Empires are built through the creation or acquisition of wealth. The
Roman Empire came about through the productivity of its people and its
subsequent acquisition of wealth from those that it invaded. The Spanish
Empire began with productivity and expanded through the use of its
large armada of ships, looting the New World of its gold. The British
Empire began through localized productivity and grew through its
creation of colonies worldwide – colonies that it exploited, bringing
the wealth back to England to make it the wealthiest country in the
world.
In the Victorian Age, we Brits were proud to say, “There will always
be an England,” and “The sun never sets on the British Empire.” So,
where did we go wrong? Why are we no longer the world’s foremost empire?
Why have we lost not only the majority of our colonies, but also the
majority of our wealth?
Well, first, let’s take a peek back at the other aforementioned
empires and see how they fared. Rome was arguably the greatest empire
the world has ever seen. Industrious Romans organized large armies that
went to other parts of the world, subjugating them and seizing the
wealth that they had built up over generations. And as long as there
were further conquerable lands just over the next hill, this approach
was very effective. However, once Rome faced diminishing returns on new
lands to conquer, it became evident that those lands it had conquered
had to be maintained and defended, even though there was little further
wealth that could be confiscated.
The conquered lands needed costly militaries and bureaucracies in
place to keep them subjugated, but were no longer paying for themselves.
The “colonies” were running at a loss. Meanwhile, Rome itself had
become very spoiled. Its politicians kept promising more in the way of
“bread and circuses” to the voters, in order to maintain their political
office. So, the coffers were being drained by both the colonies and at
home. Finally, in a bid to keep from losing their power, Roman leaders
entered into highly expensive wars. This was the final economic crippler
and the empire self-destructed.
Spain was a highly productive nation that attacked its neighbours
successfully and built up its wealth, then became far more wealthy when
it sailed west, raiding the Americas of the silver and gold that they
had spent hundreds of years accumulating. The sudden addition of this
wealth allowed the Spanish kings to be lavish to the people and, as in
Rome, the Spanish became very spoiled indeed. But once the gold and
silver that was coming out of the New World was down to a trickle, the
funding for maintaining the empire began to dry up. Worse, old enemies
from Europe were knocking at the door, hoping to even old scores. In a
bid to retain the empire, the king entered into extensive warfare in
Europe, rapidly draining the royal purse and, like Rome, the Spanish
Empire self-destructed.
In the Victorian era the British Empire was unmatched in the world.
It entered the industrial revolution and was highly productive. In
addition, it was pulling wealth from its colonies in the form of mining,
farming and industry. But, like other countries in Europe, it dove into
World War I quickly and, since warfare always diminishes productivity
at home, whilst it demands major expense abroad, the British Empire was
knocked down to one knee by the end of the war.
Then, in 1939, the game was afoot again and Britain was drawn into a
second world war. By the end of the war, it could still be said that
there would always be an England, but its wealth had been drained off
and, one by one, its colonies jumped ship. The days of empire were gone.
Into the breach stepped the US. At the beginning of World War I, the
US took no part in the fighting, but, as it had experienced its own
industrial revolution, it supplied goods, food and armaments to Britain
and her allies. Because the pound and other European currencies could
not be trusted not to inflate, payment was made in gold and silver. So,
the US was expanding its productivity into a guaranteed market, selling
at top dollar, using the profits to create larger, more efficient
factories,
and getting paid in gold.
Then, in 1939, it all happened again. Although the US eventually
joined both wars, they did so much later than Britain and her allies. At
the end of World War II, the US had a lively young workforce, as they
had lost fewer men to the war. They also had modern factories that had
been paid for by other nations, which could now be transformed to
producing goods for peacetime use for themselves and the rest of the
world, more efficiently than anyone else could produce them.
And (and this is a very big “and”) by 1945 they owned or controlled three quarters of the world’s gold,
as they’d drained it away from the warring nations in the early days of
the war. This allowed the US to invite the post-war leaders to Bretton
Woods to explain that, as the holders of the world’s wealth, they’d
dictate what the world’s default currency would be – the dollar.
But this was all threatened by the fact that, when the now-poorer
nations of the world sold their goods to the US, they too, beginning
with the French, wished to be paid in gold.
And so, in the subsequent years, the gold in Fort Knox was beginning
to travel back to the east, from whence it had come in previous years.
In 1971, this flow was shut off, as the US, still the foremost empire,
had the power to simply remove all intrinsic value from the dollar and
turn it into a fiat currency. Payment in gold ended.
Fast-forward to the post-millenium era and we see that America, like
the previous empires, ended its acquisition of gold after World War II,
yet its people became spoiled by political leaders who promised
ever-increasing bread and circuses. The productivity that led to its
initial strength was dying off and it was spending more than it was
bringing in. Like other empires, Finally, it sought to maintain its
hegemony through warfare, thereby creating a dramatic drain to its
wealth.
Like other empires before it, the US is now on the verge of
relinquishing the crown of empire. If there’s any difference this time
around, it’s that its collapse will very likely be far more spectacular
than that of previous empires. However, just as in previous collapses,
those who least understand that the collapse is around the corner are
those who are closest to its centre. Clearly, the majority of Americans
are worried about their future, yet cannot conceive of their country as a
second-rate power. And those who hold the reins of that power tend to
be the most deluded, delving ever-deeper into debt at an ever-faster
rate, whilst expanding welfare and warfare without any concept of how it
might all be paid for.
It’s understandable, therefore, that those of us who are on the
outside looking in, find it easier to observe objectively from afar and
see the coming self-destruction of yet another empire.
As stated in the first line of this essay, “empires are built through the creation or acquisition of wealth.” They
tend to end through the gradual elimination of the free-market system,
the metamorphosis to a welfare state and, finally, through the
destruction of wealth through costly warfare.
Does this indicate the “end of the world?” Not at all. The world did
not end with the fall of Rome, Spain, England or any one of the many
other empires. The productive people simply moved to a different
geographical location – one that encourages free-market opportunity. The
wealth moved with them, then grew, as the free-market allowed
productive people to make it grow.
Freedom and opportunity still exist and, indeed flourish. All that’s changing is the locations where they are to be found.
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Jeff Thomas is British and resides in the Caribbean. The son of an economist and historian, he learned early to be distrustful of governments as a general principle. Although he spent his career creating and developing businesses, for eight years, he penned a weekly newspaper column on the theme of limiting government. He began his study of economics around 1990, learning initially from Sir John Templeton, then Harry Schulz and Doug Casey and later others of an Austrian persuasion. He is now a regular feature writer for Casey Research’s International Man (http://www.internationalman.com) and Strategic Wealth Preservation in the Cayman Islands.
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The author is not affiliated with, endorsed or sponsored by Sprott Money Ltd. The views and opinions expressed in this material are those of the author or guest speaker, are subject to change and may not necessarily reflect the opinions of Sprott Money Ltd. Sprott Money does not guarantee the accuracy, completeness, timeliness and reliability of the information or any results from its use.
