History Podcasts

Federalism and Interstate Commerce - History

Federalism and Interstate Commerce - History

We are searching data for your request:

Forums and discussions:
Manuals and reference books:
Data from registers:
Wait the end of the search in all databases.
Upon completion, a link will appear to access the found materials.

Jefferson Memorial

The Constitution regulates the relations between the states.
The full faith and credit clause (Article IV, Section 1) requires that states honor federal Supreme Court judgments and other legal decisions.

Under Article IV, Section 2, states must extend the same rights to residents of other states that are extended to their own residents.

Finally, the extradition clause (Article IV, Section 2), states are required to extradite (hand over) any citizen who flees to their state to avoid prosecution or incarceration in another state.



Federalism, State Sovereignty, and the Constitution: Basis and Limits of Congressional Power

The lines of authority between states and the federal government are, to a significant extent, defined by the United States Constitution and relevant case law. In recent years, however, the Supreme Court has decided a number of cases that would seem to reevaluate this historical relationship. This report discusses state and federal legislative power generally, focusing on a number of these “federalism” cases. The report does not, however, address the larger policy issue of when it is appropriate—as opposed to constitutionally permissible—to exercise federal powers.

The U.S. Constitution provides that Congress shall have the power to regulate commerce with foreign nations and among the various states. This power has been cited as the constitutional basis for a significant portion of the laws passed by Congress over the last 50 years, and, in conjunction with the Necessary and Proper Clause, it currently represents one of the broadest bases for the exercise of congressional powers. In United States v. Lopez and subsequent cases, however, the Supreme Court did bring into question the extent to which Congress can rely on the Commerce Clause as a basis for federal jurisdiction.

Another significant source of congressional power is the Fourteenth Amendment, specifically the Equal Protection and Due Process Clauses. Section 5 of that amendment provides that Congress has the power to enforce its provisions. In the case of Flores v. City of Boerne, however, the Court imposed limits on this power, requiring that there must be a “congruence and proportionality” between the injury to be remedied and the law adopted to that end.

The Tenth Amendment provides that “powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States respectively, or to the people.” While this language would appear to represent one of the most clear examples of a federalist principle in the Constitution, it has not had a significant impact in limiting federal powers. However, in New York v. United States and Printz v. United States, the Court did find that, under the Tenth Amendment, Congress cannot “commandeer” either the legislative process of a state or the services of state executive branch officials.

The Eleventh Amendment provides that “[t]he Judicial power of the United States shall not be construed to extend to any suit in law or equity, commenced or prosecuted against one of the United States by Citizens of another State.” Although this text is limited to preventing citizens from bringing diversity cases against states in federal courts, the Supreme Court has expanded the concept of state sovereign immunity further to prohibit citizens generally from bringing suits against states under federal law generally. There are exceptions to this limitation, however, and Congress also has a limited ability to abrogate such state immunity.

Finally, Congress has the power under the Spending Clause to require states to undertake certain activities as a condition of receiving federal monies. Such conditions, however, must be related to the underlying grant, and the financial consequences of non-compliance cannot be coercive. Further, if the condition relates to the creation of a “new and independent” program, and if the amount to be withheld represents a significant portion of a state’s overall budget, then such condition will be found to violate federalism principles.

The Supreme Court and Federalism

The framers of the Constitution sought to balance the rights of the several states and the powers of the new federal government. Their solution was a federal system, which divides powers between the two levels of government. Although the Constitution is the "supreme law of the land," conflicts over states' rights versus national power have arisen throughout American history.

The Constitution's Supremacy Clause (Article VI, Section 2) sets the Constitution above all forms of law in the United States.

The 10th Amendment declares that the states are governments of reserved powers.

In Fletcher v. Peck the Supreme Court first holds a state law unconstitutional.

The Supreme Court holds that a state cannot tax the federal government in McCulloch v. Maryland.

Gibbons v. Ogden is the first commerce clause case to reach the Supreme Court. In its ruling the Court affirms the federal government's right to regulate interstate trade and lays out a broad definition of commerce that extends federal authority.

In Wabash, St. Louis & Pacific Railway Co. v. Illinois (Wabash Case), the Court rules that states cannot regulate railroad rates on the parts of interstate journeys that fall within their borders.

In Gitlow v. New York the Court rules that the protections of the 1st Amendment apply against actions by state governments.

In Wickard v. Filburn, the Court rules that the federal government has the power to regulate economic activity under the Constitution's Commerce Clause.

The Court holds, in Wesberry v. Sanders, that states must draw congressional districts of nearly equal proportions.

In Furman v. Georgia the Court rules that all existing death penalty laws violate the Constitution. The Court cited "arbitrariness" and racial imbalances in the application of death sentences. As a consequence, many states rewrite their death penalty laws.

Death penalty statutes are upheld generally by the Court's decision in Gregg v. Georgia.

In United States v. Lopez, the Court strikes down the Gun-Free School Zone Act of 1990 on the grounds that the federal government invades reserved powers of the states with this legislation.

In Printz v. United States the Court strikes down the provision of the federal Brady Act requiring states to check the background of handgun buyers.

The Court's unanimous decision in Reno v. Condon approves a federal law preventing states from selling databases of personal information (the Driver's Privacy Protection Act) on the grounds that this is proper federal regulation of interstate commerce.

In United States v. Morrison, the Court voted, in a 5-4 decision, that part of the 1994 Violence Against Women Act exceeded congressional power under the Constitution's Commerce Clause and, therefore, was unconstitutional.

In Nevada v. Hibbs the Court holds that a state worker can sue the state for money damages for its failure to obey the federal Family and Medical Leave Act of 1993. The decision is a break from the court's recent tendency to expand states' rights.

In Gonzales v. Raich the Court votes 6-3 that under the Constitution's Commerce Clause, Congress can criminalize the production of cannabis and its use even if states have approved its use for medical purposes.

The Supreme Court rules in favor of upholding the 2003 Partial-Birth Abortion Ban Act in Gonzales v. Carhart. The case represents a move toward limiting abortion rights.

The Court rules in Town of Greece v. Galloway that Christian prayers at the beginning of council meetings in an upstate New York town do not violate the constitutional prohibition against government establishment of religion.

Federalism Reform: Seven Options for Congress

Last May, the White House ignited a surprising political firestorm when it released Executive Order (E.O.) No. 13083 2 on federalism policymaking. As public awareness of the content of this executive order grew, it triggered a unique series of events that placed the Clinton Administration on the defensive and forced it to acknowledge and, ultimately, to abandon the new form of federalism it had tried to establish through this executive order.

After many years of neglect, Washington's policy elites once again are talking about the importance of federalism in the American system of constitutional governance. Federalism--which uniquely determines the relationship between and among the jurisdictions of the federal, state, and local governments--is perhaps most succinctly described in the words of President Ronald Reagan's Domestic Policy Council Working Group on Federalism: a "constitutionally based, structural theory of government designed to ensure political freedom and responsive, democratic government in a large and diverse society." 3 It has long been considered by many to be the ultimate guardian of liberty within the American Republic.

The reaction to President Bill Clinton's surprising executive order helped to forge a diverse and bipartisan alliance among Members of Congress, state and local officials, interest groups, legal scholars, political commentators, and average citizens who believed that E.O. 13083 violated certain sacred tenets of the U.S. Constitution on the proper division of powers for the various levels of government. This alliance signaled a renewed interest in Washington, and among the population at large, in examining how best to reinvigorate and protect the Founding Fathers' original system of federalism. In fact, the renewed focus on protecting federalism eventually forced President Clinton to withdraw his executive order just a few months after issuing it.

Sadly, however, President Clinton appears not to have learned any lesson from last year's federalism fight. In his recent State of the Union Address, he showcased a litany of new federal programs that ignore the proper constitutional balance of powers by promoting even more federal intrusion into matters that are best dealt with by state or local governments.

As the 106th Congress--the last Congress of the 20th century--begins its important work, it must examine the system of government that has developed over the past decade and delineate areas in which reform is needed to protect the Framers' dynamic system of federalism for the future. Legislators must establish firm principles and strategies to reinvigorate federalism, and then devise a timetable to accomplish these goals in the near and long terms. If the 106th Congress succeeds in doing so, this accomplishment may stand as its most important legacy to future generations.

President Clinton's Executive Order No. 13083 on federalism outlined a set of new "Federalism Policymaking Criteria" that would have given federal bureaucrats and regulators generous leeway to intervene in the affairs of the states or to pass uniform, preemptive federal rules under a remarkable variety of circumstances. For example, the executive order delineated that federal action could be justified: 4

"When decentralization increases the costs of government thus imposing additional burdens on the taxpayer"

"When States would be reluctant to impose necessary regulations because of fears that regulated business activity will relocate to other States"

"When placing regulatory authority at the State or local level would undermine regulatory goals because high costs or demands for specialized expertise will effectively place the regulatory matter beyond the resources of State authorities" or

"When the matter relates to Federally owned or managed property or natural resources, trust obligations, or international obligations."

Perhaps more important, E.O. 13083 proposed the revocation of an earlier executive order on federalism issued by President Ronald Reagan in 1987, No. 12612. 5 E.O. 13083's open-ended, expansionary policymaking criteria are very different from President Reagan's, which placed substantive limits on the ability of federal officials to intervene in the affairs of the states and the people. For example, President Reagan's E.O. 12612 notes that

Federal action limiting the policymaking discretion of the States should be taken only where constitutional authority for the action is clear and certain and the national activity is necessitated by the presence of a problem of national scope. 6

Within these two orders are two distinct visions of federalism. President Reagan's vision stressed, above all, adherence to the original intentions of the Founders and the language of the Constitution regarding the federal government's limited, enumerated powers, and it promoted a healthy respect for the benefits of state and local autonomy. President Clinton's vision, on the other hand, is based on a new federalism paradigm that calls for greater constitutional malleability and an acceptance of the frequent need for federal intervention to alleviate any ill.

President Clinton's federalism manifesto did not initially generate a great deal of media or public attention because the White House quietly released E.O. 13083 in early 1998 while the President was out of the country. But, by mid-summer, a growing number of Washington policymakers, state and local officials, and national organizations had become sufficiently concerned about its potential effects to begin asking the Clinton Administration to explain its new thinking on federalism.

Their concerns culminated in a hearing on July 28, 1998, in the House Government Reform and Oversight Subcommittee on Regulatory Affairs. During this hearing, the Clinton Administration was castigated uniformly for its decision to abandon the fairly non-controversial Reagan executive order and impose the new federalism guidelines that appeared to grant the federal government unlimited policymaking authority over the states.

Several Members of Congress condemned President Clinton's new federalism guidelines and introduced legislation to force him to revoke his executive order. For example, a Sense of the Senate Resolution introduced by Senator Fred Thompson (R-TN), which encouraged the President to revoke his order, passed by unanimous consent in late July. Dissenters in Congress were joined by representatives of many well-respected state and local organizations, including the National Governors' Association, the National Conference of State Legislators, the United States Conference of Mayors, the National League of Cities, and the National Association of Counties.

On August 5, the White House finally succumbed to this intense pressure and announced it would suspend the proposed executive order "in order to enable full and adequate consultation with State and local elected officials, their representative organizations, and other interested parties." 7 At least temporarily, the bipartisan alliance of those who understood the Constitution's firm limits on the scope of federal power had prevailed.

The temporary victory for the ardent supporters of a limited, constitutional government was largely symbolic. There remains a strong and continuing need to formulate comprehensive federalism reforms to revive, reinvigorate, and protect the Founding Fathers' delicate balance of powers so carefully delineated in the Constitution.

Restoring the proper balance of power between the states and the federal government will not be easy, but it can and must be done. Several decades of legislative abuse and judicial neglect have left the Founders' federalist system in disarray, largely because, as Supreme Court Justice Sandra Day O'Connor observed,

The Federal Government undertakes activities today that would have been unimaginable to the Framers in two senses first, because the Framers would not have conceived that any government would conduct such activities and second, because the Framers would not have believed that the Federal Government, rather than the States, would assume such responsibilities. 8

Constructive federalism reform strategies are available to correct this imbalance (see Table 1). These strategies should be prioritized according to those that could be implemented in the short term (that is, within the next six months to two years) and those that should follow in the mid- or long term (that is, from two to five years).

It is important to note that most of these strategies are not new ideas indeed, the principles behind them date back to the age of the founding of the American Republic. Unfortunately, the principles and protections in the original federalist system of governance established in the Constitution have been eroded by a century's worth of corrupt jurisprudence and unwarranted advances by federal legislators and regulators. And, with the notable exception of the passage of the Unfunded Mandates Reform Act (UMRA) of 1995, efforts to revive and reinvigorate these principles have not been forthcoming. The reform objectives and strategies set out here are steps in the proper direction, are supported by numerous national groups, and are vital if Congress wishes to reestablish the centrality of federalism for a vigorous constitutional republic. 9


The 106th Congress faces a crowded legislative calendar that may be abbreviated further by the upcoming presidential election cycle. With this in mind, Members of Congress should dedicate the next few months to advancing federalism reforms that uphold and protect the constitutionally delineated balance of power. Fortunately, two simple but important reform strategies can be introduced immediately that would make this possible:

Strategy #1: Congress should codify President Ronald Reagan's Federalism Policymaking Criteria in Executive Order No. 12612.

To guide the process of assessing jurisdictional responsibility and limiting the role of the federal government to tasks that are permissible under the Constitution, Congress would be wise to codify President Reagan's excellent federalism policymaking criteria contained in E.O. 12612, which was issued on October 26, 1987. 10 This action would establish clear and firm guidelines for Congress and executive branch agencies to follow when they set about crafting new public policy with federalism implications.

E.O. 12612 called for strict adherence to constitutional principles. It directed cabinet agencies and executive branch offices to

restore the division of governmental responsibilities between the national government and the States that was intended by the Framers of the Constitution and to ensure that the principles of federalism established by the Framers guide the Executive departments and agencies in the formulation and implementation of policies.

In Section 3, executive branch agencies were ordered to follow a strict set of Federalism Policymaking Criteria 11 "when formulating and implementing policies that have federalism implications." (See Appendix for the full text of E.O. 12612.) For example:

"Executive departments and agencies should closely examine the constitutional and statutory authority supporting any Federal action that would limit the policymaking discretion of the States, and should carefully assess the necessity for such action. To the extent practicable, the States should be consulted before any such action is implemented.

"With respect to national policies administered by the States, the national government should grant the States the maximum administrative discretion possible. Intrusive, Federal oversight of State administration is neither necessary nor desirable.

"Executive departments and agencies shall: (1) Encourage States to develop their own policies to achieve program objectives and to work with appropriate officials in other States. (2) Refrain, to the maximum extent possible, from establishing uniform, national standards for programs and, when possible, defer to the States to establish standards. (3) When national standards are required, consult with appropriate officials and organizations representing the States in developing those standards."

Although widely ignored by most regulatory agencies then and now, President Reagan's executive order was an important acknowledgment of the federal government's overwhelming power relative to the states. On a more practical level, E.O. 12612 provides a roadmap for returning to the Founders' framework by encouraging federal officials to work more closely with the states.

It is fortunate, therefore, that the Clinton Administration's attempt to revoke President Reagan's executive order was repelled successfully by a bipartisan effort. It is important that the criteria embodied in E.O. 12612 be codified so that future Administrations cannot thwart the spirit of the Constitution. For example, codification of E.O. 12612 would require "Federalism Assessments" of any proposed rule that might have substantive federalism implications. These assessments would be reviewed by the White House's Office of Management and Budget (OMB) and by Congress to ensure that federal agencies abide by the Constitution and respect the autonomy of state and local governments.

Statutory codification of Reagan's Federalism Policymaking Criteria could take many forms. Congress, for example, could take the language of the executive order and codify it as law without significant changes or accompanying statutory language. This approach was taken in two bills that were proposed during late summer 1998: the Federalism Enforcement Act of 1998 (S. 2445) introduced by Senator Fred Thompson and several cosponsors, and the Federalism Act of 1998 (H.R. 4422) introduced by Representative James Moran (D-VA) and cosponsors from both parties. Both bills, despite minor differences regarding the inclusion of judicial review language, relied heavily on the language of E.O. 12612.

A second option would be to amend existing statutes that deal with jurisdictional matters, intergovernmental affairs, or regulatory policymaking. Two legislative vehicles that could be amended to include the federalism guidelines and protections in E.O. 12612 are the UMRA 12 and the Congressional Review Act (CRA), which was implemented as part of the Small Business Regulatory Enforcement Fairness Act (SBREFA) of 1996. 13

The UMRA was one of the first pieces of legislation enacted by the 104th Congress. It requires the Congressional Budget Office (CBO) to estimate the costs of proposed mandates on state and local governments, and allows a point of order to be raised against any bill or joint resolution that lacks such an estimate or results in direct costs to state and local governments of more than $50 million.

The UMRA has been helpful in allowing Members of Congress to deliberate more carefully their legislative proposals. CBO cost estimates have helped Congress to drop costly proposals or modify them to reduce their costs. 14 The UMRA is an important existing vehicle that provides statutory protection against federal intrusion into state and local matters. It could be improved, however: For example, its reach should be extended to existing statutes and mandates. 15 And its new and existing requirements should be strengthened by including E.O. 12612's Federalism Policymaking Criteria within Title II and stronger judicial review language within Title IV. With these improvements, the UMRA would give Congress and the courts a mechanism to demand the strict federalism accountability of federal officials.

The CRA provides a mechanism by which Congress can review and disapprove final rules issued by federal regulatory agencies. It also requires agencies to estimate costs associated with new rules and provide interpretations or explanations regarding the need for these rules. Yet, as of today, Congress has failed to use the CRA to rein in overzealous federal regulators. 16 In fact, it has failed to reject any new rules under the CRA, despite an onslaught of expensive new regulatory proposals from federal agencies in recent years. 17 Nonetheless, the CRA has the potential to become an important tool in future congressional efforts to control federal regulatory activity. Amending the CRA to include President Reagan's Federalism Policymaking Criteria would create another procedural impediment to federal preemption. At the very least, Congress would be obligated to review federal rules for their federalism implications and strike down those that do not abide by the Constitution.

Regardless of which statutory vehicle Congress chooses to codify federalism policymaking guidelines, it is vital that stronger judicial review language be included. Such language is an essential component of reform because it would establish another enforcement avenue. That is, the inclusion of judicial review language within such legislative reforms would encourage the courts to become institutional defenders of federalism and a bulwark against the unconstitutional overreach of the other branches of government.

To accomplish this task, Congress might consider taking advantage of the judicial review language in the SBREFA. The provisions contained in Section 611 of the SBREFA could be adopted and slightly modified to give the courts the power to review agency rules that potentially violate newly enacted Federalism Policymaking Criteria. The courts could decide if such rules should be struck down as unconstitutional, or simply remand the rule to the agency for review and revision until it complied with the new guidelines and protections.

Unfortunately, these judicial review provisions have only limited applicability under SBREFA and do not apply to the CRA, which is attached as a subtitle to that statute. Therefore, when Congress attempts to craft new federalism policymaking guidelines, judicial review provisions should be broadened to cover any legislative and regulatory activities with potential federalism implications.

Strategy #2: Congress should be obligated to identify the constitutional basis of each of the statutes it considers and allow debate on the merits of that asserted authority.

This action would ensure that Congress provided adequate consideration and justification for any legislation with potential implications for federalism.

Many bills, committee reports, and other congressional documents include a standard boilerplate statement concerning how and why federal intervention in the given field is justified. Yet, as James Madison--one of the key architects of the Constitution--argues in Federalist No. 39, "[Federal] jurisdiction extends to certain enumerated objects only, and leaves to the several States a residuary and inviolable sovereignty over all other objects." 18 And in Federalist No. 45, Madison notes, "The powers delegated by the proposed Constitution to the federal government are few and defined. Those which are to remain in the State governments are numerous and indefinite." 19

It is clear from the Founders' writings that the clauses and phrases of the Constitution were not intended to be vague, open-ended mechanisms that could be used to justify the exercise of federal authority over any conceivable form of human activity. Instead, these clauses and phrases were to act as policymaking parameters or boundaries on federal activity.

Therefore, to reinvigorate and protect the Constitution's original form of federalism, policymakers must put in place firm procedural requirements that obligate Members of Congress to cite the clause or section of the Constitution under which their proposed legislation is justified.

Such a proposal was introduced in the House by Representative John Shadegg (R-AZ) in 1998, and it is scheduled to be reintroduced again this year. The Enumerated Powers Act would require that

Each Act of Congress shall contain a concise and definite statement of the constitutional authority relied upon for the enactment of each portion of that Act. The failure to comply with this section shall give rise to a point of order in either House of Congress. The availability of this point of order does not affect any other available relief.

In a 1996 Journal of Commerce article, Senator Spencer Abraham (R-MI) aptly summarizes the reasons such a reform is needed:

The requirement that every bill include a statement of Constitutionality will perform three important functions. First, it will encourage us to pause and reflect about where the law we are considering enacting fits within the Constitutional allocation of powers between the federal government and the States. A statement of Constitutional authority also will put Congress' view of its authority on the record for the people to judge. This will spur further useful reflection on our part and open up the possibility of conversation with and among the people on the subject of federal powers. Finally, such a statement will help the courts evaluate the legislation's constitutionality. Legislation that falls within our enumerated powers will more likely be upheld if it contains an explicit explanation of its Constitutional authority. As important, we will be less likely to enact laws or regulations that overstep proper Constitutional bounds. And if the statement of constitutional authority does not stand up to scrutiny, both the courts and the people will find it easier to hold us accountable. 20

But legislators might want to go beyond this relatively straightforward reform and require actual oral debate on the House and Senate floors over the constitutional justification of each act under consideration. It is routine today for Members of Congress to dispense with the reading of the bills on which they are about to vote. Far too often, federal legislators have little to no idea of what new federal programs or powers are contained in the legislation they are considering. Worse, very little consideration goes to what power in the Constitution authorizes those acts of Congress. Clearly, legislators should devote at least five or ten minutes of floor time to justify the statutes they propose. Points of order then could be raised against bills that were not subjected to such floor debate.

Other variants of this type of federalism reform option are possible, but regardless of how such a reform is structured, the important purpose is that it perform an important educational function for Members of Congress and the public. Such requirements will remind legislators and voters alike that the powers of the federal government are limited and enumerated under the Constitution. Furthermore, by requiring that greater justification be put forward in the future, legislators and citizens will become more familiar with the Constitution, too. As a consequence, legislators and citizens will better understand the constitutional balance of powers and become more aware of the efforts of some to manipulate or abuse the language of the Constitution in order to expand the powers of the federal government.

These reforms represent the bare minimum that Congress should do in the short term to reinvigorate federalism.


Members of Congress should consider the following two important reform objectives as part of their ongoing efforts to revive and protect the Founders' original federalist system of governance:

Strategy #3: Congress should limit its ability to preempt state or local laws under the Commerce Clause, unless clear constitutional justification exists to do so.

Among the few enumerated powers entrusted to federal lawmakers in the U.S. Constitution is the power to "regulate commerce. among the several states" (Article I, Section 8, Clause 3). The Commerce Clause, as it is more commonly known, has undergone the most tortuous literal metamorphosis in American political and legal history. What "regulation of interstate commerce" meant was commonly understood by the Founders, lawmakers, and jurists of the early Republic yet modern federal jurists and legislators, as well as many so-called progressive academics and legal theorists, have contorted the interpretation of this phrase to give it a meaning the Founders never intended. They use it to justify an ever-expanding array of federal programs and regulatory interventions.

If Congress hopes to breathe new life into the Founders' original federalist model, it is important that policymakers reaffirm and clarify the original interpretation of the Commerce Clause so that it cannot be used to advance unconstitutional objectives.

"Interstate commerce" is the economic activity between or involving two or more states. The term "commerce" in interstate commerce does not signify manufacturing, production, or anything else. "[T]he Founders conceived of 'commerce' as 'trade,' the interchange of goods by one State with another," notes legal historian and federalism expert Raoul Berger. 21 And Supreme Court Chief Justice Melville Weston Fuller's summation in the 1895 case United States v. E.C. Knight Co. notes that "Commerce succeeds to manufacture, and is not a part of it." 22 This is indicative of the prevailing view among jurists for the first 150 years of America's legal history.

Moreover, to qualify for coverage under the Commerce Clause, an activity not only must represent bona fide commerce, but it must be truly interstate in scope. Obviously, this means that federal lawmakers cannot reach any trade or commerce that is purely intrastate--that is, taking place solely within the confines of one state--under the Commerce Clause.

Finally, it is important to note that even when a certain activity qualifies as "interstate commerce," it does not mean that the Founders intended the federal government to regulate that trade or commerce in the modern sense. As Roger Pilon, a constitutional law scholar with the Washington, D.C.-based Cato Institute, argues, the purpose of the Commerce Clause was "not so much to convey a power 'to regulate'. as a power 'to make regular' the commerce that might take place among the states." 23

The Founders gave the national government limited preemptive authority under the Commerce Clause to end economic protectionism and discrimination among the states and to ensure that a free capitalistic marketplace could develop nationwide. In fact, in an 1829 correspondence with J. C. Cabell, James Madison made it absolutely clear what the purpose of the Commerce Clause was:

[It] grew out of the abuses of the power by the importing States in taxing the non-importing, and was intended as a negative and preventative provision against injustice among the States themselves, rather than as a power to be used for positive purposes of the General Government. 24

And as former Judge Robert Bork explained more recently, "[E]veryone agrees that the historic, central function of the commerce clause was to empower Congress to eliminate state-created obstacles to interstate trade." 25

The Commerce Clause was intended to protect the free flow of commerce among the states, not to be a prescriptive tool of social engineering to re-craft the states in the image of the national government's liking. The modern reach of the Commerce Clause since the New Deal has come to encompass almost every human activity. Today, activities that traditionally were considered parochial in nature and therefore best administered or monitored by state and local officials are subject to federal regulation or oversight through a tortured reading of the Commerce Clause. Federal programs and regulations in the fields of crime control, education, infrastructure development, and environmental protection, to name a few, are justified under this Commerce Clause rationale, despite their often intrastate, and inherent non-commercial, nature.

It is important that Congress initiate a debate over the purpose and scope of the Commerce Clause. Furthermore, Congress should reevaluate existing federal programs and policies and consider devolving programs spawned through contorted interpretations, or abolishing them altogether.

In several important recent Supreme Court decisions, such as United States v. Lopez 26 and Printz v. United States, 27 the Court showed a newfound willingness to strike down as unconstitutional federal laws that were conceived under a spurious Commerce Clause rationale. In Lopez and Printz, it struck down two federal gun statutes--the Gun-Free School Zones Act of 1990 and the Brady Handgun Violence Prevention Act of 1993--largely because federal policymakers injudiciously had invoked the Commerce Clause as justification for preempting state and local prerogatives in this field. The Court made it clear in these decisions that such activities were neither "interstate" in nature nor "commerce" in the true sense of the term, and therefore could not be reached by Congress under the Commerce Clause.

Regrettably, however, a remarkable range of federal programs and policies remain on the books, and many new laws are introduced each session, that invoke the Commerce Clause as their raison d'être. To end this practice, Congress must demand that adequate consideration and justification for legislation that has potential federalism implications be undertaken before the legislation can be passed into law.

Congress also may need to take steps to ensure that the Commerce Clause in particular cannot be cited as justification for federal programs or policies unless they meet specific tests outlined in detail in a recent Heritage publication, The Delicate Balance: Federalism, Interstate Commerce, and Economic Freedom in the Information Age. 28

To summarize, legislation is needed that clearly defines what each of the terms in the phrase "regulation of interstate commerce" means, such that the understanding is consistent with the Founding Fathers' original intent. Specifically, such legislation would need to delineate which issues fall under the Commerce Clause and which do not. Finally, the legislation would need to address the ways in which existing programs or court precedents that do not support the original understanding of the Commerce Clause would be handled. Congress would be wise to eliminate as many programs and precedents as possible that rest on questionable Commerce Clause foundations.

Congress must not "throw the baby out with the bath water," however, by striking down Commerce Clause cases handed down by the Court this century that protect or encourage the free flow of interstate commerce. The Supreme Court has developed a substantial body of law over the past century known as Dormant Commerce Clause (DCC) jurisprudence, which deals with the constitutionality of state efforts to regulate interstate commerce whenever Congress has been silent on the issue. Relying on the Commerce Clause as justification, the courts typically struck down as unconstitutional state laws and regulations that regulated interstate commerce, even though the Constitution empowers only Congress to protect the free flow of interstate commerce. 29 Some legal scholars have questioned the Court's authority to take any steps to guard the lanes of interstate commerce when Congress has not acted, and have recommended that all Dormant Commerce Clause jurisprudence be struck down as unjustifiable judicial activism.

These critics make an important point, but they should recognize the beneficial nature of the Court's decisions in this field. "In the absence of the DCC, the history of American interstate commerce may well have been substantially different, and worse," argues Michael DeBow, professor of law at Samford University's Cumberland School of Law, 30 because DCC decisions have helped to create a more free, open national marketplace for companies and consumers by preventing economic balkanization, trade wars, and product discrimination among the states. In fact, many jurists and academics who criticize DCC jurisprudence simultaneously acknowledge the substantial economic benefits associated with these legal decisions. Overturning all DCC decisions, therefore, would jeopardize the stability of certain segments of America's capitalist free marketplace and discourage economic commerce in the process.

To rectify the concerns regarding the constitutionality of the jurisprudence handed down in the field while simultaneously protecting the beneficial commercial nature of these DCC decisions, Members of Congress simply should institute a legislative version of the DCC as part of any statute they consider that deals with Commerce Clause interpretation. By implementing a statutory version of the DCC, Congress would help to legitimize the Supreme Court's jurisprudence in this field and acknowledge the importance of the DCC in guaranteeing commercial harmony throughout the union.

In effect, Congress would be saying that the country's internal lanes of trade should be free and unfettered of protectionist or discriminatory regulations. Professor DeBow, who has developed such a legislative solution to accomplish this objective, concludes that:

Congress should legislate a version of the DCC in order to guard against interstate trade wars, while simultaneously eliminating the uncertainty caused by some aspects of current DCC doctrine. A codification of the DCC should require simply that state laws not discriminate against out-of-state businesses. Congress clearly has the authority to enact such language under the current understanding of its commerce power, and it seems likely that Congress would have the authority to do so even under the original understanding of the Commerce Clause or, perhaps, the Privileges and Immunities Clause. 31

In other words, a legislative version of the DCC would act, in effect, as a domestic free trade statute that clarifies and strengthens the intentions behind the Commerce Clause.

Strategy #4: Congress should enact anti-delegation legislation that ends the unconstitutional transfer of lawmaking authority from the legislative to the executive branch.

Congress should curtail and strictly limit the powers of cabinet departments and independent regulatory agencies to preempt state and local governments. Executive branch cabinet agencies and independent regulatory agencies have amassed a disturbing amount of power. So long as federal agencies and officials enjoy the broad discretionary powers that are reserved under the Constitution to the elected lawmakers of the legislative branch, they will continue to ignore or flout federalism statutes and protections.

This should not be surprising regulators exist to regulate. They cannot be expected either to surrender power voluntarily or to stop imposing expensive, preemptive rules because it would not be in their best interest to do so. Nor should anyone mistake who is to blame for such activity: If Congress had not delegated broad discretionary powers to these agencies in the first place, and if it would start to take back the authority that it delegated unconstitutionally in the past, then the power of federal regulatory agencies and administrative offices would be strictly curtailed and diminished.

Unfortunately, from the time of the New Deal, Congress has justified such delegation as allowing for more scientific lawmaking by administrative experts. Granting regulators rulemaking authority was seen as a way to conserve valuable time for Congress to debate the heart of the issues, leaving executive branch agencies to fill in the fine print. Although the Supreme Court struck down earlier efforts by Congress to delegate authority to these agencies, 32 the judicial branch eventually joined a silent conspiracy to undermine the Constitution and accepted the agencies' rationales for delegation. 33

Constitutional scholars have found these justifications for delegation wholly deficient. 34 The foremost criticism is that delegation conflicts with the Constitution. The language of Article I, Section 1, is clear: "All legislative powers herein granted shall be vested in a Congress of the United States, which shall consist of a Senate and a House of Representatives." Nowhere does the Constitution allow for the exercise of lawmaking powers or functions by non-elected executive branch administrators and bureaucrats.

Delegation also violates the principle of separation of powers among the branches of government. It cannot be regarded as a better method of serving the public because it represents a system of governance that is both unaccountable and undemocratic. As Senator Sam Brownback (R-KS) notes:

[P]erhaps the most pernicious aspect of delegation is that voters can no longer hold government accountable. Originally designed to be the most accountable branch of government, Congress has grown increasingly irresponsible. The fundamental link between voter and lawmaker has been severed. A handful of broadly written laws has spawned a virtual alphabet soup of government agencies and an overwhelming regulatory burden that undermines the very idea of representative government. 35

This led Cato Institute scholars David Schoenbrod and Jerry Taylor to refer to the practice of delegation as the "corrosive agent of democracy" and to argue that "delegation does not help secure 'good government' it helps destroy it." 36

Congressional action to end the unconstitutional practice of delegating authority to administrative agencies would have important implications for federalism. Such a bold move would minimize the preemptive powers of the federal government and hold elected Members of Congress accountable for their actions. With Congress no longer able to blame regulatory agencies and administrators for government overreach, Washington's ability to interfere in state and local matters would be greatly diminished.

Legislation was considered in the 105th Congress that would have advanced this anti-delegation agenda. The Congressional Responsibility Act of 1997, introduced in the Senate (S. 433) by Senator Brownback and in the House (H.R. 1036) by Representative J. D. Hayworth (R-AZ), garnered wide bipartisan support but was not passed by either house. If implemented, anti-delegation efforts like the CRA would represent a significant step back toward accountable, limited government, ending what Representative Hayworth--referring specifically to the practice of delegation--calls "regulation without representation." 37


Certain federalism reforms will require more time, consideration, and debate than those listed above they should be considered as long-term agenda items. The three reforms that follow should be discussed in Congress, even though it is unrealistic to expect action on these items in the current session.

Strategy #5: Congress should give the states the ability to propose amendments to the Constitution on their own, without having to call for a constitutional convention.

This reform would rectify the imbalance between the states and the federal government regarding how amendments to the Constitution are proposed.

Article V of the Constitution allows Members of Congress to propose amendments to the Constitution in much the same way they introduce bills. But under Article V, the states can introduce amendments to the Constitution only by convening a formal constitutional convention. Perhaps the Founders thought this would be easy enough for the states to do but over time, the states have come to view the convening of a constitutional convention as a radical step that might open the door to more harm than good. Therefore, states appear reluctant and unable to muster the support needed to call such a convention. Thus, the states rely largely on Congress to introduce constitutional amendments.

This constitutional imbalance could be easily remedied if the states simply were given the ability to propose amendments to the Constitution without having to call a formal convention. The states could, by a two-thirds majority vote, propose amendments to the Constitution. Congress then would be able to accept or reject these amendments by a similar two-thirds vote.

To change the Constitution in this manner and place the states on equal footing with the federal government, Congress would have to propose, of course, a new amendment to the Constitution. The states should work with Members of Congress to devise such a mechanism and ensure that the states have this federalism protection in the future.

Strategy #6: Congress should allow the states to hold their representatives more accountable by giving them the right to convene their congressional delegations when they feel egregious federal mandates and policies are being imposed.

This type of reform would rectify the accountability problem created by the adoption of the Seventeenth Amendment in 1913, which stripped the states of their power to elect Senators directly to Congress.

After the adoption of the Seventeenth Amendment, Americans received the right to elect the Senators of their state through popular vote. Although this move can be considered an important victory for direct democracy, it also can be seen as a setback of sorts for the citizens of individual states. Prior to the adoption of the Seventeenth Amendment, Senators had been appointed by state legislatures, as mandated in Article I, Section 3, of the Constitution.

In certain ways, this system actually held Senators more accountable to the people of the individual states because Senators were appointed by members of the state legislatures, which gave elected members of these legislatures a more controlling hand or voice in the making of national policy. Essentially, the Founders opted for this system to ensure that at least one branch of the federal government would be held directly accountable to the state legislatures, thereby giving the states an important check on federal power. "As a result [of the adoption of the Seventeenth Amendment]," summarize former Heritage Foundation analysts Douglas Seay and Wesley Smith, "the states [lost] their role in national policymaking and their ability to carry out their constitutional role of checking and balancing the national government." 38

Coupled with the adoption that year of the Sixteenth Amendment, which removed the restrictions on Congress's ability to tax the income of all Americans, two important impediments to the growth of national power were removed in very short order. Since 1913, the federal government has had an almost unlimited power to tax and spend, while the states have had little say in the ways in which these decisions are made, thanks to the adoption of the Seventeenth Amendment.

Although some political scientists still question the wisdom of the Seventeenth Amendment, most Americans have become accustomed to electing their political representatives directly, and they are unlikely to want to surrender this right. Optimally, however, a system or mechanism could be created that preserves the right of the citizens to elect their federal officials directly but allows them to demand more accountability of these federal officers to the interests of their states and the state legislatures at the same time.

One such mechanism might take the form of an annual or semi-annual meeting of state and federal representatives within the state capitals to discuss federal policies and programs that might affect the states. A legislature could request that the state's entire congressional delegation convene for such a meeting, or it could request that just a few members represent their state delegation of U.S. Senators and Representatives. State legislators then would be able to confront the federal representatives of their state and ask them to justify programs or regulations that have a potential impact on their state. Consequently, state officials could communicate their concerns about various federal initiatives before they have been acted on or implemented.

Alternately, or in addition to this plan, state legislatures simply could demand the right to convene their federal representatives on an ad hoc basis whenever they felt particularly egregious federal mandates or policies were being imposed on them that demand immediate attention. Either way, such mechanisms should be implemented to give the states the ability to act as a substantive check on national power, to regain a voice in federal matters, and to hold federal representatives accountable to the interests of their state.

Strategy #7: Congress should give the states a supermajority veto power over federal legislation or regulation that preempts their authority, or that requires them to administer federal programs or rules.

If the reforms mentioned above were implemented but federal officials still found it easy to put in place rules and regulations that run contrary to the true spirit and intent of the Constitution and violate the sovereignty of the states and the people, then a more radical reform option could come into consideration that would ensure the Founders' original balance of powers was restored and protected.

Many state and local groups and representatives advocate the adoption of a "states' rights veto" power that would force Congress to reconsider particularly egregious or potentially unconstitutional acts. This states' rights veto power would require that a supermajority (that is, two-thirds) of the states pass resolutions calling for the repeal of a specific federal statute or regulation that they collectively feel has been imposed unjustly on them. The states would have three to five years to consider passage of the veto. 39

More important, however, is that, even if such a mechanism were adopted, it must have certain limits to ensure that some important powers and responsibilities guaranteed to the federal government by the Constitution are not sacrificed. For example, the states should not receive the right to use such a veto power to interfere with the federal government's foreign policy or national security decisions. The Framers of the Constitution unambiguously entrust such responsibilities to the federal government because of the importance of having a unified voice and policy in the field of global affairs and diplomacy.

This is also the case with regard to treaty-making with foreign countries in general. The Constitution prohibits the states from making treaties with foreign countries, for fear of a balkanization within the American Republic. Not only does this mean the federal government has the exclusive right to negotiate with foreign governments on behalf of all Americans in foreign policy matters, but it means also that the federal government is the only entity that has the constitutional authority to enter into trade agreements and commercial treaties with foreign countries. Therefore, if a states' rights veto mechanism were put into place, it would be vital that these sorts of exceptions--which have solid constitutional and practical justifications--be included in the measure so that the states could not overrule federal officials on sensitive matters.


The strategies above are only a few of the reforms that could be pursued in upcoming sessions o

As America approaches the 21st century and gets closer to celebrating its 225th year of existence, the time seems ripe for a fundamental reassessment of the current status of federalism in the American Republic. Clearly, this past century has not been kind to the Founders' original model of constitutional federalism, as federal policymakers and jurists have contorted various words and phrases of the Constitution in an effort to justify the expansion of federal power relative to the states and the people.

This is very unfortunate because federalism remains the most appropriate system of political organization for such a vibrant and diverse country as the United States. "Federalism reform" should be viewed as a quintessential "good government" issue. The reforms discussed in this paper should be undertaken as part of an ongoing effort to restore and reinvigorate sound constitutional government. More important, any reform efforts should proceed in a cooperative, nonpartisan manner because federalism is neither a Democrat nor a Republican issue rather, it is an American issue that should be placed at the top of the agenda of the leadership of both parties because it is concerned with matters that lie at the very nature of the republic.

If policymakers profess to believe in the value of creative state and local experimentation, vigorous interstate commerce, competition, and the promises of liberty that come with checks and balances on government, then they should take the necessary steps to reinvigorate and protect what many historians, constitutional scholars, and Americans believe is the Founding Fathers' most important contribution to modern civilization.

Adam D. Thierer is a former Alex C. Walker Fellow in Economic Policy at The Heritage Foundation.


By the authority vested in me as President by the Constitution and laws of the United States of America, and in order to restore the division of government responsibilities between the national government and the States that was intended by the Framers of the Constitution and to ensure that the principles of federalism established by the Framers guide the Executive departments and agencies in the formulation and implementation of policies, it is hereby ordered as follows:

Section 1: Definitions. For purposes of this Order:

"Policies that have federalism implications" refers to regulations, legislative comments or proposed legislation, and other policy statements or actions that have substantial direct effects on the States, on the relationship between the national government and the States, or on the distribution of power and responsibilities among the various levels of government.

"State" or "States" refer to the States of the United States of America, individually or collectively, and where relevant, to State governments, including units of local government and other political subdivisions established by the States.

Section 2: Fundamental Federalism Principles.In formulating and implementing policies that have federalism implications, Executive departments and agencies shall be guided by the following fundamental federalism principles:

Federalism is rooted in the knowledge that our political liberties are best assured by limiting the size and scope of the national government.

The people and the States created the national government when they delegated to it those enumerated governmental powers relating to matters beyond the competence of the individual States. All other sovereign powers, save those expressly prohibited the States by the Constitution, are reserved to the States or to the people.

The constitutional relationship among sovereign governments, State and national, is formalized in and protected by the Tenth Amendment to the Constitution.

The people of the States are free, subject only to restrictions in the Constitution itself or in constitutionally authorized Acts of Congress, to define the moral, political, and legal character of their lives.

In most areas of government concern, the States uniquely possess the constitutional authority, the resources, and the competence to discern the sentiments of the people, and to govern accordingly. In Thomas Jefferson's words, the States are "the most competent administrations for our domestic concerns and the surest bulwarks against antirepublican tendencies."

The nature of our Constitutional system encourages a healthy diversity in the public policies adopted by the people of the several States according to their own conditions, needs, and desires. In the search for enlightened public policy, individual States and communities are free to experiment with a variety of approaches to public issues.

Acts of the national government--whether legislative, executive, or judicial in nature--that exceed the enumerated powers of that government under the Constitution violate the principle of federalism established by the Framers.

Policies of the national government should recognize the responsibility of--and should encourage opportunities for--individuals, families, neighborhoods, local government, and private associations to achieve their personal, social, and economic objectives through cooperative effort.

In the absence of clear constitutional or statutory authority, the presumption of sovereignty should rest with the individual States. Uncertainties regarding the legitimate authority of the national government should be resolved against regulation at the national level.

Section 3: Federalism Policymaking Criteria. In addition to the fundamental federalism principles set forth in section 2, Executive departments and agencies shall adhere, to the extent permitted by law, to the following criteria when formulating and implementing policies that have federalism implications:

There should be strict adherence to constitutional principles. Executive departments and agencies should closely examine the constitutional and statutory authority supporting any Federal action that would limit the policymaking discretion of the States, and should carefully assess the necessity for such action. To the extent practicable, the States should be consulted before any such action is implemented. Executive Order No. 12372 ("Intergovernmental Review of Federal Programs") remains in effect for the programs and activities to which it is applicable.

Federal action limiting the policymaking discretion of the States should be taken only where constitutional authority for the action is clear and certain and the national activity is necessitated by the presence of a problem of national scope. For purposes of this Order:

  1. It is important to recognize the distinction between problems of a national scope (which may justify Federal action) and problems that are merely common to the States (which will not justify Federal action because individual States, acting individually or together, can effectively deal with them).

  2. Constitutional authority for federal action is clear and certain only when authority for the action may be found in a specific provision of the Constitution, there is no provision in the Constitution prohibiting Federal action, and the action does not encroach upon authority reserved to the States.

With respect to national policies administered by the States, the national government should grant the States the maximum administrative discretion possible. Intrusive, Federal oversight of State administration is neither necessary or desirable.

When undertaking to formulate and implement policies that have federalism implications, Executive departments and agencies shall:

  1. Encourage States to develop their own policies to achieve program objectives and to work with appropriate officials in other States.

  2. Refrain, to the maximum extent possible, from establishing uniform, national standards for programs and, when possible, defer to the States to establish standards.

  3. When national standards are required, consult with appropriate officials and organizations representing the States in developing those standards.

Section 4: Special Requirements for Preemption.

To the extent permitted by law, Executive departments and agencies shall construe, in regulations and otherwise, a Federal statute to preempt State law only when the statute contains an express preemption provision or there is some other firm and palpable evidence compelling the conclusion that the Congress intended preemption of State law, or when the exercise of State authority directly conflicts with the exercise of Federal authority under the Federal statute.

Where a federal statute does not preempt State law (as addressed in subsection [a] of this section), Executive departments and agencies shall construe any authorization in the statute for the issuance of regulations as authorizing preemption of State law by rule-making only when the statute expressly authorizes issuance of preemptive regulations or there is some other firm and palpable evidence compelling the conclusion that the Congress intended to delegate to the department or agency the authority to issue regulations preempting State law.

Any regulatory preemption of State law shall be restricted to the minimum level necessary to achieve the objectives of the statute pursuant to which the regulations are promulgated.

As soon as an Executive department or agency foresees the possibility of a conflict between State law and federally protected interests within its area of regulatory responsibility, the department or agency shall consult to the extent practicable, with appropriate officials and organizations representing the States in an effort to avoid such a conflict.

When an Executive department or agency proposes to act through adjudication or rule-making to preempt State law, the department or agency shall provide all affected States notice and an opportunity for appropriate participation in the proceedings.

Section 5: Special Requirement for Legislative Proposals. Executive departments and agencies shall not submit to the Congress legislation that would:

Directly regulate the States in ways that would interfere with functions essential to the States' separate and independent existence or operate to directly displace the States' freedom to structure integral operations in areas of traditional government functions

Attach to Federal grants conditions that are not directly related to the purpose of the grant or,

Preempt State law, unless preemption is consistent with the fundamental federalism principles set forth in section 2, and unless a clearly legitimate national purpose, consistent with the federalism policymaking criteria set forth in section 3, cannot otherwise be met.

Section 6: Agency Implementation.

The head of each Executive department and agency shall designate an official to be responsible for ensuring the implementation of this Order.

In addition to whatever other actions the designated official may take to ensure implementation of this Order, the designated official shall determine which proposed policies have sufficient federalism implications to warrant the preparation of a Federalism Assessment. With respect to each such policy for which an affirmative determination is made, a Federalism Assessment, as described in subsection [c] of this section, shall be prepared. The department or agency head shall consider any such Assessment in all decisions involved in
promulgating and implementing the policy.

Each Federalism Assessment shall accompany any submission concerning the policy that is made to the Office of Management and Budget pursuant to Executive Order No. 12291 or OMB Circular No. A-19, and shall:

  1. Contain the designated official's certification that the policy has been assessed in light of the principles, criteria, and requirements stated in sections 2 through 5 of this Order

  2. Identify any provision or element of the policy that is inconsistent with the principles, criteria, and requirements stated in sections 2 through 5 of this Order

  3. Identify the extent to which the policy imposes additional costs or burdens on the States, including the likely source of funding for the States and the ability of the States to fulfill the purposes of the policy and

  4. Identify the extent to which the policy would affect the States' ability to discharge traditional State government functions, or other aspects of State sovereignty.

Section 7: Government-wide Federalism Coordination and Review.

In implementing Executive Order Nos. 12291 and 12498 and OMB Circular No. A-19, the Office of Management and Budget, to the extent permitted by law and consistent with the provisions of those authorities, shall take action to ensure that the policies of the Executive departments and agencies are consistent with the principles, criteria, and requirements stated in sections 2 through 5 of this Order.

In submissions to the Office of Management and Budget pursuant to Executive Order No. 12291 and OMB Circular No. A-19, Executive departments and agencies shall identify proposed regulatory and statutory provisions that have significant federalism implications and shall address any substantial federalism concerns. Where the departments or agencies deem it appropriate, substantial federalism concerns should also be addressed in notices of proposed rule-making and messages transmitting legislative proposals to Congress.

Section 8: Judicial Review. This Order is intended only to improve the internal management of the Executive branch, and is not intended to create any right or benefit, substantive or procedural, enforceable at law by a party against the United States, its agencies, its officers, or any person.

Ronald Reagan
The White House
October 26, 1987

1. Portions of this paper are adapted from the author's recently published book on federalism. See The Delicate Balance: Federalism, Interstate Commerce, and Economic Freedom in the Technological Age (Washington, D.C.: The Heritage Foundation, 1999), pp. ix-xiv 40-46 119-143.

2. President William J. Clinton, Executive Order No. 13083, "Federalism," May 14, 1998 see Federal Register, Vol. 63, No. 96 (May 19, 1998), pp. 27651-27655.

3. "The Status of Federalism in America," A Report of the Working Group on Federalism of the Domestic Policy Council, November 1986, p. 1.

4. Executive Order 13083, op. cit.

5. President Ronald Reagan, Executive Order No. 12612, "Federalism," October 26, 1987 see Federal Register, Vol. 52, No. 210 (October 30, 1987), pp. 41685-41688.

7. President William J. Clinton, "Suspension of Executive Order 13083," White House, Office of the Press Secretary, August 5, 1998.

8. Justice Sandra Day O'Connor, New York v. United States, 505 U.S. 144, 157 (1992).

9. Groups representing state and local interests, such as the American Legislative Exchange Council, the National Governors' Association, the National Conference of State Legislatures, the Council of State Governments, and the State Legislative Leaders Foundation, have endorsed variations of these recommendations. For a summary of the principles and reforms of federalism they support, which were agreed on in a summit on federalism in October 1995, see Charles J. Cooper and David H. Thompson, "The Tenth Amendment: The Promise of Liberty Strategies to Restore the Balance of Powers Between the Federal and State Governments," American Legislative Exchange Council The State Factor, Vol. 22, No. 7 (October 1996).

10. Executive Order 12612, op. cit.

11. See James Miller III, Office of Management and Budget, "Implementation of Executive Order No. 12612, Federalism," Memorandum for the Heads of Executive Departments and Agencies, December 16, 1987 and President George Bush, "Federalism Executive Order," Memorandum to the Heads of Executive Departments and Agencies, February 16, 1990.

12. Public Law No. 104-4, March 22, 1995.

13. Public Law No. 104-121, March 29, 1996. The Congressional Review Act is contained in Subtitle E of Title II of the Small Business Regulatory Enforcement Fairness Act of 1996.

14. See Angela Antonelli, "Promises Unfulfilled: Unfunded Mandates Reform Act of 1995," Regulation No. 2 (1996), pp. 46-54.

16. See Angela Antonelli, "Needed: Aggressive Implementation of the Congressional Review Act," Heritage Foundation F.Y.I. No. 131, February 19, 1997 and Susan E. Dudley and Angela Antonelli, "Congress and the Clinton OMB: Unwilling Partners in Regulatory Oversight?" Regulation, Fall 1997, pp. 17-23.

18. Clinton Rossiter, ed., The Federalist Papers (New York, NY: NAL Penguin, 1961), p. 245.

20. Senator Spencer Abraham, "Downsizing Federal Authority," Journal of Commerce, February 27, 1996, p. 8A.

21. Raoul Berger, "Judicial Manipulation of the Commerce Clause," Texas Law Review, Vol. 74, Issue 4 (March 1996), p. 703.

22. Justice Melville Weston Fuller, United States v. E. C. Knight Co., 156 U.S. 1, 12 (1895).

23. Roger Pilon, "Freedom, Responsibility, and the Constitution: On Recovering Our Founding Principles," in David Boaz and Edward H. Crane, eds., Market Liberalism: A Paradigm for the 21st Century (Washington, D.C.: Cato Institute, 1993), p. 42.

24. Letter from James Madison to J. C. Cabell, February 12, 1829, quoted in Berger, "Judicial Manipulation of the Commerce Clause," p. 705.

25. Robert H. Bork, "Federalism and Federal Regulation: The Case of Product Labeling," Critical Legal Issues, Washington Legal Foundation Working Paper Series No. 46, July 1991, p. 10.

28. See "New Federalism Tensions and a Framework for the Future," in Thierer, The Delicate Balance, pp. 81-118.

29. For example, see Baldwin v. G.A.F. Seelig, 294 U.S. 511 (1935) Southern Pacific Co. v. Arizona, 325 U.S. 761 (1945) H.P. Hood & Sons, Inc. v. DuMond, 336 U.S. 525 (1949) Dean Milk Co. v. City of Madison, 340 U.S. 349 (1951) Bibb v. Navajo Freight Lines, Inc., 359 U.S. 520 (1959) Pike v. Bruce Church, 397 U.S. 137 (1970) Great Atlantic & Pacific Tea Co. v. Cottrell, 424 U.S. 366 (1976) Hunt v. Washington Apple Advertising Commission, 432 U.S. 333 (1977) Raymond Motor Transportation v. Rice, 434 U.S. 429 (1978) Philadelphia v. New Jersey, 437 U.S. 617 (1978) Hughes v. Oklahoma, 441 U.S. 322 (1979) Kassel v. Consolidated Freightways Corp., 450 U.S. 622 (1981) New Energy Co. of Indiana v. Limbach, 486 U.S. 269 (1988) Bendix Autolite Corp. v. Midwesco Enterprises, Inc., 486 U.S. 888 (1988) and West Lynn Creamery, Inc. v. Healy, 512 U.S. 186 (1994).

30. Michael DeBow, "Codifying the Dormant Commerce Clause," Public Interest Law Review, Vol. 69 (1995), p. 77.

32. See, in particular, A.L.A. Schechter Poultry Corp. v. United States, 295 U.S. 495 (1935).

33. The Supreme Court decision in J. W. Hampton, Jr., & Co. v. U.S., 276 U.S. 394 (1928), is widely cited as a watershed moment in the history of anti-delegation, because from that case forward the Court legitimized and accepted congressional efforts to delegate power to administrative bodies. Prior to J. W. Hampton, the Court had held firmly to a doctrine of non-delegation of congressional authority to administrative agencies.

34. Theodore Lowi has done pioneering work in this field. See Theodore J. Lowi, "Liberal Jurisprudence: Policy Without Law," The End of Liberalism: The Second Republic of the United States (New York, NY: W. W. Norton & Company, 1969, 1979), pp. 92-126. More recently, a study by New York Law School professor David Schoenbrod has been instrumental in calling attention to the deficiencies of delegation. See David Schoenbrod, Power Without Responsibility: How Congress Abuses the People Through Delegation (New Haven, CT: Yale University Press, 1993).

35. Senator Sam Brownback, prepared statement on the Congressional Responsibility Act of 1997, presented before the Subcommittee on Commercial and Administrative Law, Committee on the Judiciary, U.S. House of Representatives, September 25, 1997 available on the Internet at http://www.house.gov/judiciary/5128.htm.

36. David Schoenbrod and Jerry Taylor, "The Delegation of Legislative Powers," Cato Handbook for Congress, 105th Congress (Washington, DC: Cato Institute, 1997), p. 47.

37. Representative J. D. Hayworth, prepared statement on the Congressional Responsibility Act of 1997, presented before the Subcommittee on Commercial and Administrative Law, Committee on the Judiciary, U.S. House of Representatives, September 25, 1997 available on the Internet at http://www.house.gov/hayworth/testimony/1036.htm.

38. Douglas Seay and Wesley Smith, "Federalism," in Stuart M. Butler and Kim R. Homes, eds., Issues '96: The Candidate's Briefing Book (Washington, DC: The Heritage Foundation, 1996), p. 432.

39. For more information, see Cooper and Thompson, "The Tenth Amendment: The Promise of Liberty," pp. 5-6.

40. For many other creative ways to rein in federal power, return functions to the states, and avoid any political pitfalls in the process, see Douglas Seay and Robert E. Moffit, "Transferring Functions to the States," in Stuart M. Butler and Kim R. Holmes, eds., Mandate for Leadership IV: Turning Ideas Into Actions (Washington, DC: The Heritage Foundation, 1997), pp. 87-127. See also Seay and Smith, "Federalism," op. cit.

Interstate commerce

Our editors will review what you’ve submitted and determine whether to revise the article.

Interstate commerce, in U.S. constitutional law, any commercial transactions or traffic that cross state boundaries or that involve more than one state. The traditional concept that the free flow of commerce between states should not be impeded has been used to effect a wide range of regulations, both federal and state. A further extension of the established notion regarding the free flow of trade was introduced when Title II of the 1964 Civil Rights Act—dealing with discriminatory practices in public accommodations—was upheld by the Supreme Court. The court decided that a business, although operating within a single state, could affect interstate commerce with its restrictive laws and was, therefore, at odds with the federal legislation that proved to be enabling of the Constitution’s commerce clause.

Other specific historical instances of federal government action to regulate interstate commerce can be cited. The Interstate Commerce Commission (ICC), established in 1887, was intended originally to regulate the railroad industry. It was expanded to deal with trucks, ships, freight forwarders, and other interstate carriers. The regulations concerned rates, routes, services, mergers, bills of lading, and securities issued by carriers. In the wake of the deregulation of the trucking and other industries in the 1970s and ’80s, the ICC was eliminated in 1996, and many of its remaining responsibilities were shifted to the Department of Transportation.

The Sherman Act (1890), followed by the Clayton Act (1914), made illegal any acts that tended to interfere in free competition between and among industries, businesses, and all interstate commercial ventures. The Sherman Act specifically involved trusts, or monopolies, while the Clayton Act also concerned itself with stock acquisition and sale and forbade interlocking directorates as an impediment to free competition and, therefore, a bar to free interstate commerce.

The Federal Trade Commission (FTC) was established by the Federal Trade Commission Act of 1914, which gave the FTC powers—judicial, legislative, and executive—to administer the Sherman and Clayton acts.

The fair-trade legislation of 1937 protects manufacturers by permitting them to maintain an image of quality by charging a higher price through their retailers. These laws, which forbade discounters from selling the goods at lower than retail prices, were considered protective of interstate commerce because they restricted cutthroat competition. In recent years, however, these laws have been challenged, and the challenges have been upheld, showing the laws to be actually restrictive of interstate commerce rather than protective.

The Civil Aeronautics Board (CAB), which operated from 1938 to 1984, was involved in setting interstate routes as well as regulating fares for the commercial airlines. With the deregulation of the airline industry, however, the role of the CAB was much diminished, and its residual functions were assumed by the Department of Transportation.

The Federal Communications Commission (FCC) was created to protect the right of the public to its airwaves through licensing and by overseeing the practices of broadcasters in radio and television. Again, the application to interstate commerce is that radio (and television) air belongs to all Americans even if the broadcast is local, the station privately funded, and the signal not intended to be picked up beyond the state lines.

In essence, the bulk of interstate-commerce regulatory agencies are to be found in the FCC (broadcasting) and FTC (antitrust provisions).

The several states also have some authority to regulate aspects of interstate commerce. Under the provisions of the states’ police powers, interstate shipments may be banned, and, in the absence of federal laws to the contrary, state laws regulating highway traffic will invariably be upheld. In both examples, the burden on interstate commerce must not be so great as to outweigh either a state’s greater interest or its implied powers of regulation in the absence of congressional legislation. Under the provisions of the commerce clause, a state may, in certain instances, tax goods in interstate commerce, providing that no congressional legislation prohibits such action (Hammerstein v. Superior Court [1951]).

New Federalism

During the administrations of Presidents Richard Nixon (1969–1974) and Ronald Reagan (1981–1989), attempts were made to reverse the process of nationalization—that is, to restore states’ prominence in policy areas into which the federal government had moved in the past. New federalism is premised on the idea that the decentralization of policies enhances administrative efficiency, reduces overall public spending, and improves policy outcomes. During Nixon’s administration, general revenue sharing programs were created that distributed funds to the state and local governments with minimal restrictions on how the money was spent. The election of Ronald Reagan heralded the advent of a “devolution revolution” in U.S. federalism, in which the president pledged to return authority to the states according to the Constitution. In the Omnibus Budget Reconciliation Act of 1981, congressional leaders together with President Reagan consolidated numerous federal grant programs related to social welfare and reformulated them in order to give state and local administrators greater discretion in using federal funds. [19]

However, Reagan’s track record in promoting new federalism was inconsistent. This was partly due to the fact that the president’s devolution agenda met some opposition from Democrats in Congress, moderate Republicans, and interest groups, preventing him from making further advances on that front. For example, his efforts to completely devolve Aid to Families With Dependent Children (a New Deal-era program) and food stamps (a Great Society-era program) to the states were rejected by members of Congress, who feared states would underfund both programs, and by members of the National Governors’ Association, who believed the proposal would be too costly for states. Reagan terminated general revenue sharing in 1986. [20]

Several Supreme Court rulings also promoted new federalism by hemming in the scope of the national government’s power, especially under the commerce clause. For example, in United States v. Lopez, the court struck down the Gun-Free School Zones Act of 1990, which banned gun possession in school zones. [21]

It argued that the regulation in question did not “substantively affect interstate commerce.” The ruling ended a nearly sixty-year period in which the court had used a broad interpretation of the commerce clause that by the 1960s allowed it to regulate numerous local commercial activities. [22]

However, many would say that the years since the 9/11 attacks have swung the pendulum back in the direction of central federal power. The creation of the Department of Homeland Security federalized disaster response power in Washington, and the Transportation Security Administration was created to federalize airport security. Broad new federal policies and mandates have also been carried out in the form of the Faith-Based Initiative and No Child Left Behind (during the George W. Bush administration) and the Affordable Care Act (during Barack Obama’s administration).

Cooperative Federalism versus New Federalism

Morton Grodzins coined the cake analogy of federalism in the 1950s while conducting research on the evolution of American federalism. Until then most scholars had thought of federalism as a layer cake, but according to Grodzins the 1930s ushered in “marble-cake federalism”: “The American form of government is often, but erroneously, symbolized by a three-layer cake. A far more accurate image is the rainbow or marble cake, characterized by an inseparable mingling of differently colored ingredients, the colors appearing in vertical and diagonal strands and unexpected whirls. As colors are mixed in the marble cake, so functions are mixed in the American federal system.” [23]

Figure 5. Morton Grodzins, a professor of political science at the University of Chicago, coined the expression “marble-cake federalism” in the 1950s to explain the evolution of federalism in the United States.

Cooperative federalism has several merits:

  • Because state and local governments have varying fiscal capacities, the national government’s involvement in state activities such as education, health, and social welfare is necessary to ensure some degree of uniformity in the provision of public services to citizens in richer and poorer states.
  • The problem of collective action, which dissuades state and local authorities from raising regulatory standards for fear they will be disadvantaged as others lower theirs, is resolved by requiring state and local authorities to meet minimum federal standards (e.g., minimum wage and air quality).
  • Federal assistance is necessary to ensure state and local programs (e.g., water and air pollution controls) that generate positive externalities are maintained. For example, one state’s environmental regulations impose higher fuel prices on its residents, but the externality of the cleaner air they produce benefits neighboring states. Without the federal government’s support, this state and others like it would underfund such programs.

New federalism has advantages as well:

  • Because there are economic, demographic, social, and geographical differences among states, one-size-fits-all features of federal laws are suboptimal. Decentralization accommodates the diversity that exists across states.
  • By virtue of being closer to citizens, state and local authorities are better than federal agencies at discerning the public’s needs.
  • Decentralized federalism fosters a marketplace of innovative policy ideas as states compete against each other to minimize administrative costs and maximize policy output.

Which model of federalism do you think works best for the United States? Why?

The leading international journal devoted to the practical and theoretical study of federalism is called Publius: The Journal of Federalism. Find out where its name comes from.

Federalism in the United States has gone through several phases of evolution during which the relationship between the federal and state governments has varied. In the era of dual federalism, both levels of government stayed within their own jurisdictional spheres. During the era of cooperative federalism, the federal government became active in policy areas previously handled by the states. The 1970s ushered in an era of new federalism and attempts to decentralize policy management.

Practice Questions

  1. What are the main differences between cooperative federalism and dual federalism?
  2. What were the implications of McCulloch v. Maryland for federalism?

2. The McCulloch decision established the doctrine of implied powers, meaning the federal government can create policy instruments deemed necessary and appropriate to fulfill its constitutional responsibilities. The case also affirmed the principle of national supremacy embodied in Article VI of the Constitution, namely, that the Constitution and legitimate federal laws trump state laws.

cooperative federalism a style of federalism in which both levels of government coordinate their actions to solve national problems, leading to the blending of layers as in a marble cake

dual federalism a style of federalism in which the states and national government exercise exclusive authority in distinctly delineated spheres of jurisdiction, creating a layer-cake view of federalism

general revenue sharing a type of federal grant that places minimal restrictions on how state and local governments spend the money

new federalism a style of federalism premised on the idea that the decentralization of policies enhances administrative efficiency, reduces overall public spending, and improves outcomes

nullification a doctrine promoted by John Calhoun of South Carolina in the 1830s, asserting that if a state deems a federal law unconstitutional, it can nullify it within its borders

Dormant Commerce Clause

The courts have interpreted the Commerce Clause as not only an explicit grant of power to Congress, but also an implied ban against state laws that conflict with federal law—sometimes called the "Dormant Commerce Clause."

The Dormant Commerce Clause refers to the Commerce Clause’s implied prohibition against state laws that conflict with federal law by discriminating against or excessively burdening interstate commerce. This prohibition is primarily intended to prevent the states from enacting “protectionist” trade laws.

The Economic Conditions of Interstate Federalism

I T IS rightly regarded as one of the great advantages of interstate federation that it would do away with the impediments as to the movement of men, goods, and capital between the states and that it would render possible the creation of common rules of law, a uniform monetary system, and common control of communications. The material benefits that would spring from the creation of so large an economic area can hardly be overestimated, and it appears to be taken for granted that economic union and political union would be combined as a matter of course. But, since it will have to be argued here that the establishment of economic union will set very definite limitations to the realization of widely cherished ambitions, we must begin by showing why the abolition of economic barriers between the members of the federation is not only a welcome concomitant but also an indispensable condition for the achievement of the main purpose of federation.

Unquestionably, the main purpose of interstate federation is to secure peace: to prevent war between the parts of the federation by eliminating causes of friction between them and by providing effective machinery for the settlement of any disputes which may arise between them and to prevent war between the federation and any independent states by making the former so strong as to eliminate any danger of attack from without. If this aim could be achieved by mere political union not extended to the economic sphere, many would probably be content to halt at the creation of a common government for the purpose of defense and the conduct of a common foreign policy, when a more far-reaching unification might impede the achievement of other ideals.

There are, however, very good reasons why all plans for interstate federation include economic union and even regard it as one of its main objectives and why there is no historical example of countries successfully combining in a common foreign policy and common defense without a common economic regime.[1] Although there are instances of countries concluding customs unions without providing machinery for a common foreign policy and common defense, the decision of several countries to rely upon a common foreign policy and a common defense force, as was the case with the parts of the dual monarchy of Austria-Hungary, has inevitably been combined with a common administration of matters of tariffs, money, and finance.

The relations of the Union with the outside world provide some important reasons for this, since a common representation in foreign countries and a common foreign policy is hardly conceivable without a common fiscal and monetary policy. If international treaties are to be concluded only by the Union, it follows that the Union must have sole power over all foreign relations, including the control of exports and imports, etc. If the Union government is to be responsible for the maintenance of peace, the Union and not its parts must be responsible for all decisions which will harm or benefit other countries.

No less important are the requirements of a common policy for defense. Not only would any interstate barriers to commerce prevent the best utilization of the available resources and weaken the strength of the union but the regional interests created by any sort of regional protectionism would inevitably raise obstacles to an effective defense policy. It would be difficult enough to subordinate sectional to Union interests but should the component states remain separate communities of interest, whose inhabitants gain and suffer together because they are segregated from the rest of the Union by various kinds of barriers, it would be impossible to conduct a defense policy without being hampered at every stage by considerations of local interests. This, however, is only a facet of the wider problem which we must next consider.

The most compelling reasons for extending the union to the economic sphere are provided by the necessity to preserve the internal coherence of the Union. The existence of any measure of economic seclusion or isolation on the part of an individual state produces a solidarity of interests among all its inhabitants and conflicts between their interests and those of the inhabitants of other states which—although we have become so accustomed to such conflicts as to take them for granted—is by no means a natural or inevitable thing. There is no valid reason why any change which affects a particular industry in a certain territory should impinge more heavily upon all or most of the inhabitants of that territory than upon people elsewhere. This would hold good equally for the territories which now constitute sovereign states and for any other arbitrarily delimited region, if it were not for custom barriers, separate monetary organizations, and all the other impediments to the free movement of men and goods. It is only because of these barriers that the incidence of the various benefits and damages affecting in the first instance a particular group of people will be mainly confined to the inhabitants of a given state and extend to almost all the people living within its frontiers. Such economic frontiers create communities of interest on a regional basis and of a most intimate character: they bring it about that all conflicts of interests tend to become conflicts between the same groups of people, instead of conflicts between groups of constantly varying composition, and that there will in consequence be perpetual conflicts between the inhabitants of a state as such instead of between the various individuals finding themselves arrayed, sometimes with one group of people against another, and at other times on another issue with the second group against the first. We need not stress here the extreme but nevertheless important case that national restriction will lead to considerable changes in the standard of life of the population of one integral state composed with that of another.[2] The mere fact that everybody will find again and again that their interests are closely bound up with those of one constant group of people and antagonistic to that of another group is bound to set up severe frictions between the groups as such. That there will always be communities of interest which will be similarly affected by a particular event or a particular measure is unavoidable. But it is clearly in the interest of unity of the larger whole that these groupings should not be permanent and, more particularly, that the various communities of interest should overlap territorially and never become lastingly identified with the inhabitants of a particular region.

We shall later examine how in existing federal states, even though the states are denied the grosser instruments of protectionism such as tariffs and independent currencies, the more concealed forms of protectionism tend to cause increasing friction, cumulative retaliation, and even the use of force between the individual states. And it is not difficult to imagine what forms this would take if the individual states were free to use the whole armory of protectionism. It seems fairly certain that political union between erstwhile sovereign states would not last long unless accompanied by economic union.

The absence of tariff walls and the free movements of men and capital between the states of the federation has certain important consequences which are frequently overlooked. They limit to a great extent the scope of the economic policy of the individual states. If goods, men, and money can move freely over the interstate frontiers, it becomes clearly impossible to affect the prices of the different products through action by the individual state. The Union becomes one single market, and prices in its different parts will differ only by the costs of transport. Any change in any part of the Union in the conditions of production of any commodity which can be transported to other parts will affect prices everywhere. Similarly, any change in the opportunities for investment, or the remuneration of labor in any part of the Union, will, more or less promptly, affect the supply and the price of capital and labor in all other parts of the Union.

Now nearly all contemporary economic policy intended to assist particular industries tries to do so by influencing prices. Whether this is done by marketing boards or restriction schemes, by compulsory “reorganization” or the destruction of excess capacity of particular industries, the aim is always to limit supply and thus to raise prices. All this will clearly become impossible for the individual states within the Union. The whole armory of marketing boards and other forms of monopolistic organizations of individual industries will cease to be at the disposal of state governments. If they still want to assist particular groups of producers, they will have to do so by direct subsidies from funds raised by ordinary taxation. But the methods by which, for example, in England, the producers of sugar and milk, bacon and potatoes, cotton yarn, coal, and iron have all been protected in recent years against “ruinous competition,” from within and without, will not be available.

It will also be clear that the states within the Union will not be able to pursue an independent monetary policy. With a common monetary unit, the latitude given to the national central banks will be restricted at least as much as it was under a rigid gold standard—and possibly rather more since, even under the traditional gold standard, the fluctuations in exchanges between countries were greater than those between different parts of a single state, or than would be desirable to allow within the Union.[3] Indeed, it appears doubtful whether, in a Union with a universal monetary system, independent national central banks would continue to exist they would probably have to be organized into a sort of Federal Reserve System. But, in any case, a national monetary policy which was predominantly guided by the economic and financial conditions of the individual state would inevitably lead to the disruption of the universal monetary system. Clearly, therefore, all monetary policy would have to be a federal and not a state matter.

But even with respect to less thoroughgoing interference with economic life than the regulation of money and prices entails, the possibilities open to the individual states would be severely limited. While the states could, of course, exercise control of the qualities of goods and the methods of production employed, it must not be overlooked that, provided the state could not exclude commodities produced in other parts of the Union, any burden placed on a particular industry by state legislation would put it at a serious disadvantage as opposed to similar industries in other parts of the Union. As has been shown by experience in existing federations, even such legislation as the restriction of child labor or of working hours becomes difficult to carry out for the individual state.

Also, in the purely financial sphere, the methods of raising revenue would be somewhat restricted for the individual states. Not only would the greater mobility between the states make it necessary to avoid all sorts of taxation which would drive capital or labor elsewhere, but there would also be considerable difficulties with many kinds of indirect taxation. In particular if, as would undoubtedly be desirable, the waste of frontier controls between the states were to be avoided, it would prove difficult to tax any commodities which could easily be imported. This would preclude not only such forms of state taxation as, for instance, a tobacco monopoly but probably many excise taxes.

It is not intended here to deal more fully with these limitations which federation would impose upon the economic policy of the individual states. The general effect in this direction has probably been sufficiently illustrated by what has already been said. It is in fact likely that, in order to prevent evasions of the fundamental provisions securing free movement of men, goods, and capital, the restrictions it would be desirable for the constitution of the federation to impose on the freedom of the individual states would have to be even greater than we have hitherto assumed and that their power of independent action would have to be limited still further. We shall have to revert later to this point.

Here it need only be added that these limitations will apply not only to state economic policy but also to economic policy conducted by trade and professional organizations extending over the territory of the state. Once frontiers cease to be closed and free movement is secured, all these national organizations, whether trade-unions, cartels, or professional associations, will lose their monopolistic position and thus, qua national organizations, their power to control the supply of their services or products.

The reader who has followed the argument so far will probably conclude that if, in a federation, the economic powers of the individual states will be thus limited, the federal government will have to take over the functions which the states can no longer perform and will have to do all the planning and regulating which the states cannot do. But, at this point, new difficulties present themselves. It will be advisable in this short survey to discuss these problems chiefly in connection with the best established form of government intervention in economic life, that is, tariffs. In the main, our remarks on tariffs pertain equally to other forms of restrictive or protective measures. A few references to particular kinds of government regulation will be added later.

In the first instance, protection for the whole of a particular industry within the Union may be of little use to those who now profit from protection, because the producers against whose competition they will desire protection will then be within the Union. The English wheat farmer will have little profit from a tariff which includes him and the Canadian and perhaps also the Argentinean wheat producer in the same free-trade area. The British motorcar manufacturer will have little advantage from a tariff wall which incloses at the same time the American producers. This point need hardly be labored any further.

But even where, outside the federation, there should be important producers against whose competition a particular industry as a whole wants to be protected, there will arise special difficulties which are not present, to the same extent, within a national tariff system.

It should, perhaps, be pointed out, first, that, in order that a particular industry should benefit from a tariff, it is necessary that the tariff on its products should be higher than the tariffs on the commodities which the producers in that industry consume. A flat tariff at a uniform rate on all imports merely benefits all industries competing with imports at the expense of all others but the incidence of these benefits is entirely indiscriminate, and they are not likely to assist where help is intended. Although such a tariff would tend to decrease the material wealth of everybody in the Union, it would probably be used to strengthen the political coherence between the members of the federation. There appear, therefore, to be no particular difficulties connected with it.

Difficulties arise only when a tariff is used to assist a particular industry to grow more rapidly than it would do without it or to protect it against adverse influence which would make it decline. In these cases, in order to subsidize one particular group of people, a sacrifice is inevitably imposed on all the other producers and consumers.

In the national state current ideologies make it comparatively easy to persuade the rest of the community that it is in their interest to protect “their” iron industry or “their” wheat production or whatever it be. An element of national pride in “their” industry and considerations of national strength in case of war generally induce people to consent to the sacrifice. The decisive consideration is that their sacrifice benefits compatriots whose position is familiar to them. Will the same motives operate in favor of other members of the Union? Is it likely that the French peasant will be willing to pay more for his fertilizer to help the British chemical industry? Will the Swedish workman be ready to pay more for his oranges to assist the Californian grower? Or the clerk in the city of London be ready to pay more for his shoes or his bicycle to help American or Belgian workmen? Or the South African miner prepared to pay more for his sardines to help the Norwegian fishermen?

It seems clear that, in a federation, the problem of agreeing on a common tariff will raise problems different in kind from those that arise in a national state. It would lack the support of the strong nationalist ideologies, the sympathies with the neighbor and even the argument of defense would lose much of its power of conviction if the Union were really strong enough to have little to fear. It is difficult to visualize how, in a federation, agreement could be reached on the use of tariffs for the protection of particular industries. The same applies to all other forms of protection. Provided that there is great diversity of conditions among the various countries, as will inevitably be the case in a federation, the obsolescent or declining industry clamoring for assistance will almost invariably encounter, in the same field and within the federation, progressive industries which demand freedom of development. It will be much harder to retard progress in one part of the federation in order to maintain standards of life in another part than to do the same thing in a national state.

But even where it is not simply a question of “regulating” (i.e., curbing) the progress of one group in order to protect another group from competition, the diversity of conditions and the different stages of economic development reached by the various parts of the federation will raise serious obstacles to federal legislation. Many forms of state interference, welcome in one stage of economic progress, are regarded in another as a great impediment. Even such legislation as the limitation of working hours or compulsory unemployment insurance, or the protection of amenities, will be viewed in a different light in poor and in rich regions and may in the former actually harm and rouse violent opposition from the kind of people who in the richer regions demand it and profit from it. Such legislation will, on the whole, have to be confined to the extent to which it can be applied locally without at the same time imposing any restrictions on mobility, such as a law of settlements.

These problems are, of course, not unfamiliar in national states as we know them. But they are made less difficult by the comparative homogeneity, the common convictions and ideals, and the whole common tradition of the people of a national state. In fact, the existing sovereign national states are mostly of such dimensions and composition as to render possible agreement on an amount of state interference which they would not suffer if they were either much smaller or much larger. In the former instance (and what matters is not merely size in terms of numbers of inhabitants or area but size relative to the existing groups, which are at the same time more or less homogeneous and comparatively self-supporting), the attempts to make the national state self-supporting would be out of the question. If counties, or even smaller districts, were the sovereign units, there would be comparatively few industries in every such unit which would be protected. All the regions which did not possess, and could not create, a particular industry would constitute free markets for the produce of that industry. If, on the other hand, the sovereign units were much larger than they are today, it would be much more difficult to place a burden on the inhabitants of one region in order to assist the inhabitants of a very distant region who might differ from the former not only in language but also in almost every other respect.

Planning, or central direction of economic activity, presupposes the existence of common ideals and common values and the degree to which planning can be carried is limited to the extent to which agreement on such a common scale of values can be obtained or enforced.[4] It is clear that such agreement will be limited in inverse proportion to the homogeneity and the similarity in outlook and tradition possessed by the inhabitants of an area. Although, in the national state, the submission to the will of a majority will be facilitated by the myth of nationality, it must be clear that people will be reluctant to submit to any interference in their daily affairs when the majority which directs the government is composed of people of different nationalities and different traditions. It is, after all, only common sense that the central government in a federation composed of many different people will have to be restricted in scope if it is to avoid meeting an increasing resistance on the part of the various groups which it includes. But what could interfere more thoroughly with the intimate life of the people than the central direction of economic life, with its inevitable discrimination between groups? There seems to be little possible doubt that the scope for the regulation of economic life will be much narrower for the central government of a federation than for national states. And since, as we have seen, the power of the states which comprise the federation will be yet more limited, much of the interference with economic life to which we have become accustomed will be altogether impracticable under a federal organization.

The point can be best illustrated if we consider for a moment the problems raised by the most developed form of planning, socialism. Let us first take the question of whether a socialist state, for example, the U.S.S.R., could enter a federation with the Atlantic democratic states. The answer is decisively in the negative—not because the other states would be unwilling to admit Russia but because the U.S.S.R. could never submit to the conditions which federation would impose and permit the free movement of goods, men, and money across her frontiers while, at the same time, retaining her socialist economy.

If, on the other hand, we consider the possibility of a socialist regime for the federation as a whole, including Russia, the impracticability of such a scheme is at once obvious. With the differences in the standard of life, in tradition and education, which would exist in such a federation, it would certainly be impossible to get a democratic solution of the central problems which socialist planning would raise. But even if we consider a federation composed merely of the present democratic states, such as that proposed by Clarence Streit, the difficulties of introducing a common socialist regime would scarcely be smaller. That Englishmen or Frenchmen should intrust the safeguarding of their lives, liberty, and property—in short, the functions of the liberal state—to a suprastate organization is conceivable. But that they should be willing to give the government of a federation the power to regulate their economic life, to decide what they should produce and consume, seems neither probable nor desirable. Yet, at the same time, in a federation these powers could not be left to the national states therefore, federation would appear to mean that neither government could have powers for socialist planning of economic life.

The conclusion that, in a federation, certain economic powers, which are now generally wielded by the national states, could be exercised neither by the federation nor by the individual states, implies that there would have to be less government all round if federation is to be practicable. Certain forms of economic policy will have to be conducted by the federation or by nobody at all. Whether the federation will exercise these powers will depend on the possibility of reaching true agreement, not only on whether these powers are to be used, but on how they are to be used. The main point is that, in many cases in which it will prove impossible to reach such agreement, we shall have to resign ourselves rather to have no legislation in a particular field than the state legislation which would break up the economic unity of the federation. Indeed, this readiness to have no legislation at all on some subjects rather than state legislation will be the acid test of whether we are intellectually mature for the achievement of suprastate organization.

This is a point on which, in existing federations, difficulties have constantly arisen and on which, it must be admitted, the “progressive” movements have generally sided with the powers of darkness. In the United States, in particular, there has been a strong tendency on the part of all progressives to favor state legislation in all cases where union legislation could not be achieved, irrespective of whether such state legislation was compatible with the preservation of the economic unity of the union. In consequence, in the United States and similarly in Switzerland, the separate economic policies of the individual states have already gone far in the direction of bringing about a gradual disintegration of the common economic area.[5]

The experience in these federations makes it appear that, to prevent such trends, it is scarcely sufficient to prohibit tariffs and similar obvious impediments to interstate commerce. Evasion of such rules by an individual state which has embarked upon a course of national planning by means of administrative regulations has proved so easy that all the effects of protection can be achieved by means of such provisions as sanitary regulations, requirements of inspection, and the charging of fees for these and other administrative controls. In view of the inventiveness shown by state legislators in this respect, it seems clear that no specific prohibitions in the constitution of the federation would suffice to prevent such developments the federal government would probably have to be given general restraining powers to this end. This means that the federation will have to possess the negative power of preventing individual states from interfering with economic activity in certain ways, although it may not have the positive power of acting in their stead. In the United States the various clauses of the Constitution safeguarding property and freedom of contract, and particularly the “due process” clauses of the Fifth and Fourteenth amendments, have, to some extent, fulfilled this function and contributed probably more than is generally realized to prevent an even more rapid disintegration into many separate economic areas but they have in consequence been the object of persistent attack on the part of all those who demand more rapid extension of state control of economic life.

There will, of course, always be certain kinds of government activity which will be done most efficiently for areas corresponding to the present national states and which, at the same time, can be exercised nationally without endangering the economic unity of the federation. But, on the whole, it is likely that in a federation the weakening of the economic powers of the individual states would and should gradually be carried much further than will at first be evident. Not only will their powers be decreased by the functions taken over by the federation, and by those which cannot be exercised by either federation or states but must be left free from legislative control, but there will probably also be a great deal of devolution of powers from the states to smaller units. There are many activities which are today intrusted to the sovereign states merely in order to strengthen the states as such, but which could really be carried out much more efficiently locally, or, at any rate, by smaller units. In a federation all the arguments for centralization which are based on the desire to make the sovereign national states as such as strong as possible disappear—in fact, the converse seems to apply. Not only could most of the desirable forms of planning be conducted by comparatively small territorial units, but the competition between them, together with the impossibility of erecting barriers, would at the same time form a salutary check on their activities and, while leaving the door open for desirable experimentation, would keep it roughly within the appropriate limits.

It should, perhaps, be emphasized that all this does not imply that there will not be ample scope for economic policy in a federation and that there is no need for extreme laissez faire in economic matters. It means only that planning in a federation cannot assume the forms which today are pre-eminently known under this term that there must be no substitution of day-to-day interference and regulation for the impersonal forces of the market and, in particular, that there must be no trace of that “national development by controlled monopolies” to which, as has recently been pointed out in an influential weekly journal, “British leaders are growing accustomed.”[6] In a federation economic policy will have to take the form of providing a rational permanent framework within which individual initiative will have the largest possible scope and will be made to work as beneficently as possible and it will have to supplement the working of the competitive mechanism where, in the nature of the case, certain services cannot be brought forth and be regulated by the price system. But it will, at least in so far as the policy of the federation as such is concerned, essentially have to be a long-term policy, in which the fact that “in the long run we are all dead” is a decided advantage and it must not be used, as is often the case today, as a pretext for acting on the principle après nous le déluge for the long-term character of the decisions to be taken makes it practically impossible to foresee the incidence of their effects upon individuals and groups and thus prevents the issue from being decided by a struggle between the most powerful “interests.”

It does not come within the scope of a short article to consider in any detail the positive tasks of the liberal economic policy which a federation would have to pursue. Nor is it even possible to give here further consideration to such important problems as those of monetary or colonial policy which will, of course, continue to exist in a federation. On the last point it may, however, be added that the question which probably would be raised first, i.e., whether colonies ought to be administered by the states or by the federation, would be of comparatively minor importance. With a real open-door policy for all members of the federation, the economic advantages derived from the possession of colonies, whether the colonies were administered federally or nationally, would be approximately the same to all the members of the federation. But, in general, it would undoubtedly be preferable that their administration should be a federal and not a state matter.

Since it has been argued so far that an essentially liberal economic regime is a necessary condition for the success of any interstate federation, it may be added, in conclusion, that the converse is no less true: the abrogation of national sovereignties and the creation of an effective international order of law is a necessary complement and the logical consummation of the liberal program. In a recent discussion of international liberalism, it has been rightly contended that it was one of the main deficiencies of nineteenth-century liberalism that its advocates did not sufficiently realize that the achievement of the recognized harmony of interests between the inhabitants of the different states was only possible within the framework of international security.[7] The conclusions which Professor Robbins drew from his considerations of these problems and which are summed up in the statement that “there must be neither alliance nor complete unification neither Staatenbund nor Einheitsstaat but Bundesstaat ,”[8] are essentially the same as those which have recently been elaborated by Clarence Streit in greater detail in their political aspects.

That nineteenth-century liberalism did not succeed more fully is due largely to its failure to develop in this direction and the cause is mainly that, because of historical accidents, it successively joined forces first with nationalism and later with socialism, both forces being equally incompatible with its main principle.[9] That liberalism became first allied with nationalism was due to the historical coincidence that, during the nineteenth century, it was nationalism which in Ireland, Greece, Belgium, and Poland and later in Italy and Austro-Hungary fought against the same sort of oppression which liberalism opposed. It later became allied with socialism because agreement as to some of the ultimate ends for a time obscured the utter incompatibility of the methods by which the two movements tried to reach their goal. But now when nationalism and socialism have combined—not only in name—into a powerful organization which threatens the liberal democracies, and when, even within these democracies, the socialists are becoming steadily more nationalist and the nationalists steadily more socialist, is it too much to hope for a rebirth of real liberalism, true to its ideal of freedom and internationalism and returned from its temporary aberrations into the nationalist and the socialist camps? The idea of interstate federation as the consistent development of the liberal point of view should be able to provide a new point d’ appui for all those liberals who have despaired of and deserted their creed during the periods of wandering.

This liberalism of which we speak is, of course, not a party matter it is a view which, before World War I, provided a common ground for nearly all the citizens of the Western democracies and which is the basis of democratic government. If one party has perhaps preserved slightly more of this liberal spirit than the others, they have nevertheless all strayed from the fold, some in one direction and some in another. But the realization of the ideal of an international democratic order demands a resuscitation of the ideal in its true form. Government by agreement is only possible provided that we do not require the government to act in fields other than those in which we can obtain true agreement. If, in the international sphere, democratic government should only prove to be possible if the tasks of the international government are limited to an essentially liberal program, it would no more than confirm the experience in the national sphere, in which it is daily becoming more obvious that democracy will work only if we do not overload it and if the majorities do not abuse their power of interfering with individual freedom. Yet, if the price we have to pay for an international democratic government is the restriction of the power and scope of government, it is surely not too high a price, and all those who genuinely believe in democracy ought to be prepared to pay it. The democratic principle of “counting heads in order to save breaking them” is, after all, the only method of peaceful change yet invented which has been tried and has not been found wanting. Whatever one may think about the desirability of other aims of government, surely the prevention of war or civil strife ought to take precedence, and, if achievement lies only in limiting government to this and a few other main purposes, these other ideals will have to give place.

I make no apology for pointing out obstacles in the way of a goal in whose value I profoundly believe. I am convinced that these difficulties are genuine and that, if we do not admit them from the beginning, they may at a later date form the rock on which all the hopes for international organization may founder. The sooner we recognize these difficulties, the sooner we can hope to overcome them. If, as it appears to me, ideals shared by many can be realized only by means which few at present favor, neither academic impartiality nor considerations of expediency should prevent one from saying what one recognizes to be the right means for the given end—even if these means should happen to be those favored by a political party.

[1] To what extent the British Commonwealth of Nations since the Statutes of Westminster constitutes an exception to this statement remains yet to be seen.

[2] It is only because, in consequence of these conditions, the standard of life of all the people in a country will tend to move in the same direction that concepts such as the standard of living or the price level of a country cease to be mere statistical abstractions and become very concrete realities.

[3] On the questions arising in this connection compare the author’s Monetary Nationalism and International Stability (London, 1937).

[4] Cf. on this and the following the present author’s Freedom and the Economic System (“Public Policy Pamphlets,” No. 29 [Chicago, 1939], and, more recently, The Road to Serfdom (Chicago: University of Chicago Press, 1944).

[5] For the United States cf. R. L. Buell, Death by Tariff: Protectionism in State and Federal Legislation (“Public Policy Pamphlets,” No. 27 [Chicago, 1939]), and F. E. Melder, Barriers to Inter-state Commerce in the United States (Orono, Me., 1937).

[7] L. C. Robbins, Economic Planning and International Order (1937), p. 240.

[9] This trend can be well observed in John Stuart Mill. His gradual movement toward socialism is, of course, well known, but he also accepted more of the nationalist doctrines than is compatible with his wholly liberal program. In Considerations of Representative Government (p. 298) he states: “It is in general a necessary condition of free institutions that the boundaries of government should coincide in the main with those of nationalities.” Against this view, Lord Acton argued that “the combination of different nations in one State is as necessary a condition of civilised life as the combination of men in society” and that “this diversity in the same State is a firm barrier against the intention of the Government beyond the political sphere which is common to all into the social department which escapes legislation and is ruled by spontaneous laws” ( History of Freedom and Other Essays [1909], p. 290).

This essay was reprinted from the New Commonwealth Quarterly, V, No. 2 (September, 1939), 131–49.

Federalism and the Coronavirus Crisis

Historically, major crises have led to expansions of federal government power. As Robert Higgs documents in his classic book Crisis and Leviathan, this tends to happen even if the crisis was partly caused by misguided federal policies, and even if the federal response to the crisis has serious flaws of its own. So far, however, the coronavirus crisis seems like it might be an exception. There is some value to the decentralized nature of the response to the crisis, but also some risks. And it is far from clear that the crisis won't ultimately result in a major expansion of federal power.

As Walter Olson documents in a Wall Street Journal op ed, so far it is state governments that have taken the lead in combating the virus. The "shut down" and "stay at home" orders that have affected millions of Americans are almost entirely issued by state and local authorities. These have also—so far—taken the lead in trying to boost the capacity of the health care system to handle the surge in coronavirus cases.

The federal government's coronavirus "social distancing" guidelines, by contrast, are largely advisory. With the important exception of draconian new restrictions on international travel and migration, the lion's share of coronavirus-related regulations affecting ordinary citizens are the work of state and local authorities. Donald Trump may have high TV ratings, but the actions of governors like Gavin Newsom (California), Andrew Cuomo (New York), and Mike DeWine (Ohio) are having a much bigger on-the-ground impact.

There is some value to this relatively decentralized approach to combating the virus. The US is a large and diverse nation, and it is unlikely that a single "one-size-fits-all" set of social distancing rules can work equally well everywhere. In addition, state-by-state experimentation with different approaches can increase our still dangerously limited knowledge of which policies are the most effective.

Moreover, if one policymaker screws up, his or her errors are less likely to have a catastrophic effect on the whole nation. Here, there is a tension in the views of those who both advocate a much more centralized policy but also (correctly in my view) believe that Donald Trump is often malicious or incompetent. The worse he is, the less we should want to see even more power concentrated in his hands.

As Olson points out, giving the states the lead role on public health issues is not a new idea, but one embedded in the original meaning of the Constitution. The Founding generation regarded most public health issues as primarily a state responsibility beyond the scope of the federal government's enumerated powers. In his landmark 1824 opinion in Gibbons v. Ogden, Supreme Court Chief Justice John Marshall—who generally advocated a broad conception of federal power by the standards of the time—listed " Inspection laws, quarantine laws, [and] health laws of every description" as part of "that immense mass of legislation which embraces everything within the territory of a State not surrendered to the General Government."

There is, in fact, a long history of state and local governments taking the lead in battling the spread of contagious disease. During the 1918-19 flu pandemic, state and local restrictions were the primary means of inhibiting the spread of the virus, while the federal government did very little.

While there is much to be said for state-led efforts, they also have at least two serious limitations in the current crisis. First, the coronavirus is—apparently—highly contagious and can spread quickly from one area to another. This means that a state or locality with overly lax policies can potentially "infect" its neighbors.

I lack the epidemiological expertise to assess the extent of this risk it may vary from place to place. It is also possible that it can be mitigated by coordination between neighboring jurisdictions. Still, the possibility of "externality" effects—in which one state's policies harm its neighbors—is a standard critique of decentralization. And the spread of a deadly disease is a particularly severe example of this problem, one that may be more difficult to address than many other types of externalities.

Second, one of the major checks on bad state and local policies is the ability of people to "vote with their feet" against them by moving elsewhere. Foot voting enables some people to escape harmful or oppressive government policies, and also gives jurisdictions incentives to avoid them in the first place, for fear of losing key parts of their tax base. In most situations, foot voting is one of the biggest advantages of political decentralization.

But its effectiveness is greatly reduced in our current situation. Though some states have enacted quarantine requirements on people arriving from other states, interstate migration has not—so far—actually been banned. But even aside from legal restrictions, interstate movement in the midst of a pandemic will be extremely difficult, at best. Where it remains feasible, it could potentially risk spreading the disease further—at least until we have enough testing capacity to effectively screen would-be movers (and others).

Hopefully, foot voting will become safer more feasible again, as testing improves, and parts of the economy begin to recover. At the moment, however, it is nowhere near as effective as it would need to be to provide a meaningful constraint on ill-advised state and local policies. That includes both policies that are overly lax—and thereby allow the virus to spread—and those that are overly restrictive, and thereby cause more harm to liberty, the economy, and social welfare than can be justified by their health benefits.

Externalities and other similar problems might yet lead to a greater centralization of power during the crisis. Centralization could occur even in some areas where it isn't really needed, because public opinion might prefer a seemingly strong federal hand on the tiller in the midst of a crisis. Political ignorance is widespread, and many voters may be unwilling or unable to objectively evaluate the effectiveness of either federal or state policies. For many, the default response to a terribly dangerous situation might be to clamor for large-scale intervention of the largest and most powerful government available.

It is also worth remembering that the massive $2 trillion "stimulus" bill passed by Congress has already caused a huge increase in federal spending, and made many more people, industries, and subnational governments more dependent on federal largesse. Much of what is in the bill may be a justified emergency measure. But that spigot—like other expansions of government power in the midst of crisis—may not be easy to cut off even after the emergency ends.

In sum, the coronavirus crisis has so far featured states taking the lead in crafting the US response. This federalist approach has some real value. But it has downsides, as well. It is too early to tell how severe those flaws are. Despite the current starring role of state governments, it is also too early to rule out the possibility that the coronavirus crisis will ultimately result in a major expansion of federal government power.

UPDATE: I have updated the link above describing states that have imposed quarantine requirements on people arriving from other states.

Commerce with Foreign Nations

The Congress shall have Power To. regulate Commerce with foreign Nations.

Even before the Constitutional Convention, James Madison had long argued that exclusive power over foreign commerce should be vested in the national government. Under the Articles of Confederation, the states had the power to raise tariffs against goods from others states and from foreign nations, creating, as Madison put it, "rival, conflicting and angry regulations." Thus, Great Britain had been able to use its power over duties and tariffs to monopolize trade in its favor without the United States government having the ability to respond.

At Philadelphia, there was unanimity that one of the general powers of the new government should be to regulate foreign commerce. Even Anti-Federalist Luther Martin, who later left the Convention to oppose the Constitution, had no doubts about it. In fact, in The Federalist No. 42, one of Madison's arguments for lodging the power to regulate commerce among the states with Congress was that "without this supplemental provision, the great and essential power of regulating foreign commerce, would have been incompleat, and ineffectual."

Some delegates, particularly from the South, wanted any regulation of foreign commerce to be effective only through a supermajority vote in Congress, but Madison successfully countered that a supermajority would cripple the government if it were necessary to retaliate against discriminatory tariffs from a foreign country.

Although Madison undoubtedly believed that the power to regulate foreign commerce was exclusive to the federal government, the proposition is not obvious from the text. Elsewhere, the Constitution denies the states certain powers over foreign commerce (no treaties or other agreements and no tariffs except under very limited circumstances). The text of the Commerce Clause does not differentiate between Congress's power "to regulate" foreign commerce from its power over interstate commerce, and some Justices on the Supreme Court have opined that Congress's power to regulate interstate commerce is coextensive with its power over foreign commerce. Nonetheless, a number of other opinions have held that Congress's power over foreign commerce is qualitatively greater than its power to regulate commerce among the states, because it is part of the federal government's complete sovereign power over foreign relations, in which the states have no standing. Brolan v. United States (1915). In Board of Trustees of University of Illinois v. United States (1933), the Court stated: "In international relations and with respect to foreign intercourse and trade the people of the United States act through a single government with unified and adequate national power." And in Japan Line, Ltd. v. County of Los Angeles (1979), the Court declared that "[f]oreign commerce is preeminently a matter of national concern." As early as 1827 in Brown v. Maryland, Chief Justice John Marshall held that both the Import-Export Clause and the Commerce with Foreign Nations Clause precluded a state from burdening an imported good with a tax or license so long as the good remained in the ownership of the importer and "in the original form or package," though, later, the Court permitted states to prohibit dangerous or noxious foreign goods. Compagnie Francaise de Navigation a Vapeur v. Louisiana Board of Health (1902).

The courts have affirmed Congress’ extensive power over foreign commerce. According to Professor Louis Henkin, the foreign commerce clause was originally the “basis for Congressional regulation of maritime and admiralty affairs and its control of immigration.” Subsequently, the clause has been the basis for extending American criminal jurisdiction abroad. Foreign commerce “includes both goods and services,” United States v. Clark (2006), and the regulation of foreign commerce “includes the entrance of ships, the importation of goods, and the bringing of persons into the ports of the United States.” United States ex rel. Turner v. Williams (1904). There must always be some nexus between the United States and the foreign commercial activity, but the nexus need not be extensive. For example, Congress’s power over foreign commerce does not turn on whether Americans are transporting American goods or even whether the voyage includes an American port, so long as the goods are being transported in American flag ships. Pacific Seafarers, Inc. v. Pacific Far East Line, Inc. (1968).

Unlike Congress’s power over commerce “among the several states,” federalism concerns are not as present in its control over foreign commerce. Today, the Court allows the states less power to tax foreign commerce than they have to tax interstate commerce. In Complete Auto Transit, Inc. v. Brady (1977), the Supreme Court declared that a state tax affecting interstate commerce would be valid only if it were: (1) nondiscriminatory, (2) applied to an interstate activity that had a "substantial nexus" with the state, (3) apportioned fairly, and (4) connected to services that the state provided. Later, in Japan Line, the Court added two further considerations to taxation of a foreign instrumentality: (1) the danger of multiple taxation and (2) the danger that the tax may damage the need for federal uniformity. Even though the Court has been somewhat more generous in recent years in permitting state taxation that involves foreign commerce, the rules continue to suggest a greater federal constitutional interest in foreign commerce than in commerce among the states, where the background principles of federalism still have some presence.