by Lawrence A. Hunter Ph.D.

What Is The Federal System Of Government?

Many people mistakenly equate “Federalism” with decentralization. A federal system is certainly a decentralized system but it is also much more. The defining characteristics of federalism are:

(i) Two constitutionally established, concurrent orders or levels of government, one consisting of fundamental units of governance (called “states”), the other consisting of a national government encompassing all the people who live in the states;

(ii) The sovereign people cede limited and specific powers to the national government, reserving respectively to their states the remainder of the powers they choose to delegate to government;

(iii) Each governing order or level of government is autonomous, free of the other to act within its own realm, the only exception being that acts of the national government are supreme to those of the states when those acts come into conflict in areas where both governments’ delegated authority overlap/intersect; and

(iv) The governments at each level are accountable to their respective electorates and in certain instances to each other as provided for in the constitution.

Before the term “states’ rights” became contaminated by its identification with the efforts of some states to perpetuate slavery and later racial segregation, “states’ rights” concisely described the states’ legal and political autonomy although the term always constituted a shorthand reference to states’ constitutional and political autonomy vis-à-vis the national government as opposed to natural rights, which only individuals possess.

What Was The Purpose Of The Federal System Of Government?

To protect the rights of individuals. The Founding Fathers distrusted power in the hands of any level of government, state or national. As Thomas Jefferson’s biographer Dumas Malone pointed out, Jefferson never supported states’ rights for their own sake, “but to safeguard the freedom of individuals,” which he, along with the rest of the Founding Generation believed would suffer in a consolidated nation no matter how decentralized the administration of the consolidated government happened to be.  Hence, in drafting the Kentucky Resolves for instance (see here and here), Jefferson identified the states as the primary depositories of power and the proper entities of resistance against an encroaching national government.

Although the Founding Fathers well understood that the federal form of government was no absolute bar against either state or national tyranny, they believed it to be a practical check on the national government (especially when combined with constitutional separation of powers) and at the same time a guarantee that safe havens would always exist to which people could flee from an oppressive state government. William Watkins, Jr. puts it this way: “Though some states might abuse power, Jefferson reasoned that not all would fall under the spell of tyranny.  But with a consolidated and abusive national government, all would suffer the same tyranny; there would be no islands of peace.”  (See The Kentucky and Virginia Resolutions)

How Was The Integrity Of The Federal System Of Government To Be Preserved?

Of all people, even the great Federalist consolidator and centralizer Alexander Hamilton understood the delicate balance in the basic architecture of the U.S. Constitution. According to Hamilton in Federalist # 28, it is an “axiom in our political system that the state governments will in all possible contingencies afford complete security against invasions of the public liberty by the national authority.”

Hamilton went on to postulate that should the national government pose a danger, the states could “at once adopt a regular plan of opposition, in which they can combine all the resources of the community. They can readily communicate with each other in the different states; and unite their common forces for the protection of their common liberty.” In other words, the primary means of defense against a grasping and encroaching national government was to be truculent state governments that took action singly and in concert to actively defy national government actions they considered to be in violation of the Constitution.

In a federal system, no government or branch of government was to be the judge of its own cause. (As John Taylor wrote much later, “a jurisdiction limited by its own will is an unlimited jurisdiction.”) The boundaries and limits of governmental authority were to be hammered out through a perpetual struggle among the separate branches of government and between the states and the national government. Watkins again succinctly states Jefferson’s and Madison’s understanding of how the boundaries of authority in a federal system were to be delineated:

“Jefferson proclaimed in the [Kentucky] resolution that ‘each party [to the federal compact] has an equal right to judge for itself, as well of infractions as of the mode and measures of redress.’ For Jefferson, the people acting through their states—the authentic organs of government—were the final arbiters of constitutional interpretation.  Jefferson feared that giving the federal government the exclusive power to interpret the Constitution through the Supreme Court would lead to arbitrary government.”

How Did The Federal System Of Government Fail?

Hamilton was correct in how the federal system of government was supposed to work but incorrect in how it actually worked out. Ironically, the cracks in federalism that appeared almost immediately after ratification of the Constitution were in large part due to the role Hamilton played as usurper in the early days of the American Republic, especially in the events surrounding the crisis of near war with France in the late 1790s. It was from these maneuverings that the hated Alien and Sedition Acts were enacted by the Congress, which led directly to the drafting of the Kentucky and Virginia Resolutions in 1798 by Thomas Jefferson and James Madison and what came to be known as the “Spirit of ’98.” The question then is how did Hamilton and his political progeny manage to overcome James Madison’s and Thomas Jefferson’s design and usurp the power of the states and abridge the rights of individuals contrary to the intention and careful design of the United States Constitution?

The American system of federalism has failed because the set of rules that established it and was meant to maintain it—the U.S. Constitution, its careful design notwithstanding—is fundamentally flawed. The Constitution failed to provide a practical mechanism to sustain and protect the autonomy of each order of government from encroachment by the other.

It is an interesting exercise to analyze why the U.S. Constitution failed in this, its most important function. (Read more. . .) However, it is not necessary to come to any definitive conclusion as to why it failed to know that is has, in fact, failed. It is sufficient to observe the states’ advanced stage of political decrepitude and legal dilapidation; the relatively low-quality of their elected and appointed officials; their incapacity to defend themselves legally, politically or physically against the national government; their fiscal dependence upon the national government; their reliance upon the national government operationally; their subservience to the national government in every respect; their low regard in the eyes of the public and the lesser affection and attention they receive from the electorate.

The Relentless Growth Of Government

Thomas Jefferson described the dynamic by which government grows and liberty recedes in a letter to Edward Carrington in 1788: “The natural progress of things is for liberty to yield and government to gain ground.” The design of the U.S. Constitution was meant to be a bulwark against this naturally corrosive process—a check against one level of government’s growth at the expense of the other to the ultimate detriment of the people—by giving one level of government a natural self-interest and the power and means to resist the expansion of its rival.

Government’s expansion at the expense of liberty is always fueled by the same poisonous admixture of human frailties: Fear, ignorance and greed. The mechanism of forward momentum that has propelled the excessive growth of government has always been the meshing of two gears: the natural inclination of politicians to gather more power unto themselves by oppressing the people and the natural inclination of people of business to maximize profits by gaining an advantage over their competitors. When profit-seeking business people work hand in glove with power-seeking politicians, both gain at the expense of the vast majority of the people. In general, government expands its power by scaring people and convincing them of the necessity of regulation, taxation and government spending to further the general welfare in the name of the public interest; while business enterprises seek to use the government’s expanding power to tax, spend and regulate to further their own ends.

The justification for government to expand its authority to tax, spend and regulate in the name of the public interest and for the “greater good” is based on a popular myth, namely that markets are everywhere and always fragile and failing and that government regulation is always benevolent, omniscient, and corrective. In fact, government regulation creates far more unintended problems that it solves. Moreover, government regulation almost always is a special-interest phenomenon driven by a combination of government’s quest for power and the quest of the firms being regulated to cartelize their industry in order to drive their competitors from the field so they can reap extraordinary profits at consumers’ expense. As Nobel Laureate George Stigler wrote in 1971, “As a rule, regulation is acquired by the industry and is designed and operated primarily for its benefit.”

There is an irresistible urge among businesses to create cartels but unaided by government oppression to destroy competition, cartels fall prey to companies’ unilaterally abandoning the rigged rules the cartel must enforce to survive—which is why the cartel must conspire with government to enforce the cartel’s rules by the force of law and regulation, imposing heavy fines and imprisonment for “cheating” and “law breaking.”

In the specific case of the national government’s eclipsing and subjugating the state governments, the dynamics of federalism’s decline has proceeded as follows: The national government has through artifice and flaws in the Constitution expanded its realm both by grasping new powers outside the Constitution’s grant of authority to either level of government and by expanding the area of authority common to both the states and the national government. If the general rule is that each order of government is sovereign within its own realm (Tenth Amendment) and the exception to that rule is the national government is supreme (Supremacy Clause) where those realms overlap/intersect and conflict, then the political growth strategy of the national government historically has been to constantly expand the area of overlap to permit the exception to swallow the rule.

The Slow-Motion Disintegration Of The Federal System Of Government.

The first test of federalism’s ability to protect the people against an over-reaching national government came early on in the face of a threat of war with France during the late 1790s. The Alien and Sedition Acts were enacted in direct response to the fear of war.

Jefferson and Madison perceived the danger of these acts, not only their immediate oppressive nature but also their long-run corrosive effect on the federal system of government. Jefferson described the Acts as “merely an experiment on the American mind, to see how far it will bear an avowed violation of the Constitution.” In response to this experiment in tyranny, Jefferson and Madison drafted the Kentucky and Virginia Resolutions in which they laid down the “principles of ‘98” in an effort to rouse the states to check an over-reaching national government before it became un-checkable. (Read more. . .)

The threat of an abusive national government’s over reaching its delegated powers receded temporarily as the threat of war receded, the war party of Hamilton lost power to the Republican Party of Jefferson and Madison and the Alien and Sedition Acts expired. This first test of federalism and the reaction to it in the form of the Kentucky and Virginia Resolutions have been downplayed in the nation’s official history yet this incident exposed the flaws in the design of American federalism and set the stage for the next attempted encroachment of national power

This second test of federalism and the concomitant expansion of the national government occurred around the fulcrum of the War Between the States. In addition to the unplanned expansion of government that invariably accompanies war, especially civil war, Abraham Lincoln and the Republican Party also set out intentionally to greatly strengthen and expand the power and scope of the national government through what became known as the “American System of Henry Clay,” a plan to use federal subsidies and high protectionist tariffs to establish economic nationalism and give large sums of tax dollars to corporations to build “internal improvements” – railways, waterways and canals.

As Reconstruction came to an end and throughout the remainder of the 19thcentury and into the 20th century, primarily under Republican rule, the skids to further centralization and consolidation were greased beginning in 1877 with the Supreme Court case of Munn v. Illinois. The Munn case illustrates how expansion of national power did not always appear to be such on its face. Indeed, as Munn illustrated, the predicate for the future expansion of national power could come first by a federal court ruling expanding state authority over individuals and businesses.

In fact, the most effective expansion of national authority came through a two-step process: First, expansion of overlapping powers (in this case the power to regulate commerce) followed by the national government’s claim of exclusive authority over the previously expanded common realm through the invocation of its constitutional supremacy (Supremacy Clause) in areas where state and national power intersect and conflict. Thus were states crowded from the field and hollowed out into mere shells of the authentic organs of government they previously were.

In Munn, The Supreme Court permitted states to regulate certain businesses within their borders, including railroads. This case is commonly considered a milestone in the growth of government regulation, practically eviscerating the bar against takings under state common law or the Contract Clause of the U.S. Constitution. The Court’s ruling upheld Illinois price-control legislation proposed by the National Grange to regulate grain elevator rates, declaring that business interests (private property) used for public good be regulated by government. This decision also affected similar laws governing railroad rates. Since they too were deemed private utilities serving the public interest, the laws governing their rates were held to be constitutional as well.

Although both holdings were considerably narrowed and weakened by the decision in Wabash, St. Louis & Pacific Railroad Company v. Illinois (also known as the Wabash Case), the predicate for further expansion of national commerce power had been firmly established. In Munn, the Supreme Court decided that the Fourteenth Amendment did not bar government from imposing price controls but focused instead on establishing the principle that a private company could be regulated in the public interest. The Court held that it could, if the private company could be seen as a utility operating in the public interest.

The Demise Of The Ninth And Tenth Amendments.

Once the primary constitutional bars to government (state or national) regulation of private entities were stripped away, it remained simply to expand the national government’s authority relative to the states and then to restrict the states’ authority to subjugate them to Washington, DC. The primary mechanism employed was an infinitely elastic Commerce Clause and promiscuous use of the Necessary and Proper Clause through which the national government’s power was inflated at the expense of state prerogatives, a process that ultimately pulverized the Ninth and Tenth Amendments under the national government’s boot. Jefferson clearly perceived the beginnings of this pernicious process and vigorously objected to it in the first Kentucky Resolution of 1798:

“. . .words [such as ‘necessary and proper’] meant by the instrument [Constitution] to be subsidiary only to the execution of limited powers, ought not to be so construed as themselves to give unlimited powers, nor a part to be so taken as to destroy the whole residue of that instrument.”

The expansion of the national government’s commerce power was not without temporary obstruction and even occasional temporary reversals but it was, over the course of time, unidirectional and virtually all encompassing. Between the turn of the 20th century and the New Deal, the Supreme Court made a series of rulings that found congressional action in violation of the Tenth Amendment.  Perhaps the most famous are the 1918 ruling striking down national child labor standards (Hammer v. Dagenhart, 246 U.S. 20), in which the Court embellished the Tenth Amendment to read that powers not “‘expressly’ delegated to the national government are reserved,” the 1922Child Labor Tax Case (259 U.S. 20), and United States v. Butler (297 U.S. 1, 1936). 

Beginning in 1937, however, the Court reversed itself on restricting the powers of Congress under the Tenth Amendment.  In cases that year, such as National Labor Relations Board v. Jones and Laughlin Steel Co. (301 U.S. 1) andSteward Machine Co. v. Davis (301 U.S. 548), the Court found the Tenth Amendment to be of limited relevance in assessing the constitutionality of congressional taxing and spending policies. 

Although given several opportunities between 1937 and 1976, the Court refused to strike down national legislation on the grounds that it encroached on powers reserved to the states under the Tenth Amendment.  See e.g., New York v. United States (326 U.S. 572,1946) and Fry v. United States (421 U.S. 542, 1975).  In reference to the Commerce Clause specifically, on only eight occasions prior to 1937 did the Court find that the Congress had exceeded its constitutional limits. The last such case (prior to 1976) was Carter v. Carter Coal Co. (298 U.S.238, 1936), which invalidated the Bituminous Coal Conservation Act of 1935.  The Court held in that case that regulation of production and labor relations lay beyond the allowable object of congressional power—regulation of interstate commerce.  The Fair Labor Standards Act was upheld in United States v. Darby (312 U.S. 100, 1941), the Court holding that Congress may by law exclude goods that do not conform to specified labor standards from interstate commerce and may use direct regulation of labor relations to achieve this objective.

The Court temporarily rediscovered renewed state autonomy under the Tenth Amendment in National League of Cities v. Usery (1976). The Court found that the Tenth Amendment necessarily requires the existence of a set of essential state powers that remains beyond the reach of congressional regulation or preemption.  However, the Court was soon to begin chipping away any new expansion of states’ autonomy under National League of Cities. During the early 1980s, federal regulation of the states was upheld in a series of cases. See Hodel v. Virginia Surface Mining, 452 U.S. 264 (1981), United Transportation Union v. Long Island RR, 455 U.S. 678 (1982), FERC v. Mississippi, 456 U.S. 742 (1982), and EEOC v. Wyoming, 460 U.S. 226 (1983).

The Court finally threw in the towel and reversed itself altogether in Garcia v. San Antonio Metropolitan Transit Authority (1985), holding that the Tenth Amendment provides the Court no basis on which to limit the Congress in the exercise of its commerce powers. The Court declined, not simply to rule against the Congress, but even to entertain the possibility that the Congress might, within the scope of its commerce powers, intrude upon the constitutional position of the states.  The Court appeared finally to abandon whatever vestige remained of its role as federal umpire between the states and the federal government by refusing to blow the judicial-review whistle to signal a congressional foul.

In 1992, the Supreme Court appeared to breath life back into the Tenth Amendment by finding instances outside federal commerce power in which federal action might violate the reserved powers of the states. For the first time in 55 years, the Court invalidated one section of a federal law for violating the Tenth Amendment.  The case in question (New York v. United States, 505 U.S. 144) challenged a portion of the Low-Level Radioactive Waste Policy Amendments Act of 1985.  The Act established three mechanisms to entice/compel states to comply with federal statutory obligations to provide for the disposal of low-level radioactive waste.  The first two enticements were monetary incentives. The third, which was challenged in the case, required states to take title to any waste within their borders that was not disposed of prior to January 1, 1996. The Act also made each state liable for all damages directly related to the waste.  The Court, in a 6–3 decision, ruled that the imposition of that obligation on the states violated the Tenth Amendment.

Justice O’Connor wrote the opinion of the Court, which held that the Congress may use its spending powers to encourage the states to adopt certain regulations (i.e., by attaching conditions to the receipt of federal funds, seeSouth Dakota v. Dole, 1987) or impose its will through the commerce power (by directly pre-empting state law).  However, Congress may not directly compel states to enforce federal regulations.

In 1997, the Court went a step further in its apparent revitalization of Federalism when it ruled that the Brady Handgun Violence Prevention Act violated the Tenth Amendment (Printz v. United States, 521 U.S. 898).  The Act required state and local law enforcement officials to conduct background checks on persons attempting to purchase handguns.  Justice Scalia, writing for the majority, applied New York v. United States in holding the law violated the Tenth Amendment.  Because the act “forced participation of the State’s executive in the actual administration of a federal program,” the Court found it to be unconstitutional.

Less than a decade later, however, the Court again expanded its elastic definition of “commerce among the states” to include local cultivation and consumption of marijuana (Alberto R. Gonzales, Attorney General, et al, v. Angel McClary Raich, et al.) In the process, the Court tightly constricted the life support it had provided the Tenth Amendment and, in effect, restricted its protections exclusively to a prohibition against federal commandeering of state governments to enforce federal laws and regulations through direct edict. With the Gonzales v. Raich decision, the Court again found it impossible to declare federal laws unconstitutional for violating the Tenth Amendment because it refused to circumscribe federal authority under the Commerce Clause.

Justice Clarence Thomas disputed the Court’s further expansion of federal commerce power:

“Respondents Diane Monson and Angel Raich use marijuana that has never been bought or sold, that has never crossed state lines, and that has had no demonstrable effect on the national market for marijuana. If Congress can regulate this under the Commerce Clause, then it can regulate virtually anything–and the Federal Government is no longer one of limited and enumerated powers.”

Expounding upon what this expansive interpretation of “commerce among the several states” means for the Tenth Amendment, Thomas spotlighted the state of limbo in which the Court remains stuck on Federalism:

“One searches the Court’s opinion in vain for any hint of what aspect of American life is reserved to the States. Yet this Court knows that ‘“[t]he Constitution created a Federal Government of limited powers.”’ New York v. United States, 505 U.S. 144, 155 (1992) (quoting Gregory v. Ashcroft, 501 U.S. 452, 457 (1991)). That is why today’s decision will add no measure of stability to our Commerce Clause jurisprudence: This Court is willing neither to enforce limits on federal power, nor to declare the Tenth Amendment a dead letter. If stability is possible, it is only by discarding the stand-alone substantial effects test and revisiting our definition of ‘Commerce among the several States.’ Congress may regulate interstate commerce–not things that affect it, even when summed together, unless truly ‘necessary and proper’ to regulating interstate commerce.”

The range of federal power is circumscribed by the boundaries established by the enumerated powers; but the enumerated powers themselves are restricted only to the extent that the definition of “commerce among the several states” is limited, which for all intents and purposes the Court appears unwilling to limit. Therefore, at the end of the first decade of the 21st century, the limits of federal authority vis-à-vis the states has boiled down to a narrow restriction against the federal government’s commandeering or compelling the states to enforce federal statutes.

1913 Was A Very Bad Year

Concurrently with employing the Commerce Clause and Necessary and Proper Clause to fuel the expansion of the national government at the expense of the states, the national government also aggressively used its fiscal and monetary powers to aggrandize itself throughout the first half of the 20th century. Of all the government-sanctioned cartels, the most pernicious has been the Federal Reserve System, established in 1913, which was created to facilitate the creation of a banking-industry cartel and the creation of cartel profits in that industry as well.  As Murray Rothbard wrote in A History of Money and Banking in the United States, “The financial elites of this country . . . were responsible for putting through the Federal Reserve System, as a governmentally created and sanctioned cartel device to enable the nation’s banks to inflate the money supply . . . without suffering quick retribution from depositors or note holders demanding cash.”

Additionally in 1913, the national government finally succeeded in enacting an income tax on individuals, which provided not only an unprecedented source of revenue for the national government but also evolved into a general, all-purpose engine of income and wealth redistribution, government monitoring and surveillance of individuals as well as a mechanism of direct control of individual behavior and social engineering.

Finally, the direct election of Senators, also in 1913, was perhaps the single biggest step away from federalism and the original constitutional design toward mass democracy and a consolidated national government. With the Tenth Amendment well on its way to becoming a dead constitutional letter, with an open-ended Commerce Clause in place to fuel unlimited growth of the national government’s reach, with a revenue-generating and behavior-regulating national income tax in place, and hard currency now able to be replaced by freely printed paper money at the Fed, direct election of Senators completed the necessary and sufficient conditions for a complete consolidation of political power in the hands of a unified national government.

Intergovernmentalism Replaces Federalism

After World War II, federalism was replaced by “intergovernmentalism,” an unlovely term for the unlovely transformation of the sovereign states into bureaucratic extensions of the central government. It happened this way.

The national government further expanded its control over state governments through the fiscal realm by a series of “revenue-sharing” measures, beginning with specific grants-in-aid eventually including huge national entitlement programs such as Medicaid, which entice and require state fiscal participation through direct mandates and statutory fiscal matching provisions. Along with the grant of money came federal mandates on the states, which provided the national government a lever to control and direct state behavior to comport to the desires of Washington. The ultimate fiscal hold on states developed during the Cold War through the expansion of the military-industrial complex, which thoroughly entangled the economic circumstances of the states with defense contractors and the perpetuation of the national war machine.

By 1985, with the Court’s ruling in Garcia, federalism was dead, and state sovereignty was a mere constitutional echo of days past.

Can Federalism And State Sovereignty Be Revived?

Beginning on September 11, 2001, the expansion and consolidation of the national government took another quantitative and qualitative leap forward, this time toward World Empire. As the United States approaches the end of the first decade of the 21st century and the 220th year of the American constitutional republic, an unrestrained, largely unlimited national government routinely ignores precious individual rights once held inviolate under the U.S. Constitution, regularly tramples on states’ prerogatives, pursues total information awareness of every detail of individuals’ lives, seeks total behavior control of American citizens and asserts the right to exert its power without the sanction of a declaration of war or legal warrant into any country against any individual anytime, anyplace in the world.

Fear, ignorance and greed, when fueled and manipulated by propaganda reduce people’s natural immune responses to oppressive and parasitic government, allowing politicians to sap their essence and abandon the principles on which their liberty is based. This process by which government grows at the expense of liberty has been the same since the English King and his Parliament oppressed American colonialists. The authors of the Declaration of Independence described the process vividly: “He Erected a multitude of New Offices, and sent hither swarms of Officers to harass our people and eat out their substance.”

So also has Washington, DC erected a multitude of federal programs and taxes, complete with huge bureaucracies and police forces, and sent hither into the states and local communities bureaucrats, revenue agents, police and military personnel to harass the people and eat out their substance. Thus has Federalism failed, state sovereignty been destroyed and liberty eclipsed.

William Watkins summarizes the architectural imperative on which the U.S. Constitution rests:  “Power can be checked only by power. The [Kentucky and Virginia] Resolves point to the states as the natural depository of power to check the national government. . .If the American people are once again to gain control of the national government, it will be through the states.”

But, it won’t be simply a matter of untying the knot or walking this cat back. It is impossible to simply retrace the steps that brought the American political system to its present perilous situation; it will require courage, steadfastness, truculence, defiance and a will of iron to stand up to Washington and stand down the power of the federal government. It will be an undertaking not in principle different from but even more daunting and difficult than the Civil Rights Movement, namely reviving America and restoring liberty by overcoming oppressive government that is acting illegally and immorally with a pointed gun under the color of law.

Dr. Lawrence A. Hunter is President of the Social Security Institute, a 501(c)(4) non-profit organization, and Senior Fellow at Americans for Prosperity and the Institute for Policy Innovation where he does economic research and writes reports on a diverse range of public policy issues.


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