Business and the Constitution Introduction

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Chapter 2

Business and the Constitution

Many people assume that a government acts from a vague position of strength and can enact any regulation it deems necessary or desirable. This chapter emphasizes a different perspective from which to view the law: action taken by the government must come from authority and this authority cannot be exceeded.
Neither Congress nor any state may pass a law in conflict with the Constitution. The Constitution is the supreme law in this country. The Constitution is the source of federal power and to sustain the legality of a federal law or action a specific federal power must be found in the Constitution. States have inherent sovereign power—that is, the power to enact legislation that has a reasonable relationship to the welfare of the citizens of that state. The states delegated the power of the federal government to it while the states retained their power, when the Constitution was ratified.
The Constitution does not expressly give the states the power to regulate, but limits the states’ exercise of powers not delegated to the federal government.

Chapter Outline
I. The Constitutional Powers of Government

Before 1789, the Articles of Confederation defined the central federal government, which was perceived as too weak when state laws interfered with commerce. A national convention was called to amend the Articles, but instead the delegates drafted the U.S. Constitution.

A. A Federal Form of Government

The U.S. Constitution established a federal form of government, through which the states and the national government share sovereign powers.

1. Federal Powers

The national government has specific powers and the implied power to act to carry out these enumerated powers. All other powers are reserved to the states under the Tenth Amendment.

2. Regulatory Powers of the States

The states regulate affairs within their borders through their police powers, which derive in part from the Tenth Amendment. These powers are exercised to protect or promote the public order, health, safety, morals, and general welfare.

B. Relations among the States
1. The Privileges and Immunities Clause

Under the Constitution’s Article IV privileges and immunities clause, when a citizen of one state engages in basic and essential activities in another state, the foreign state must have a substantial reason for treating nonresidents differently than its own residents and the reason must be substantially related to its ultimate purpose in adopting legislation or an activity.
2. The Full Faith and Credit Clause

The Constitution’s full faith and credit clause ensures that rights established under deeds, wills, contracts, and so on in one state will be honored by other states. It also ensures that judicial decisions with respect to such property rights are honored and enforced in all states.

C. The Separation of Powers

Deriving power from the Constitution, each of the three governmental branches (the executive, the legislative, and the judicial) performs a separate function. No branch may exercise the authority of another, but each has some power to limit the actions of the others. This is the system of checks and balances.
• Congress, for example, can enact a law, but the president can veto it.

• The executive branch is responsible for foreign affairs, but treaties with foreign governments require the advice and consent of the members of the Senate.

• Congress determines the jurisdiction of the federal courts, but the courts have the power to hold acts of the other branches of the government unconstitutional.
D. The Commerce Clause
1. The Expansion of National Powers under the Commerce Clause

The Constitution expressly provides that Congress can regulate commerce with foreign nations, interstate commerce, and commerce that affects interstate commerce. This provision—the commerce clause—has had a greater impact on business than any other provision in the Constitution. At one time the clause was interpreted to allow Congress to regulate even intrastate commerce that affected interstate commerce.

Enhancing Your Lecture—

 Gibbons v. Ogden (1824) 

The commerce clause, which is found in Article I, Section 8, of the U.S. Constitution, gives Congress the power “[t]o regulate Commerce with foreign Nations, and among the several States, and with the Indian Tribes.” What exactly does “to regulate commerce” mean? What does “commerce” entail? These questions came before the United States Supreme Court in the case of Gibbons v. Ogden.a


In 1803, Robert Fulton, the inventor of the steamboat, and Robert Livingston, who was then American minister to France, secured a monopoly on steam navigation on the waters in the state of New York from the New York legislature. Fulton and Livingston licensed Aaron Ogden, a former governor of New Jersey and a U.S. senator, to operate steam-powered ferryboats between New York and New Jersey. Thomas Gibbons, who had obtained a license from the U.S. government to operate boats in interstate waters, competed with Ogden without New York’s permission. Ogden sued Gibbons. The New York state courts granted Ogden’s request for an injunction—an order prohibiting Gibbons from operating in New York waters. Gibbons appealed the decision to the United States Supreme Court.

Marshall’s Decision

Sitting as chief justice on the Supreme Court was John Marshall, an advocate of a strong national government. In his decision, Marshall defined the word commerce as used in the commerce clause to mean all commercial intercourse—that is, all business dealings that affect more than one state. The Court ruled against Ogden’s monopoly, reversing the injunction against Gibbons. Marshall used this opportunity not only to expand the definition of commerce but also to validate and increase the power of the national legislature to regulate commerce. Said Marshall, “What is this power? It is the power .  .  . to prescribe the rule by which commerce is to be governed.” Marshall held that the power to regulate interstate commerce was an exclusive power of the national government and that this power included the power to regulate any intrastate commerce that substantially affects interstate commerce.

Application to Today’s World

Marshall’s broad definition of the commerce power established the foundation for the expansion of national powers in the years to come. Today, the national government continues to rely on the commerce clause for its constitutional authority to regulate business activities. Marshall’s conclusion that the power to regulate interstate commerce was an exclusive power of the national government has also had significant consequences. By implication, this means that a state cannot regulate activities that extend beyond its borders, such as out-of-state online gambling operations that affect the welfare of in-state citizens. It also means that state regulations over in-state activities normally will be invalidated if the regulations substantially burden interstate commerce.

a. 22 U.S. (9 Wheat.) 1, 6 L.Ed. 23 (1824).

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