An Inverted System
From the March 19, 2012, issue of NR.

Michael S. Greve, author of The Upside-Down Constitution


Ramesh Ponnuru

The Founders of this country, according to lore, created a system in which federal and state power balanced each other. During the New Deal, however, the Supreme Court stopped maintaining that balance. In Wickard v. Filburn (1942), the Court allowed the federal government to shove the states aside to regulate purely intrastate activity (specifically, to tell a farmer to stop growing wheat to feed his cattle). Since that time, the federal government has seized more and more power at the expense of the states. In recent years, however, the Court has tried to move back toward the Founders’ view of the rights and dignity of the states.

Michael S. Greve, a scholar at the American Enterprise Institute, has written The Upside-Down Constitution to tell you that all of the above is wrong. “Balance” is precisely the wrong way to look at the constitutional allocation of responsibilities, implying as it does that the state usurpation of a federal power could somehow compensate for the federal usurpation of a state power. The Constitution established a division rather than a balance of powers, and it did so not to protect the interests of the states but to safeguard accountability and competition (although the Founders did not use those exact words).

Thus, under the Constitution, the federal government exercises its limited powers by acting directly on people rather than through the states. That way, if a governmental function is performed badly, one level of government may be held responsible: The federal government cannot blame states’ foot-dragging while the states blame poor federal leadership.

For an example of the Constitution’s protection of competition and commerce, consider its limits on states’ taxing powers. Several provisions of the Constitution block state governments from taxing economic activity outside their borders. The Constitution does not harmonize tax rates among states (something many modern constitutions do for subnational units of government). And it forbids states to enter a compact to harmonize their rates without congressional approval. So people and businesses can move to low-tax states; states must therefore compete with one another for residents; and that competition produces favorable conditions for the growth of commerce.

Almost any other set of arrangements would have done more to serve the interests and dignity of state officials. But those considerations count for nothing in the constitutional design, which subordinates the concerns of the states to the public welfare. Madison is, as Greve comments, “uncharacteristically impassioned” on this point in The Federalist. Far from romanticizing state governments, all three authors generally treat them as rapacious, short-sighted, and faction-ridden.

Greve persuasively outlines the theory that underlay our competitive constitutional order, the provisions of the written document that contributed to it, the legal doctrines that elaborated it, and the political economy that protected it. Hamilton assumed (and hoped) that business interests would go to federal court to stop state schemes to exploit or frustrate national commerce. So it proved. From John Marshall onward, the Supreme Court developed in its business cases a law that made the commercial Constitution work by limiting the depredations of state governments while being careful not to generate a backlash that would threaten the whole project.

Chief among the Court’s stratagems was its deployment of what has come to be known as the “dormant” or “negative” commerce clause: the inference that since the Constitution vests Congress with the power to regulate commerce among the states, it denies that power to states. That inference has long been controversial, not least among originalists, but Greve points out that without it the states would have at hand a ready means to circumvent the specific prohibitions on them that the Constitution spells out.

The federal courts also developed a federal common law so that a plaintiff suing an out-of-state corporation would not have the advantage of state legal rules that might be biased in his favor. The key decision here, Swift v. Tyson (1842), was unanimous, notwithstanding the notoriously broad spectrum of opinion on nationalism during the era.

Sectional divisions in American politics, and the Gilded Age Republican party, made the Court’s task easier by preventing congressional action to undo the courts’ work and augment the power of the states. Greve does not suppose that these circumstances could have lasted forever, but notes that the erosion, collapse, and replacement of this competitive order all happened with the connivance of the states. It was private litigants, especially businesses, who defended the old constitutional order from the New Deal; not the states.

For Greve, the key New Deal case is not Wickard but Erie Railroad Co. v. Tompkins (1938), which declared the federal common law of Swift and its progeny unconstitutional. Under the new regime, the federal courts would extend extreme deference to state courts and state law in suits concerning interstate commerce. The default rule was in effect reversed: Now it would take an affirmative act of Congress to protect that commerce from state-level factionalism. Such action has rarely been forthcoming. The new regime could hardly be better designed to produce a litigation explosion, which is why we have had one. The most pro-plaintiff jurisdictions can now effectively create a national legal standard.