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Friday, May 11, 2007

That Mercantilist Commerce Clause

The Commerce Clause of the U.S. Constitution has been used to justify a wide expansion of government power, from antidiscrimination laws to drug prohibition to a ban on guns near schools. In objecting to use of the Commerce Clause for such remote purposes, some constitutionalists rely on a particular historical interpretation of both the Clause and the Constitution as a whole. Roger Pilon, for instance, writes, “[T]he Commerce Clause, through which so much modern drug law has been enacted, was written to enable Congress to regulate, or ‘make regular,’ commerce among the states–and, in particular, to enable Congress to override or address the state and foreign protectionism that was frustrating free trade when the clause was written…. It is all but a commonplace, however, that that was the principal rationale for the clause — indeed, for the new Constitution — in the first place. It was out of a pressing need to regularize the domestic and foreign commerce of the nation that was breaking down under government measures the Articles of Confederation permitted.”

There certainly seems to be support for that position. As Pilon notes, Justice William Johnson put it in his concurrence in the first great Commerce Clause case, Gibbons v. Ogden: “If there was any one object riding over every other in the adoption of the constitution, it was to keep the commercial intercourse among the States free from all invidious and partial restraints.”

But there is to be more to the story, and it goes against Pilon’s argument. In 2004 a revealing paper appeared in the William amp; Mary Bill of Rights Journal with the curious title, “The Panda’s Thumb: The Modest and Mercantilist:Original Meaning of the Commerce Clause.” It’s by Calvin Johnson, a law professor at the University of Texas. I came across this paper for the first time the other day while reading Richard Epstein’s book How the Progressives Rewrote the Constitution.

Let’s start with the text. Article I, Section 8, Clause 3, of the Constitution delegates to Congress the power “to regulate commerce with foreign nations, and among the several states, and with the Indian tribes.”

What does “regulate commerce” mean? Does it mean only to make regular? Johnson took a promising route to finding out. He writes, “To determine what was meant by ‘regulation of commerce,’ this review collects and categorizes 161 uses of the phrase ‘regulation of commerce’ or the word ‘commerce’ in the debates over the adoption of the Constitution. One hundred thirty-nine of those uses are associated with a specific goal or program…. The samples come from both sides of the debate and the sampling was intended to be omnivorous.”

Here is Johnson’s summary of his findings:

In the original debates over adoption of the Constitution, regulation of commerce was used, almost exclusively, as a cover of words for specific mercantilist proposals related to deep-water shipping and foreign trade. The Constitution was written before Adam Smith, laissez faire and free trade came to dominate economic thinking and the Commerce Clause draws its original meaning from the preceding mercantilist tradition. All of the concrete programs intended to be forwarded by giving Congress the power to regulate commerce were restrictions on international trade giving subsidy or protection to favored domestic merchants or punishing imports or foreign producers. [Emphasis added.]

He adds, “Neither trade with the Indians nor interstate commerce shows up as a significant issue in the original debates.”

And to drive the point home, he writes, “It is often now stated that the major purpose of the Constitution was to prevent protectionist economic policies among the states and to establish a common market with free trade across state borders. Barriers on interstate commerce, however, were not a notable issue in the original debates.” (Emphasis added.) This is consistent with the fact that the first economic bill passed by the first Congress under the Constitution — on July 4, 1789 — was a comprehensive protectionist tariff. (See TGIF: The Rent-Seeking Habit.) Moreover, as Jeffrey Rogers Hummel points out, the mercantilist Alexander Hamilton believed a strong national government was necessary precisely to keep the tariff higher than the states could have kept it. States competing for trade would drive it down to low levels, Hamilton feared. As he wrote in Federalist 12:

It is therefore, evident, that one national government would be able, at much less expence [sic], to extend the duties on imports, beyond comparison further, than would be practicable to the States separately, or to any partial confederacies: Hitherto I believe it may safely be asserted, that these duties have not upon an average exceeded in any State three per cent. . . . There seems to be nothing to hinder their being increased in this country, to at least treble their present amount.

Treble what the states were imposing! But only if trade policy was cartelized under a central government. This was a reason for replacing the Articles of Confederation with the Constitution. One can look at it as a document intended to stifle competition among the states.

Johnson reinforces this point: “Hamilton argued that imposts by the individual states would be difficult to enforce because the bays, rivers and long borders between the states made smuggling too easy. On the federal level, however, there was only one side to guard — the Atlantic. The general government would regulate commerce with a uniform impost and so make commerce productive of general revenue.”

Revenue was the big attraction for the advocates of a strong central government. James Madison asked, “[W]as it not an acknowledged object of the Convention, and the universal expectation of the people, that the regulation of trade should be submitted to the general government in such a form as would render it an immediate source of general revenue?” Unfortunately, Johnson adds, the Anti-federalists did not oppose giving the power to tax imports to the national government. However, as he points out, the national government didn’t need the Commerce Clause to tax imports or to stop the states from doing so. Those things are handled elsewhere in the Constitution.

Johnson continues:

Commerce in the constitutional debates primarily referred, at 83% of the program-associated quotes, to Atlantic Ocean shipping. The most important issues within regulation of commerce were tax issues: to regulate commerce meant to tax it (27% of program-associated quotes). The remainder of the actively-proposed programs under regulation of commerce, besides tax, were restrictions on foreign trade. Proponents of the Constitution advocated retaliatory tariffs against the British as punishment for excluding American ships from the British West Indies (28%) and they advocated giving American ships a monopoly on the export of American commodities (22%). [Emphasis added.]

Subsidies Favored Too

As this shows, revenue was not the only concern. Johnson documents that Federalists and Anti-federalists alike feared trade imbalances, the loss of gold and silver, and the importation of luxury goods. They were, at bottom, mercantilists. So too did they favor subsidies under the rubric “regulation of commerce.” Johnson writes, “Hamilton had argued as early as 1781 that the Congress needed the ‘power of regulating trade, comprehending a right of granting bounties and premiums by way of encouragement.’” He was joined in this mercantilist effort by George Washington and Madison, who, lamenting what he called “the present anarchy of our commerce,” “joined [Johnson writes] in the enthusiasm, denouncing those who were ‘decoying the people into a belief that trade ought in all cases to be left to regulate itself.’”

Johnson comments: “Indeed, given that Madison had condemned those who advocated free trade and had traced most of our political and moral errors to the imports that drained us of our precious metals, the insincere part of Madison’s 1789 address to the House was the opening claim that he was ‘the friend to a very free system of commerce.’”

The upshot of Johnson’s thesis is that the Commerce Clause, contrary to common belief, was mercantilist in intent, although most of the protectionist program was never adopted because the people didn’t want it. As a result, Johnson doesn’t believe the Clause was the main impetus to the Constitution: “Clause 1, the first power listed, gives the federal government the power to tax to provide for the common defense and general welfare. The tax power gave effect and consequence to the federal government. The explanation for the constitutional revolution thus plausibly resides in Clause 1, tax to provide for common defense and general welfare, rather than in Clause 3, the Commerce Clause.”

But what about Justice Johnson’s quote above claiming that the chief purpose of the Constitution was to keep interstate trade open? Professor Johnson responds: Justice Johnson’s comments are not a fair description of the effect of the Constitution, but they are a fair description of a movement for nationalization and against balkanization of the states, which includes the adoption of the Articles [of Confederation]. He continues:

Reducing barriers on interstate trade, however, was not an important part of the constitutional debates. The major reason for this was that the goal had already been mostly achieved and was not challenged. The Articles of Confederation had already prohibited any state from imposing a duty, imposition or restriction on any out-of-state citizens that it did not impose on its own inhabitants. The states seem to have followed the norm well enough that the issue did not make it among the issues the debaters were most concerned about.

Nevertheless, many people believe that interstate trade barriers were the concern of the framers and ratifiers. How can that be? It might have something to do with the fact, Johnson writes, that “The Federalists did use the specter of trade barriers to scare voters toward ratification of the Constitution…. [But] Hamilton’s example of interstate barriers came from the German empire, not from the United States.”

This brings us to Johnson’s title, “The Panda’s Thumb.” Fans of Stephen Jay Gould (pdf) will recognize that phrase. It’s the title essay of one of his books and refers to the evolution of a panda’s “thumb” from a wrist bone. Johnson’s point is that from mercantilist beginnings, the Commerce Clause evolved into something else very different: “That the power to regulate commerce was once a mercantilist clause, regulating commerce by restricting it, should not bother us very much. We are no longer mercantilists.”

Considering the daily panic of pundits and politicians about the “trade deficit,” one has to wonder what Johnson is talking about here.

  • Sheldon Richman is the former editor of The Freeman and a contributor to The Concise Encyclopedia of Economics. He is the author of Separating School and State: How to Liberate America's Families and thousands of articles.