The Madisonian Impulse Behind Antitrust Law

In the last two weeks, there have been two big stories about antitrust law in the New York Times, and one in the Wall Street Journal. As the Wall Street Journal's blog just recommended that law students beef up on their antitrust laws. The Obama administration has openly signaled that they are going to use the existing antitrust laws aggressively.

This is a very good thing for competition law, which has lagged for years behind the creative behavior of corporations. But it is also a very good thing for our democracy. I was just reading Harvard professor F.M. Scherer's antitrust textbook from 1993, and one of the first excerpts in it is James Madison's "Federalist No. 10", perhaps the most famous of the Federalist papers.

In it, Madison describes what he sees as the great threat to democracy: the faction. The faction he defines as "a number of citizens, whether amounting to a majority or a minority of the whole, who are united and actuated by some common impulse of passion, or of interest, adversed to the rights of other citizens, or to the permanent and aggregate interests of the community."

The most common faction, he argues, is created by "the various and unequal distribution of property. Those who hold and those who are without property have ever formed distinct interests in society. Those who are creditors, and those who are debtors, fall under a like discrimination....The regulation of these various and interfering interests forms the principal task of modern legislation, and involves the spirit of party and faction in the necessary and ordinary operations of the government."

The solution, he argues, is to break up factions through the very structure of society, and make it difficult for those with like interests to coordinate to take over government.

By placing Madison's argument in an antitrust textbook, Scherer implicitly connects the political and the economic in the impulse to structurally divide power. This is the driving idea behind the "break up the banks" effort by A New Way Forward and other organizations; it is the Madisonian impulse in response to the modern economic crisis. Like Madison in "Federalist No. 10," those who want to break up the banks do not desire that banks should not exist, but that it should be made more difficult for them to spend their energies on political influence.

Antitrust law, as it currently exists, cannot serve as the sole innoculant against the standing faction of the biggest financial services firms. But a more muscular antitrust law will allow us to test out how it works against the modern, multi-service firm. It should also help reinvigorate the Madisonian impulse, which should become more central in our political and economic discussion.

Comments (23)

1. Larry (antisoc)....you like the Federalist Papers a lot, doncha?

   Posted by Mask at 05/18/2009 @ 10:48am

2. no, mask, THIS is larry porn!

   http://men.style.com/gq/features/topsecret

   my lord....

   Posted by frosty zoom at 05/18/2009 @ 11:57am

3. wow!

   i've discovered that mask is real identity!

   "ONE OF RUMSFELD'S other favorite tactics was obfuscation. 'He was always bringing questions,' recalls a senior White House adviser of Rumsfeld. 'Never answers.'"

   http://men.style.com/gq/features/full?id=content_9217&pageNum=4

   heheh

   (happy victoria day, brotherheheh)

   Posted by frosty zoom at 05/18/2009 @ 12:04pm

4. Posted by frosty zoom at 05/18/2009 @ 12:04pm

   Gee, FROSTY, kinda low, huh? Comparing me to Rummy.

   BTW, I support stronger anti-trust legislation, if you want to get snarky about "no answers". Did YOU actually give your view yet either???

   Posted by Mask at 05/18/2009 @ 12:20pm

5. relax, dude.

   is teasing snarkiness? hmmm....

   did you check out that link in the 11:57 post?

   no wonder things went so badly.

   ••••

   as to anti-trust legislation, the place to start is with the federal reserve "bank".

   Posted by frosty zoom at 05/18/2009 @ 12:43pm

6. Posted by Mask at 05/18/2009 @ 10:48am

   Yes I do and this article is a prime example of trying to create a legal prima facie completely out of context.

   Let's look more at Federalist 10 which also condemns your love of pure democracy over a Republic.

   <From this view of the subject it may be concluded that a pure democracy, by which I mean a society consisting of a small number of citizens, who assemble and administer the government in person, can admit of no cure for the mischiefs of faction. A common passion or interest will, in almost every case, be felt by a majority of the whole; a communication and concert result from the form of government itself; and there is nothing to check the inducements to sacrifice the weaker party or an obnoxious individual. Hence it is that such democracies have ever been spectacles of turbulence and contention; have ever been found incompatible with personal security or the rights of property; and have in general been as short in their lives as they have been violent in their deaths. Theoretic politicians, who have patronized this species of government, have erroneously supposed that by reducing mankind to a perfect equality in their political rights, they would, at the same time, be perfectly equalized and assimilated in their possessions, their opinions, and their passions. A republic, by which I mean a government in which the scheme of representation takes place, opens a different prospect, and promises the cure for which we are seeking. Let us examine the points in which it varies from pure democracy, and we shall comprehend both the nature of the cure and the efficacy which it must derive from the Union.

   conclusion to follow

   Posted by antisocialist at 05/18/2009 @ 1:02pm

7. If they are too big to fail, they are too big to exist!

   Posted by pjcasey at 05/18/2009 @ 1:03pm

8. Mask,

   Conclusion of Federalist 10

   <The two great points of difference between a democracy and a republic are: first, the delegation of the government, in the latter, to a small number of citizens elected by the rest; secondly, the greater number of citizens, and greater sphere of country, over which the latter may be extended.

   The influence of factious leaders may kindle a flame within their particular States, but will be unable to spread a general conflagration through the other States. A religious sect may degenerate into a political faction in a part of the Confederacy; but the variety of sects dispersed over the entire face of it must secure the national councils against any danger from that source. A rage for paper money, for an abolition of debts, for an equal division of property, or for any other improper or wicked project, will be less apt to pervade the whole body of the Union than a particular member of it; in the same proportion as such a malady is more likely to taint a particular county or district, than an entire State.

   In the extent and proper structure of the Union, therefore, we behold a republican remedy for the diseases most incident to republican government. And according to the degree of pleasure and pride we feel in being republicans, ought to be our zeal in cherishing the spirit and supporting the character of Federalists.>

   Let's see, Madison proclaims that:

   1. pure democracy is bad

   2. equal distribution of property is bad, in fact Madison calls it improper or wicked.

   Next, let's look at how Madison defined Factions and what to do about them.

   Posted by antisocialist at 05/18/2009 @ 1:09pm

9. "The effect of the first difference is, on the one hand, to refine and enlarge the public views, by passing them through the medium of a chosen body of citizens, whose wisdom may best discern the true interest of their country, and whose patriotism and love of justice will be least likely to sacrifice it to temporary or partial considerations."

   rummy

   cheney

   bush

   chertoff

   paulson....

   gotta love it.

   Posted by frosty zoom at 05/18/2009 @ 1:12pm

10. Madison continued

    <By a faction, I understand a number of citizens, whether amounting to a majority or a minority of the whole, who are united and actuated by some common impulse of passion, or of interest, adversed to the rights of other citizens, or to the permanent and aggregate interests of the community It is in vain to say that enlightened statesmen will be able to adjust these clashing interests, and render them all subservient to the public good. Enlightened statesmen will not always be at the helm. Nor, in many cases, can such an adjustment be made at all without taking into view indirect and remote considerations, which will rarely prevail over the immediate interest which one party may find in disregarding the rights of another or the good of the whole.

    The inference to which we are brought is, that the CAUSES of faction cannot be removed, and that relief is only to be sought in the means of controlling its EFFECTS.>

    So, Madison defines Factions as created against the rights and interests of others.

    Secondly, unlike you and other Anti-Trust advocates, Madison says you cannot eliminate Factions, you can only control their effect.

    That would indicate that it is not reasonable to apply Federalist 10 to a policy of eliminating Factions (or corporate conglomerates for Anti-Trust purposes).

    You and Ms Teachout need to look elsewhere to justify your position.

    Posted by antisocialist at 05/18/2009 @ 1:14pm

11. "The influence of factious leaders may kindle a flame within their particular States,

    •• tell that to carlitos rove.

    but will be unable to spread a general conflagration through the other States.

    •• if wal-mart can do it....

    A religious sect may degenerate into a political faction in a part of the Confederacy;

    •• MASK, did you check out the RUMMY briefing covers (larry, i bet you'll really like it)

    •• http://men.style.com/gq/features/topsecret

    but the variety of sects dispersed over the entire face of it must secure the national councils against any danger from that source.

    •• ROMNEY 2012! ELLISON 2016! PACMAN 2020!

    A rage for paper money,

    •• GRRRRRRRRRRRRRRRRRRRRRRRRRRRR!

    for an abolition of debts,

    •• man, the chinese are worried.

    for an equal division of property,

    •• take that! red man.

    or for any other improper or wicked project,

    •• clusterbombs?

    will be less apt to pervade the whole body of the Union than a particular member of it;

    •• i bet mister mr. madison would be crying right now.

    in the same proportion as such a malady is more likely to taint a particular county or district, than an entire State."

    •• tell that to the CDC. or the unemployed.......

    Posted by frosty zoom at 05/18/2009 @ 1:21pm

12. speaking of OBAMAGARCHS.......

    looks like the "new" derivatives "law" is just gonna be more of the ol' same ol'......

    a là ms. gramm (i wonder who does the chequebook in the gramm household)

    Posted by frosty zoom at 05/18/2009 @ 1:23pm

13. ATTENTION PROLES:

    BY DECREE OF THE NATIONAL DISTRACTOR YOU ARE HEREBY ORDERED TO DEBATE ABORTION UNTIL FURTHER NOTICE.

    Posted by frosty zoom at 05/18/2009 @ 1:27pm

14. BTW Mask,

    You might be interested in my response to your question (or not) over on the Obama and Congress thread.

    Posted by antisocialist at 05/18/2009 @ 1:46pm

15. Posted by frosty zoom at 05/18/2009 @ 12:43pm

    Yes, yes, FROSTY....you and FREIHEIT go see "Angels & Demons" this weekend and tell us how the Illuminati control the Federal Reserve!

    (snarkiness begats snarkiness...heheh)

    Posted by Mask at 05/18/2009 @ 2:36pm

16. This was interesting, Larry...

    "... or for any other improper or wicked project, will be less apt to pervade the whole body of the Union than a particular member of it; in the same proportion as such a malady is more likely to taint a particular county or district, than an entire State."

    So basically Madison was saying that he trusted the FEDERAL Government more than the State or local governments as far as his definition of corruption...wasn't he?

    BTW, as far as my "love of pure democracy" (ref: the Electoral College), the EC is nothing more than formality (less 1876 and 2000) and always has been. Your "noble elite electors" don't exist and apart for a lone nut, vote the EXACT same way as the popular vote.

    And at the time of the EC's creation, no woman and no non-property owner could vote....so by your own standard you believe in LESS democracy than we even had for the last 90-150 years!

    Posted by Mask at 05/18/2009 @ 2:45pm

17. Posted by antisocialist at 05/18/2009 @ 1:09pm

    I have been reading and re-reading your vinets from fed 10 and I have no idea how you came to your conclusions, it seems your interpreting from them what you want to hear and not what they say.

    I seen no mention of pure democracy, only 2 points about a republic.

    "Secondly, unlike you and other Anti-Trust advocates, Madison says you cannot eliminate Factions, you can only control their effect."

    While I may agree with this interpretation it does not support your next statment against anti-trust regulations. Is not breaking a corporate conglomerate into smaller pieces a way of controlling its effect?

    Posted by Extraneous at 05/18/2009 @ 2:49pm

18. A conspiracy theorist went to take a "grassy knoll" tour. Unfortunately for all involved, the tour bus overturned with great loss of life. Both the conspiracy theorist and his buddy were fatally injured.

    Arriving at the reception station for heaven, they were greeted by St. Peter, and told that God would be giving the orientation shortly, with Peter pointing out where the restrooms were, explaining the importance of wearing I.D. badges, etc.

    Soon God came out, asked the house lights be turned up, and invited any questions from the newcomers.

    The conspiracy theorist got up and asked "Sir, the JFK thing, was that a cover up?"

    Said God, "Nope, all Oswald, by himself, lone shooter."

    Conspiracy theorist sits down and tells his buddy "See, I told you this went all the way to the top!"

    Posted by schnellerheinz at 05/18/2009 @ 6:40pm

19. I seen no mention of pure democracy, only 2 points about a republic.

    Posted by Extraneous at 05/18/2009 @ 2:49pm

    You should have read closer. It was in the opening paragraph that I quoted.

    <From this view of the subject it may be concluded that a pure democracy, by which I mean a society consisting of a small number of citizens, who assemble and administer the government in person, can admit of no cure for the mischiefs of faction....Hence it is that such democracies have ever been spectacles of turbulence and contention; have ever been found incompatible with personal security or the rights of property; and have in general been as short in their lives as they have been violent in their deaths.

    Posted by antisocialist at 05/18/2009 @ 1:02pm>

    Posted by antisocialist at 05/18/2009 @ 7:12pm

20. <i>Posted by schnellerheinz at 05/18/2009 @ 6:40pm </i>

    Nice.

    Posted by Thrawn at 05/18/2009 @ 10:04pm

21. Interesting. I haven't read Federalist paper No. 10 in awhile, but I believe antisocialist is correct in saying that a substantive portion of that paper is about protecting the rights of minorities from the tyranny of the majority - which has obvious application to discussions about democratic forms of government and winner-take-all majority rule forms of election.

    But, I believe antisocialist is wrong is saying that Federalist paper No. 10 does not provide material for anti-trust law. Madison specifically talks about controlling factions by either stopping people from forming factions large enough to undermine the republic or preventing large factions from being able to act. I think this has just as obvious application to anti-trust law, partly because a joint-stock company is probably the most unambiguous form of faction I can think of (people that own shares of a common enterprise) and that these factions have shared interests with other people belonging to similarly structured factions. I don't think you have much of a leg to stand on here, LVL.

    Posted by srjenkins at 05/18/2009 @ 11:04pm

22. Yes, yes, FROSTY....you and FREIHEIT go see "Angels & Demons" this weekend and tell us how the Illuminati control the Federal Reserve! (snarkiness begats snarkiness...heheh) Posted by Mask at 05/18/2009 @ 2:36pm

    not a conspiracy, doodles.

    just incompetence and greed.

    Posted by frosty zoom at 05/19/2009 @ 12:01am

23. By Madison... via antisocialist at 05/18/2009 @ 1:14pm

    " It is in vain to say that enlightened statesmen will be able to adjust these clashing interests, and render them all subservient to the public good. Enlightened statesmen will not always be at the helm. Nor, in many cases, can such an adjustment be made at all without taking into view indirect and remote considerations, which will rarely prevail over the immediate interest which one party may find in disregarding the rights of another or the good of the whole.'

    A more appropriate description of the Bush administration's 'faction' mindset could not be found... and indeed... a more generous assessment of the 'Obama technique' is going to be hard to find.

    The good of the whole... is as elusive now as it was in Madison's day. A quick glance at our economic system today will highlight the difference between the 'apparent' good of the whole up until two years ago... and the long term viability of sound economic practices that insures environmentally harmonious prosperity for our grandchildren.

    The general welfare of the 'Republic' can not be separated from the general welfare of it's 'ordinary citizens'...

    ...and yet... the voices our 'Republic' hears most and listens to carefully... are the 'interests' that lobbyists represent.

    Thus... Business concerns now have a providential influence over a democracy initially created with individual citizens in mind. True representation has been replaced by factions... and though unable to see this far ahead in time with precision... Madison has, perhaps, predicted the inevitability of our current predicament.

    No one said it would be easy...;^)

    We need to update our anti-trust laws... and our legislative process... if we are to live in an actual democracy again.

    Posted by ttr at 05/19/2009 @ 12:33am