Summary of pre-New Deal law on commerce clause

• Congress can only regulate

• Commerce, not manufacturing, production, or agriculture (which are traditionally state concerns).

• Intrastate activities that directly, and not merely indirectly, affect interstate commerce.

• Intrastate transactions that are in stream of commerce, not those that precede or follow that stream.

• For purposes that actually carry out enumerated powers, not as a pretext for ends not assigned to Congress (McCulloch v. Maryland)

• Regulation did not include power to bar innocent items from commerce altogether.

The New Deal Crisis and the Rise of the Welfare State

• Great Depression

• 1929-1933: real output fell by 29%

• Unemployment (1929: 3.2%  1933: 21-25%)

• S&P (1929: 26.02  1932: 6.93)

• The New Deal threatened. Initially, SC refused to uphold congressional action. When Congress and FDR began implementing New Deal in 1933, SCt’s view of congressional power under the Commerce Clause stood in an ambiguous state. The “commerce-prohibiting” technique was of doubtful validity, in view of Hammer v. Dagenhart. The validity of the “effect upon commerce” rationale was unclear: the Shreveport Rate Case indicated that intrastate activity having a substantial practical effect on interstate commerce could be regulated; but the Knight case suggested that there must be a “direct” and “logical” relationship between the intrastate activity being regulated and interstate commerce. Within a few years, it became apparent that the Knight rationale would carry the SCt., and that a majority of the SCt would strike down congressional regulation of any area which the majority felt was reserved by the 10th Amendment to state control.

Schechter Poultry Corp. V. United States

• Hughes 1935. At issue was the validity of the National Industrial Recovery Act (NIRA). The NIRA authorized the President to adopt “codes of air competition” for various trades or industries; the codes regulated such items as minimum wages and prices, maximum hours, collective bargaining, etc.

• Facts. This case involved the conviction of Schechter Poultry Corp. on charges of violating the wage and hour provisions of the NY Metropolitan Area Live Poultry Industry Fair Competition Code. Although the vast majority of poultry sold in NY came from other states, Schechter itself bought within NY City, and resold its stock exclusively to local dealers. The government argued hat Schechter’s conduct could constitutionally be reached under the Commerce Clause, on the alternative theories that: (1) Schechter’s activities were within the “stream of commerce” of the chicken trade (rationale of Stafford v. Wallace; and (2) Schechter’s activities, though themselves completely local, substantially “affected commerce” (the rationale of the Shreveport Rate Case).

• Act held unconstitutional. SCt unanimously rejected both of the government’s arguments, and held the NIRA unconstitutional as applied to Schechter.

• Not in “current of commerce.” Schecter’s activities were not within the “current” or “stream” of commerce, because the interstate transactions ended when the shipments reached Schecter’s NY City slaughter-houses (unlike the cattle in Stafford, which were ultimately reshipped out of state after being slaughtered).

• Not “affecting commerce” (established direct/indirect effects distinction). Nor was the “affecting commerce” rationale applicable; what was required was a direct, not indirect, effect on commerce. Although Schechter’s wage and price policies might have forced interstate competitors to lower their own prices, this impact was much too indirect to allow for Congressional control – if wage policies of an intrastate enterprise were deemed to have a sufficiently direct impact upon interstate competitors, so would all other cost components of the intrastate enterprise, so that no facet of intrastate enterprises would be beyond congressional control, or left for state control. Hughes argued that extraordinary conditions do not enlarge constitutional power. Even Cardozo (Palsgraf), who was more prepared than majority to use balancing test, concurred, arguing degree of causation was too weak here.