Forum Posting

In response to The Central Bank as Responsible Guardian, hercules mulligan writes:

Interesting post.

I happen to be one of those folks that vehemently opposes the Federal Reserve System, simply because its very name is representative of the crock that it really is: it is not federal, there are no reserves, and (unless its directors are lying, which I believe), it is a very poor system at accomplishing its stated objective: to keep the money supply steady.

I do not oppose the FRS because I believe that the govt. should issue money; I oppose the FRS because a privately-owned central bank is a step WORSE. The Founders did not believe that the govt. should issue money, because they saw the devastating effects of that when the Continental Congress issued money during the Revolution. the Continental Army starved! Inflation skyrocketed! The country went bankrupt! No one could afford a thing!

However, at least the people can choose good representatives who won't do that (though, as you pointed out, this is a rare occurance). But why should we resort to a system that puts our money (and hence, ourselves) into subjection to people we have NO control over? In the case of the FRS, it is the product of a conspiracy between corrupt Congressman and FOREIGN banking dynasties (the Warburgs and Rothschilds, for instance). To learn the details, I would recommend Aaron Russo's documentary "America: Freedom to Fascism" (see www.freedomtofascism.com)and G. E. Griffin's book "The Creature from Jekyll Island." Both are heavily based upon good documentation and sound reasoning and morality.

As to the First Bank ... in political matters, I think that Hamilton was right most of the time, but I am not convinced that the Bank was a good idea (even his son later on opposed the renewal of its charter and the establishment of a Second Bank). I just can't be convinced that a privately-owned central bank that operates on the fractional-reserve principle (loaning more money that you have so that money becomes mere bookkeeping), and which borrows immense amounts of gold from foreigners is a good idea.

Rob Scot responds:

Thanks for the comment.

Though I have not read Griffin's book, I am familiar with its premise and basic claims. I do not think I can reasonably argue against the record that the Fed was brought about in large part by back room dealing and self-serving bankers (although I believe the foreign influence and its threat to be over-rated). However, I nonetheless maintain that the Fed has, by in large, served the economy well. Though, admittedly, its directors profit from its existence, they are dependent upon a strong economy for their well being.

And, as I stated, I do not feel that the economics of a nation can be left to elected officials (who, of necessity, must be more jacks-of-all-trades than specialists). Still, your misgivings at the power placed in the hands of men not beholden to the will of the people is understandable. I believe I can say, as you no doubt believe, that there is a better alternative, though I am not convinced that government control of the economy is a step in the right direction. Perhaps greater government oversight of private control would constitute a better system (as opposed to the current government approval of Fed directors, which is quite obviously a wash); yet having no distinct vision in mind of what such a system would look like, I must say that, for now at least, the status quo should be maintained.

As to fractional-reserve banking, I also must confess misgivings as to its wisdom; it is by no means a prudent system. But I also believe that its ability to expand an economy has been in large part responsible for the ascendency of Western capitalism over the past four centuries and the international influence that the U.S. and Europe now enjoy.

The Central Bank as Responsible Guardian

When Alexander Hamilton first proposed a Central Bank of the U.S., he was met with adamant opposition from many quarters, mostly by the Jeffersonian Republicans. The idea of an essentially privately-owned and operated bank with broad reaching powers both frightened and enraged Jeffersonians. The First Bank of the United States did not initially have its twenty-year charter renewed, consequently. It was revived in the Second Bank in 1816, but was killed again amidst much fierce political drama by President Jackson in the 1830s. It was not until the early twentieth century that the idea of a national bank was brought back by the Federal Reserve System.

Although true Jeffersonian Democratic-Republicans are no longer a force in U.S. political society, there are still those who view the Fed with antipathy or downright hatred. Much of this feeling centers on the fact that the Fed, unlike Hamilton's Central Bank, regulates the money supply. Critics claim that this is Constitutionally a right reserved to the Congress (Article I, section 8), and that the privately-owned Fed has the interest of the bankers (and specifically, the Board of Directors) at heart, not the interest of the nation. The implication is that Congress would be more responsible, that through Congress the control of the nation's money supply would be in the citizens' hands, where it belongs. Though this is a compelling, and perhaps theoretically superior, argument, the governance of nations can not be based on theory and idealism alone. Let us examine a current case of a state in which the money supply is controlled by the government, as opposed to a central bank.

Zimbabwe has been ruled by ruthless strongman Robert Mugabe since 1980. Among the many undesirable aspects of his government is that it controls the money supply. Inflation has long been a problem in this one-party state, but in the economic upheaval that followed Mugabe's seizing of white farmers' lands in 2000, things really got bad. As inflation rose, the government's answer to the problem was to simply print more money. Of course, this flood of curreny only made matters worse. The more readily money was made available, the less value it was deemed to have. Prices now double every few months in Zimbabwe, and the inflation rate topped 1000% back in April. Unemployment may be as high as 80%. This is the result of a government (or in this case, one man) in charge of a nation's money supply.

Although Zimbabwe is, admittedly, an extreme example, it is instructive nonetheless. Do we really want to place the money supply of a nation (and hence, the national economy) in the hands of government officials? A government which is truly fiscally responsible is a marvel indeed. Even if they were capable of such a task (which I find highly unlikely), government officials can never be entirely objective in a democracy; at the end of the day, whether in Africa or the United States, government officials are concerned about retaining their own power. A private board of banking directors, who have risen to the top, not via a semi-informed electorate, but through a lifetime of merit and achievment in the economic sphere must be recognized as a more practical solution. It was this solution which was proposed by Hamilton back in 1790, supported by President Washington, and passed by Congress. And it is this solution that we have today, in modified fashion, in the Federal Reserve System.

Forum Posting

In response to Theories of Democracy: Part IV (an assessment of elitism), Snake Hunters wrote:

If we could secure a 'Modified Elite' that would require a voter to have a minimum High School Diploma, the National Interest might have a greater chance of survival!

Rob Scot replies:

I must confess some affinity for elitism, myself. Realistically, though, I am afraid we would find ourselves disappointed with educated elites and citizens as well. Don't misunderstand me, education is vital to democracy. But at bottom, it is the human condition, not lack of education, that makes democracy such a difficult (though worthwhile) enterprise.

Theories of Democracy: Conclusion

Democratic government has never come easily. Sacrifice, often to the point of shedding blood, is the standard of its inception by fire. When one considers the history of democracy, and of the people who have ensured its continued existence, it seems the modern man's task, of implementing from the variety of known democratic theories, is a comparatively easy one. But in truth, it is a most daunting task, the results of which can indeed decide the fate of democracy in relation to a given people. As these posts have demonstrated, the differing systems of majoritarianism, proportionalism, pluralism, and elitism all maintain respective strengths and weaknesses. Where they are most or least likely to offer the best opportunity for freedom and good government to the people is dependent on various factors, such as history and culture, the education and size of the populace, the centralization of the government, etc. It is unrealistic and unwise to expect that a single, static form of democratic government can best serve the needs of our diverse world at this point in history, or for any time in the foreseeable future. In the meantime, it is vital that these systems be studied and understood by all peoples who desire the freedom of democracy. For just as surely as their right implementation can mean the realization of that freedom, their misplacement can entail anarchy and despotism.

Theories of Democracy: Part IV

The final theory which will be here considered is elitism. This theory claims that a “democratic” state is (or should be) controlled by a small number of powerful individuals who, by virtue of their wealth, business connections, and experience make all the important government decisions (Janda, et al, 46). These are the “elite”. The mass populace has access to certain aspects of government, such as elections and means of redress, but ultimately, the outcome lies with the elite. On the surface, it seems evident that elitism is not a democratic theory at all; it appears to be nothing more than an oligarchy of the super rich, who use their incredible wealth to advance their own financially based agendas under the facade of democracy.

But according to some theorists, this is not the case, or at best, it is an incomplete account. The elite control government, not solely because they can, but because they are best suited to do so. They are the gifted few who have both the knowledge of what decisions would best benefit the society as a whole, and the means to make those decisions reality. Defenders of elitism would claim that the vastness of modern economics, technology, foreign policy, and politics in general is such that the classical idea of a government truly by the mass of the people is simply not feasible. Democracy must therefore be redefined in light of “the stable, constitutional, and liberal nature of the system of elite pluralism” (Bachrach, 8). In such a system, policy decisions are made with an efficiency that can not be realized under any of the systems previously discussed. The elite, being few in number, can work together decisively to further the interests of the state. This is beneficial to both the elite, whose power is derived from the financial and otherwise health of the state, and the people, who live and work within its boundaries. Elitism need not mean the abuse of the people; indeed, elitism is to a great extent congenial to pluralism, as its interest groups present the concerns of the people to the government through the lobbying of the power-holders.

Despite this defense of elitism, the fact remains that it is in many ways not compatible with a sincere democratic theory. Though elitists may cite realism as a tenet of their theory, they overemphasize the unrealistic possibility that a handful of people can control a nation's finances and general governance while still keeping the best interest of the people at heart; power corrupts. Though it may provide a level of government efficiency, elitism keeps the people out of the political process. In this, the democrat believes that the elites are doing the people a great disservice. There is an overwhelming sentiment among democratic theorists that good democracy is not simply an end; it is a virtue by its very means. When it is absent, even under a stable, efficient elitism, the common man can not be expected to reach his intellectual and human potential (Dahl, 55). In the words of John Stuart Mill,

"The nation as a whole, and every individual composing it, are without any potential voice in their own destiny. They exercise no will in respect to their collective interests. All is decided for them ... What sort of human beings can be formed under such a regimen?" (Padover, 20)

Most telling of all is the fact that elitism is founded upon the premise of the inability of the people to effectually govern themselves, which strikes at the very heart of the entire theory of democracy (Kelso, 39).

Theories of Democracy: Part III

When the idea of democracy was embraced during the Enlightenment of the seventeenth and eighteenth centuries, it was firmly entrenched in the ideals of classical liberalism. As both have grown in acceptance the world over, they have, in the opinion of many, come to be inseparable. Thus the theory of democracy as government of and by the people may be centered not around the principle of majority rule or even proportional representation, but around the principle of the welfare of the people. In his political writings, Englishman John Locke emphasized the idea of individual rights, particularly life, liberty, and property. According to Locke, government is established with the primary objective of preserving these rights (Bulliet, et al, 582). Thus, the American republic was founded, not on the idea of majority rule, but with the aim to secure these “inalienable rights”. It is in this idea that the seeds of the theory of pluralism are to be found.

A pluralistic representative democracy should not to be viewed so much as a stark alternative to the majoritarian model; it incorporates the idea of majority rule on many levels. Rather, pluralism is a revised form of the classical system. The term “pluralism”appeared in American politics in the 1950s and 1960s as a theory which defines modern democracy in terms of power elites and competing interest groups (Kelso, 3). These interest groups represent various groups in society, made up of individuals who have a common interest (Janda, et al 44). The leaders of these interest groups speak on their respective individuals' behalf at the government level. In this way, minorities may have a proportionally strong voice in government, depending on the strength of their interest group. Consequently, this model of democracy does not require much active participation on the part of the people at large, a marked difference from majoritarianism and proportionalism. Also in contrast to those models, pluralism is benefitted by a decentralized system, as exemplified by federalism in the U.S., in which officials and vehicles of government are accessible to the interest groups of the public (Janda, et al, 128).

Proponents of pluralism claim that it is the superior method of democratic government for a number of reasons. As noted above, the interest groups should provide minorities with an effective barrier against abuse by a potentially hostile majority. Along the same lines, the competing interest groups work in such a way as to restrain monopolies, both in government and the public sphere. In this way, pluralism bears resemblance to the economic theory of free-market capitalism, which is seen by many as an important aspect of democratic development (Kelso, 6). Adherents of pluralistic theory also note the bargaining process that is a hallmark of the system's decision-making process (as opposed to majoritarianism's clearly defined winners and losers) as a great strength (Kelso, 77). Compromise, as already noted, is an integral part of successful democratic process. Here, then, pluralism exemplifies traits in common with proportionalism.

The majoritarian would again counter that this is simply a sugarcoated theory of indecisiveness and inefficiency, and therefore, adverse to good government. But, in fact, pluralism, owing probably to its competitive nature, is not generally an inactive system; quite the opposite. However, majoritarians and proportionalists would join together in criticizing pluralism's nature of granting the people a more passive role in politics. Another seeming fault of pluralism is its dependence upon the leaders, or lobbyists, of interest groups. Since these leaders are paid professionals, not elected officials, pluralism may allow an unfair amount of influence to be wielded by a particular group, simply because its constituents are wealthy (Janda, et al, 48).

Theories of Democracy: Part II

This problem of dissatisfaction resulting from the minority in a majoritarian system is addressed by the theory of proportionalism, which states that the representation in a state's governing body should reflect the diversity, as opposed to the majority, of the electorate (Janda, et al, 254). For example, suppose parties A and B each have ten candidates up for election to the legislature, in which there are ten available seats. Party A has the support of 70% of the population, and party B has the remaining 30%. In a majoritarian system, party A, having the clear majority, would win all ten seats. Conversely, in a proportional system, party A would be awarded 7 seats, and the remaining 3 would be go to the leading candidates from party B. In such a way, the proportionalist method offers a more accurate representation of the people, and is therefore, its proponents claim, a truer model of democracy. It may even be said that this system more closely resembles the direct democracy of the ancient city-states, in that no individual voice should go unheard (Mayo, 101). Consequently, the rights of the minority are afforded more of a safeguard.


For proportionalism to work effectively, however, there is another condition required, in addition to the informed public. Without a considerable degree of homogeneity of culture and willingness to compromise, the system will, in all likelihood, not be able to function with success. In a state of any considerable size, and especially given the diversity of cultural history in so many modern nations, this presents a definite stumbling block. The two-party system most congenial to majoritarianism may inadvertently polarize society over certain issues, but the extremely broad base of either party means that there will of necessity be varying alliances and points of agreement between them. However, in a culturally diverse society in which there is a proportionalistic system, the many parties representing express views (a party's platform could theoretically be a single issue) will be less willing to compromise. The result will be a standstill in government action. In the opinion of political theorist H. B. Mayo,


"Even if we grant that (proportionalism) solves difficulties of representation, it increases the difficulties of policy-making, and a political system exists to make policies, not merely to give psychological release to voters." (Mayo, 129)


In response to these criticisms, the proportionalist may well cite the historically proven fact that any democratic system relies upon compromise as a vital element of its success, and that therefore any proportionalistic system would naturally take into account the ability of the people to work together. And in the event that a people does share a common history, culture, and worldview, proportionalism offers the best method of government.