How Democracy Made Central Banking Possible

It is slowly dawning upon the people of the West that central banking cartels have been draining away their wealth. What they haven’t yet understood is that these money cartels were only made possible by what we call democracy.


It is slowly dawning upon the people of the West that central banking cartels have been draining away their wealth. What they haven’t yet understood is that these money cartels were only made possible by what we call democracy.

Given that democracy is almost a sacred dogma these days, it’s understandable that people have been slow in grasping this fact. Nonetheless, central banking, and giant banks in general, were impossible until democracy was instituted in the West.

Here’s why:

Prior to democracy, loans were undertaken by monarchs, who were personally responsible for their loans. As Meir Kohn of the economics department at Dartmouth University writes:

The debt of a territorial government was essentially the personal debt of the prince: if he died, his successor had no obligation to honor it; if he defaulted, there was no recourse against him in his own courts.

Sometimes princes paid their loans, and sometimes they didn’t. For example, the Peruzzi were a leading Florentine banking house in the 14th century. At one point, they lent Edward III of England 400,000 gold florins, which, for a variety of reasons, was never repaid. This led to the collapse of the Peruzzi Bank in 1343.

Deals were quickly made when a prince died, of course, but the bankers had a weak position. They had to negotiate the balances and promise to make more loans in the future.

On top of that, many rulers simply refused to pay loans they had taken. Probably the most prolific deadbeat was King Philip II of Spain. He refused to pay back his loans at least a dozen times.

Because of this, banks were seriously limited. They developed techniques of dealing with sovereign defaults, but central banking as we know it was more or less impossible. Bankers didn’t dare make the kinds of loans they do now.

Democracy, however, solved that problem for them. Under democracy, loans are not debited to an individual, but to the nation as a whole. All the citizens, and their children, become responsible for repaying the loan.

From the institution of democracy onward, loaning money to a government gave the banker a claim against the taxes of the people… a claim that never expires.

This was a clever trick: The person who signs for the loan ends up bearing almost no responsibility, and gets to spend all the money. At the same time, millions of people who never approved the debt—who probably had no way of even knowing about it—are left holding the bag… and passing on the obligation to their children.

This is how 18 trillion dollars of debt can be piled up on top of a populace. Without democracy, it couldn’t have happened.

Modern “Democracy”

I can’t help pointing out that what we call democracy bears almost no resemblance to the democracy of ancient Athens. I’ll go through the particulars in a future Daily Dispatch, but it’s important to understand that democracy vanished from Earth between about 300 BC and 1800 AD, and for good reason.

The arrangement we call “democracy” consists of three main parts:

  1. Elected representatives.
  2. Legislation.
  3. Police departments.

This (plus the ever-present bureaucracy) is the rulership we encounter on a daily basis, but it was never part of Western civilization until it showed up in the decades surrounding 1800 AD.

There were some representatives before 1800 in European cities, but they weren’t much like modern representatives. Mostly they were businessmen appointed to oversee things. Even Parliament was composed primarily of nobles (all nobles at first), not representatives in any modern sense.

Legislation was almost unknown before 1800. For example, when English philosopher Jeremy Bentham died in 1832, he was revered as “the founder of modern legislation.” Before that time, legislation was mainly a collection of laws that were condensed into a group for convenience. “Law” referred to the findings of judges, or to the process of judging actions that were just or unjust.

Permanent, government-owned police departments played no part of Western life until this new triumvirate was installed at about 1800. Before then, there were sometimes city guards, temporary forces, and even private guards, but the first police force we would recognize was created in Paris, in 1800 AD. London didn’t have a police department until 1829.

I’ll close with three quotes on the effects of democracy on the people of the West:

Alvin Toffler, in The Third Wave, writes this:

Voting provided a mass ritual of reassurance …. Elections symbolically assured citizens that they were still in command ….

Elections took the steam out of protests from below.

Alan Bloom, in The Closing of the American Mind, wrote:

Sycophancy toward those who hold power is a fact in every regime, and especially in a democracy, where, unlike tyranny, there is an accepted principle of legitimacy that breaks the inner will to resist.

And John Kenneth Galbraith wrote this in The Age of Uncertainty:

When people put their ballots in the boxes, they are, by that act, inoculated against the feeling that the government is not theirs. They then accept, in some measure, that its errors are their errors, its aberrations their aberrations, that any revolt will be against them.

Paul Rosenberg

This article was originally published by Casey Research.