The Real Reasons for Antitrust
April 1998

The big argument on the Web about the DOJ versus Microsoft seems to center around the libertarian ideal of "no government intervention in the free market." This ideal sounds noble and reasonable; it assumes that businesses are essentially honest and don't have hidden agendas. It also assumes that the free market will quickly act to correct any temporary imbalance caused by some crooked company. It leaves to the marketplace the meting out of justice in the form of lost customers and increased competition over the long haul.

But even if these assumptions are true and correct -- even if the free market can react quickly enough to prevent long-term harm to the consumer -- the problem with the libertarian argument is that it enters the game too late in the cycle. The argument against government intervention to restrain Microsoft or any other monopolist fails to recognize that the government has already intervened twice to give Microsoft its means of accumulating power. Let me repeat that: Government intervened into the free market twice already to enable Microsoft to become a software monopoly. The two times when government intervened occurred as follows.

First, the State of Washington granted a charter to Microsoft, enabling it to become a legal corporation. This corporate structure allows the selling of stock to raise capital, as well as insulating the corporation's owners from direct damages for any harm their company might inflict on individuals or businesses. This concept of a state-recognized corporate structure is a legal fiction, not a function of the free market. Because the legal system recognizes this corporate charter, as well as due to the federal system and international treaties, Microsoft as an entity can do business anywhere in the world under the cover of this protective mantle of state-granted power and freedom from responsibility. The State of Washington has become an interventionist force, through the power it has granted to the Microsoft Corporation, in every market in which Microsoft chooses to do business.

Second, the federal government of the United States of America has intervened in the free market by granting Microsoft a legal monopoly through the patent and copyright processes. On numerous occasions, agents of the U.S. Department of Justice -- the same DOJ that right now is taking shots at Microsoft in the courtroom -- has intervened to arrest and penalize businessmen who attempted to ignore the federally-created right known as intellectual property. This right is a federally-mandated fiction, not a process of the free market. Copyrights were not invented by business, but by the government, who grants them and enforces them as a form of federally-sponsored monopoly.

Since Microsoft's economic and intellectual property derive directly from government-granted authority, it is only reasonable for governments to have the power to review and modify how the beneficiaries of their shared power use that authority. Antitrust is one means by which governments attempt to reel in some of the power they delegated to companies and individuals. Since government charters and copyrights give Microsoft its power in the first place, antitrust is merely a governmental attempt to correct its "error" of intervening in the affairs of men when it agreed to grant these powers several years ago.

The libertarian argument fails to account for the first and second cases of government intervention. This is a lot like the referee who blows his whistle upon witnessing an act of retaliation in a shoving match between two ballplayers. Because he didn't see the first blow, he penalizes the wrong party. Similarly, attempting to brand antitrust law as mere "government intervention in the free market" blindly ignores the previous government interventions that made the marketplace what it is today.

Most recent revision: August 7, 1998
Copyright © 1998, Tom Nadeau
All Rights Reserved.