Competition, Federalism, and the Founders

Mike Rappaport’s April 4 post on “The Founders and Competition Between the States” raises a slew of interesting issues; ditto Hans Eicholz’s thoughtful comment. Some members of the Founding generation, Federalists as well as Antifederalists, had an inkling that federalism (of a certain kind) would entail competition (for productive citizens, taxes, etc.) among the states. But they never discussed the question in any systematic fashion. Modern theorists argue that competition—mobility, exit, and choice—is the principal way in which federalism protects liberty. There is barely a trace of this thought in the Founding debates. Why is this—and what business do we have now to read “competition” into our understanding of the Constitution’s federalism (as I emphatically think we should, see The Upside- Down Constitution)?

I think the Founders were actually very well aware of jurisdictional competition. How could they not be, in a country of refugees, immigrants, and constant westward migration? Madison studied out of state, at a college of a denomination not his own. Hamilton was an immigrant, and his friends traded and invested on a continental scale. And absolutely everyone was aware of state “competition” in the form of protectionist tariffs and extraterritorial taxation. (This is what Publius meant by “competitions of commerce.”) The riddle is not that the Founders somehow ignored mobility and exit; it’s that they never connected that awareness to their federalism theory.

The answer to that perplexity, I think, is that in a very real sense, no one had a fully developed, systematic theory of federalism with which a theory of competition might connect. The Federalist has a very powerful theory of the “extended republic.” Ask, though, what states might be good for in that enlarged sphere (except as administrative subunits of the national government): the only coherent answer is that states will provide a fine platform for armed rebellion—a kind of domestic 1776, should the national government turn tyrannical. Nor did the Antifederalists have a federalism theory; all they had was a theory of small states.

Federalism and competition enter simultaneously, through a second-best backdoor: if we must have (what we now call) federalism as the price of union, Publius insists, let it be a “compound republic,” not an “imperium in imperio.” Make the national and state governments each tax and regulate citizens directly, in separate spheres; organize relations among states on principles of free trade, free ingress and egress, and non-discrimination; and make those rules enforceable by a federal judiciary, armed with a Supremacy Clause and appropriate jurisdiction. Lo and behold, all those rules are right there in the Constitution or (as with limited, enumerated powers) plainly implied by it; lo and behold, they conform in all particulars to the necessary and sufficient conditions of competitive federalism, as expounded by contemporary political economists. The Founders got all the pieces of a competitive federal architecture right; they just lacked a term for it.

More on competition as a constitutional principle later this week.

Reader Discussion

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on April 09, 2012 at 19:38:21 pm

Perhaps the reason that the founders did not detail the purposes and role of competition is that there were several, some controversial and others not. Competition serves several purposes:

1.) It is the method that nature uses as an optimization mechanism. Competition among taxing entities for example encourages the development of more efficient and more just policies;

2.) The existence of competition necessarily implies the existence of alternatives between competing parties, and alternatives mitigates the despot's tendency to resort to force. This desirability of this effect is evident when one considers its absence: the oppressive potential of monopolies. Think of the implications for the right to bear arms if a monopolistic national government could impose firearms restrictions by force, and people were left with no alternative. The lack of competition would leave no incentive to improve vexatious and oppressive policy;

3.) Competition is an element of realpolitik. It is most clearly seen in international diplomacy: play the Indians off against the Chinese, the Persians against the Arabs, etc. Feelings of national fraternity and goodwill at the founding would have made it seem bad manners to explicitly stoke competition between New York and Virginia to keep each other in check; nonetheless it is at least possible to see how this might comfort a libertarian.

4.) States have different interests, resources, challenges and temperaments. This will always lead to competition in the setting of conflicting interests. Often times the competition is not between economic environments but between values. People will tend to migrate to those areas most in tune with their own sympathies which, as noted, would have been intuitively obvious in a nation of immigrants.

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