Inventions that Fuel Economic Growth

Health Care and Steamboats

Jun 4, 2011 • Businesses, Demand, Supply, and Markets, Developing Economies, Economic Debates, Economic History, Government, Labor, Regulation • 181 Views    No Comments

Health care and steamboats are related. The link is the Commerce Clause of the Constitution.

Hoping to promote a single national economy, the framers of the Constitution said that the Congress has the power to, “regulate Commerce with foreign nations and among the several states, and with the Indian Tribes.”

But, what is “commerce?” In 1824, the Supreme Court had to provide an answer. And now, in Cincinnati, a federal court asked the same question.

In 1824, the Supreme Court was asked to decide if New York State could give a monopoly to a steamboat operator. In his decision, Chief Justice John Marshall rejected the narrow “buying and selling” definition of commerce. Instead, he said that commerce included all economic intercourse. Consequently, New York could not confer an exclusive right to travel on interstate waterways because Congress had the power to regulate interstate transport.

Fast forward to 2011. Obama health care legislation is being challenged in federal courts. The law’s opponents are saying that the Congress cannot require the uninsured to purchase medical coverage because of the Commerce Clause. Supporters of the mandate say Congress can require insurance purchases because of the Commerce Clause. The key again? A broad or narrow definition of commerce.

Supreme Court Justice William O. Douglas (1898-1980) said that the Commerce Clause was the “fount and origin of vast power.” (p. 48) Used to strike down New Deal legislation and to support Civil Rights law, its history since 1824 has actually been varied. Now, with federal courts in different states disagreeing, again the Supreme Court will probably tell us what commerce means.

The Economic Lesson

The United States could have been like Europe before the euro zone was created. Remember the French franc, the German mark, the Italian lira? Send some French wine to Germany and foreign exchange is involved. Travel across Europe and you needed multiple currencies. The result? None of Adam Smith’s (1723-1790) economies of scale could be enjoyed. Economic growth and development were constrained.

Not in the United States. After the powerlessness created by the Articles of Confederation (1781-1789), our founding fathers knew that Congress needed more power. One source would be the Commerce Clause. The Congress could stop one state from obstructing free movement of goods. A national market could evolve with specialization that would fuel economic growth.

An Economic Question: Knowing that a broad definition of commerce gives more power to the Congress while a narrow definition tends to favor state power, explain which one you support.

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