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.