At this point in time, neither Congress nor the state legislators were permitted to substantially regulate business.
US v. EC Knight Co. (1895) – Sherman Anti-Trust Act that was supposed to outlaw business monopolies. Sugar Trust owned 98% of sugar manufacturing in US, and US took them on once they acquired EC Knight. Did controlling 98% mean “illegal restraint of trade?” Supreme Court said no. Said that only distribution was under federal commerce clause. Production was under state. Manufacturing (refining sugar) was under state.
Lochner vs. New York (1905) - the Court prevented a state from regulating labor practices concluding that such action was a violation of firms’ property rights—due process rights of 14th Amendment—did it protect right to make contracts with laborers? Court ruled that 14th Amendment trumped states’ rights to regulate labor and in effect treated firms as individuals with 14th Amendment due process rights.
Hammer vs. Dagenhart (1918) - the Court invalidated a federal law (Keating-Owen Child Labor Act of 1916) that prohibited the interstate shipment of goods produced by child labor. Citing the 10th Amendment, the Court said that factory practices could be regulated only by the states.
The Courts support of dual federalism lasted until the Great Depression of the 1930s. Many of the federal justices had been appointed by Republican presidents, who at the time were more state-centered in their view, but also strong industrialists and free market capitalists.
Any tampering of the economy or its engines was thought to be taboo.
New Deal Federalism (1930s)--Expansion of the Federal Government: 1933-1968
Finally, national government prevails…
It took almost a decade of suffering through the Great Depression before the Supreme Court began reversing its decisions regarding national regulation of the economy and thus business and industry.
Effects of the Great Depression on Federalism:
The Great Depression revealed that Americans had become a national community with national economic needs - part of an economic network that spanned all states.
States responsible for welfare, but they were penniless due to the depression.