Imagine someone—call him ‘the principal’—who wants somebody else—call him ‘the agent’—to do something of benefit to the principal. Yes, but the agent has values, interests, motivations, and goals perhaps quite different—or even opposite—to the principal’s. How can the principal make the agent do his bidding? Economics, political science, and international relations departments have developed this question into a branch of thought called ‘principal-agent theory’ (PAT).
It has infinite applications, from how a boss can get his workers to work harder (or work at all) to the relationship between the State and its citizens. Ours is the latter question.
Those who apply PAT to politics commonly cast the citizenry as ‘principal’ and those running the State as the citizenry’s ‘agents,’ which assumes that Western democracies function pretty much as their revolutionary founders intended. Isn’t this terribly optimistic? Well, it’s the dominant approach. One must work hard, in fact, to find a discussion even mildly critical of the ‘citizen-as-principal’ view.
But this mild criticism does exist.
Herschel Grossman—who for many years had the most cited article in the American Economic Review (the most prestigious economics journal in the world)—once observed, in a provocatively titled paper, “The State: Agent or Proprietor?,” that “viewing the State to be an agent of its citizens involves a paradox.”
A paradox. Why?
Because “the State can exploit its citizens by taxing and spending for its own purposes,” turning the citizens into its agents.
Now, in Grossman’s sentence above ‘the State’ is presumed to be an acting subject. This is a dubious practice. ‘The State’ is a collection of taxpayer-funded bureaucracies employing many thousands. It is not a ‘person.’
Of course, if ‘the State’ is a shorthand for the people at the top of government bureaucracies, a group small enough to be a cadre, this manner of speech is more reasonable. However, top bureaucrats are replaced in every incoming administration, so they cannot form any kind of permanent ‘State’ that we might speak of in the abstract, timeless, quasi-mystical terms that social scientists seem to prefer.
But what if—beyond ‘government’—there existed a small, self-perpetuating cadre with enough influence to place the top government officials at every renewal?
In the US, for example, it is well documented that a few private organizations funded by a small handful of wealthy industrial patrons (chief among them the Carnegie, Ford, and Rockefeller networks) function as breeding grounds for top officeholders of both Democratic and Republican administrations.
By such means, a small ruling or power elite, with top bureaucrats acting as their agents, may in principle act the part of State proprietor and use official “taxing and spending” powers to turn the citizens, too, into their agents (Part 1)—a “proprietary State.” Says Grossman:
“This observation leads to the alternative characterization of the [ostensibly democratic] State as the instrument of a ruling elite.”
Whether or not this actually happens, it is an obvious hypothesis to consider.
Yes, but Grossman’s ‘conspiracy theory’ is politically incorrect, a glaring violation of the media-imposed grammar, and the sort of thing to get an academic punished (Part 2). Perhaps this is why Grossman quickly turned to the following question (I paraphrase):
Under what conditions will the power elite—even though they hold the reins of State—be constrained to be “democratically responsive,” as if they were willing agents of the citizens?
After doing some mathematical modeling, Grossman concluded that if a “maltreated citizenry” has a reasonable chance to “depose the incumbent ruling elite either by legal or extralegal means,” then
“the threat or potential threat posed by a rival ruling elite is akin to the threat of entry of a rival firm that induces an incumbent monopolist to restrain its exercise of market power in a contestable market.”
Let’s unpack this ‘economist speak.’
In a market for ordinary goods and services, a monopolist, since consumers cannot go elsewhere, can charge high prices for low quality (this is called ‘market power’). It’s great for the monopolist. So a producer may resort to various tricks—for example, bribing politicians—in order to become a monopolist and extract ‘rents’ (or unfair profits) from consumers. Such behaviors are called rent seeking. When rent-seeking monopolists succeed, they hurt everybody else.
Rent-seeking monopolists succeed when governments, rather than protect the people’s free markets, ally instead with powerful predatory enemies who mean to profit from market destruction. The cure for all this is for new firms to enter the monopolist’s market. Why? Because in order to compete, new firms must offer higher quality and/or lower prices, bringing a stop to the harms inflicted by the monopolist. (This is precisely why competitive, free markets are a good idea.)
Coming to Grossman’s point, the more a monopolist abuses ‘market power’—charging exorbitant prices for pathetic products—the easier it is for newcomers to compete. Thus, if these latter seem poised to enter the market, the monopolist will improve quality and lower prices somewhat (“restrain its exercise of market power”) in order to make it harder for them to enter. This protects the monopoly but does yield a partial benefit to consumers.
In the political market, likewise, concludes Grossman, a monopolist will become more “democratically responsive” (restrain his exercise of power) if there is a credible “threat or potential threat posed by a rival ruling elite.” This protects the political monopoly but brings partial benefits to citizens.
But careful here. One might be tempted to interpret, perhaps, that by “the threat or potential threat posed by a rival ruling elite” Grossman means the actual—and quite regular—alternation of parties in office (for example, the back-and-forth switches between Democratic and Republican parties in the United States). This is not what he means. To avoid this confusion, Grossman clarifies:
“both theory and observation suggest that in stable democracies the ruling elite typically includes a political establishment that is an implicit coalition of [merely] ostensible political opponents.” (emphasis mine)
Put another way, in “stable democracies” the main parties are unified covertly in a political cartel or de facto monopoly. Thus—and Grossman is careful to underline this—in a modern democracy a “maltreated citizenry” cannot “depose the incumbent ruling elite” by means of “the electoral rivalry of established political parties, like Democrats and Republicans [in the United States], who alternate in power,” because this process returns to office, each time, the same incumbent cartel (it just brands itself differently at each alternation).
What Grossman means, therefore, by “the threat or potential threat posed by a rival ruling elite,” is the danger that a new force, wholly independent of the incumbent “political establishment,” may take power. This, according to Grossman, is a real danger, and here lies the “key to accountability” in “stable democracies.”
What is the institutional implication for a place such as the US?
That in order to have a (reasonably) democratically responsive power elite, there must be “freedom of entry into the electoral process, which allows new political groups to form and to become effective rivals of the existing political establishment.” “Maltreated citizens,” therefore, should have the power—in principle—to install “a rival ruling elite” that happens to be “a genuine outsider” (my emphasis). For only then will the incumbent monopolist—out of fear that a force beyond its two-party control may take power—moderate its political rent-seeking.[3a]
Well but have no fear, says Grossman, for (as we all know):
(*) Citizens of Western democracies can install in power a “genuine outsider.”
Thus, by logical necessity, incumbent power elites in the West do restrain their power.
And here is the academic consequence, also the answer to Grossman’s original question: the vast, university-sponsored literature on Principal-Agent Theory (PAT), in which Western governments appear (always...) as the democratically responsive agents of their citizens, is safe from criticism. QED.
Not so fast.
Is this a real demonstration? Grossman certainly fought his way to a mathematically rigorous statement of what he must assume—see (*) above—if he wishes to believe that the US or some other Western power elite is (reasonably) democratically responsive. And clearly, he does wish to believe that. But in order to justify that belief, his next step should be to investigate the assumption.
Does that assumption obtain? Can Western citizens really bring true outsiders to power?
Of course, to investigate any such question would be to allow that perhaps—pending the investigation—the answer might be ‘no,’ and hence to put a ‘conspiracy theory’ on the table as a legitimate intellectual contender, something that Western academic grammar now forbids (see Part 2). So instead of asking the question, Grossman ‘concluded’ by stipulation.
And yet Grossman—impossible to miss it—did bring himself, as if daring us to blaspheme, right up to the line of heresy. He states—and so matter-of-factly that I must stifle a scream—that, according to “both theory and observation,” a de facto power monopoly rules in each of the “stable [Western] democracies”!
Such ‘openly hidden’ political cartels are the very essence of ‘sloppy totalitarianism’ (Appendix A). But having walked up to the line, Grossman does not cross it. He turns around, palms extended, and reassures his readers (and no doubt himself) that a Western democracy—despite the cartel—is nevertheless (reasonably) democratically responsive. His pretended demonstration is just his restatement, in formal terms, of his original prejudice: his faith in the liberal health of the West.
The exercise is nevertheless useful to those unafraid to investigate, for Grossman has clarified the key empirical question:
Is it true (in actual fact!) that in a stable Western democracy a “genuine outsider” can come to power?
Or we may turn it around thus:
Just how much influence does a Western incumbent power elite wield over those ostensible critics and rivals who lie beyond the established and cartelized parties that regularly alternate in office?
As long ago as the mid-19th c., in Dialogue in Hell between Machiavelli and Montesquieu, the great political theorist Maurice Joly considered this question broadly. He had a fictional Machiavelli explain to a fictional Montesquieu how Western power elites could easily corrupt media and political parties in order to preserve only the façade of ‘democracy’ and protect a political cartel.
He was not anticipating a transparently corrupt system such as 20th c. Mexico under the old PRI (the ruling party for 71 continuous years), where apathetic and cynical citizens assumed the PRI would win, because it was obvious even to them that ‘opposition’ parties and the media were either submissive or else directly in the dominant party’s pocket. No. Joly laid out something rather more devious: a thoroughly covert “proprietary state.”
Joly described a system with vigorous alternation of parties in office; an explosive, expressive, combative press; and citizens throwing themselves into the political fight. And yet, unknown to the common citizen, all media messages, and all choices in the political menu, would be covertly determined and controlled in advance by the power elite’s intelligence services. No potential rival would be a “genuine outsider” because as soon as a new movement emerged the power elite would send its covert agents to lead it. In this way, sophisticated tools of psychological (or political) warfare would keep citizens fully committed to the hyperreal ‘democratic’ show, but their participation would be to no avail.
Don’t get your political geniuses confused. This is not Orwell but Joly (Orwell was describing a conventional totalitarian State.)
Though smarter and deeper, perhaps, than Hobbes, Machiavelli, and Orwell combined, Joly was no prophet and no armchair theorist. He was a politically involved activist describing contemporary empirical facts: the innovations of Louis Napoleon Bonaparte (or Napoleon III) in France. (For his writings, Joly was jailed.)
What about the United States?
In Christopher Simpson’s documentation of the genesis and development of ‘communication research’ (Part 1) we see the top US industrial elite—people in the Carnegie, Ford, and Rockefeller networks—treating State institutions (and taxpayer funds) as if the US government were just another franchise of their private corporate networks.[3b] To what end? To seize the educational infrastructure that trains media personnel, henceforth deployed in psychological warfare (Part 1). And what for? To lead the US citizen, through a simulation of reality, to demand the very policies that the US power elite desires (Part 2).
In this simulation, Enlightenment values are always praised in public, thus keeping the power elite—even as democracy is covertly undermined—within the grammar of democratic ‘political correctness’ (Part 2).
Notice now the similarity. Here is Joly’s character ‘Machiavelli’:
“Today, it is less a question of doing violence to men than disarming them, of repressing their political passions than effacing them, of combating their instincts than deceiving them, of proscribing their ideas than changing them by appropriating them.”
And here is Simpson on the founders of US psychological warfare (from Part 1):
“Lasswell[, with a] . . .Machiavellian twist. . . emphasized employing persuasive media… He advocated what he regarded as ‘scientific’ application of persuasion and precise violence, in contrast to bludgeon tactics.” (emphasis mine)
A covertly tamed press, Joly explains, will construct alternate realities for citizens. For “it is less a question of repressing their political passions than effacing them, of combating their instincts than deceiving them.” Harold Lasswell agrees: use “persuasive media” rather than “bludgeon tactics.” If necessary, use “precise violence,” but for the most part fool the citizen: give him a ‘reality’ in which upholding his own most cherished values will accomplish the power elite’s bidding (see Part 2).
It is quite possible that Lasswell was reading Joly. The industrialists funding Lasswell’s activities were major supporters of the eugenics movement, the very same that spawned German Nazism (Part 1 and Part 5), and as we know—it is an established historical fact—those responsible for pro-Nazi propaganda were quite familiar with Maurice Joly’s work.
Whereas Joly meant to warn the citizen, these others used him as a power manual, as a way to learn from Napoleon III.
The most important lesson—a point that Joly emphasizes—is that a truly useful controlled press must be trusted, and trust requires that people consider it free. Thus, some of the controlled media must have an ‘opposition’ flavor and will constantly attack ‘the government.’ The attacks, of course, will be on trivial issues (e.g. Did the President lie about having sex with Monica Lewinsky?). But the show will be good, as it must be in ‘sloppy totalitarianism’ (Appendix A). With trust in the media thus gained, the power elites can turn citizens into willing agents by harnessing ‘informational asymmetries.’
An ‘informational asymmetry’ means that one party knows more than the other. In democratic politics, according to PAT theorists, the agent has better information than the principal—because, they insist, the agent is the bureaucrat. The citizen is the guy in charge. This is ironic, they say, because typically it is the principal who enjoys strategic knowledge advantages over the agent.
But perhaps there is no irony. Perhaps ‘democratic’ politics is like other principal-agent cases. Perhaps these theorists are just getting confused about who the principal is. For, according to the experts funded by the Carnegie, Ford, and Rockefeller networks, these networks—real boss of all bureaucrats—meant to exploit informational asymmetries and manage citizens with a false picture of reality. What better lie than to insist that the citizen is principal? Everybody loves to be flattered—it’s the basis of every con.
The standard PAT tradition taught at US universities—a predictable consequence of the McCarthyist purge (see Part 2)—is precisely what one would expect in a falsely ‘democratic’ (i.e. ‘sloppy totalitarian’) state managed via psychological warfare. For this standard tradition—by presuming always that the citizenry is the principal—makes it impossible for political scientists to study their putative subject matter: power.
And since the influence of the US educational system is worldwide, it has taught the entire world how (not) to investigate the US power elite.
We will pay no heed, and will employ—as a tool of exploration that we test against the evidence—the model that Grossman obediently discarded. Up next, we consider the implications for geopolitics.
 This has been going on for a long time. Consider as an example the Council on Foreign Relations (CFR). In a 1978 paper titled “Oligarchic Tendencies in National Policy-Making: the Role of the Private Policy-Planning Organizations,” political scientist Thomas Dye wrote:
“Political scientist Lester Milbraith observes that the influence of [the] CFR throughout the government is so pervasive that it is difficult to distinguish CFR from government programs: ‘The Council on Foreign Relations, while not financed by government, works so closely with it that it is difficult to distinguish Council actions stimulated by government from autonomous actions.’ ” (a)
It is equally difficult to distinguish government actions stimulated by the Council from autonomous government action. Dye gives a list of quite major US foreign policy initiatives which the CFR led, “including both the initial decision to intervene militarily in Vietnam and the later decision to withdraw.” Further, he points out that many important members of the CFR are simultaneously top government officeholders. For example, “Council members in the Kennedy-Johnson Administration included Secretary of State Dean Rusk, National Security Advisor McGeorge P. Bundy, CIA Director John McCone, and Under-Secretary of State George Ball.”(b) A list of important figures in the CFR over the years up to 1978, which Dye also provides, shows that many are former top officials in the United States Government.(c)
But the CFR is not merely where present and former officeholders meet; it is also an incubator for future officeholders. As the political sociologist William Domhoff observed:
“Douglass Cater, a journalist from Exeter and Harvard who served on the staff of President Lyndon B. Johnson, has noted that ‘a diligent scholar would do well to delve into the role of the purely unofficial Council on Foreign Relations in the care and breeding of an incipient American Establishment.’ ...Turning to the all-important question of government involvement… the point is made most authoritatively by John J. McCloy… director of CFR and a government appointee in a variety of roles since the early 1940s: ‘Whenever we needed a man,’ said McCloy in explaining the presence of CFR members in the modern defense establishment that fought World War II, ‘we thumbed through the roll of council members and put through a call to New York.’”(d)
And who funds the CFR? You’ll never guess (watch the initials): the Carnegie, Ford, and Rockefeller networks.
In 1970 William Domhoff wrote that
“As to the foundations, the major contributors over the years have been the Rockefeller Foundation and the Carnegie Corporation, with the Ford Foundation joining in with a large grant in the 1950s. According to [Joseph] Kraft, a $2.5 million grant in the early 1950s from the Ford, Rockefeller, and Carnegie foundations made the Council ‘the most important single private agency conducting research in foreign affairs.’ In 1960-61, foundation money accounted for 25% of CFR income.”(e)
By the way, as we saw in Part 1, the Carnegie, Ford, and Rockefeller networks essentially took over the academic disciplines of ‘communication’ and ‘sociology.’ The same may be said of ‘international relations’ (and ‘political science’): the most influential journal in the field, Foreign Affairs, is published by none other than the Council on Foreign Relations.
To learn more, read:
“What is the Council on Foreign
Relations (CFR)?”; Historical and
Investigative Research; 4 March 2008; by Francisco Gil-White
(a) Dye, T. R. 1978. Oligarchic Tendencies in National Policy-Making: the Role of the Private Policy-Planning Organizations. The Journal of Politics 40:309-331. (p.316)
(c) ibid. (pp.314-15)
(d) Domhoff, G. W. 1970. The Higher Circles: The Governing Class in America. New York: Random House. (pp.113-14, 117)
(e) ibid. (p.115)
 Grossman, H. I. (1999). The state: Agent or proprietor? Economics of Governance, 1, 3-11. (p.4)
 Grossman, H. I. (1999). The state: Agent or proprietor? Economics of Governance, 1, 3-11. (p.6)
 ibid. (p.4)
[3a] ibid. (p.6)
The same fingerprints can be found all over other important initiatives that contribute to give the power elite a smooth management of ‘democracy.’ For example, in the creation of the Council on Foreign Relations, where former, current, and future US government officials meet with the leaders of the US industrial elite and their representatives and academic retainers to decide US foreign policy. See:
What is the Council on Foreign Relations (CFR)?
The following sources are valuable for a larger picture:
Mills, C. W. (1956). The Power Elite. Oxford: Oxford University Press.
Domhoff, G. W. (1996). State Autonomy or Class Dominance: Case Studies on Policy Making in America. Hawthorne, NY: Aldine de Gruyter.
Amadae, S. M. (2003). Rationalizing Capitalist Democracy: The Cold War Origin of Rational Choice Liberalism. Chicago: University of Chicago Press.
 Joly, M. (1864). Dialogue aux enfers entre Machiavel et Montesquieu. Bruxelles: Imprimerie de A. Mertens et fils.
 Simpson, C. (1994). Science of Coercion: Communication Research and Psychological Warfare. New York: Oxford University Press. (p.23)
 In one of his famous I Robot stories, Isaac Asimov once laid bare this kind of relationship rather clearly.
Asimov imagines what would happen if robots were built with such a sophisticated intelligence and awareness that they developed curiosity about their own existence. The story is called Reason.
It is set in the far future: lots of planets have been colonized by humans, and solar energy can be redirected to those planets remotely from stations. Robots are built to keep the beams directed properly at the planets.
Everything is fine until a new robot model, the QT (pun absolutely intended by Asimov) is developed. These new robots, with more powerful ‘positronic’ brains, assembled in the space station, and completely devoid of context, begin to wonder what it is that they are doing, and who are they, really? What is the meaning of it all? And who created them?
A two-man team is sent to the station to deal with this unusual phenomenon and make sure that the robots are safe to use. They are not too worried because of the Three Laws of Robotics, which are hardwired into every ‘positronic’ robot brain:
1. A robot may not injure a human being, or, through inaction, allow a human being to come to harm.
2. A robot must obey the orders given it by human beings except where such orders conflict with the First Law.
3. A robot must protect its own existence as long as such protection does not conflict with the First or Second Law.
The two humans sent up to the station have deep metaphysical conversations with the robot leader, who wishes to understand who created him, and refuses to believe that humans did it (the robot’s superiority to humans is so obvious). This robot becomes a ‘prophet’ to the other robots.
Long story short, the robot ends up constructing the following view of the Universe. There is a Master, who created him, and that Master wants him to keep the beams focused on certain little dots in the empty black beyond the window. Obviously, humans were also created by the Master, for the same purpose, but these are early models, wholly inferior to robots. They are harmless, and they may come and go, but the robot will make sure that the station runs properly. This is functionally satisfactory, so the humans quit arguing with him and leave the station. The robots continue to do their job perfectly, and the Three Laws in fact are not violated.
One of the humans is completely depressed by this turn of events. The other takes a more practical view: If the robot does his job perfectly, “Then what’s the difference what he believes!” The new robot religion is a way for them to derive meaning from directing the energy beams at the planets. To humans, how they interpret what they do is neither here nor there.
For my purposes, Asimov’s story is a useful parable. The agents (here, the robots) can have a completely false understanding of what they do and yet be perfectly useful to the principal (here, humans).
Now, in Asimov’s story the principal stumbles upon the solution, because the false representation of reality is provided by the agent. But this is a detail, and we can easily see how this may be turned around. In other words, a false and (to the principal) useful representation of reality may be created by the principal for the agent. What matters, if the principal wishes the agent to do his job, is to give the agent a satisfying story.
The moral of the story (for me) is this: whoever controls the representation of reality, or, if you will, whoever owns the ‘information asymmetries,’ can turn others—without their knowing—into his agents.
 A document entitled “The Protocols of the Learned Elders of Zion” became the very foundation of modern antisemitic propaganda. It was created by agents of the Tsar’s secret police, the Okhrana, around the turn of the 20th c. The document purported to be the minutes of a meeting of secret ‘Super Jews’ who met to discuss how to destroy ‘Christian civilization.’ In reality, the Okhrana’s agents had copied the speeches of Maurice Joly’s character, Machiavelli, and put them in the mouths of these ‘Super Jews,’ who supposedly controlled everything clandestinely: banks, newspapers, unions, industries, governments. . . This was so effective that it has now become part of our political grammar. Proposing ‘conspiracy theories’ gets one labeled paranoid, but certainly not when the proposed conspiracy involves very powerful Jews. It is entirely politically correct to say that ‘the Jews’ control the banks, the media, the US government, etc.
In fact, political scientists at the very best universities claim that ‘the Jews’ control the foreign policy of the United States. See, for example:
Reply to Mearsheimer & Walt's "The Israel Lobby"; Israel National News; April 03, 2006;
by Francisco Gil-White
Such accusations were made before World War II, and in fact they were the main ideological contributing force to the Holocaust. Millions of people in the West believed that ‘the Jews’ had an awesome and dangerous clandestine power, and that behind the scenes they pulled the ropes to do us harm. The butchers thought they were acting in self-defense. And yet, to a close approximation, nobody lifted a finger to defend the Jews when the entire European continent set about killing them. How did their awesome power vanish so completely and so suddenly? And now it has magically returned? We learned nothing from World War II, and are as easily fooled now as our grandparents were back then.
To learn more:
The modern "Protocols of Zion"
 Consider the following observation by a Mexican political scientist:
“It would be absurd to deny that political science developments in the United States are almost always the ones to set the tone everywhere. ...Besides, the United States concentrates in its universities a full 80 per cent of active political scientists from around the world, a number so eloquent as to make us think of a kind of US imperialism over the discipline. It is obvious, therefore, that what is generated there will end up ‘contaminating’ political scientists the world over.”
SOURCE: Cansino, C. (2010). La Muerte de la Ciencia Política. México: Random House Mondadori. (p.10)
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