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What Authority does it Provide to Congress?

Congress has the Constitutional authority to “To regulate Commerce with foreign Nations, and among the several States, and with the Indian Tribes”.

Does this provision provide congress with unlimited control over industry within the United States?Congress uses the 16 words in this phrase to impose its will on industry throughout the nation.

Over the last few decades it has been used to control agriculture, manufacturing, banking, guns, retailing, energy development, medical services, water quantity in toilets, the type of light bulbs we are required to use, and about every other aspect of economic activity. In recent Months, congress has relied on this clause to effectively nationalize the banking and mortgage industry, GM and Chrysler, health insurance, and the student loan program, to name a few.

The “Commerce Clause” was never ever intended to allow congress direct control over industry. Federalist 22 provides the reasoning behind the clause. A great weakness within the Articles of the Confederation was that individual states could assess duties and dictate the terms of commerce on all goods entering or leaving their borders. Hamilton looked to Germany as an example of what could happen if the commerce situation between the states wasn’t addressed.

“The commerce of the German empire is in continual trammels from the multiplicity of the duties which the several princes and states exact upon the merchandises passing through their territories, by means of which the fine streams and navigable rivers with which Germany is so happily watered are rendered almost useless.”(1)

Additionally, the federal government, under the Confederation, was unable to negotiate trade treaties with foreign nations.(2) Basically foreign nations questioned why they should enter into a formal trade agreement with the federal government if states could ignore any provision found objectionable? Instead, these nations could easily negotiate directly with the individual states, (and to the detriment of the nation, play the interests of the states against each other), to derive any benefit desired without going through the federal government.

The purpose of the Commerce Clause was to eliminate trade barriers erected by the states allowing the unfettered movement of commerce within the nation. Additionally it would allow the federal government to negotiate beneficial, consistent, and enforceable free trade agreements between the United States and the other nations of the world.

The Constitution did not allow the federal government to impose an income tax. The main source of federal revenue was derived from Duties, Imposts, and Excises which required the federal government to negotiate beneficial trade agreements with our international trading partners. Without the Commerce Clause, as originally intended, the United States could never have developed into the economic super power it became.

The Commerce Clause was never intended to allow congress to regulate or control specific industries within the states. It has been grossly misapplied, by our elected representatives, allowing the government to far exceed its constitutionally enumerated authority.

Go back to the days of the Constitutional ratification. Imagine if the Commerce Clause had stated that the federal government was granted the authority to micromanage, regulate, and control the operations of any business within the United States. That it had complete discretion and could require any business to adhere to whatever regulations federal bureaucrats thought proper. For example: How many spokes were required in carriage wheels; How often the tavern floors needed to be washed; How much money apprentices needed to be paid; Which trees could be cut and how much farm land could be developed. The Constitution would never have been ratified. A free people who had just thrown off the yokes of tyranny would never willingly authorize this magnitude of oppression to a new federal government.

Many federal politicians insist that the Commerce Clause provides government with the authority to regulate industry in order to “protect” the consumer. It’s not true. Politicians tend to make decisions based on the accumulation of political power rather than on the best interests of the consumer.

(Remember the Community Reinvestment Act?(3)  Mass defaults on these low income loans ushered in the 2008-2010 recession; the associated stock market collapse; and skyrocketing unemployment.)

Required regulation – outside of federal authority – should be imposed by the people, through the free market selection; the states; insurance companies; or by professional trade associations such as the American Bar Association (ABA) , American Medical Association (AMA), American Institute of CPA’s (AICPA),etc.  No system is perfect, and being that people are not angles there will be abuses, but the free market tends to discover and address true abuse, whereas government imposes “political” solutions.

The free market naturally promotes quality. Organizations providing quality goods and services prosper, while those who do not fail. Self regulation, through the free market system, is often accomplished through private insurance combined with the court system. Manufactures are responsible for the quality and function of their product. If the manufactured product is sub-standard, the manufacturer will be sued in court in front of a jury. Losing excessive lawsuits will drive the sub-quality manufacturers out of business. As a reasonable business practice, many organizations purchase private liability insurance. Private insurers will not knowingly insure defective products and will insist that manufactures satisfy basic quality requirements prior to issuing policies. If the manufacturer wants liability insurance, they will adhere to the standards insisted upon by the insurer.

The “Commerce Clause” should encourage free market commerce by removing state jurisdiction barriers, and through international free trade agreements. It was never conceived to allow government to regulate or micro manage private industry. All existing federal regulations, based on the misapplication of this clause, should be allowed to sunset or be repealed.

Peter Konetchy
August 5 2010
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(1) Hamilton, Federalist paper 22
(2) Hamilton, Federalist paper 22: “No nation acquainted with the nature of our political association would be unwise enough to enter into stipulations with the United States, by which they conceded privileges of any importance to them, while they were apprised that the engagements on the part of the Union might at any moment be violated by its members, and while they found from experience that they might enjoy every advantage they desired in our markets, without granting us any return but such as their momentary convenience might suggest.”
(3) The 1977 Community Reinvestment Act (CRA) was designed to encourage low income home ownership. The program morphed into the unbelievable. In 1996, governmental mortgage giants Fannie Mae and Freddie Mac were instructed by congress, that 42% of their financing had to go towards low income borrowers. Under threat of federal prosecution, private banks had to follow the same regulations. Accordingly, banks lowered their standards, eliminated verification, and repackaged loans to decrease payments as much as possible. Furthermore, they hired activist groups, such as ACORN, to actively recruit low income borrowers.

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