I want to go off topic here today because the recent Brexit vote exposed the extraordinary failure and danger of pure democracy. People in the USA often refer to the USA as a “democracy”. But this is wrong. The Founding Fathers were terrified of a pure democracy. They intentionally designed the United States so that it wasn’t a pure democracy. Referendums such as the Brexit are a glaring example of how dangerous and flawed the idea of a pure democracy can be. And such a system is a large part of why the USA was formed in the first place.
The USA is a Constitutional Republic. When the founding fathers considered the various forms of government they were fearful of tyranny AND anarchy. They viewed government as something that could both serve the people and protect it from its own people. This was a simple, but brilliant perspective. They specifically designed the government so that it protected “we the people” from ourselves and also from its own powers. So they created a Constitution that specified the precise checks and balances that should be in place to ensure that no branch of the government could grow too powerful. But they also ensured that the country was a republic, which meant that the power rests with the people who can choose their representatives and alter the course of future legislation. These representatives don’t only serve their constituents, but they also adhere to the guidelines of the Constitution. This government was designed to serve the people and to help create balance so that the private sector could not abuse itself, but also designed to ensure that the public sector could not abuse the private sector.
The important point here is that there are checks on checks on checks. The three branches of the US government are all checks on one another which are all checked by the overarching Constitution. You would never have one deciding referendum vote like the Brexit vote in the USA because it exposes the entire country to the potential that a minority of anarchists could exert an undue amount of power via an insufficiently checked process over the majority. In the Brexit vote, a minority of 37% of the population (52% of 72% voter turnout) have made a monumentally important decision on behalf of the majority via an unchecked process. Make no mistake – this is not democracy working for the people. This is democracy exposing why it can be a dangerous system.
Addendum – Some people seem confused by the idea that a democratic vote like a referendum isn’t a check in and of itself. That is not what I am highlighting here. A referendum vote is a check. It is a pure form of democracy. But the point is that having one check isn’t enough to properly administer the decision. The key to the Constitutional Republic system is that there’s always a THIRD PARTY check on checks. Think of it like a group project writing a paper where you all agree on the final product via majority vote, but submit the final copy to an independent group of selected spellcheckers and editors (who adhere to something like the MLA handbook) before handing it in for grading. This results in a superior decision making process and final product because you create a feedback system in which the democratic process is ratified through a multi-step process of checks and balances.
Addendum 2 – Some other people seem to think this message is anti-democratic. NO! Absolutely not. A Constitutional Republic simply acknowledges that a pure democracy has unforeseen risks that can be hedged out via a system of checks and balances. It’s perfectly consistent with the concept of Democracy, but should be better thought of as a system of multi-step democracy.
Mr. Roche is the Founder and Chief Investment Officer of Discipline Funds.Discipline Funds is a low fee financial advisory firm with a focus on helping people be more disciplined with their finances.
He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance, Understanding the Modern Monetary System and Understanding Modern Portfolio Construction.