James Madison saw Bernie Madoff 220 years in advance. That so many supposedly bright people were duped by Madoff testifies to their ignorance or disregard of history and to what may be an approaching nadir in the cycle of American public virtue.
At the Convention called by the Commonwealth of Virginia to debate the newly proposed U.S. Constitution, Madison declared, in support of the Constitution:
But I go on this great republican principle, that the people will have virtue and intelligence to select men of virtue and wisdom. Is there no virtue among us? If there be not, we are in a wretched situation. No theoretical checks, no form of government, can render us secure. To suppose that any form of government will secure liberty or happiness without any virtue in the people, is a chimerical idea.
Madison believed that although no system — think the Securities and Exchange Commission and the Sarbanes-Oxley Act — could render us (or our property) secure, there would always be enough public virtue and intelligence among the people who would, according to the Constitution, control the people who would control those systems that we could individually and collectively bank, buy and conduct our business with confidence in the outcomes of that system:
If there be sufficient virtue and intelligence in the community, it will be exercised in the selection of these men [representatives of the people]; so that we do not depend on their virtue, or put confidence in our rulers, but in the people who are to choose them.
Madison’s big IF may finally be coming home to roost. The United States of America, its banks, governments and people have enjoyed the confidence if not camaraderie of foreign nations for roughly 200 years because of our perceived intelligence and overall sense of public virtue. Some observers are rightly beginning to wonder whether these twin pillars of security are running short among those who play in U.S. markets.
It is also possible that we have become too confident in public office holders and fund managers who are simply too far away, personally, to feel any sense of accountability to those who put them in power with votes or cash investments. The power distance may be too great, just as it was in the days of King George III. The more things change, the more they stay the same.