Concept
Effects and Aggregation
Commerce Clause
Effects and Aggregation
Marshall's reservation of completely internal commerce left a practical question open: how does a court decide whether a local activity belongs to the State or to the nation? The Court's first systematic answer was to sort activities by type. Before 1937 it treated activities labeled production, manufacturing, or mining as matters for the States, and it also asked whether an activity's effect on commerce was direct or indirect. A label offers a bright line, because a judge needs only to name the activity to know which sovereign governs it. The weakness is that the label says nothing about what the activity does to the national market. A steel mill is manufacturing by name, yet a strike there interrupts the flow of steel across state lines.1 The Court later overturned the production-versus-commerce distinction that had supported its child-labor decision in Hammer v. Dagenhart, and in Wickard v. Filburn it warned against letting labels such as production and indirect foreclose any look at an activity's actual effects on interstate commerce.2
The replacement has two parts, and each answers a different weakness in the labels. The first part looks at economic effects. Under the substantial effects test, Congress may regulate any activity that substantially affects interstate commerce, even when the people engaged in it are not themselves trading across state lines, as in NLRB v. Jones & Laughlin Steel Corp. in 1937, which sustained federal labor rules for steelworkers on the theory that a steel strike would affect interstate commerce.3 The second part, added in Wickard, concerns how the effect is measured. The question is whether the actor, combined with similarly situated actors, has a substantial effect on interstate commerce, and the effect of the individual actor taken alone does not decide it.4 The reason is that a single farmer's homegrown wheat could never move a national market, so an actor-by-actor inquiry would leave the activity beyond federal reach. If every farmer followed the same practice, however, the interstate wheat market might collapse.5
Together these two moves carry the commerce power from the movement of ships and goods to local activity that no one would call interstate on its face, which is why the later cases in this chapter spend so much effort asking where the power stops. The aggregation principle in particular drew the objection, in Justice Thomas's concurrence in Lopez, that it has no stopping point, because one can always draw the circle of similar activities broadly enough to make the total substantial.6 That objection explains why the rules for measuring effects matter on an exam, but the rules have to be understood before the limits make sense. The next subsection, Effects Over Formal Labels, takes up the labels and the wheat farm that ended them, and the subsection after it follows the aggregation reasoning.
Effects Over Formal Labels
The labels described above worked in two forms, and each let the Court answer the power question before it looked at the economy. The first form sorted activities by kind: if an activity was production, manufacturing, or mining, it belonged to the States. When the Interstate Commerce Act of 1887 and the Sherman Antitrust Act of 1890 first sent federal commerce legislation to the Court, the Court carried over from its cases on state laws the premise that Congress could not regulate those activities.7 In United States v. E. C. Knight Co. the Court wrote that "Commerce succeeds to manufacture, and is not part of it," and in Carter v. Carter Coal Co. it said of coal that "Mining brings the subject matter of commerce into existence. Commerce disposes of it."8 Each statement draws a line at the point where a product comes into being, and everything on the producing side of that line was treated as outside the commerce power no matter what the product later did to a national market.
The second form sorted activities by how close their connection to commerce was. In A. L. A. Schechter Poultry Corp. v. United States the Court struck down wage and hour rules for an intrastate business because the regulated activity related to interstate commerce only indirectly, and it called the line between direct and indirect effects fundamental to the constitutional system.9 The stated worry was about limits: without the distinction, the Court reasoned, federal power would have no boundary and the country would end up with a completely centralized government.10 That worry was genuine, and it returns in the later sections on where the commerce power stops, but the tool chosen to answer it was a label. Justice Souter, dissenting in Lopez, summarized the decades before 1937 as a series of cases applying highly formalistic notions of commerce, and he gave Hammer v. Dagenhart as an example, where a ban on interstate shipment of goods made with child labor fell because the Act regulated "manufacturing," not "commerce."11
Both forms fail for the same reason: they fix the answer from a description of the activity before anyone examines what the activity does. A coal mine and a steel mill are production by name, yet their output feeds national markets and a stoppage at either can halt shipments across state lines. A label also works as a rule of law, so a court applying it treats the activity as beyond Congress whatever the evidence shows about its effect. The labels were unreliable even in their own era, since the Court sometimes used "direct" only to announce a result it had reached on other grounds, treated it as a synonym for "substantial" in other cases, and left it out of still others.12 In Wickard v. Filburn the Court rejected the method outright: questions of congressional power are not to be decided by any formula that gives controlling force to nomenclature such as "production" and "indirect" and forecloses consideration of the actual effects of the activity on interstate commerce.13
The turning point came in 1937. In NLRB v. Jones & Laughlin Steel Corp. the Court upheld the National Labor Relations Act against a commerce challenge, set aside the direct-and-indirect distinction, and described the question as "necessarily one of degree."14 The rule it adopted reaches intrastate activities that have a close and substantial relation to interstate commerce, so that controlling them is essential or appropriate to protect that commerce from burdens and obstructions.15 The employer was a steel producer that manufactured in Pennsylvania but owned mines in other States, operated steamships on the Great Lakes, and sold most of its product out of State, so a labor dispute at its plants would have substantially affected interstate commerce even though the regulated activity was manufacturing by name.16 Four years later United States v. Darby upheld the Fair Labor Standards Act and stated that the commerce power extends to intrastate activities that so affect interstate commerce as to make regulating them an appropriate means to a legitimate end, adding that where the effect is substantial Congress may regulate or prohibit them.17 Darby also overruled Hammer, so the child-labor decision that had treated manufacturing as outside commerce no longer stood.18
Wickard then tested the new approach on a family farm. Roscoe Filburn farmed a small acreage in Montgomery County, Ohio, where he kept dairy cattle and poultry and grew winter wheat, which he sold in part, fed to livestock, ground into flour for his household, and kept for seed.19 The Agricultural Adjustment Act of 1938 aimed to control the volume of wheat moving in interstate and foreign commerce so as to avoid surpluses, shortages, and the price swings that follow them.20 For the 1941 crop the Secretary of Agriculture set Filburn's allotment at 11.1 acres; Filburn, who had notice of it, sowed 23 acres and harvested 239 bushels from the 11.9 excess acres, and the Act penalized that excess at 49 cents a bushel, a total of $117.11, which he did not pay.21 The penalty did not depend on whether any of the wheat was sold or intended for sale.22
Filburn's defense was framed in the vocabulary of the old labels: growing and consuming wheat on one's own farm is local production and consumption, and its effects on interstate commerce are at most indirect. The Government answered that the Act regulated only marketing, and alternatively that it was a necessary and proper means of carrying out the commerce power.23 The Court treated the choice among the labels production, consumption, and marketing as immaterial to the question of federal power.24 What mattered was economic effect, and the holding is general: even if an activity is local and may not be regarded as commerce, Congress may reach it, "whatever its nature," if it exerts a substantial economic effect on interstate commerce, whether or not that effect would once have been called direct or indirect.25
The effect the Court examined was economic and was drawn from stipulated facts. Although wheat is grown in nearly every State, sixteen States on average had a surplus above their own needs, thirty-two States and the District of Columbia looked to those surplus States for supply, and a decline in exports had left a surplus that congested markets, tied up railroad cars, and led elevators to turn away grain.26 Against that background the Court explained how homegrown wheat touches the market: wheat in marketable condition overhangs the market and tends to flow in when prices rise, and even wheat that is never sold supplies the grower's own need and so replaces a purchase that would otherwise have been made.27 The next subsection takes up how the Court measured the size of that effect.
The shift to effects has a reason rooted in how markets work. A local production decision can move national prices as much as a shipment can, and a grower who raises wheat for the household buys none from the market, so that choice does the economic work of a purchase. A formula keyed to the word production cannot see that work. Moving the inquiry to effects also leaves the choice of policy with Congress: the Court asks only whether the activity falls within the power, and Marshall had warned that effective restraints on the commerce power must come from political rather than judicial processes, so the wisdom and fairness of the regulation are matters for the legislature.28
The effects test relaxes the labels while keeping the demand for a substantial economic effect, so the rule has a negative pole as well. Calling an activity local, or production, no longer defeats federal power, and calling it commerce is no longer needed to support federal power; the inquiry runs on effect alone.
How courts count many small activities together when measuring effect is the subject of the next subsection, and later sections show how the Court has limited the effects category since 1995. What carries through is that the label never decides the outcome in either direction. On an exam, the error to avoid is treating local production as outside federal power, because a fact pattern that calls an activity local, calls it production, or stresses its remote connection to commerce invites the pre-1937 answer, which is no longer the law. The question is whether the activity exerts a substantial economic effect on interstate commerce.29
The Aggregation Principle
The effects test just described asks whether an activity exerts a substantial economic effect on interstate commerce, and applied to a single small farm the question seems to answer itself in the negative. The 239 bushels Roscoe Filburn harvested from his excess acres could not move a national wheat market, so a court that measured the effect of his crop alone would find none. Wickard therefore added a second move, which governs how the effect is measured. The Court said that Filburn's own contribution to the demand for wheat might be trivial by itself, yet that was not enough to take him outside federal regulation where his contribution, taken together with that of many others similarly situated, is far from trivial.31 Under this aggregation principle, Congress may regulate purely intrastate activity, such as a farmer's production of wheat for personal consumption, when in the aggregate that activity exerts a substantial economic effect on interstate commerce.32
The inquiry looks at the class rather than the individual because of how a regulatory program of this kind operates. A market price is the sum of a great many small contributions, and a statute that supports the price by controlling total supply depends on control of individual supply.33 If a grower could escape by showing that his own share was too small to matter, every grower could make the identical showing, and the program would unravel one exemption at a time, even though the combined effect of all those exemptions is the very thing the program addresses. Each regulated person therefore has an incentive to claim insignificance, and the rule strips that claim of its force. When Congress regulates a category of actors or activities and the whole category, considered cumulatively, substantially affects interstate commerce, a court has no power to immunize a single transaction within it because that transaction, standing alone, is too small.34 The court's remaining role is to ask whether the class falls within federal reach, since the wisdom, workability, and fairness of the plan are left to Congress.35
The economic account in Wickard shows why homegrown wheat belongs to the class even when none of it is sold. Maintaining a price can be accomplished as effectively by sustaining or increasing demand as by limiting supply, and the Act restricted both the amount produced for market and the extent to which a farmer could forestall resort to the market by producing to meet his own needs.36 Wheat in marketable condition overhangs the market and, if induced by rising prices, tends to flow in and check price increases.37 Even if one assumes that the wheat is never marketed, it supplies a need of the grower that would otherwise be met by purchases in the open market, which is why the Court said that homegrown wheat "competes with wheat in commerce."38 Price is therefore affected either way, because wheat held at home reduces demand and wheat drawn out by high prices adds to supply, and the home-grown wheat of all farmers together was a significant variable factor, accounting for about 20% of national production.39
The same cumulative reasoning explains how the Court treated the Civil Rights Act of 1964, which prohibited private racial discrimination in places of public accommodation if their operations affect commerce. Heart of Atlanta Motel, Inc. v. United States upheld the Act as applied to a motel of just over 200 rooms near an interstate highway that advertised nationally and drew about 75% of its guests from out of State, and Katzenbach v. McClung upheld it as applied to a family-owned restaurant whose customers were local but a substantial portion of whose food had traveled in interstate commerce before the restaurant bought it from a local supplier.40 The two cases differ in the route by which commerce is touched, the motel through its own interstate guests and the restaurant through its supplies. They resemble each other in the step that matters here: as Justice Breyer later described them, the Court treated each specific instance of discrimination as part of a general practice that, considered as a whole, had nationally significant economic dimensions.41 One restaurant's purchases of interstate food may be modest, but the class of such restaurants buys a great deal, and no member of the class can be carved out as too small.
A rule that measures the class has a cost, because the size of the class depends on whoever draws its boundary. The objection is older than Lopez. When Wickard was invoked in Maryland v. Wirtz, a dissent warned that all activities affecting commerce, even in the minutest degree, could be regulated, and the Court answered that Wickard does not let Congress use a relatively trivial impact on commerce as an excuse for broad general regulation of state or private activities.42 It said only that where a general regulatory statute bears a substantial relation to commerce, the trivial character of individual instances arising under the statute is of no consequence.43 Justice Thomas, concurring in United States v. Lopez, found that answer incomplete. He called the aggregation principle clever but without a stopping point, since one can always draw the circle of similar activities broadly enough to cover an activity that would have no substantial effect in isolation, so that Congress could reach gun possession near schools by regulating weapon possession generally.44 The Lopez majority placed its limit in the economic character of the regulated activity. Wickard involved economic activity in a way that gun possession in a school zone does not, and the Gun-Free School Zones Act was a criminal statute that by its terms had nothing to do with commerce or any economic enterprise, and was not an essential part of a larger regulation of economic activity that would be undercut unless the intrastate activity were regulated.45
On an exam, the usual error is measuring only the challenger's own activity. A fact pattern that stresses how small the challenger's farm or business is invites that error, because the question is the effect of the whole class of similarly situated actors, with the challenger counted among them. The opposite error is to conclude that Congress may aggregate anything. The class must be a regulated class of economic activity, a limit that the sections on Lopez develop next.