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 presidents 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 worlds 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 Courts 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, Ollies Barbeque, a family-owned restaurant in Birmingham, Alabama because, although most of Ollies 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

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

Filburns 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 Justices 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 . 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.
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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 governments prosecution of the Controlled Substances Act against them with respect to their possession of the drug. Their actions were protected by the states 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. Congresss 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.

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 Filburns 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.

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 doesnt come from the commerce clause

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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Bibliography
Antinori, 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-limitsof-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 PANDAS 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/2012-0321/commerce-clause-jurisprudence-through-the-centuries/

Id. 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)))
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(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 Congresss 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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