The Constitution grants Congress a rather generous list of powers, but reserves all other powers to the states and the people. The Constitution is the supreme law of the land, and until the late 1930s and early 1940s, Congress, the President, and the courts usually respected the document’s limits on federal authority.
What changed in the late 1930s and early 1940s was that the Supreme Court, under strong political pressure, abdicated its duty to enforce most constitutional limits on Congress. Thus, in 1936, the justices decided United States v. Butler. Their opinion included dicta (comments extraneous to the actual decision) stating that Congress was not limited to spending within its constitutional responsibilities; instead, Congress could spend whatever promoted “the general welfare.” In 1937, the court confirmed the rule for the future.
These two decisions blew the lid off the federal budget. Congress became an auction house for special-interest spending. Since then, Congress rarely has balanced its budget. Indeed, for the past 25 years, there have been no balanced budgets at all.
Ever-growing deficits require the government to borrow ever-growing amounts of money. The Federal Reserve then pumps greenbacks into the economy to keep interest rates low, accommodate federal borrowing, and prevent federal borrowing from crowding out private access to capital.
Federal spending doesn’t just increase the volume of cash. It also reduces the amount of product available. This is because government generally is less productive than the private sector. One reason is that government does things in a clunky way. But another is that large amounts of government money—particularly federal money—are wasted on projects that are totally useless, or even positively harmful. The Trump-Musk Department of Government Efficiency uncovered numerous examples.
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The result: too much cash, too little product. Monetary inflation often is described as “too much money chasing too few goods.”
What Changed After 1936?
I compared the rate of inflation for the 86 years before the Supreme Court’s Butler decision in 1936 with inflation in the subsequent 86 years ending in 2024. Most internet inflation calculators do not begin before 1914. Fortunately, however, the Federal Reserve Bank of Minneapolis has estimated Consumer Price Index (CPI) levels back to 1800.
Here is what the numbers show:
The years 1800 to 1848 witnessed a mild deflation of the currency, reflected in a drop in the CPI from 51 to 26. That is an annual average of 1.37%. There were some intervening ups and downs, but over time the dollar remained mostly stable. A pretty good record for a new republic.
In 1936, the CPI was 41.7. Thus, for the 86 years before the Supreme Court’s decision in Butler (1848-1936), the CPI had gone from 26 to 41.7, for an annual inflation rate of only 0.55%. This was a remarkable achievement for a growing republic—particularly so in view of the fact that federal spending included two major wars (the Civil War and World War I) and a lesser conflict (the Spanish American War).
After the late 1930s, all that changed. By 2024—86 years after the Supreme Court lifted spending restraints, the CPI stood at 942.7! In other words, from 1936 through 2024, the annual inflation rate was 3.69%.
An item that cost you a buck in 1936 cost $22.62 in 2024. Put another way, the dollar had declined in value to less than four and a half cents.
The Supreme Court’s decisions were followed by real consequences, and they were not good consequences, either.
Were There Other Causes?
You might argue that there were other factors causing inflation as well. And you would be right. But it is easy to exaggerate other factors. Let’s consider two:
After 1936, the United States had to fight World War II and then maintain a large military force during the Cold War. But as just noted, the U.S. had fought major conflicts before—and nothing compared with the Civil War in cost to the nation.
Moreover, for the last few decades the military has not been the major driver of federal expenditures. Currently the federal government lays out only about 13 percent of its budget on defense. The major drivers of federal expenditures have been domestic programs that would have been ruled unconstitutional before 1936 and therefore out of Congress’s realm of responsibility.
Indeed, when defense spending took up the lion’s share of the federal budget—as in the 1950s—inflation was far more modest than it is today.
Perhaps you might blame the Federal Reserve. But the Federal Reserve is just a national bank, and we had national banks during several intervals within the low-inflation nineteenth century. Also, in the years before 1936, the Federal Reserve didn’t do that badly. During the 22 years between the Fed’s establishment in 1914 and when the Supreme Court popped the cork in 1936, the annual inflation rate was only about 1.5 percent—despite the expenditures of World War I. Today, most people would love to see inflation down to 1.5 percent.
Supreme Court decisions, particularly bad ones, have consequences. If the court had enforced the Constitution in 1936 and 1937 instead of caving to unscrupulous and ignorant politicians—or even if the court had found a formula that accommodated some additional spending but still fixed real limits—the United States would be a much more solvent country today.
Robert G. Natelson, a former constitutional law professor, is Senior Fellow in Constitutional Jurisprudence at the Independence Institute in Denver. He authored “The Original Constitution” (4th ed., 2025) and is a contributor to the Heritage Foundation’s “Heritage Guide to the Constitution.”
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