Law School
Frugality
Personal Finance
Productivity
Nutrition

Financial Lessons From the Casebook: The Commerce Clause

158778776801_aa240_sclzzzzzzz_.jpg

Last week in Constitutional law, my class discussed the Commerce Clause. To my surprise, I gleaned a financial lesson from the Commerce Clause.

The Commerce Clause is found in Article I, Section 8, Clause 3 of the Constitution. It gives power to Congress to regulate interstate trade. It says:

“To regulate commerce with foreign nations, and among the several States, and with the Indian tribes.”

This statement, like most statements in the Constitution is vague. What is “commerce”? And what does “among the several states mean”? Throughout our country’s history the Supreme Court has interpreted the Commerce Clause either narrowly or broadly.

We’ve entered an era when the Supreme Court is taking a more narrow approach to the Commerce Clause, thus limiting Congress’s power to regulate interstate commerce. The modern test in order to determine if a statute falls under Congress’s Commerce Clause power is broken down into a three parts.

  1. Congress can regulate the channels of interstate commerce. This means congress can regulate the terms and conditions on which goods and services are sold. They can restrict the types of goods that can be shipped overstate.
  2. Congress can regulate the instrumentalities of commerce. This consists of trucking, air travel, and shipping.
  3. Pursuant to the necessary and proper clause and commerce clause, Congress can regulate any economic activity that has a substantial relation with commerce or substantially effects interstate commerce.

The third prong of the test is where the financial lesson comes from. If an activity is economic, you can aggregate the activities done on a national level to show that it is substantially related to interstate activities. Huh? An example will clarify this.

Let’s say Congress passes a law regulating the amount of wheat farmers can grow. The purpose is to increase the price of wheat to help farmers. Farmer Joe goes over his limit and is fined. He takes his case to court and claims the statute is unconstitutional. The court will ask if the activity is economic in nature. Farming seems like an economic activity. Now the court asks does it substantially affect interstate commerce. Of course Farmer Joe’s violation alone will not have a substantial effect on the national price of wheat, however, if every farmer in the country were to go over the limit just a bit, all those violations taken together would have a substantial effect on the price of wheat. Because farming is an economic activity and the aggregate of farming violations would have an effect on interstate trade, Congress can regulate wheat production. Thus, the statute is constitutional under the Commerce Clause.

The financial lesson I pulled from this is that little things can add up to have a substantial effect on you financial life. A few dollars invested here and a pennies saved there can add up and substantial effect your balance. Look at your financial decisions in the aggregate. By taking this big picture view, you’ll see that even small steps can have a major impact on your account in the long run.