15 September 2009
Government and the Economy
Much debate has focused on government’s role in the economy
This article is excerpted from the book Outline of the U.S. Economy, published by the Bureau of International Information Programs. View the entire book (PDF, 3.26 MB).
“Then a strange blight crept over the area and everything began to change. ... There was a strange stillness. ... The few birds seen anywhere were moribund; they trembled violently and could not fly. It was a spring without voices. On the mornings that had once throbbed with the dawn chorus of scores of bird voices there was now no sound; only silence lay over the fields and woods and marsh.”
Rachel Carson
Silent Spring
1962
The United States was established on the mutually reinforcing principles of individual enterprise and limited governmental influence. The rage of the American colonists over a range of taxes imposed by the British Crown helped trigger the Revolutionary War in 1775. “Taxation Without Representation” was a battle cry. The new republic’s first secretary of the Treasury, Alexander Hamilton, succeeded in establishing a national bank but lost his campaign for a federal industrial policy in which government would promote strategically important industries to strengthen the nation’s economy and its military defense.
But this predisposition toward free enterprise was not absolute. From the beginning, the country’s governments—federal, state, and local—have protected, regulated, and channeled the economy. Governments have intervened to aid the interests of regions, individuals, and particular industries. Just how far the government should go in doing this always has been a central political issue.
The legal justification for economic regulation rests on a few sections of Article I of the U.S. Constitution. These give Congress authority to collect taxes and duties, borrow on the credit of the nation, pay the federal government’s debts, create and regulate the value of U.S. currency, and establish national laws governing bankruptcies and the naturalization of immigrants. States were barred from taxing trade with other states. The Constitution’s authors recognized that the young country had far to go to match European scientific and industrial leadership; in part for this reason, they empowered Congress to give authors and inventors exclusive rights to profit from their creations for a limited period.
The most general—and controversial—constitutional language on the economy lies in the 16 words of Article I, Section 8, which authorize Congress to “regulate commerce” with foreign nations, with the native American Indian tribes, and among the states. This application of the commerce clause to the states has been used during the past century to justify far-reaching government programs on issues the Founding Fathers could never have imagined.
Interpretation of the commerce clause divides Americans who want an activist federal government from those who advocate a more limited central authority. The U.S. Supreme Court has often been called on to resolve disputes over the reach of the commerce clause. Some of the important 19th-century decisions interpreted the clause narrowly, finding that, while shipments of goods along rivers that passed several states were covered by the commerce clause, manufacturing was a local activity and not covered.
But the court’s decisions grew more expansive in the 20th century, upholding important New Deal programs affecting employment and agriculture. In the 1960s, the judiciary broadly interpreted the term “interstate commerce,” as it held that Congress did possess the power to pass the landmark civil rights laws that forbade private businesses from engaging in racial discrimination. In these cases the courts carefully scrutinized the evidentiary record for ties to interstate commerce, in one instance finding it in the wheat used in the hot dog rolls served by a “private” club that practiced discrimination in membership. Beginning in the 1990s, a number of Supreme Court rulings sought to narrow those earlier decisions by focusing the commerce clause on controversies directly centered on economic activities.
Although economic regulation has diminished since the 1970s, its protections still play an essential role, affecting the health of workers; the safety of medicines and consumer products; protection of motorists and airline passengers, bank depositors and securities investors; and the impact of business operations on the environment.
