Supreme Court and commerce Summary

  • Last updated on November 10, 2022

The Supreme Court may be called on to determine the scope of federal authority to regulate interstate commerce, as well as to adjudicate commercial disputes between state governments or disputes that pit the laws of one state against the laws of another. All such decisions have profound effects on the particular businesses involved, as well as on the business climate in the nation.

One of the fundamental principles of American governance is Federalismfederalism–the separation of powers between the federal and state governments. Some powers are assigned by Article I, section 8 of the U.S. Constitution to the federal government. The Tenth Amendment reserves the powers not granted to Congress to the states. Thus, when the federal government acts, it must be able to point to some power enumerated in the Constitution as authority for its action.Supreme Court;commerceCommerce, Supreme Court rulings

The Constitution grants Congress the power “to regulate commerce with foreign nations, and among the several states, and with the Indian tribes.” Of the three, the power to regulate commerce “among the several states,” that is, the interstate commerce power, is the most problematic. The Commerce clausecommerce clause creates two challenges for the Supreme Court. One is to define the limits of federal power, so that Congress does not usurp the states’ authority to regulate purely intrastate matters such as the health, safety, welfare, and morals of its citizens, authority that the Constitution does not explicitly allocate to the federal government. The second challenge is to ensure that states do not place substantial barriers to or burdens on interstate commerce, or discriminate against out-of-state commerce in ways that might interfere with national interests.

Early History

Before the adoption of the Constitution in 1789, the newly independent United States was governed under the Articles of Confederation. Congress had no power over commerce. States created barriers, such as tariffs, to interstate trade, leading to economic chaos threatening the nation’s survival. In 1786, the Constitutional Convention was called to revise the articles, but instead drafted an entirely new constitution, granting to Congress greatly expanded powers, including the power to regulate interstate commerce.

The next century saw little federal legislation regarding commerce. In those cases questioning the scope of federal power that came before the Supreme Court, the Court deferred to Congress’s authority. The reach of both federal and state power over commerce was considered by the Court in Gibbons v. Ogden (1824)Gibbons v. Ogden (1824). A state-granted monopoly on steamboat navigation was invalidated, because it conflicted with a federal boat-licensing statute.

InCooley v. Board of Wardens (1851)Cooley v. Board of Wardens (1851), Pennsylvania required riverboats to take on local pilots. There was no federal rule at issue. The Court held that subjects requiring uniform national regulation could be regulated only by Congress, but subjects of local concern could be regulated by the states. This was a subject of the latter category. The states’ authority to regulate when Congress might have done so but has not became known as the “dormant” commerce clause.

The Supreme Court’s first effort to place limitations on the exercise of the federal commerce power came in United States v. Dewitt (1870)United States v. Dewitt (1870). The Court invalidated a federal statute that prohibited the sale of naphtha and oil that was inflammable at less than 110 degrees as an infringement by Congress of the states’ “police powers,” that is, their power to regulate the health, safety, welfare, and morals of their citizens, and not a regulation of commerce.

From 1888 to 1933

In the last decades of the nineteenth century, Congress became interested in regulating the economic and social order, and the Supreme Court became interested in preventing it from doing so. The Court believed the Tenth Amendment barred Congress from regulating purely intrastate commerce and from impinging on the states’ police powers.

The Court adopted, temporarily, a narrow definition of commerce. It held in Leisy v. Hardin (1890) that the importation of intoxicating beverages is “commerce” and cannot be banned by a state. In Kidd v. Pearson (1888), though, the Court determined that the manufacturing of such beverages was not commerce and could be prohibited within a state. In a case involving the reach of the federal commerce power, United States v. E. C. Knight (1895)United States v. E. C. Knight (1895), the Court held that the Sherman Antitrust Act of 1890 did not apply to the manufacturing of sugar.

In Swift and Company v. United States (1905)Swift and Company v. United States (1905), the Court held that stockyard bidding practices were subject to federal regulation, even though the activities took place within a single state, because they were part of the “stream of commerce.” Similarly, federal regulation of the railroads was upheld, and the ability of states to set local fares was commensurately limited because such fares had an effect on interstate commerce.

As the twentieth century dawned, the Supreme Court was willing to uphold some of Congress’s tinkering with the social order, including prohibiting the interstate transportation of women for immoral purposes, of lottery tickets, and of unsafe food and drugs. In 1905, however, the Court embarked on three decades of rejectionism of both federal and state forays into social and economic engineering. In Lochner v. New York (1905)Lochner v. New York (1905), the Court struck down the state’s maximum-labor-hours legislation. The problem was not that the law interfered with interstate commerce but that it interfered with the right of the employer and employee to contract. Rather than being a valid exercise of the state’s police powers, the law offended the Fourteenth Amendment’s due process clause.

The Court continued to strike down state and federal laws that interfered with free markets. In some of these cases the law was held to be an improper extension of the commerce power, and in some a violation of the due process clauses of the Fifth and Fourteenth Amendments. In Hammer v. Dagenhart (1918)Hammer v. Dagenhart (1918), the Court struck down a federal statute prohibiting child labor, because it viewed the law as an attempt to regulate the conditions of production, not of commerce. In Adkins v. Children’s Hospital (1923)Adkins v. Children’s Hospital (1923), the Court invalidated federal minimum-wage legislation for women as an infringement of liberty of contract, as protected by the Fifth Amendment’s due process clause.

The Depression and the New Deal

In 1932, Franklin D. Roosevelt was elected president on a promise of acting immediately to repair the battered economy. New Deal;Supreme Court rulingsAlthough Congress was willing to adopt virtually all of Roosevelt’s legislative program, the Supreme Court would not go along. The National Industrial Recovery Act of 1933National Industrial Recovery Act (NRA) of 1933 was overturned in Schechter Poultry Corp. v. United States (1935)Schechter Poultry Corp. v. United States (1935). The act allowed the president to establish codes for operating trades or industries, in this case the poultry business. The Court held that the employment practices of the poultry business did not have a direct connection to interstate commerce. In United States v. Butler (1936)United States v. Butler (1936), the Court invalidated the Agricultural Adjustment Act of 1933Agricultural Adjustment Act of 1933, which empowered the federal government to pay farmers who reduced acreage under cultivation, holding that the Tenth Amendment reserved to the states the power to regulate agricultural production.

In 1937, weary of the Court’s obstructionism, Roosevelt asked Congress for authority to appoint an additional six Supreme Court justices, positions undoubtedly to be filled by justices more amenable to New Deal legislation. Though not enacted, the threat to pack the Court may have had the desired effect, as the Court suddenly changed course. In West Coast Hotel v. Parrish (1937)West Coast Hotel v. Parish (1937), Justice Owen Roberts joined a new majority willing to uphold the constitutionality of state minimum-wage legislation, overruling Adkins v. Children’s Hospital (1923).

This marked the end of the Lochner era. The Court did not thereafter overturn economic legislation on the basis of the due process clause. Roosevelt appointed seven justices in the next four years who were inclined to defer to Congress’s exercise of the commerce power. The extent of that deference was made clear in Wickard v. Filburn (1942)Wickard v. Filburn (1942). Congress intended to control the quantity–and thereby the price–of wheat on the interstate market by restricting the acreage that farmers could plant. Roscoe C. Filburn, authorized to plant eleven acres, grew twenty-three, harvesting 239 excess bushels. He argued that the federal commerce power did not extend to his planting, because he intended to consume the wheat on his farm and therefore was not engaging in interstate commerce. The Court held that, although the amount in question was trivial, the commerce power did apply, because in the aggregate uncontrolled cultivation by farmers small and large would have an effect on interstate commerce.

The Modern Era

The aggregate theory espoused in Wickard was a significant expansion of the reach of the federal commerce power. This theory underpinned the Court’s upholding of the Civil Rights Act of 1964 in two landmark cases, Heart of Atlanta Motel Inc. v. United States (1964)Heart of Atlanta Motel Inc. v. United States (1964) and Katzenbach v. McClung (1964)Katzenbach v. McClung (1964). These cases involved the refusal of a hotel and a restaurant, respectively, to serve African Americans in contravention of the act’s prohibition against racial discrimination in public accommodations. The Court reasoned that such discrimination in the aggregate made interstate travel burdensome, and therefore Congress had the authority to prohibit it.

The question remained as to how far this extension of the commerce power went. Had it morphed into a federal police power over health, safety, welfare, and morals? For the first fifty years after Wickard, no limit to the commerce power was identified. Then, in United States v. Lopez (1995)United States v. Lopez (1995), the Court considered a federal prohibition of the possession of firearms near schools. The effect that gun possession, a noncommercial activity, might have on the quality of education and thus the quality of the workforce was too theoretical to support a connection to interstate commerce.

As a result of the Court’s decisions, it established the principle that Congress can regulate the channels and instrumentalities of interstate commerce. It may regulate persons or things moving in interstate commerce, activities that substantially affect interstate commerce, and–if they are commercial in nature–activities that in the aggregate substantially affect interstate commerce.

Martin Luther King, Jr. (right, wearing hat) and Ralph Albernathy (also wearing hat) try to check into the Hotel Albert in Selma, Alabama, in 1965. The Supreme Court used the commerce clause to rule against segregation.

(AP/Wide World Photos)

The power of the states to regulate commerce is limited in two ways. A state cannot discriminate against out-of-state commerce, unless it has a legitimate health or safety reason. A state cannot place a burden on interstate commerce unless justified by a countervailing benefit. The Court held in Hunt v. Washington State Apple Advertising Commission (1977)Hunt v. Washington State Apple Advertising Commission (1977), for example, that North Carolina could not require a particular grading system for apples, because the requirement discriminated against Washington State, whose apples were graded differently, and no health or safety benefit was identified. In Raymond Motor Transportation v. Rice (1978)Raymond Motor Transportation v. Rice (1978), the Court invalidated Wisconsin’s prohibition on trailers longer than fifty-five feet, ostensibly for safety reasons. The substantial burden on interstate trucking was not justified by any benefit, as the evidence indicated that sixty-five-foot tandem trailers were just as safe. In Maine v. Taylor (1986)Maine v. Taylor (1986), the Court upheld Maine’s prohibition of the importation of live bait fish, which was intended to protect the local environment from parasites, because it supported a legitimate health and safety purpose.

Further Reading
  • Amar, Akhil Reed. America’s Constitution: A Biography. New York: Random House, 2005. Studies the Constitution one provision at a time. Amar incorporates the historical events and political issues that shaped each provision, as well as the Supreme Court’s interpretations in landmark cases.
  • Hall, Kermit L., et al., eds. The Oxford Companion to the Supreme Court of the United States. New York: Oxford University Press, 1992. Alphabetically arranged compendium of more than one thousand entries covering the history of the Supreme Court, biographies of the justices, and four hundred of the Court’s most important decisions. Recommended for high school reference collections.
  • Hoffer, Peter Charles, William Hoffer, James Hull, and N. E. H. Hull. The Supreme Court: An Essential History. Lawrence: University Press of Kansas, 2007. This survey of the history of the Supreme Court, with a chapter devoted to each chief justice’s tenure, considers the role of the Court as the arbiter of the Constitution, focusing on the personalities and perspectives of the justices themselves.
  • Lively, Donald E. Landmark Supreme Court Cases: A Reference Guide. Westport, Conn.: Greenwood Press, 1999. Compendium of the entries on seventy-four of the Supreme Court’s most important cases, arranged thematically, with a detailed discussion of each case, targeted at a high school level audience.
  • May, Christopher N., and Allan Ides. Constitutional Law–National Power and Federalism: Examples and Explanations. 3d ed. New York: Aspen, 2004. An overview of federalism that provides analysis of the federal interstate commerce power and the limitations of state authority to regulate commerce.
  • Schwartz, Bernard. A History of the Supreme Court. New York: Oxford University Press, 1995. A chronological history including major chapters on the most significant cases, such as Lochner v. New York, as well as biographical sketches of important justices.

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