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§ 64. Limitations upon the federal authority in interstate commerce.-While the authority of congress to regulate rates or to delegate that authority to a commission has been uniformly sustained, since the passage of the Act of 1887, and in effect conceded, this power and all regulating legislation must be exercised subject to the constitutional requirement of due process of law, "and against the taking of private property for public use without compensation. In the exercise of this regulating power congress or the commerce commission is restrained also by the provision of the constitution, that "no preference shall be given by any regulation of commerce or revenue to the ports of one state over those of another." "Ports of entry," established under the customs laws are now not only on the seaboard as formerly and at the time of the adoption of the constitution, but are scattered throughout the interior as land ports. The construction of this constitutional application to the regulation of carriers charges, in the recognition of differentials in favor of competing ports has not been judicially determined. Congress was advised by the attorney general when the amendment of 1906 to the Interstate Commerce Act was under consideration that "reasonable rates" determined by the legislative authority would not constitute a preference within the prohibitions of this section of the constitution, even though they resulted in a varying charge per ton, per mile, to and from the ports of the different states.1

The power of congress in the regulation of commerce is limited, as are all the powers of the federal government, by the terms of the grant, as the government is one of enumerated powers, and the powers not granted to congress are reserved for the states and the people. While the power to regulate interstate commerce can be exercised by congress as effectively as by a single government with a wide discretion in the selection of means appropriate to the end, this power is limited by the terms of the constitutional grant. Congress is, therefore, without power to control commerce within a state. Neither

1 Opinion of Attorney-General Moodey to senate, May 5, 1905, Vol. 2, Senate Documents, p. 1674.

2 See Addyston Pipe & Steam Co. v. U. S., 175 U. S. 211, 44 L. Ed. 136 (1899).

congress nor the federal courts could deal with commercial combinations in a state not affecting interstate commerce, but where the combinations do affect interstate commerce it is immaterial that they are organized under state laws.

§ 65 (57). Prohibition as a means of regulation.-An important and far reaching question involved in the extension of the federal regulation of commerce was discussed in the Lottery cases. It was there strongly contended by four dissenting judges that the power to regulate commerce did not include the power to prohibit certain classes of traffic on distinctly moral grounds which were properly consignable by the local police authority of the states, as the power delegated to congress was for the purpose of securing the freedom of interstate commerce and preventing the hostile or discriminating action of the states interfering therewith, and was thereby distinguished from the sovereign control over foreign commerce, and that congress had no general police powers, such as are reserved in the states.

The prevailing opinion did not directly dispute or discuss these positions and declined to formulate any rule as to the power of congress, but based the conclusion upon what was essentially the moral view, that the lottery business had grown into disrepute and had become offensive to the people of the country, was a kind of traffic that no one was entitled to pursue as a right, and that under the circumstances of the particular case prohibition of this class of traffic was an appropriate method of regulation for congress to adopt. The decision was therefore limited to the points that lottery tickets were subject of traffic, and that congress could lawfully prohibit such traffic in interstate commerce.2

Congress can therefore prohibit in interstate commerce a

See also U. S. v. Knight Co., 156 U. S. 1, 39 L. Ed. 325 (1894).

1 Justices Fuller, Brewer, Shiras and Peckham.

a

2 The court had sustained statute excluding lottery tickets from the mails. See In re Jackson, 96 U. S. 727, 24 L. Ed. 877 (1878), and In re Rapier, 143 U. S.

110, 36 L. Ed. 93 (1892). This was on the ground that as congress furnished postal facilities it had the right to say what should be carried therein. But it was said that congress could nor prevent the carriage of such tickets by other means, though they were exclued from the mails.

specific class of traffic which is deemed injurious or offensive to the public, and it may also prohibit unlawful combinations and monopolies on the ground that such prohibition is necessary for the protection of the freedom of interstate commerce. The power to prohibit is necessarily involved in any effective federal control of the corporate agencies engaged in the conduct of commerce, whether through federal incorporation or any form of federal franchise, that is, where in order to make the federal system effective its adoption must be made compulsory. Congress has thus far legislated with reference to the subjects of commerce, and not concerning the corporate relations of parties engaged in such commerce.

§ 66 (58). Regulation of commerce through the taxing power.-Interstate commerce may also be regulated through the exercise of the taxing power by congress. While congress has not an unlimited power as to the purpose of taxation, and can levy taxes only in order to pay the debts and provide for the common defense and general welfare of the United States,1 it is also true that under the permanent revenue system of the government, taxes are levied, not for specific purposes, but by continuing laws establishing the rate of customs duties and internal revenue taxes, and questions relating to the lawful purposes of taxation do not arise in levying revenue taxes but in the appropriation of public funds for public needs.

It is well recognized that the power of taxation is sometimes invoked with no purpose of revenue in view, but solely to destroy the interest or business upon which the tax is levied by taxing it out of existence. Thus the notes of the state banks were taxed out of existence in order to open the means for circulating the notes of the national banks. This act was sustained by the supreme court. The court said that it was immaterial that the tax destroyed the business or franchise exercised under state authority. While the only lawful purpose of taxation is revenue, the amount of the tax on any subject within the scope of the taxing power is for the legislative discretion to determine. In the words of Chief Justice Marshall

1 Story on the Constitution, sec. 907.

2 Veazie Bank v. Fenno, 118 Wall. 533 (1869), 19 L. Ed. 482.

in McCulloch v. Maryland, "it is a perplexing inquiry unfit for the judicial department, what degree of taxation is a legitimate use and what degree may amount to an abuse of the power!" A tax on oleomargarine, as is well known, was imposed for the avowed purpose of destroying the business. It therefore follows that congress, subject to the constitutional requirement of geographical uniformity and to the limitations of direct taxation, could impose indirect taxes and excises on subjects and facilities of commerce or upon the privilege of carrying on such commerce, whether by individuals or corporations, and that the amount of such taxes would be determined by the discretion of congress.*

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§ 67 (59). The federal power of granting corporate charters. The unexercised or undeveloped power of congress in interstate commerce is now discussed more particularly with reference to the power of congress in federal incorporation of business or trading companies. Interstate and foreign commerce under modern business conditions are almost wholly carried on by corporations chartered by the several states. The states therefore have the sole visitorial control of the organization of the business associations, through and by which the interstate and foreign business, subject to the exclusive jurisdiction of congress, is carried on. The difficulty of effectual governmental regulation of such commerce is apparent.

The power to charter a corporation is not among the enumerated powers of congress, but in the great case of McCulloch v. Maryland the court based the power to charter a national bank upon the right of congress to adopt incorporation as a reasonable means of carrying into effect its enumerated

1 Supra, § 5.

2 Head Money Cases, 112 U. S. 580, 28 L. Ed. 798 (1884); Knowlton v. Moore, 178 U. S. 41, 44 L. Ed. 969 (1900).

3 Income Tax Cases, 158 U. S. 601, 39 L. Ed. 1108 (1894); Nicol v. Ames, 173 U. S. 509, 43 L. Ed. 786 (1899); Knowlton v. Moore, supra.

The extent of this taxing power was illustrated in the deci

(1911).

sion sustaining the tax upon the
net earnings of state corporations.
Flint v. Stone-Tracy Co., 220 U.
S. 107, 55 L. Ed.
This tax was advocated in con-
gress not only as a revenue meas-
ure, but because of the regulation
through incidental publicity of
corporate business which would be
secured.

4 Wheat. 316, supra.

powers. "Incorporation," said the court, "is never made the end for which their powers are exercised, but a means by which their objects are accomplished." "The power

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of creating a corporation is never used for its own sake, but for the purpose of affecting something else." The bank, therefore, was lawfully incorporated as a means of managing the great fiscal concerns of the government. The constitutionality of the national banking act of 1864 was based on the same principle. The national banks organized under the act, said the court, were the instruments designed to be used to aid the government in the administration of an important branch of the public service. They are means, appropriate to that end.1 The power of congress to incorporate railroad companies to carry on interstate commerce, has not only been conceded, but has been exercised in the incorporation of the Pacific Railroad companies; and the chartering of a corporation for constructing a bridge over a navigable stream forming the boundary of two states and condemning the property for approaches thereto, had been directly sustained. The power of incorporation in these cases was upheld as a reasonable and proper means of regulating commerce between the states, as these corporations were direct instrumentalities for carrying on interstate commerce.

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A corporate franchise involves the power to be, and also the power to do. Congress has the power to grant a corporate franchise for the construction of national highways. The supreme court in the Pacific Railroad Tax cases, said that in former times this power was exercised very little, as commerce was then conducted wholly by water, and many of our statesmen had entertained doubts as to the existence of the power to establish ways of communication over land. But since the expansion of the commerce of the country, the multiplication of its products and the invention of railroads and locomotion by steam, land transportation has so vastly increased, that a

1 Farmers, etc., National Bank v. Dearing, 91 U. S. 29 (1875), 23 L. Ed. 196.

2 Pacific R. Cases, 115 U. S. 2, 29 L. Ed. 319 (1885); California v. Pacific Railroads, 127 U. S. 1, 32 L.

Ed. 150 (1888); Decker v. R. R.
Co., 30 Fed. 723 (1887).

8 Luxton v. North River Bridge Co., 153 U. S. 525, 38 L. Ed. 808 (1894).

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