Chapter 2

CHAPTER 2

THE NEW DEAL

AND THE COMMERCE CLAUSE

"We hold that our loyalty is due solely to the American Republic, and to all our public servants exactly in proportion as they efficiently serve the Republic. Every man who parrots the cry of 'stand by the President' without adding the proviso 'so far as he serves the Republic' takes an attitude as essentially unmanly as that of any Stuart royalist who championed the doctrine that the king could do no wrong. No self-respecting and intelligent freeman could take such an attitude." Theodore Roosevelt, 1918.

The Roosevelt administration came into power "confronted with an emergency more serious than war" and convinced that "there must be power in the states and the nation to remold, through experimentation, our economic practices and institutions to meet changing social and economic needs." If the Administration was going to adopt their social and economic programs, it was forced to utilize the commerce clause contained in the Constitution. No other constitutional sanction was available for such New Deal acts as the National Industrial Recovery Act, the Agricultural Adjustment Act and the Social Security Act, for they could not be enforced without valid law to support and sustain them.

In 1930, Franklin Roosevelt, as governor of New York, expressing his view of the Constitution and the economic condition of the country said:

"The Constitution of the United States gives Congress no power to legislate in the matter of a great number of vital problems of government, such as the conduct of public utilities, of banks, of insurance, of business, of agriculture, of education, of social welfare and a dozen other important features. Washington must never be permitted to interfere in these avenues of our affairs."

Three years later, Roosevelt as the newly-elected President of the United States was presented with a catchy slogan and the blueprint of a program which in the succeeding years would transform the nation into a socialistic/communistic oligarchy. Roosevelt accepted this program, deserting the principles he enunciated so clearly three years earlier.

The program came from a book published by Stuart Chase in 1932, entitled, A New Deal, outlining the ideal government. He said:

"Best of all, the new regime would have the clearest idea of what an economic system was for. The sixteen methods of becoming wealthy would be proscribed - by firing squad if necessary - ceasing to plague and disrupt the orderly processes of production and distribution. The whole vicious pecuniary complex would collapse as it has in Russia. Money making as a career would no more occur to a respectable young man than burglary, forgery or embezzlement." Footnote1

In order that we may visualize the elastic interpretation that was given the commerce clause by the strategists behind Roosevelt's New Deal legislation in their attempt to adopt the programs outlined in Chase's book, we must by way of contrast refer to the well known statement by Mr. Justice Lamar in Kidd v. Pearson, Footnote2 a case that was utilized by critics of the New Deal:

"Manufacturing is transformation, the fashioning of raw materials into a change of form for use. The functions of commerce are different. If it be held that the term (commerce) includes the regulation of all such manufactures as are intended to be the subject of commercial transactions in the future, it is impossible to deny that it would also include all productive industries that contemplate the same thing. The result would be that Congress would be invested, to the exclusion of the states, with the power to regulate, not only manufacture, but also agriculture, horticulture, stock raising, domestic fisheries, mining; - in short, every branch of human industry. For is there one of them that does not contemplate, more or less clearly, an interstate or foreign market? Does not the wheat grower of the Northwest, and the cotton planter of the South, plant, cultivate and harvest his crop with an eye on the prices at Liverpool, New York and Chicago?"

Although this statement was uttered in a case involving state power, the New Deal strategists conception of the commerce clause was in their minds a far cry from the doctrine of the Supreme Court laid down in the Kidd case.

Looking into the minds of these strategists and analyzing the chief techniques and economic theories utilized by the Roosevelt administration in its attempt to justify the validity of the New Deal legislation, six theories were advanced by the Administration in 1933 in finding the power needed for Roosevelt to implement his so-called economic and social reforms under the commerce clause of the Constitution. This chapter will examine these six theories.

THEORY ONE

Whether a certain activity is subject to the commerce clause is a question of economics.

To Roosevelt, the term "commerce" did not have a precise and static meaning. The authors of the New Deal insisted that any constitutional opinion as to the scope of the commerce clause in a particular situation, must run the gauntlet of an economic justification on the basis of the factual background.

Congress, in passing the Agricultural Adjustment Act Footnote3 and the National Industrial Recovery Act, Footnote4 incorporated into these statutes a Declaration of Emergency and a Declaration of Policy in an attempt to connect the economic depression in agriculture and business with the interstate commerce clause. These declarations follow the enacting clause and were an integral part of the statute.

The Declaration of Emergency in the Agricultural Adjustment Act reads:

That the present acute economic emergency being in part the consequence of a severe and increasing disparity between the prices of agricultural and other commodities it is hereby declared that these conditions in the basic industry of agriculture have burdened and obstructed the normal currents of commerce in such commodities, and render imperative the immediate enactment of Title I of this Act.

The Declaration of Policy of the National Industrial Relief Act declares:

A national emergency, productive of widespread unemployment and disorganization of industry, which burdens interstate commerce is hereby declared to exist.

In these acts, nothing was left to conjecture or implication. It was assumed by the Administration that this change in legislative technique afforded a much more effective device than the old-fashioned preamble. However, it should be noted, preambles are not properly speaking, parts of acts. They do not exproprio vigore (make the law) and in themselves have no constraining force upon the citizen. Footnote5

THEORY TWO

The Courts should accord every possible presumption in favor of the correctness of the legislative declaration where a declaration of emergency is incorporated into an act.

In Block v. Hirsch, Footnote6 the Supreme Court examined a congressional act regulating rents in the District of Columbia which contained a declaration of emergency statement. Mr. Justice Homes speaking for the Court said:

"A declaration by a legislature concerning public conditions that by necessity and duty it must know, is entitled at least to great respect. In this instance Congress stated a publicly notorious and almost world-wide fact: That the emergency declared by the statute did exist must be assumed."

In Nebbia v. People of the State of New York, Footnote7 the New York Legislature incorporated a declaration of emergency into the Agricultural and Markets Act setting forth the reasons for the enactment. The Court declared:

"Times without number we have said that the Legislature is primarily the judge of the necessity of such an enactment, that every possible presumption is in favor of its validity, and that though the court may hold views inconsistent with the wisdom of the law, it may not be annulled unless palpably in excess of legislative power. See: McLean v. Arkansas, 211 U.S. 539, 547; Tanner v. Little, 240 U.S. 369, 385; Green v. Frazier, 253 U.S. 233, 240; O'Gorman & Young v. Hartford Ins. Co., 282 U.S. 251, 257, 258; Grant v. Oklahoma City, 289 U.S. 98, 102."

In the Minnesota Moratorium Act, the Minnesota legislature utilized a declaration of emergency in the first section of the Act. The Supreme Court of the United States held this legislation valid in Home Building and Loan Association v. Blaisdell. Footnote8 The Court said:

"The declarations of the existence of this emergency by the legislature and by the Supreme Court of Minnesota cannot be regarded as a subterfuge or as lacking in adequate basis. The economic emergency which threatened the loss of homes and lands which furnished those in possession the necessary shelter and means of subsistence was a potent cause for the enactment of the statute."

THEORY THREE

The legal effect of the emergency.

The New Deal strategists did not contend that Congress had an "emergency" power over commerce in the sense that constitutional limitations are suspended or that by virtue of the emergency the Federal Government has a true police power over all business activity. They reasoned the only effect of an "emergency," in the sense that the so-called economic depression was an emergency, is that it presented a situation in which interstate commerce was endangered by activities which in normal times would not seriously affect it. The Administration reasoned Congress, with Roosevelt leading the way, could then reach out and control those activities under its commerce power because of their effect on interstate commerce, and for no other reason.

In Wilson v. New, Footnote9 the Supreme Court declared:

"Although an emergency may not call into life a power which has never lived, nevertheless emergency may afford a reason for the exertion of a living power already enjoyed."

In In Re Debs, Footnote10 the Court said:

"Constitutional provisions do not change, but their operation extends to new matters as the modes of business and the habits of life of the people vary each succeeding generation."

THEORY FOUR

Whether the economic reasoning behind the legislation is sound or unsound is not open to judicial inquiry.

In Stafford v. Wallace, Footnote11 the Supreme Court declared:

"Whatever amounts to more or less constant practice and threatens to obstruct or unduly to burden the freedom of interstate commerce is within the regulatory power of Congress under the commerce clause, and it is primarily for Congress to consider and decide the fact of the danger and meet it. This Court will certainly not substitute its judgment for that of Congress in such a matter, unless the relation of the subject to interstate commerce and its effect upon it are clearly nonexistent." (emphasis added).

At the time of the adoption of the Anti-Trust Laws, Footnote12 it was the opinion of Congress that free and unrestricted competition was a wise and wholesome situation for all commerce, and that the national prosperity required that such free competition be maintained. The courts did not then inquire into the soundness of the economic theory thus adopted by Congress but upheld the Anti-Trust Laws as a proper exercise of the commerce power. Thus, in Northern Securities Co. v. United States, Footnote13 the Supreme Court said:

"Whether the free operation of the normal laws of competition is a wise and wholesome rule for trade and commerce is an economic question which this court need not consider or determine. Undoubtedly, there are those who think that the general business interests and prosperity of the country will be best promoted if the rule of competition is not applied. But there are others who believe that such a rule is more necessary in these days of enormous wealth than it ever was in any former period of our history. Be all this as it may, Congress has, in effect, recognized the rule of free competition by declaring illegal every combination or conspiracy in restraint of interstate and international commerce. As in the judgment of Congress the public convenience and the general welfare will be best served when the natural laws of competition are left undisturbed by those engaged in interstate commerce, and as Congress has embodied that rule in a statute, that must be, for all, the end of the matter, if this is to remain a government of laws, and not of men." (emphasis added).

In these cases, Congress found that the forces of free competition are, if unrestricted, not in the interest of the national prosperity, but it is not for the courts to pass (declared the Roosevelt administration) on the wisdom of the economic philosophy underlying the New Deal legislation. To the Roosevelt administration, a new concept of commerce power began to emerge in 1933.

THEORY FIVE

The commerce clause is not limited to the regulation of the movement of commodities or persons or information across state lines, but extends to the regulation of intrastate activities whenever such regulation is necessary for the effective control of interstate activity.

The New Deal strategists felt that when intrastate commerce is intermingled with interstate commerce (over which Congress exercises its regulatory power) the effective regulation of the latter requires regulation of the former. To justify this reasoning the New Deal strategists relied on as support for this claim the following cases.

In United States v. New York Central R.R., Footnote14 which held the recapture clause valid though it reduced income from intrastate as well as interstate rates, the Supreme Court said:

"Where, as here, interstate and intrastate transactions are interwoven, the regulation of the latter is so incidental to and inseparable from the regulation of the former as properly to be deemed included in the authority over interstate commerce."

In the Minnesota Rate Cases, Footnote15 the Supreme Court, in discussing the power of the Federal Government to fix intrastate railroad rates, said:

"There is no room in our scheme of government for the assertion of state power in hostility to the authorized exercise of Federal power. The authority of Congress extends to every part of interstate commerce, and to every instrumentality or agency by which it is carried on; and the full control by Congress of the subject committed to its regulation is not to be denied or thwarted by the commingling of interstate and intrastate operations. This is not to say that the Nation may deal with the internal concerns of the State, as such, but that the execution by Congress of its constitutional power to regulate interstate commerce is not limited by the fact that intrastate transactions may have become so interwoven therewith that the effective government of the former incidentally controls the latter. This conclusion necessarily results from the supremacy of the national power within its appointed sphere." (emphasis added).

The New Deal strategists reasoned that intrastate commerce must also be regulated where the regulation of interstate commerce alone would give to intrastate commerce of the same character an unfair competitive advantage.

In the Houston East & West Texas Railway Co. v. United States, Footnote16 the Supreme Court sustained the power of the Interstate Commerce Commission to fix intrastate rates where it was shown that, unless such power was sustained, interstate shippers would be forced to pay rates disproportionately high as compared with the rates paid by intrastate shippers. In holding so, the Court said:

"The power to deal with the relation between the two kinds of rates, as a relation, lies exclusively with Congress. It is immaterial, so far as the protecting power of Congress is concerned, that the discrimination arises from intrastate rates as compared with interstate rates. Wherever the interstate and intrastate transactions of carriers are so related that the government of the one involves the control of the other, it is Congress and not the State, that is entitled to prescribe the final and dominant rule, for otherwise Congress would be denied the exercise of its constitutional authority and the State, and not the Nation, would be supreme within the national field." (emphasis added).

The strategists insisted that when intrastate commerce affects or burdens interstate commerce, Congress has the power to regulate both intrastate and interstate commerce. The New Deal strategists emphasized the depression caused businesses of the nation to become a single integrated whole. The prosperity of basic industry was dependent on every other industry if the nation was to pull free from its economic and social problems. Before the nation became an economic unit, commercial activities in one state concerned other states only through actual movements of goods across state lines. But by virtue of the unity of the national business structure in 1933, emphasis was now placed not on movement, but on the fact that business in one state does effect business in other states, even though the business might confine itself to the territorial boundaries of the state. The effort under the New Deal to fix prices, control output, regulate wages and hours, relieve unemployment, define trade practices and increase purchasing power claimed to have for its chief object the increasing of the flow of interstate commerce which the New Deal strategists claimed reached an alarmingly low level when the Roosevelt administration came into power.

The Administration recognized that Congress could regulate purely intrastate activities which might burden and affect interstate commerce by exerting an adverse influence on the price of commodities which move in interstate commerce. The Administration illustrated this point in the cases arising under the Anti Trust Laws.

In United Mine Workers v. Coronado Coal Company, Footnote17 the Supreme Court was concerned with the effect of purely local activities of striking coal miners upon interstate commerce. Having conceded that "coal mining is not interstate commerce, and that the power of Congress does not extend to its regulation as such," the Court after citing many cases said:

"It is clear from these cases that if Congress deems certain recurring practices, though not really part of interstate commerce, likely to obstruct, restrain or burden it, it has the power to subject them to national supervision and restraint."

In Local 167, International Brotherhood of Teamsters v. United States, Footnote18 the Court stated:

"But we need not decide when interstate commerce ends and that which is intrastate begins. The control of the handling, the sales and the prices at the place of origin before the interstate journey begins or in the State of destination where the interstate movement ends may operate directly to restrain and monopolize interstate commerce. United States v. Brims, 272 U.S. 549; Coronado Coal Co. v. United Mine Workers, 268 U.S. 295, 310; United States v. Swift & Co., 122 Fed. 529, 532-533. Cf. Swift & Co. v. United States, 196 U.S. 375, 398. The Sherman Act denounces every conspiracy in restraint of trade including those that are to be carried on by acts constituting intrastate transactions." (emphasis added).

In United States v. Ferger, Footnote19 the question at issue was the validity of an act of Congress punishing the issuance and the utterance of a fictitious bill of lading. It was argued that as there was and could be no commerce in a fraudulent and fictitious bill of lading, for the reason that there was no actual consignee and no shipment intended, therefore, the power of Congress could not embrace such pretended bill. The Supreme Court said:

"But this mistakenly assumes that the power of Congress is to be necessarily tested by the intrinsic existence of commerce in the particular subject dealt with, instead of by relation of that subject to commerce and its effect upon it. Nor is the situation helped by saying that as the manufacture and use of the spurious interstate commerce bills of lading were local, therefore the power to deal with them was exclusively local, since the proposition disregards the fact that the spurious bills were in the form of interstate commerce bills, which, in and of themselves, involved the potentiality of fraud as far-reaching and all-embracing as the flow of the channels of interstate commerce in which it was contemplated the fraudulent bills would circulate."

The Administration reasoned since the depression seriously obstructed the flow of commodities in interstate commerce, measures could be initiated in order to free business from the burdens of the depression and regulations could be adopted which would protect and foster interstate commerce.

THEORY SIX

The "current of commerce" doctrine.

The Administration felt the dicta contained in Swift & Co. v. United States, Footnote20 had a new significance under the so-called "emergency" conditions of 1933, which enabled them to adopt an expanded interpretation of the commerce clause. In the Swift case the Supreme Court declared:

"Commerce among the states is not a technical legal conception, but a practical one drawn for the course of business. The plan may make the parts unlawful and bring the constituent acts, although not in themselves interstate commerce, within the commerce clause."

In 1922, Chief Justice Taft in Board of Trade of Chicago v. Olsen, Footnote21 characterized the Swift case as:

"a milestone in the interpretation of the commerce clause of the Constitution. It recognized the great changes and development in the business of this vast country, and drew again the dividing line between interstate and intrastate commerce where the Constitution intended it to be. It refused to permit local incidents of great interstate movement, which taken alone were intrastate, to characterize the movement as such. The Swift case merely fitted the commerce clause to real and practical essence of modern business growth." Footnote22

This "current" or "stream of commerce" doctrine looks to the subject of the regulation as a whole, and not to the individual transgressor's separate acts. In Stafford v. Wallace, Footnote23 the Court said of the Swift case:

"It was the inevitable recognition of the great central fact that such 'streams of commerce' from one part of the country to another which are ever flowing are in their very essence the commerce among the states and with foreign nations which historically it was one of the chief purposes of the Constitution to bring under national protection and control. This court declined to defeat this purpose in respect to such a stream and take it out of complete national regulation by a nice and technical inquiry into the non-interstate character of some of its necessary incidents and facilitates when considered alone and without reference to their association with the movement of which they were an essential but subordinate part." Footnote24

In the Swift case the Court said:

"But we do not mean to imply that the rule which marks the point at which state taxation or regulation become permissible necessarily is beyond the scope of interference by Congress in cases where such interference is deemed necessary for the protection of commerce among the states." Footnote25

There are many transactions that may be subject both to state and federal regulations, the Administration declared. Thus intrastate railroad rates may be regulated by the states but when intrastate rates affect interstate commerce, Congress may regulate them. Footnote26 Sales of grain or grain exchanges are intrastate sales. The states may both regulate such sales and tax the grain which is the subject of the sale, and yet detailed regulation by Congress of all transactions on the grain exchange had been upheld. The states may still exercise their police power over intrastate acts which have an interstate effect so long as their regulations are not inconsistent with those of the Federal Government or contrary to the commerce clause. In this connection the New Deal strategists, believed the statement by Mr. Justice Holmes in the Galveston case Footnote27 was equally important:

"It being once admitted, as of course it must be, that not every law that affects commerce among the states is a regulation of it in a constitutional sense, nice distinctions are to be expected. Regulation and commerce among the states both are practical rather than technical conceptions, and, naturally, their limits must be fixed by practical lines."

The commerce clause was the only clear power granted to Congress to regulate trade or business. Because of the so-called severe economic conditions which existed in the nation during the 1930's, the Administration felt Congress under the commerce clause would have ample power to combat the play of destructive economic forces, that "have broken down the orderly exchange of commodities" or have affected, burdened or obstructed the "normal currents of commerce."

Footnote1

Stuart Chase was named to the National Resources Commission in 1933 where he is credited with authoring Roosevelt's order banning ownership of gold by U.S. citizens. Chase moved steadily upward in the New Deal hierarchy. He served successively on the Securities and Exchanged Commission, the Tennessee Valley Authority, and finally settled in UNESCO, the United Nations Educational, Scientific, and Cultural Organization.

128 U.S. 1 (1888).

48 Stat. 31.

48 Stat. 195.

BLACK, INTERPRETATION OF LAWS,

pg. 254.

Footnote6

256 U.S. 526 (1920).

Footnote7