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Interstate Commerce

Last Updated: 2006

The U.S. Constitution (Article I, Section 8, Clause 3) authorizes Congress “to regulate commerce . . . among the several states”; this is the so-called Commerce Clause. Since the United States was founded by combining states into a nation, this was an important step toward helping it function as a coherent economic entity. Over time, the legislature, executive, and especially the courts have interpreted the application of this clause, but generally, it has come to mean not only trade or traffic but also the promotion, protection, encouragement, restraint, and inhibition of all kinds of commercial activities that cross state borders. In some ways, interstate commerce is usefully delineated by its opposite—intrastate commerce—which is commercial activity conducted completely within a given state, of which the right to regulate is retained by the states.

In the early 1800’s, the precise definition of interstate commerce was not critical, because national markets had not developed and intrastate commerce was regulated only lightly by the American state governments. Many early court interpretations focused more on limiting the export of state power over what might be defined as interstate issues. Especially after the Civil War, however, with the railroads creating the infrastructure for national markets, the precise meaning of interstate commerce became more important. Indeed, it was necessary for the U.S. Supreme Court to entertain a series of cases attempting to specify the boundaries.

To regulate Commerce with foreign Nations, and among the several States, and with the Indian Tribes.

In 1887, after a decade of debates, Congress created the first regulatory agency, the Interstate Commerce Commission (ICC), specifically to address railroad safety and pricing issues across state boundaries. Railroad firms immediately challenged in court the new ICC’s powers, and Congress was later forced to specify them more explicitly.

As the transportation, communications, and energy industries developed over time, and other federal regulatory agencies such as the Federal Communications Commission and Federal Power Commission were created to regulate them, the definitions of interstate commerce became more complex and controversial. These important industries were regulated on an interstate commerce basis at the federal level and on an intrastate commerce basis at the state level. But the definition of what constituted interstate commerce became more expansive, particularly as more business activities crossed state borders.

After the New Deal in the 1930’s and the Great Society in the 1960’s centralized greater economic regulation at the federal level, some believed that the essential rationale for retaining a category of intrastate commerce was disappearing. But, in the 1980’s, the twin policies of deregulation and devolution shifted the boundaries again. Many of these industries were deregulated at the federal level, and some agencies were eliminated, including the ICC in 1995. A political movement toward the devolution of powers to the state level reinvigorated state capacity for dealing with public policy problems, and a serious conservative movement emerged to try and reverse the expansive definition of interstate commerce that had shifted greater authority to the federal level.

SEE ALSO: Commerce among the StatesInterstate Commerce Act of 1887