The late 1870s ushered in a new phase in the evolution of U.S. federalism. Under dual federalism, the states and national government exercise exclusive authority in distinctly delineated spheres of jurisdiction. Like the layers of a cake, the levels of government do not blend with one another but rather are clearly defined. Two factors contributed to the emergence of this conception of federalism. First, several Supreme Court rulings blocked attempts by both state and federal governments to step outside their jurisdictional boundaries. Second, the prevailing economic philosophy at the time loathed government interference in the process of industrial development.
Industrialization changed the socioeconomic landscape of the United States. One of its adverse effects was the concentration of market power. Because there was no national regulatory supervision to ensure fairness in market practices, collusive behavior among powerful firms emerged in several industries.Marc Allen Eisner. 2014. The American Political Economy: Institutional Evolution of Market and State. New York: Routledge. To curtail widespread anticompetitive practices in the railroad industry, Congress passed the Interstate Commerce Act in 1887, which created the Interstate Commerce Commission. Three years later, national regulatory capacity was broadened by the Sherman Antitrust Act of 1890, which made it illegal to monopolize or attempt to monopolize and conspire in restraining commerce (Figure 03_02_Commerce). In the early stages of industrial capitalism, federal regulations were focused for the most part on promoting market competition rather than on addressing the social dislocations resulting from market operations, something the government began to tackle in the 1930s.Eisner, The American Political Economy; Stephen Skowronek. 1982. Building a New American State: The Expansion of National Administrative Capacities, 1877–1920. Cambridge, MA: Cambridge University Press.
The new federal regulatory regime was dealt a legal blow early in its existence. In 1895, in United States v. E. C. Knight, the Supreme Court ruled that the national government lacked the authority to regulate manufacturing.United States v. E. C. Knight, 156 U.S. 1 (1895). The case came about when the government, using its regulatory power under the Sherman Act, attempted to override American Sugar’s purchase of four sugar refineries, which would give the company a commanding share of the industry. Distinguishing between commerce among states and the production of goods, the court argued that the national government’s regulatory authority applied only to commercial activities. If manufacturing activities fell within the purview of the commerce clause of the Constitution, then “comparatively little of business operations would be left for state control,” the court argued.
In the late 1800s, some states attempted to regulate working conditions. For example, New York State passed the Bakeshop Act in 1897, which prohibited bakery employees from working more than sixty hours in a week. In Lochner v. New York, the Supreme Court ruled this state regulation that capped work hours unconstitutional, on the grounds that it violated the due process clause of the Fourteenth Amendment.Lochner v. New York, 198 U.S. 45 (1905). In other words, the right to sell and buy labor is a “liberty of the individual” safeguarded by the Constitution, the court asserted. The federal government also took up the issue of working conditions, but that case resulted in the same outcome as in the Lochner case.Hammer v. Dagenhart, 247 U.S. 251 (1918).