nonprofit corporations, but not those out of state. However, in Maine v. Taylor (1986), the court allowed Maine to ban out-of-state baitfish to protect its own stock from disease. The second category is perhaps best exemplified by H. P. Hood & Sons v. Du Mond (1949), where the court struck New York’s denial of a license for a milk-receiving depot in New York for a Boston milk distributor on the grounds that it would lead to “destructive competition in a market already adequately served.” The Court found that this seemingly neutral purpose masked a desire to protect local depots from out-of-state competition. The last category was given its modern formulation in Pike v. Bruce Church, Inc. (1970), where the court said a “legitimate local interest” that burdens commerce incidentally might be upheld depending on the purpose and whether less burdensome means are available to promote the local purpose.

There are several exceptions to the DCCD. One is the “market participant” doctrine, which allows states and localities to provide goods and services in the marketplace and prefer their own citizens as consumers or providers. The most recent consideration of this doctrine, however, disallowed Alaska’s requirement that lumber cut there must also be partially processed there, in South-Central Timber Development, Inc. v. Wunnicke (1984). Other DCCD exceptions include when Congress has authorized states to conduct commercial activity in a way that might otherwise conflict with the DCCD, such as the 1945 McCarran-Ferguson Act authorizing states to regulate insurance; when states are offering cash subsidies for certain activities; and when states are functioning as “economic entities,” an exception created in 2007 to uphold a local ordinance requiring garbage to be deposited at a publicly-owned facility.

While some of the Court’s attention has focused on how the dormant Commerce Clause and varying definitions of the power over commerce affect federalism, courts also decide whether state actions are preempted by federal law. Preemption doctrine has varied over time, but now includes three situations: (1) where Congress has expressly preempted state law, which is normally relatively easy to determine; (2) where Congress has displayed an intent to occupy the field, called “field preemption”; and (3) implied preclusions. Naturally the latter two categories are heavily fact dependent. A controversial finding of federal preemption under the foreign affairs powers is Crosby v. National Foreign Trade Council (2000), discussed under the power over foreign trade.

BIBLIOGRAPHY:

Edward S. Corwin, The Commerce Power versus States Rights (Gloucester, MA: Peter Smith, 1962); Brannon P. Denning, Bittker on the Regulation of Interstate and Foreign Commerce, 2nd Ed., with cumulative supplement 2016, Aspen Publishers, 2012; Felix Frankfurter, The Commerce Clause under Marshall, Taney and Waite (Chicago: Quadrangle Books, 1964); Ralph A. Rossum and G. Alan Tarr, American Constitutional Law: The Structure of Government, 9th Ed., New York, NY; Westview Press, 2013; and Conrad J. Weiler, Jr. “The United States of America,” George Anderson, Ed., Internal Markets and Multi-Level Governance: The Experience of the European Union, Australia, Canada, Switzerland and the United States, Oxford University Press, Canada, 2012.

Conrad J. Weiler Jr.

Last updated: July 2018

SEE ALSO: Cooley v. Board of Wardens; Commerce with the Indian Tribes; Commerce with Foreign Nations; Eleventh Amendment; Gibbons v. Ogden; Marshall, John; O’Connor, Sandra Day; Preemption; Rehnquist, William; Taney, Roger Brooke