Jan 31 2007
The Sun Sets on All Empires
Being the issuer of a global currency provides huge benefits that come with a curse. Increased private and public consumption possibilities come from the privilege of getting goods from abroad without the necessity of producing an equivalent amount of tradable export goods. While other countries have to export in order to pay for their imports, the sovereign who emits a global currency is exempt from adhering to the most fundamental law of economic exchange. This sets domestic resources free for the expansion of the state, particularly military power. The more such an imperial power extends its military presence around the globe, the more its currency becomes a global currency, and thereby new expansionary steps can be financed. Expansion becomes a necessity.
Over time, however, the divergence widens more and more between the weakening industrial base at home and the extended global role. With goods coming from abroad for which there is no immediate need to pay with sweat and effort, the domestic culture changes and power-hungry political elites emerge. In the private sector, the production of goods at home is substituted by fancy activities. This cycle has been the fate of all empires.
The current global position of the United States is similar to that of Spain in the period of its decline. Already economically hollow, Spain tried desperately to hang on to its outposts and “possessions” around the globe while the domestic economy became a public-service and militarized economy. In the end, it was the United States that gave the coup de grace to the Spanish Empire by taking away Cuba, Puerto Rico, and the Philippines. A new phase of US geographic expansion and dominance had begun and in 1898 the stage was set for the United States to become the imperial power of the 20th century.
History, and in particular economic history, always shows both: common features and differences, and indeed, the American Empire is different from some of the former empires. Yet what the United States has in common with the former imperial states is that at some point the military extension becomes too complex to be handled efficiently and thus the project becomes too expensive.
The discrepancy between the relative position of the US economy in the world on the one hand and the relative position of the United States as to its military presence and the role of the US dollar on the other hand is moving towards a cracking point. This leads to the conclusion that in a world where the economic strength of the United States is diminishing relative to other countries and regions, there will be less and less of a place for US dollar privilege.
That’s from Antony Mueller’s piece today over at Mises.org. We think it is a worthwhile read given the well worn, but more often ignored adage, those who do not know history are doomed to repeat it. Given his background in economics, Antony has a reasonable non-U.S. global perspective.
A part of vigilance is understanding the overall context in which we, as investors, are living. As part of the alternative media revolution, Vigilant Investor helps expand our reader’s scope of thinking in order to help avoid blind-spots in thinking and to better help connect the dots of otherwise detached information.
