Legal Basis for Public Regulation of Private Production,
Consumption, and Exchange

Question: Does federal/state/municipal regulation of private production, consumption, and exchange activities fall within the purview of the U.S. Constitution?

Answer: Yes

The power of the federal government to regulate business is covered by Article I, Section 8, Clause 3 of the Constitution, which states that Congress shall have the power to "Regulate commerce with foreign nations, and among the several states, and with Indian Tribes" and to " to make all laws necessary and proper for the carrying out into execution the foregoing powers."

The 10th Amendment to the Constitution (the so-called "states rights" clause of the Bill of Rights) grants to the states or to the people "[t]he powers not delegated to the United States, nor prohibited by it." Meaning, any powers not explicitly granted to the federal government by the Constitution, and any powers not explicitly denied the states or 'the people" by the Constitution belong to the states and the people.

Important Legal Decisions Regarding the Power
of States to Regulate Commerce

Munn v. Illinois 94 U.S. 113 (1876): This case originated the "public interest" theory of regulation. Munn, an Illinois grain elevator company, challenged an Illinois law setting maximum fees for grain storage services. Munn claimed the Illinois law was unconstitutional because the regulation of prices by the state is effectively a "taking"--that is, a seizure of private property without due process of law, in violation of the 14th amendment. The court upheld the constitutionality of the Illinois law on the grounds that states have a legitimate interest in regulating areas of commerce that are "clothed with a public interest." For example, the public has an interest in economical and widely available rail service, water transportation--so these may be regulated. Quoting from the decision:

"It is true that the legislation which secures to all protection in their rights, and the equal use and enjoyment of their property, embraces an almost infinite variety of subjects. Whatever affects the peace, good order, morals, and health of the community, comes within its scope; and every one must use and enjoy his property subject to the restrictions which such legislation imposes. What is termed the police power of the State, which, from the language often used respecting it, one would suppose to be an undefined and irresponsible element in government, can only interfere with the conduct of individuals in their intercourse with each other, and in the use of their property, so far as may be required to secure these objects...." (Italics added).

Nebbia v. New York 219 U.S. 502 (1934): Nebbia claimed a New York law regulating milk prices violated the due process clause of the 14th Amendment. The Supreme Court overturned the public interest theory established in the Munn v. Illinois case:

"There is no closed class or category of businesses affected with a public interest, and the function of courts in the application of the Fifth and Fourteenth Amendments is to determine in each case whether circumstances vindicate the challenged regulation as a reasonable exertion of governmental authority or condemn it as arbitrary or discriminatory."

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