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Originally Posted by doug*platypus
Referring back to the original post, I would cast my vote for #3, that the staffs were both conduits and symbols. However, I would say that they were more a symbol of their office rather than their power. The main passage I am thinking of is the very powerful moment when Gandalf breaks Saruman's staff and expels him from the order. Saruman is no longer one of them. It is more of a ceremonial move imho, although it may well have also served to limit Saruman's power in some way.
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I had another (late) thought on the breaking of Saruman's staff, that I found rather neat.
At Orthanc, Gandalf tells Saruman he has no colour anymore, and is 'cast from the Order and from the Council'. Then Gandalf says:
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'Saruman, your staff is broken.' There was a crack, and the staff split asunder in Saruman's hand, and the head of it fell down at Gandalf's feet.
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The Voice of Sarumen, TTT (emphasis mine)
I just think it's no coincidence that the
head of the staff just happened to fall right at Gandalf's feet. Saruman was the "head" of the Order, and I see that as an affirmation of the "staves as authority symbols" view. As Gandalf was given the authority to cast out Saruman, he was at the same time given a sign from his superiors that he was from that point the "head", not only of the Istari, who were pretty much defunct as a body, but also the leader in the war against Sauron.
That seems to me to be another clear sign that Gandalf's actions were necessary not from a standpoint of stripping Saruman of all his power, but of his authority as a representative of the Valar.