The Commerce Clause

By: KiaStreater

Class: GM545 Business Economics

School: Keller Graduate School

Professor: William Freedman

Abstract

This paper will discuss the Commerce Clause, and will go into detail of how it has

evolved over the years, from the day it was established, up to the present time. There were

many cases tried; which attempted to use the Commerce Clause as there defense. In this paper

you will see a couple of the cases, and the outcome of these cases based on their relevance to

Commerce Clause. The government has been granted the privilege of regulating commerce

among the states in accordance with this Clause, but what is the impact these rights have on

the free market. This paper will attempt to show how government interference affects the free

market and the demand equilibrium. Over the years, there has been many times that the

Commerce Clause use has been to try justify many economic situations that were irrelevant.

The original meaning of the Commerce Clause has been moving in a direction further and

further away from what it was initially intended to achieve. Currently, the president of the

United States will try to pass a healthcare reform; which is an individual mandate under the

Patient Protection and Affordable Care Act. It is more than likely going too presented in a way

of being compliant with this Clause. The final discussion for this paper will be to take this

mandate and measure it against the Commerce Clause, and evaluate if this mandate should be

passed. In formulating if this mandate should be passed, the two cases of Wickard v Filburn

(1942) and Gonzalez v Raich (2005) will be taken into consideration. The two cases will be

discussed to see what impact they could have on the decision to approve the president’s

mandate for “ObamaCare”.

Introduction

The Constitution was written in 1787, ratified in 1788, and in operation since 1789;

which makes the United States Constitution the world’s lengthiest enduring written charter of

the government. The first three words are “We The People” asserting that the government of

the United States exists to serve its people. The sovereignty of the people, shown through the

representatives they elect, is recognized in Article I; which creates a Congress consisting of a

Senate and a House of Representatives. The positioning of Congress at the beginning of the

Constitution reiterates its status as the “First Branch” of the federal government. The

Constitution allotted to Congress the responsibility for establishing the administrative and

jurisdictive branches, raising revenue, declaring war, and making all the laws essential for

executing these powers. The Constitution has continued on because it has successful at

separating and balancing governmental powers to protect the interests of majority rule and

minority rights, liberty and equality, and the state governments. It has evolved to meet the

changing needs of the current society that is different from the eighteenth-century realm in

which its initiators lived.

In the initial debates over adoption of the Constitution the phrase “regulation of

commerce” was used, almost entirely, for merchant proposals associated with deep sea

shipping and foreign trade. “The Constitution was written before Adam Smith, laissez faire and

free trade came to dominate economic thinking and the Commerce Clause draws its original

meaning from the preceding mercantilist tradition”. (Johnson, 2004) The commerce Clause was

intended to give Congress the power to regulate commerce by implementing restrictions on

international trade, and giving subsidy or protection to preferred domestic merchants or

controlling imports. “Regulation of commerce” was the label used as part of plan to take over

the state tariffs on imports. The federal government urgently needed revenue to pay the

Revolutionary War debts, so they used the Commerce Clause as their justification. The federal

government power to tax for the national defense was one of the reasons for establishing the

constitution. “…the Tax Clause gives Congress the power to tax for the common defense and

general welfare and that seems adequate to justify the federal impost without the power to

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regulate commerce”. (Johnson, 2004) The authority to regulate commerce was written to

empower merchants, even though the Commerce Clause is not in sync today with its original

meaning. The main purpose of the Constitution was to prevent patriotic economic policies

between the states and to establish a common market with free trade over state borders. The

Commerce Clause has evolved into an expressively different power, which is now being treated

as the wide-ranging general power of the federal government.

Evolution of the Commerce Clause

The Commerce Clause is listed as Article 1, section 8, clause 3 of the US Constitution.

This clause empowers congress “to regulate commerce with foreign nations, and among the

several states, and with the Indian tribes.” The Constitution itemizes certain powers for the

federal government; the 10th Amendment makes available that any powers that are not

counted in the Constitution set aside for the states. “Not until 1824 by decision of the Supreme

Court Gibbons v. Ogden was a clear indication given of the extent of the power granted, and

not until the Constitution was nearly a hundred years old did Congress begin the exercise of the

authority granted to regulate, affirmatively, commerce between states”. (Bork & Troy, 1995)

Congress frequently have the tendency to use the Commerce Clause to rationalize exercising

legislative power over the activities of states and their citizens, leading to substantial and

consistent controversy concerning the balance of power between the federal government and

the states.

Historically, the Commerce Clause has been observed as both an allowance of

congressional authority and as a constraint on states’ powers to regulate. The Commerce

Clause signifies the exclusion of states passing legislation that discriminates against or

exceptionally makes difficult interstate commerce. “The original meaning of “commerce” is

defined as the “buying and selling, trade and exchange of goods and services and the

transportation incidental thereto”. The words “among the States”, plainly means interstate –

not intrastate. The word commerce has a limited meaning. It has boundaries. It means trade,

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not production and not manufacturing and not farming”. (Antinori, 2012) The main role of

ccongress initially in regulating trade was to prohibit any activity that directly hindered or

interfered with interstate or foreign trade. They were also supposed to regulate the channels

and instrumentalities of interstate and foreign commerce; which included the navigable waters,

railway lines, airways, airwaves, air space, cyberspace and national highways.

The Commerce Clause has been used to rationalize the use of federal laws in situations

that do not involve interstate trade or exchange. The Supreme Court ruled that the power to

regulate interstate commerce included the power to regulate interstate navigation. Gibbons v.

Ogden, 22 U.S. 1 (1824). In 1905, the Court used the Commerce Clause to stop price fixing in

the Chicago meat industry, when it ruled that Congress had authority to regulate the local meat

market under the Sherman Anti-Trust Act. It was found that businesses could become part of

commerce that involved the interstate trade of goods and services. With the initiation of the

new Deal, the powers of the federal government stretched into jurisdictions; which included

the regulation of in-state industrial production and worker hours and wages. The worker hours

and wages were not considered commerce under the classifications expressed in Gibbons and

Swift. Because of this, before 1937, the Court implemented its power to bring down New Deal

legislation as applied to some plaintiffs. In the Schechter Poultry Corporation v. US, it was found

that the National Industrial Recovery Act was unconstitutional. This was due to a poultry seller

who bought and sold chicken only within the state of New York. 295 U.S. 495 (1935).

Changes to the Commerce Clause began in 1937, when congress, the Supreme Court,

and the president decided that the word “Commerce could be expanded. “Court decisions

have announced that the limited meaning of “commerce” may be expanded to a greater

dimension to embrace “all activity affecting commerce even indirectly”, and “any activity

rationally related to commerce”, and “any activity which in the aggregate or cumulatively

affects commerce”. (Antinori, 2012) At that time the President was Roosevelt, who proposed

what is known as the “Court-packing plan,” which would have extended the Supreme Court size

from nine to around fifteen justices. This plan did not succeed, but lead to the Court’s

considerations of changing its view on New Deal legislation. Beginning with the case of NLRB v.

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Jones & Laughlin Steel Corp., the Court acknowledged expansive grounds on which the

Commerce Clause could be used to regulate state activity. Any activity that lead to substantial

economic effect on interstate commerce or if there were a cumulative effect on an activity.

The outlaw of segregation and the stop to discrimination against African Americans,

known as The Civil Rights Act of 1964, was passed under the Commerce Clause; which gave the

federal government the right to charge non-state actors with Equal Protection violations. Also

in 1964, Congress had the power to regulate a business that attended interstate travelers in

Heart of Atlanta Motel v. United States. 379 U.S. 241 (1964). “It also ruled that the federal civil

rights legislation could be used to regulate a restaurant, Ollie’s Barbeque, a family-owned

restaurant in Birmingham, Alabama because, although most of Ollie’s customers were local, the

restaurant served food which had previously crossed state lines”. (Cornell University )

The Commerce Clause was restricted again in 1995 due to the Lopez v. United States,

when the defendant in this case was charged with carrying a handgun to school in violation of

the federal Gun Free School Zones Act of 1990. The federal government requested that this fall

under the Commerce Clause, because of the reason that carrying a gun in a school zone could

lead to a violent crime; which hence affects general economic conditions. This was rejected by

the Chief Justice, and detained that Congress only has the right to regulate the channels of

commerce, and activity that significantly affects interstate commerce. He declined to further

expand the Commerce Clause, writing that “…to do so would require us to conclude that the

Constitution's enumeration of powers does not presuppose something not enumerated, and

that there never will be a distinction between what is truly national and what is truly local. This

we are unwilling to do”. (Contitution Society, 1995)

Commerce Clause Impacts on Free Market and Demand Equilibrium

Before I can go into details of how the Commerce Clause has an impact on Free Market

and Demand Equilibrium, I would like two briefly describe the two. Free Market is an economy

established on supply and demand with little or no government control. A completely free

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market is an ideal system, where the market economy that has buyers and sellers who are

allowed to transact freely built on a mutual agreement on price without state involvement in

the form of taxes, subsidies or regulation. In the market, when supply and demand are

balanced, and prices become stable demand equilibrium has been reached. If there is too much

supply for goods or services, then the price goes down; which results in higher demand.

As previously noted, the Commerce Clause was established to give the government the

right to regulate commerce, so what are the impacts. “Every piece of federal economic

regulation from the Sherman Antitrust Act (1890) to all of the 1930s New Deal securities and

banking law has been rationalized (made "constitutional") by reference to the commerce

clause”. (Armentano, 2005) The creative intent of the Commerce Clause was to make

standardize and make fair commerce between the states; which was intended to encourage

trade and exchange not limit it. The main objective was to prevent the states from ordaining

impairments to the free flow of commerce such as charging tariffs, setting quotas, and having

implementing high taxes. Many economic regulation that are set in place by the government,

interferes with the free flow of commerce, so the government is fundamentally opposing to the

original intent of the Commerce Clause.

Comparing and contrasting the Supreme Court decisions

 Wickard v Filburn (1942)

First, I would like to briefly summarize the Wickard v. Filburn, 317 U.S. 111 (1942) case.

The court sustained fines imposed against the owner of a small farm for growing too much

wheat, in violation of federal allowances meant to stabilize prices. The farmer, Roscoe Filburn,

appealed that he never intended to take the excess wheat to market. Instead, the grain was to

feed his livestock, his family, and for planting the following year. Filburn argued that Congress

had surpassed its Commerce Clause powers by regulating a commodity that would never

become commercialized; however the court saw things in a different manner. The court

focused on the excess wheat on interstate commerce, while minimizing the reasoning that

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Filburn’s was going to use the excess wheat for personal consumption. The action of forcing

farmers in the market to buy what they could provide for themselves is an unfair act.

It was noted by Chief Justice Rehnquist (2005), the 16th Chief Justice of the United States

Supreme Court, that all the previous examples of permissible congressional regulation of

intrastate activities shared a common element. The Chief Justice’s Clause jurisprudence put his

faith in on a few basic principles. First, confidence on stringent categorization such as; whether

regulated actions had a “direct” or “indirect” influence on interstate commerce, in order to

determine the appropriate range of the commerce power. Second, Congress could reach into

the States and regulate intrastate activity that “substantially affected” interstate commerce.

Rehnquist said, “A penalty assessed under the Agricultural Adjustment Act of 1938 was a

proper exercise of authority because Congress intended to regulate the volume of wheat

moving in interstate and foreign commerce in order to avoid surpluses and shortages, and

concomitant fluctuation in wheat prices, which had previously obtained”1. He used legislative

determination to come to a rule permitting Congress to regulate intrastate actions when the

regulation is “an essential part of a larger regulation of economic activity, in which the

regulatory scheme could be undercut unless the intrastate activities were regulated.” 2

Gonzalez v Raich (2005)

The second case I will be summarizing is the Gonzales v. Raich, 545 U.S. 1 (2005) case.

This case involves two medical marijuana users in California, who challenged the federal

government’s prosecution of the Controlled Substances Act against them with respect to their

possession of the drug. Their actions were protected by the state’s own Compassionate Use

Act, which allows marijuana use for medicinal purposes. They argued that because their

marijuana was both home-grown and procured from local growers at no cost, it had no

association with the larger commercial markets for either illegal or medicinal marijuana.

Congress’s general goal of regulating controlled substances was valid, and it only needed a clear

reason for concluding that locally-grown marijuana would hinder its objective.

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In the case records, there was evidence that marijuana delivered important therapeutic

benefits to the two petitioners and there were no other effective medicines available. Also,

there were reasons giving which presumed that without access to the drug one of the

petitioners possibly would not have survived. The petitioners’ farming and use of marijuana for

health reasons was seamlessly lawful according to California law. In California, severely ill

citizens can either to receive a prescription for cannabis, or to grow their own, for personal

curative purposes.

In both cases the defendants were growing products that were to be used for personal

use. The court in both cases felt as though the product they were growing interfered with

interstate commerce. In the Wickard v. Filburn case, the crops they were being grown were

products that were to be sold in the market; however, the excess were to be used for personal

consumption. The concern of the courts with the Wickard case was the restrictions imposed by

the Agricultural Adjustment Act, because farm prices were meant to be kept up by limiting

supply. Even though Filburn’s actions were local and not viewed as commerce, Congress

believes that it exercised a substantial economic effect on interstate commerce.

In the Gonzales v. Raich case, the products being grown were for personal consumption

only, and none of the products were to ever be sold. “Even though the marijuana provided was

grown entirely within California and was provided to patients without being bought, sold, or

bartered, six members of the Court upheld the application of the CSA to such patients as a valid

exercise of Congress’ regulatory power over interstate commerce”. (Kmiec, 2005) In the

Gonzales case, the combined effects of allowing the use of marijuana would be a dismay,

including the chance of marijuana produced in California would windup in the national market

due to demand as in the Wickard case. Also, all the wheat grown in the Wickard case were

subject to the limits under the Agricultural Adjustment Act, so this would apply in the Gonzales

case with the marijuana grown being subject to the Controlled Substances Act.

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If the precedent in Wickard v Filburn (2005) and Gonzalez v Raich (2005) is

upheld, the mandate contained in “Obama care” will, most likely, also be

upheld.

The Patient Protection and Affordable Care Act of 2010, also known as "Obamacare,"

presents one of the critical challenges to republican government from the time of the Civil War.

It creates a massive range of new entitlements, cost controls, and regulations over the health

sector that involves one-sixth of the U.S. economy. It raises intense constitutional because of

the authority it claims for the federal government.

Majority of the lawsuits challenging Obamacare have focused on Section 1501 of the

statute, known as the "individual mandate" or "insurance mandate." This section, which goes

into effect in 2014, will oblige American citizens either to sustain health-care coverage or to pay

an annual penalty submitted with their tax return. The penalty will be around $750, subjective

to inflation adjustments. Obamacare will limit the ability of insurance companies to consider

health risks when setting insurance premiums.

The most generally cited authority for the individual mandate is the commerce clause,

located in Article I, Section 8, of the Constitution. This clause gives Congress "power to regulate

Commerce...among the several States." And that grant, in turn, authorizes Congress to regulate

two general fields of activity. One consists of the instrumentalities of commerce — such as the

phone lines, waterways, boats, rails, and train cars by which interstate trade is conducted or

shipped. The other consists of the goods and services that are traded interstate.

None of these privileges covers the individual mandate. The purchase of insurance is not

an instrumentality of trade. Insurance is regulated by the states, so Americans can purchase

coverage only in their own states. Insurance companies can offer coverage across state lines,

but there is slight to no interstate trade in insurance. The Supreme Court commerce clause

doctrine lets Congress regulate a third category of activities; which is local activities that

substantially affect interstate commerce. This power doesn’t come from the commerce clause

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itself, but from a separate constitutional provision. This provision is the "necessary and proper"

clause, also in Article I, Section 8. That clause gives Congress additional "power to make all Laws

which shall be Necessary and Proper for carrying into Execution" all of the other powers that

the Constitution explicitly grants to the national government; which includes the regulatory

power granted in the commerce clause.

This mandate will take into relevant precedents and apply that reading to the American

health-care sector. The Supreme Court extended the effective reach of the commerce clause

furthest in a series of cases decided during the New Deal era. “The Court developed the

"rational basis" and "substantial effects" tests to clarify when federal laws or administrative

polices were necessary and proper in relation to interstate commerce”. (CLAEYS, 2012) These

tests were expressed in the Wickard v. Filburn case. The Court agreed. If Congress has the

power to control the prices and volumes of insurance and health-care goods and services that

are traded interstate, the Wickard case will provide some justification for Congress to mandate

that citizens buy insurance. The mandate can be portrayed as making effective the interstate

controls Congress wants to the set.

The Wickard's holdings show that the Commerce Clause can easily be used to eliminate the

Constitution's explanation of the federal and state planes of jurisdiction. “To avoid that

possibility, a serious originalist would construe "necessary" and "proper" only to complement

and complete, not undermine, the federal-state structure set forth in more specific

constitutional provisions like the commerce clause”. (CLAEYS, 2012)In the Gonzales v. Raich

case, Justice Thomas disputed the Court's decision, where the Court ruled that, under the

commerce and necessary and proper clauses, the federal government may outlaw the

production and use of marijuana personally grown by individuals even if state law permits it. In

considering the two cases, the individual mandate is not constitutionally correct. To show why,

reflect on the distinction between interstate and in-state insurance sales. “The commerce

clause allows Congress to regulate interstate insurance sales, and to pre-empt state laws

regulating insurance sales among the several states”. (CLAEYS, 2012) By assigning to Congress

the power to regulate interstate insurance sales, means the Commerce Clause reserves to the

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states jurisdiction to regulate insurance sales within their own borders. Since the individual

mandate claims to regulate in-state insurance sales, it proclaims local regulatory powers

uneven with the federal-state balance explained by the commerce clause. The most relevant

Court cases obviously encourage legislators to take proprietorship of the constitutional

concerns in question. The Wickard v. Filburn case, states that the operative restraints on the

Commerce Clause should exercise, and must proceed from political rather than judicial

processes. If the Supreme Court follows those previous cases decisions, the lawmakers who are

against Obamacare should mention them and explain that the Court has engaged all the more

responsibility on the elected branches to guarantee that the law is consistent with the

Constitution.

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BibliographyAntinori, P. (2012, February 15). Commerce Clause. Retrieved June 4, 2012, from Action to Amend the

US Constitution – Constitutional Essays .

Armentano, D. (2005, June 5). The Court, Federalism, and the Free Market . Retrieved June 6, 2012, from Mises Daily Index: http://mises.org/daily/1841

Bork, R. H., & Troy, D. E. (1995). The Scope of Congress's Power to Regulate Commerce. Locating The Boundaries, 850-893.

CLAEYS, E. R. (2012, 3 7). Obamacare and the Limits of Judicial Conservatism. Retrieved 6 5, 2012, from National Affairs: http://www.nationalaffairs.com/publications/detail/obamacare-and-the-limits-of-judicial-conservatism

Contitution Society. (1995, April 26). UNITED STATES, PETITIONER v. ALFONSO LOPEZ, Jr. Retrieved May 31, 2012, from Contitution Society: http://constitution.org/ussc/93-1260a.htm

Cornell University . (n.d.). CommerceClause. Retrieved May 31, 2012, from Cornell University Law Institute: www.law.cornell.edu/wex/commerce_clause

Crowell, D. M. (2007). GONZALES v. RAICH AND THE DEVELOPMENT OF COMMERCE CLAUSE JURISPRUDENCE: IS THE NECESSARY AND PROPER CLAUSE THE PERFECT DRUG? LawJournal, 251-393.

Johnson, C. H. (2004, October). THE PANDA’S THUMB: THE MODEST AND MERCANTILIST. Retrieved June 5, 2012, from WILLIAM & MARY BILL OF RIGHTS JOURNAL: http://constitution.org/lrev/cjohnson/pandas_thumb.pdf

Kmiec, D. W. (2005). Gozales v. Raich: Wickard v. Filburn Displaced. Cato Supreme Court Review, 71-100.

Taylor, T. (2012, March 21). Commerce Clause Jurisprudence Through the Centuries. Retrieved June 13, 2012, from Bloomberg BNA : http://go.bloomberg.com/health-care-supreme-court/2012-03-21/commerce-clause-jurisprudence-through-the-centuries/

1Id. at 123 n.24 (“Whatever terminology is used, the criterion is necessarily one of degree and

must be so defined.” (quoting Santa Cruz Fruit Packing Co. v. NLRB, 303 U.S. 453, 467 (1938)))

2(discussing Wickard v. Filburn, 317 U.S. 111 (1942)). Although the opinion conceded that

Wickard was “perhaps the most far reaching example of Commerce Clause authority over

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intrastate activity,” Rehnquist used this case to limit Congress’s authority to pass the GFSZA by

concluding that “[e]ven Wickard . . . involved economic activity in a way that the possession of a

gun in a school zone does not.” Id.

The cover page picture was taken from Google images, We-the-People21-300x264.jp

Ap-dp.blogspot.com

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