Discussion: The Digital Commerce Clause [Long] [Was: Re: The Commerce Clause and the Crypto Issue]

[Black Unicorn <unicorn@schloss.li>]

On Fri, 23 Aug 1996, Timothy C. May wrote:

> It seems to me that in recent years nearly any type of sweeping legislation
> is justifed, constitutionally, by the clause in the U.S. Constitution which
> says Congress shall have the power to regulate commerce. (More precisely,
> the clause says: "To regulate commerce with foreign nations, and among the
> several states, and with the Indian tribes;" This is usually interpreted to
> mean _interstate_ commerce, and not sales/commerce/etc. that do not
> centrally involved more than one state....obviously nearly all things sold
> in one state are sold in other states, so there is lattitude for applying
> the commerce clause, albeit wrongly.)
> 
> Today's news is the sweeping new restrictions on tobacco and cigarettes,
> including restriction on advertising and even on the placement of tobacco
> and cigarette logos and names on sports jerseys and shirts.

[...]

> The catch-all for these laws seems to be the "regulate commerce" language
> in the Constitution. Cigarettes are sold in multiple states, the logic
> goes, so the commerce clause gives the government the power/authority to
> regulate it.
> 
> (Well, Steven King novels are sold in all 50 states, too. Does this
> "regulate commerce" clause give the government the power/authority to
> regulate what King puts in his novels? Or to ban advertising for Steven
> King novels? Or to require that stores only sell such novels to adults?)
> 
> This language is already being cited for some as a justification for
> regulating encryption (hey, some businesses use it!), digital signatures
> (ditto), and other forms of crypto.
> 
> In fact, since nearly everything involves "commerce" in some way, whether
> interstate or not, the "regulate commerce" clause can presumably be used as
> a jusitification for interfering in all sorts of areas.
> 
> The several legal experts out there on this list can clarify any errors of
> interpretation I have made. I certainly know that the commerce clause
> cannot be used to suppress certain kinds of speech, though the boundaries
> of where it may be applied seem unclear.

Mr. May is fairly close.  If the commerce clause can not be used to
suppress speech it is because there is a constitutional amendment
protecting it.

Practically speaking, the commerce clause is boundless in its grant.

The evolution of Commerce Clause use is one of the most interesting
examples of creeping statism in a western nation that I know of.

Consider the classic view of the Commerce Clause a la Gibbons v. Ogden, 22
U.S. 1 (1824).

[Robert Fulton and Robert Livingston were granted exclusive rights to
operate steamboats in New York waters by the New York Legislature.
Steamboats were a new technology, and the legislation was intended to
encourage investment in the boats.  Fulton and Livingston licensed Ogden
to run a ferry service to New Jersey and Gibbons began to compete.
Gibbon's's ferries were licensed as "vessels in the coasting trade" under
a 1793 piece of legislation enacted by Congress.  Ogden obtained an
injunction in New York, Gibbons appealed.]

Chief Justic Marshall for the majority:

"The subject to be regulated is commerce, and our constitution being, as
was aptly said at the bar, one of enumeration, and not of definition, to
ascertain the extent of the power, it becomes necessary to settle the
meaning of the word.  The counsel for the appellee would limit it to
traffic, to buying and selling, or the interchange of commodities, and do
not admit that it comprehends navigation.  This would restrict a general
term, applicable to many objects, to one of its significations.  Commerce,
undoubtledly, is traffic, but it is something more: it is intercourse.  It
describes the commercial intercourse between nations, and parts of
nations, in all its branches, and is regulated by prescribing rules for
carrying on that intercourse.  The mind can scarcely conceive a system
for regulating navigation, which shall exclude all laws concerning
navigation... and be confined to prescribing rules for the conduct of
individuals, in the actual employment of buying and selling or of
barter....

It is not intended to say that these words comprehend that commerce,
which is completely internal, which is carried on between man and man in a
state, or between different parts of the same states, and which does not
extend to or affect other states. [sic]  Such a power would be
inconvenient, and is certainly unnecessary.

Comprehensive as the word 'among' is, it may very properly be restricted
to that commerce which concerns more states than one.  The phrase is not
one which would probably have been selected to indicate the completely
interior traffic of a state, because it is not an apt phrase for that
purpose...."

Justice Johnson:

[Who discusses the history of the state powers over commerce where states
were complete sovereigns and the portion of that power which is delegated
to the federal government.]

[A]n absolute control is given over state legislation on [commerce], as
far as that legislation may be exercised, so as to affect the commerce of
the country.

::::

So as it stands in the day, commerce seems to include buying selling
bartering and transporting good or services between states.  It is the
interaction between states which defines commerce, and the authority to
regulate it stems from the need to prevent one state from "affect[ing] the
commerce of the country."

This is the classic, and (in my view) fairly rational analysis of the
commerce clause.

Use of the commerce clause before the nineteenth century to actually
regulate interstate commerce was limited.  Insteaed Congress concentrated
on programs and legislation to promote economic growth, taking steps, for
example, to create the Bank of the Unted States, transfer public lands to
private citizens, and providing for the national defense.

Some authors note that the aftermath of the Civil war created many of the
circumstances which made a more expansive view of the commerce clause
appealing.  For example, it is argued, the increasing success of the
national economy made it more obviously interdependent and that localized
problems increasingly became national problems.  One might consider the
period of Reconstruction, where the rights of newly freed slaves were not
adequately protected by southern state governments.  The case for national
intervention was fairly compelling in this example.  Theories of
federalism began to emerge which expanded the role of the federal
government and balloned the catagories of issues which fell into the
definition of "nationally impacting."  Many theorists use the Civil War
itself as a vindicating example of the concept that national power could
be used to "enforce" freedom.  (For larger views of these theories and the
historical context often used to support them, See Generally, H. Hyman, A
More Perfect Union (1973); R. Harrison, The Weakened Spring of Government
Revisited: The Growth of Federal Power in the Late Nineteenth Century, in
The Growth of Federal Power in American History (R. Jeffreys-Jones & B.
Collins eds. 1983).

Some of the period's legislation reflects the new attitude, the
Interstate Commerce Act of 1887 and the Sherman Antitrust act of 1880 are
classic examples.  These more active measures of regulation did, however,
produce a growing group of citizens sensitive to the growing national
powers.  Many commentators note that the groups objecting to national
legislation could provide very concrete examples why the congressional
acts hampered freedom and economic growth, while proponents of the acts
were limited to untested concepts of national economy, and theory.

Federalist based objections to these legislative inititives forced the
development of legal theories to address the concrete examples.  Note that
this period also began the currently obvious trend of promoting social
goals viewed "as valuable wholly apart from their relation to economic
development."

These approaches are generally lumped into the "formal" and "realist"
realms.  Consider first, United States v. E.C. Knight Co., 156 U.S. 1
(1895):

[The United States used the Sherman Act to set aside the acquisition by
the American Sugar Refining Company of four competing refineries.  The
aquisition left only one independent refinery in operation which produced
2 percent of the sugar refined in the country.  Chief Justice Fuller held
that the Sherman Act did not reach this monopoly because the Constitution
did not allow Congress to regulate "manufacturing."  The government had
argued that such concentrated manufacturing power constituted a monopoly
over a necessity of life which was enjoyed by a large population of the
United States which necessarily required resort to interstate commerce.

Fuller replied that "this argument cannot be confied to necessaries of
life merely, and must include all articles of general consumption.
Doubtless the power to control the manufacture of a given thing involves
in a certain sense the control of its disposition, but this is a
secondary and not the primary sense; and although the exercise of that
power may result in bringing the operation of commerce into play, it does
not control it, and affects it only incidently and indirectly.  Commerce
succeeds manufacture, and is not a part of it.

In Fuller's view, it would be "far-reaching" to permit a federal action
"whenever interstate or international commerce may be ultimately affected.
The fact that an article is manufactured for export to another state does
not of itself make it an article of interstate commerce, and the intent of
the manufacturer does not determine the time when the article or product
passes from the control of the state and belongs to commerce."  Fuller
continued, noting that a monopoly in manufacture might restrain interstate
commerce but that this was an indirect result and therefore American
Sugar's action "bore no relation" to interstate commerce.

Justice Harlan dissented, arguing that a monopoly that "obstructs freedom
in buying and selling articles" to be sold outside of the state of
manufacture "affects, not incidently, but directly, the people of all the
States."  In Harlan's view, "Whatever improperly obstructs the free course
of interstate intercourse and trade, as involved in the buying and selling
of articles to be carried from one state to another, may be reached by
congress."  To Harlan congress was merely, "prevent[ing] the coming into
existence of combination, the purpose or tendency of which was to impose
unlawful restraints upon interstate commerce."

E.C. Knight Co. through Fuller, demonstrates nicely the "formal" view.
The line of interstate commerce is drawn quite finely.  Indirect effects
are ignored.

The realist view, as expressed by Harlan, looks instead to the effect on
economy, the actual impact, or the intent of congress.

Concepts like the "stream of commerce" (Congress may regulate an activity
if it affects interstate commerce.  Taft in Stafford v. Wallace, 258 U.S.
495 (1922)., and the "current of commerce" (Swift and Co. v. United
States 196 U.S. 375 (1905)), began to form to facilitate the expansion of
the reach of the commerce clause in the early 1900s.

The court was a bit muddled about its approaches from the 1890's or so
until the 1920's but the result was a great deal of flexibility in
assessing the constitutionality of congressional statutes by the time the
1930's arrived.

In 1933 Franklin D. Roosevelt took office.  Addressing the crippled
economy, the new president fostered a host of legislation, unprecidented
in number and power.  Enter: The New Deal.

Consider the comments of one scholar: "Much of the legislation interfered
with what many had come to regard as the prerogatives of private property,
and, incidently, the proper domain of the states.  The New Deal statutes
were sure to generate challenges to their constitutionality.  Supporters
could draw on a complex, well-developed, and not entirely coherent body of
law regarding the extent of Congress's power to regulate interstate
commerce."

Some of the first challenges arrived in the mid 1930's in the form of
Nebbia v. New York, 291 U.S. 502 (1934); Norman v. Baltimore and Ohio
Railroad, 294 U.S. 240 (1935) (upholding the repudiation of contractual
duties to repay debts in gold) and Panama Refining Co. v. Ryan, 293 U.S.
388 (1935).  Only Panama Refining succeeded as a challenge to legislation,
invalidating portions of the National Industrial Recovery Act of 1933
which some commentators consider the conceptual centerpiece of the New
Deal.

More blows to the New Deal followed in the form of A. L. A. Schecter
Poultry Corp v. United States 295 U.S. 495 (1935); Carter v. Carter Coal
Co., 298 U.S. 238 (1936).

At the time of the Schecter decision, the act in question was about to
expire, and the administrative approach to its enforcement was becoming
less and less popular.  Schecter was, therefore, probably more important
for its approach than its actual result.  Consider Justice Hughes, for the
majority:

"The undisputed facts thus afford no warrant for the argument that the
poultry handled by defendants at their slaughterhouse markets was in a
'current' or 'flow' of interstate commerce and was thus subject to
congressional regulation.  The mere fact that there may be a constant flow
of commodities into a states does not mean that the flow continues after
the property has arrived and has become commingled with the mass of
property within the state and is there held solely for local dispotion and
use.

[...]

"If the commerce clause were construed to reach all enterprises and
transactions which could be said to have an indirect effect uipon
interstate commerce, the federal authority would embrace practically all
the activites of the people and the authority of the state over its
domestic concerns would exist only by sufference of the federal
government.  Indeed, on such a thoery, even the development of the
state's commercial facilities would be subject to federal control.

"If the federal government may determine the wages and hours of employees
in the internal commerce of a state, because of their relation to cost and
prices and their indirect effect upon interstate commerce, it would seem
that a similar control might be exerted over other elements of costs, also
affecting prices, such as the processes of production and distribution
that enter into cost could likewise be controlled.  If the cost of doing
an intrastate business is in itself the permitted object of federal
control, the extent of the regulation of cost would be a question of
discretion and not of power."

::::

So we find the court rejecting a strictly "realist" approach and guarding
certain "wholly local" activites from the reach of congression regulation
by insisting on a "formalist" reading.

One may note the attitude of the majority in Carter as demonstrative of
the protectiveness the court was showing toward local activity.  Consider
Justice Sutherland for the majority:

"Every journey to a forbidden end begins with the first step and the
danger of such a step by the federal governmnet in the direction of taking
over the powers of the states is that end of the journey may find the
states so despoiled of their powers, or-- what may amount to the same
thing-- so relieved of the responsibilities which possession of the powers
necessarily enjoins, as to reduce them to little more than geographical
subdivisions of the national domain."

::::

These cases, along with United States v. Butler, 297 U.S. 1 (1936);
Morehead v. New York ex rel Tipaldo, 298 U.S. 587 (1936), and the
landslide victory by FDR hatched a cunning plan.  Thwarted by the Supreme
Court in serious ways, FDR proposed certain "changes" in the structure of
the court.  Essentially Roosevelt proposed that one justice be added for
each justice over 70 who refused to resign or retire.  This would bring
the number of justices up to fifteen, and secure a safe majority on the 
court for the New Deal supporters.

The rational was the the older justices were increasing the workload on
the younger justices because they were unable to properly see to their
duties.

During debate on the proposal Justice Van Devanter left the Court and the
Court upheld a state minimum wage state in West Coast Hotel Co. v.
Parrish, 200 U.S. 379 (1937).  Justice Roberts, formerly a New Deal
opponent had switched his vote in West Coast.  This last minute alteration
was dubbed "The switch in time that saved Nine."

It should also be noted that the majority leader of the Senate, Joseph
Robinson, exerted a great deal of pressure on the Senate and personal
pressure on individual Senators and was believed by many to have
accumulated the required votes for the court packing plan.  Robinson died
of a heart attack however before the vote was taken and the plan was
rejected.  Personally, I am amazed that conspiracy buffs have not latched
on to this piece of history.  See Generally, Leuchtenberg, The Origins of
Franklin D. Roosevelt's Court Packing Plan, 1966 Sup. Ct. Rev 347.

One might also want to take into account the increasing power communists
were showing in the United States.  Several commentators have pointed out
that without the "concessions" of The New Deal, the United States might
well have faced a sudden and potent turn to socialism or communism

The result, however, was a suddenly pro-New-Deal court.  Witness Justice
Hughes in NLRB v. Jones and Laughlin Steel Corp., 301 U.S. 1 (1937):

"Although activites may be intrastate in character when separtely
considered, if they have such a close and substantial relation to
interstate commerce that their control is essential or appropriate to
protect that commerce from burdens and obstructions, Congress cannot be
denied the power to exercise that control."

::::

and the outer limits of the commerce clause:

Wickard v. Filburn, 317 U.S. 111 (1942)

[The Agricultural Adjustment Act allowed the Secretary of Agriculture to
set a quota for wheat production.  Each wheat grower was given an
allotment.  Filburn was a dary farm owner in Ohio.  He also raised small
amounts of wheat for his livestock and for making flower at home, for seed
purposes, and for sale.  His quota was 222 bushels, but he instead yielded
461 and was fined $117.  Fulburn sued to enjoin enforcement arguing,
among other issues, that his entiely local use and consumption of wheat
for his own family use was beyond the reach of Congressional Legislation.]

Justice Jackson:

"The Court's recognition of the relevance of the economic effects in the
application of the Commerce Clause has made the mechanical application of
legal formulas no longer feasible.  Once the economic measure of the reach
of the power granted to Congress in the commerce clause is accepted,
questions of federal power cannot be decided simply by finding the
activity in question to be "production," nor can consideration of the
economic effects be foreclosed by calling them "indirect"...

...even if appellee's activity be local and though it may not be regarded
as commerce, it may still, whatever its nature, be reached by congress if
it exerts a substantial economic effect on interstate commerce and this
irrespective of whether such effect is what might at some earlier time
have been defined as "direct" or "indirect..."

That appelee's own contribution to the demand for wheat may be trivial by
itself is not enough to remove him from the scope of federal regulation
where, as here, his contribution taken together with that of many others
similarly situated, is far from trivial."

::::

Now we see the extreme edges of the commerce clause.  Even individual
acts, which alone are not sufficent to impact interstate commerce, may in
their aggregate be seen to impact it.  Congress thus can reach the most
local acts.

As a result, the commerce clause has become a quick and easy clause to
rely upon when congress is attempting to impose its rule over what may
appear to be "local activities."  Civil rights legislation rested on the
commerce clause as its authority, typically by arguing that privately
owned estlablishments affected interstate commerce by e.g., their
proximity to an interstate and the interstate makeup of their clients.

It is worth noting that since the Wickard case, and until the year before
last, no challenge based on commerce clause authority has suceeded.  (The
only case I know of involves the regulation of firearms possession in
school zones and spurred some news stories last year).

> I do expect [the commerce clause] to be used for crypto, though, and
> this might even be upheld by the Supremes, especially in any areas
> directly involving "digital commerce."

Without a doubt.

> We should watch for this, and think about ways to deflect or derail such
> interpretations.

Extremely difficult.

As you can see, the commerce clause is deeply entrenched.  Direct and
indirect effects on commerce between the states are easily enough to reach
the questioned activity.

I think there is no doubt in the world that digital commerce will DIRECTLY
impact interstate and foreign commerce from a legal point of view.  If my
growing wheat in my back yard does, you can bet the farm that new means of
conducting business and making transactions across state boarders will.

I hate to differ with Mr. May, but I think that deflecting or derailing
this aspect of congressional authority to regulate is all but hopeless in
light of cases like Wickard and that our efforts are best directed
elsewhere.

Now I know some list member will mail me asking how I can support the
crushing grip congress has on the citizens of the United States and the
States themselves.  I do hope that member will re-read my post carefully
before pecking out that letter.

I believe the answer to preserving the purity of digital commerce is to
form it in such a way so as to make regulation impossible, because in my
view the constitution no longer provides citizens with the protection or
freedom to progress.  I feel the same way about privacy.  All the
constitutional arguments in the world mean little today.  A systematic
approach which makes violations of personal rights impossible whether
constitutional or not is the answer.

I see digital commerce burdened by regulations possessed of the character
of money laundering, reporting requirements and due dilligence statutes.
All of these are already entrenched, and there is literally ZERO chance of
prevailing in a challenge based on the illegitimacy of the commerce clause
in these cases.

("The cash is dead, long live the king.")

Cypherpunks should do what cypherpunks do best.  Write code, implement big
brother proof systems and make them entrenched before they are legislated
away.  There are always creative ways to make laws which take away rights.
You can't, however, legislate away mathamatics.

> --Tim May

--
I hate lightning - finger for public key - Vote Monarchist
unicorn@schloss.li