JUSTICE O'CONNOR, with whom THE CHIEF JUSTICE joins, dissenting.
Immediately after the ratification of the Twenty-first Amendment, this Court recognized that the broad language of § 2 of the Amendment conferred plenary power on the States to regulate the liquor trade within their boundaries. Ziffrin, Inc. v. Reeves, 308 U. S. 132 (1939); Finch & Co. v. McKittrick, 305 U. S. 395 (1939); Indianapolis Brewing Co. v. Liquor Control Comm'n, 305 U. S. 391 (1939); State Board of Equalization v. Young's Market Co., 299 U. S. 59 (1936). As JUSTICE STEVENS recently observed, however, the Court has, over the years, so "completely distorted the Twenty-first Amendment" that "[i]t now has a barely discernible effect in Commerce Clause cases." Newport v. Iacobucci, ante, at 479 U. S. 98 (dissenting). Because I believe that the Twenty-first Amendment clearly authorized the State of New York to regulate the liquor trade within its borders free of federal interference, I dissent from Part III of the Court's opinion, and would affirm the judgment of the New York Court of Appeals.
I
In Hostetter v. Idlewild Liquor Corp., 377 U. S. 324 (1964), this Court took a first step toward eviscerating the authority of States to regulate the commerce of liquor. The Court held that the State of New York could not regulate the importation of liquor into that State when the liquor was sold in duty-free shops at the Kennedy Airport. The basis for this decision was the fact that the United States Customs Service already supervised the liquor sold at the airport. Justice Black, who as a Senator was present at the creation of the Twenty-first Amendment, wrote a thoughtful and powerful dissent. After reviewing the legislative history of the Twenty-first Amendment, Justice Black concluded that the Senators who approved the Twenty-first Amendment thought they were returning absolute control over the liquor industry to the States, and
were seeing to it that the Federal Government could not interfere with or restrict the State's exercise of the power conferred by the Amendment.
Id. at 377 U. S. 338 (dissenting). Because the Court has seen fit in recent years to dismiss this legislative history without analysis as "obscure," Bacchus Imports, Ltd. v. Dias, 468 U. S. 263, 468 U. S. 274 (1984); ante at 479 U. S. 346 -347, n. 10, a fresh examination of the origins of the Twenty-first Amendment is in order and long overdue.
Although neither the House of Representatives nor the state ratifying conventions deliberated long on the powers conferred on the States by § 2, but see 76 Cong. Rec. 2776 (1933) (statement of Rep. Lea of California that the section was "the extreme of State rights" because it obligated the Federal Government to assist the enforcement of state laws "however unwise or improvident"), the Senate considered the section in great detail. Those Senate discussions clearly demonstrate an intent to confer on States complete and exclusive control over the commerce of liquor.
When the Senate began its deliberations on the Twenty-first Amendment, the proposed Amendment included a § 3 not present in the adopted Amendment. This section granted the Federal Government concurrent authority over some limited aspects of the commerce of liquor. It provided that "Congress shall have concurrent power to regulate or prohibit the sale of intoxicating liquors to be drunk on the premises where sold." Id. at 4138. As Justice Black observed, the proposal
to leave even this remnant of federal control over liquor traffic gave rise to the only real controversy over the language of the proposed Amendment.
377 U.S. at 377 U. S. 337. Even Senator Blaine, the Chairman of the Senate Subcommittee that had held hearings on the proposed Amendment, opposed the limited grant of authority to the Federal Government in § 3. According to Senator Blaine, when the Federal Government was organized by the Constitution, the States had "surrendered control over and regulation of interstate commerce." 76 Cong. Rec. 4141 (1933). He viewed § 2 of the Amendment as a restoration of the power surrendered by the States when they joined the Union. Section 2 "restor[ed] to the States, in effect, the right to regulate commerce respecting a single commodity -namely, intoxicating liquor." Ibid. In his view, the grant of authority to Congress in § 3 undercut the import of § 2:
Mr. President, my own personal viewpoint upon section 3 is that it is contrary to section 2 of the resolution. I am now endeavoring to give my personal views. The purpose of section 2 is to restore to the States by constitutional amendment absolute control in effect over interstate commerce affecting intoxicating liquors which enter the confines of the States. The State under section 2 may enact certain laws on intoxicating liquors, and section 2 at once gives such laws effect. Thus, the States are granted larger power, in effect, and are given greater protection, while, under section 3, the proposal is to take away from the States the powers that the States would have in the absence of the eighteenth amendment.
Id. at 4143.
Senator Wagner was an especially vigorous opponent of the proposed § 3. In his view, it failed to
correct the central error of national prohibition. It does not restore to the States responsibility for their local liquor problems. It does not withdraw the Federal Government from the field of local police regulation into which it has trespassed.
Id. at 4144. In Senator Wagner's view, the danger of § 3 was that even this limited grant of authority to the Federal Government would result in federal control of the liquor trade:
If Congress may regulate the sale of intoxicating liquors where they are to be drunk on premises where sold, then we shall probably see Congress attempt to declare during what hours such premises may be open, where they shall be located, how they shall be operated, the sex and age of the purchasers, the price at which the beverages are to be sold…. * * * *" It is entirely conceivable that, in order to protect such a prohibition, the courts might sustain the prohibition or regulation of all sales of beverages, whether intended to be drunk on the premises or not. And if sales may be regulated, so may transportation and manufacture…. If that is to be the history of the proposed amendment -and there is every reason to expect it -then obviously we have expelled the system of national control through the front door of section 1 and readmitted it forthwith through the back door of section 3.
Id. at 4147.
Other Senators also expressed the fear that
any grant of power to the Federal Government, even a seemingly narrow one, could be used to whittle away the exclusive control over liquor traffic given the States by Section 2.
Hostetter, 377 U.S. at 377 U. S. 337 (Black, J., dissenting); see 76 Cong. Rec. 4143 (1933) (Sen. Blaine); id. at 4177-4178 (Sen. Black). Still others emphasized the plenary power granted the States by § 2. Senator Walsh, a member of the Subcommittee that had held hearings on the Amendment, said:
The purpose of the provision in the resolution reported by the committee was to make the intoxicating liquor subject to the laws of the State once it passed the State line and before it gets into the hands of the consignee, as well as thereafter.
Id. at 4219. In response to a question from Senator Swanson, Senator Robinson of Arkansas affirmed that
it is left entirely to the States to determine in what manner intoxicating liquors shall be sold or used and to what places such liquors may be transported.
Id. at 4225. Thus, upon the motion of Senator Robinson, the Senate voted to strike § 3 from the proposed Amendment. Id. at 4179.
By emphasizing the importance of the plenary powers granted the States in § 2, and more importantly by removing even the limited grant of authority to Congress contained in § 3, the Senate made manifest its intent to prevent any federal interference with state attempts to regulate the liquor trade. It is difficult to believe that the Senators would have anticipated that a federal statute enacted under the commerce power could ever override the State's power to regulate the liquor trade.
II
The history of the Amendment strongly supports Justice Black's view that the Twenty-first Amendment was intended to return absolute control of the liquor trade to the States, and that the Federal Government could not use its Commerce Clause powers to interfere in any manner with the States' exercise of the power conferred by the Amendment. Given its desire to confer broad freedom on the States to regulate commerce in intoxicating liquors without federal interference, Congress certainly intended that the States have the power to enact economic regulations governing the pricing of liquor free of federal antitrust policy.
The behavior of the States upon the ratification of the Twenty-first Amendment also supports this view. Contemporaneously with the enactment of the Twenty-first Amendment, a report sponsored by John D. Rockefeller, Jr., recommended that those States that could not muster the political support for state monopolies in the liquor industry should adopt the equivalent solution of price control laws designed to keep the price of liquor at high levels. R. Fosdick & A. Scott, Toward Liquor Control 52 (1933). According to this report, the "profit motive is the core of the problem." Id. at 61. This profit motive encouraged low prices that stimulated liquor consumption. Id. at 149. Retail prices had a "direct bearing on the amount of consumption," id. at 81, and thus a State could use price-fixing powers "as one of its most effective instruments of control." Id. at 82. The ideas expressed by the Rockefeller Report "were the dominant ideas which took flesh in the post-repeal legislation of the states." Dunsford, State Monopoly and Price-Fixing in Retail Liquor Distribution, 1962 Wis.L.Rev. 454, 464. It is not surprising, therefore, that, even before the enactment of the Miller-Tydings Fair Trade Act of 1937, 50 Stat. 693, States exercised their Twenty-first Amendment powers to adopt "bold and drastic experiments in price control," including price posting, regulation by private associations, and mandatory resale price maintenance contracts. De Ganahl, Trade Practice and Price Control in the Alcoholic Beverage Industry, 7 Law & Contemp. Prob. 665, 680 (1940). Thus, the States that ratified the Twenty-first Amendment immediately exercised the authority granted them by § 2 of that Amendment to enact the very type of statute that this Court strikes down today.
With the clear legislative intent to free state regulation of liquor from federal interference, and the immediate enactment of price control laws by the ratifying States, the better view of the proper resolution of any apparent conflict between the Sherman Act and a state regulation of the liquor trade was expressed by Justice Frankfurter in United States v. Frankfort Distilleries, Inc., 324 U. S. 293, 324 U. S. 300 -302 (1945) (concurring). In Justice Frankfurter's view, the Twenty-first Amendment accorded States the power to control the liquor traffic
according to their notions of policy freed from the restrictions upon state power which the Commerce Clause implies as to ordinary articles of commerce.
Id. at 324 U. S. 300. Because Congress enacted the Sherman Act pursuant to its authority in the Commerce Clause, the Sherman Act must yield to state power drawn from the Twenty-first Amendment. Id. at 324 U. S. 301. Thus, Justice Frankfurter concluded:
If a State, for its own sufficient reasons, deems it a desirable policy to standardize the price of liquor within its borders either by a direct price-fixing statute or by permissive sanction of such price-fixing in order to discourage the temptations of cheap liquor due to cutthroat competition, the Twenty-first Amendment gives it that power, and the Commerce Clause does not gainsay it. Such state policy cannot offend the Sherman Law, even though distillers or middlemen agree with local dealers to respect this policy.
Ibid.
Justice Frankfurter believed that, in the absence of a conflict between the state regulatory scheme and the federal antitrust laws, federal antitrust policy was fully applicable even to the intrastate liquor trade. In Frankfort Distilleries itself, the State had not authorized the anticompetitive conduct of the respondents. Once a State has exercised its § 2 power, however, "the Sherman Law could not override such exercise of state power." Id. at 324 U. S. 302.
Justice Frankfurter was not alone in this view. In repealing the Miller-Tydings Act -which had authorized States to enact fair trade laws -the Senate believed that the States could continue to impose retail price maintenance on liquor retailers. The Report from the Senate Judiciary Committee on the proposal to repeal the Miller-Tydings Act explicitly assured the Senate that the repeal would not change the power of States to impose retail price maintenance on liquor retailers pursuant to the authority granted the States by the Twenty-first Amendment:
Liquor will not be affected by the repeal of the fair trade laws in the same manner as other products because the Twenty-First Amendment to the Constitution gives the States broad powers over the sale of alcoholic beverages. Thus, while repeal of the fair trade laws generally will prohibit manufacturers from enforcing resale prices, alcohol manufacturers may do such in States which pass price-fixing statutes pursuant to the Twenty-First Amendment.
S.Rep. No. 94-466, p. 2 (1975).
The history and purpose of the Twenty-first Amendment are a compelling indication of an intent to confer on States the power to regulate trade in liquor. Despite this clear intent, the Court in recent years has used a balancing test to resolve conflicts between federal statutes and state laws enacted pursuant to § 2. In California Retail Liquor Dealers Assn. v. Midcal Aluminum, Inc., 445 U. S. 97 (1980), and once again today, the Court ventured still further from the intent of the Twenty-first Amendment by adopting an unprecedented test that focuses on the wisdom of the State's exercise of its § 2 powers. For the Court today does not invalidate the ABC Law because it involves an exercise of power outside the scope of the Twenty-first Amendment -indeed, the Court could not do so, given the long history of the use of price controls by state liquor authorities. Instead, in a manner reminiscent of the long-repudiated Lochner v. New York, 198 U. S. 45 (1905), the Court strikes down the ABC Law because it concludes that the law was not "effective" in preserving small retail establishments or in decreasing alcohol consumption. The proper inquiry, however, is not whether the State of New York chose wisely in enacting a retail price maintenance law, nor whether the State of New York's motivation in doing so was linked to a "central purpos[e]" of the Twenty-first Amendment. The sole "question is whether the provision in this case is an exercise of a power expressly conferred upon the States by the Constitution." Bacchus Imports, Ltd. v. Dias, 468 U.S. at 468 U. S. 287 (STEVENS, J., dissenting).
Because the State of New York was plainly exercising its § 2 power to regulate liquor trade, I respectfully dissent.