Previously
In the previous article, here, we looked at mega-politics and psychotechnologies in the context of the long arc of history and their influences on the logic of violence.
In today’s article, we continue to peer into history but from the perspective of how money has shaped the development of countries.
A Broad Look Back
History has consistently demonstrated to us that governments will always corrupt their monetary systems to the benefit of those in and around government at the expense of the citizenry.
If we take a broad look of history in the below graph, we can see that there have been a variety of successful sound moneys going all the way back to ~100 BCE (covering ~2,100 years).
This is a very simplistic timeline but I’m sure that you recognize most of the countries and maybe even some of their respective monetary coins as well.
But, this graph is very high-level and doesn’t provide much in the way of detail and discernment. Let’s see if we can change that by zooming in a little.
A (Relatively) Recent Look Back
Here, we can zoom in to a time period going back to circa 1400 AD (~700 years).
In this graph, we can see that various countries had periods of roughly one century where they had “apex predator” status as the hegemonic [1] power of the world. During this time, these top countries enjoyed their greatest periods of risk-taking, innovation, and growth. Consequently, they had the greatest impact on the rest of the world. Their money was the preferred currency (“medium of exchange”) for much of the world.
Let’s zoom in a little more to capture even more detail.
Gresham’s Law
Before we zoom in, though, let’s introduce an important economic concept concerning how markets (people) value their “medium of exchange”. The concept is “Gresham’s Law“. [2]
In short, Gresham’s Law states, “Bad money drives out good money.“
This means that when soft money (fiat currencies) are arbitrarily created out of thin air and have no tie to reality and then injected into a market (by government decree or fiat), market participants will pull back their hard money (i.e. gold or silver) that has great monetary value. In the process, they trade the expedient “medium of exchange” function for the long-term “storehouse of value” function (which we talked about in Part 1 of this opening series which you can read here).
As an example, let’s say that a country had initially used gold as the base for their monetary system (i.e. for gold coins) but at some time in the future, they chose to use less valuable materials for their coins (i.e. copper, tin, nickel, steel, zinc). That same government would also demanded that its citizenry use these debased coins as legal tender (currency). As a result, people, companies, and institutions will avoid using the truly valuable gold coins and pull them back as their storehouse of value. No one had to tell them to do this; they would all make the rational decision to do this on their own as a grassroots effort.
Nerd Note: This is called a “Schelling Point” or a “focal point” [3], terms from game theory. [4]
Digging Into The Details
Now, with Gresham’s Law in our scope, let’s zoom in.
Historical Note: For the nerds, I recommend taking a closer look at the above graph. The overall timeline and average time spans are fascinating. One could argue that much of this is driven by the same forces discussed in the book “The Fourth Turning” (which I recommend reading). [5]
This graph does a good job of providing finer details around the hegemonic years and their respective durations. In addition, mega-political [6] events are shown in the background (i.e. the First Industrial Revolution, worldwide human mortality rate).
What I find particularly intriguing are the red boxes labeled “Build-Up Period“. From the positioning of these red boxes, we can glean from this graph that there is always another country waiting in the wings and ready to take the top spot from the top dog. It is my speculation that the little red boxes are probably mega-political events unfolding (the building of great navies, new communications technologies, discovering of vast gold supplies, genius military commanders, etc.).
I contend that what kicks the old hegemon from its apex status is that they forget that what enables the success of a nation – the civil society pillars of written language, civics, rule of law, and hard money. These four pillar foster risk-taking, innovation, growth, and expansion. In other words, the people need to know that their government will provide a relatively stable and unbiased foundation upon which they can plan, invest, develop, and build for the future.
Eventually, though, these institutions, these governments, transform from serving their countries and citizenry to being purely self-serving, attempting to preserve their power. The old hegemon becomes sclerotic [7], creating an old and rotted order which is obsolete. Consequently, a massive portion of the country is oriented towards working for the government, not free markets. In effect, the state has crowded out the free market.
Eventually, these empires become too big for their britches (institutionalized), forget what got them to the dance in the first place, and made them such a success – a hard money standard. Eventually, these corrupted governments have to switch over to fiat currencies, soft money, in order to try to keep the bloated bureaucracies afloat. By their very nature, fiat currencies, soft money, are effectively lies told by government which they impose on their citizenry. This results in corrupted philosophies and distorted market signals. Ultimately, this leads to the apex country losing the top spot to the next country which takes monetary policy seriously.
What Is Happening In These Cycles?
As shown by the graphs, the above cycles are repeated over and over. Let’s break these cycles this down into greater detail with causes and effects:
- Birth Of A Hegemoninc Power: A young nation-state adopts a hard money standard. As a consequence, the government is naturally constrained by its treasury coffers: a full treasury can spend money and an empty one cannot. A restrained government respects the four pillars of society – written language, civics, the rule of law, and hard money. An emergent property of these four pillars are property rights, free markets, and individual freedom. [8] [9]
- The Golden Age: The people are free to engage in saving, investing, risk-taking, innovation, growth, and wealth building which takes the country to the top tier (empire). The “pie” (the economy) gets bigger. This country enters a golden age where it is considered the preeminent world power, the hegemon of its time. This global “apex predator” can project power unlike any other. Their monetary standard is the envy of the world because their medium of exchange (typically gold and silver coins) is used throughout much of the world. The government grows fat, dumb, and happy.
- The Beginning Of The End – Gresham’s Law Takes Hold: In a bid to preserve power, the state became self-serving which always leads to a sclerotic condition. As a result, the state defaults on the monetary system by debasing the money and corrupting the values which that monetary system represented. The rule of law breaks down because the very institutions which were created to foster stability and order instead focus more on the preservation of the state’s power rather than servicing its constituency. As a result of the corrupted monetary standard, the values and philosophies of the people became subordinate to the will of the government. A consequence of the state using a fiat currency is that rational actors start to pull their hard money out of the system (i.e. gold and silver) in an effort to create a storehouse of value. This is Gresham’s Law in effect. This greatly limits people’s ability and motivation to invest in the future. Ultimately, the governments obtrusive and authoritarian condition stifles the very risk-taking, innovation, growth, and wealth building which took them to the top tier in the first place.
- The Bottoming: The bureaucracy has become a leviathan, a consumer of resources and a source of nihilism. [10] The state takes more and more resources merely to maintain its bloated size. Businesses cannot innovate and compete, thus decreasing their revenues and taxes to the government. Costs of maintaining the empire exceeded revenue generation (via taxes). Business institutions devote more efforts at grabbing greater resources via government monopolies than actually engaging in legitimate business because the “pie” (the economy) is a fixed size and one can only become wealthy by taking, no producing. The government fails in its fundamental duties of defending the rights of its citizenry and defending contracts. More bureaucracy is installed to “make up for the loss“. The debt-death spiral is overwhelming and inevitable. On the world’s stage, the government’s credit is a shambles. Quite often, the country loses its ability to maintain self-sovereignty and must submit to one or more antagonists. The cycle of decline repeats until the country is a shell of its former self.
- Birth Of A Hegemonic Power: In the meantime, the next hungry country is waiting in the wings (the red box) to adopt a hard money standard and to propel its people into greatness. And, the grand cycle repeats.
Historical Note: These four phases roughly follow the same “four turnings” identified by William Strauss and Neil Howe in their seminal book “The Fourth Turning“. [5]
In future posts, we will focus on the how’s and why’s of the state “losing the message” by corrupting their money and devaluing it to the detriment of the people and the state’s sovereignty.
What consistently leads to this corruption of the monetary system is government (specifically, its politicians) forgetting that what enables people to store their hours worked, what is known as a “storehouse of value”, is a hard money standard where all people can freeze their work in time (a virtual work savings account) so that it can be drawn upon at some time in the future. The citizenry are counting on those work hours to be available to them in full and whenever they want. Unfortunately for the people, the state corrupts these virtual savings accounts and ruins the citizenry’s ability to plan, save, and invest in the future.
The state demolishes the people’s lives by demolishing the money.
Next Up
In the next article, here, we will dig a little deeper into the above three graphs to discuss how hard money is a natural regulator and limiter on state power. Parallel to that, we’ll take a look at the proper role of government and its relation to the citizenry.
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End Notes, References, & Citations
[1] hegemon, hegemony, hegemonic
hegemony
/hɪˈɡɛm.ə.ni/
noun
- (formal) Domination, influence, or authority over another, especially by one political group over a society or by one nation over others.
- Dominance of one social group over another, such that the ruling group or hegemon acquires some degree of consent from the subordinate, as opposed to dominance purely by force.
[2] Gresham’s Law
Brave search engine summary: “Gresham’s Law”
“Gresham’s Law
(monetary principle on circulating currency; ‘bad money drives out good‘)
Gresham’s Law is an economic principle stating that “bad money drives out good” when both are in circulation and have the same face value. This means that if two forms of money are circulating, the one with lower intrinsic value will be used for transactions, while the one with higher intrinsic value will be hoarded or melted down for its metal value. The law is named after Sir Thomas Gresham, an English financier who lived during the Tudor dynasty, although the concept was noted earlier by Nicolaus Copernicus and even referenced by Aristophanes in ancient Greece.
In modern contexts, the principle is often applied metaphorically to situations where inferior products or practices tend to displace superior ones in a market or organization. This can occur when there is a lack of regulation or when short-term incentives favor the inferior option over the superior one.”
“Why Gresham’s Law is Important For You (2024 Update)“
“Bitcoin’s legal status as commodity money brings to light Gresham’s Law, an economic principle stating “bad money drives out good.” We explore how to apply Gresham’s Law to the Bitcoin Standard.”
“Gresham’s law, observation in economics that ‘bad money drives out good.‘ More exactly, if coins containing metal of different value have the same value as legal tender, the coins composed of the cheaper metal will be used for payment, while those made of more expensive metal will be hoarded or exported and thus tend to disappear from circulation. Sir Thomas Gresham, financial agent of Queen Elizabeth I, was not the first to recognize this monetary principle, but his elucidation of it in 1558 prompted the economist H.D. Macleod to suggest the term Gresham’s law in the 19th century.”
[3] “Schelling Point” and “focal point”
“Schelling point
A Schelling Point, also known as a focal point, is a concept in game theory where individuals tend to choose a particular solution by default in the absence of communication to avoid coordination failure. This idea was introduced by the American economist Thomas Schelling in his book “The Strategy of Conflict” (1960). Schelling suggested that people can coordinate their actions if they know that others are also trying to do the same, leading them to converge on a solution that stands out in the environment. An example of this is the question of where to meet a stranger in New York City without prior communication, where people might naturally choose a prominent location like Grand Central Station.“
“In game theory, a focal point (or Schelling point) is a solution that people tend to choose by default in the absence of communication in order to avoid coordination failure. The concept was introduced by the American economist Thomas Schelling in his book The Strategy of Conflict (1960). Schelling states that “[p]eople can often concert their intentions or expectations with others if each knows that the other is trying to do the same” in a cooperative situation (p. 57), so their action would converge on a focal point which has some kind of prominence compared with the environment. However, the conspicuousness of the focal point depends on time, place and people themselves. It may not be a definite solution.“
[4] game theory
“Game theory is the study of mathematical models of strategic interactions. It has applications in many fields of social science, and is used extensively in economics, logic, systems science and computer science. Initially, game theory addressed two-person zero-sum games, in which a participant’s gains or losses are exactly balanced by the losses and gains of the other participant. In the 1950s, it was extended to the study of non zero-sum games, and was eventually applied to a wide range of behavioral relations. It is now an umbrella term for the science of rational decision making in humans, animals, and computers.”
[5] “The Fourth Turning” by William Strauss and Neil Howe
Writer’s Note: I cannot recommend this book enough for its general framework. Like all models or frameworks, they are incomplete, incorrect, or both but, ideally, useful in some fashion. I place “The Fourth Turning” in the “useful” category.
“First comes a High, a period of confident expansion. Next comes an Awakening, a time of spiritual exploration and rebellion. Then comes an Unraveling, in which individualism triumphs over crumbling institutions. Last comes a Crisis—the Fourth Turning—when society passes through a great and perilous gate in history.“
“William Strauss and Neil Howe will change the way you see the world—and your place in it. With blazing originality, The Fourth Turning illuminates the past, explains the present, and reimagines the future. Most remarkably, it offers an utterly persuasive prophecy about how America’s past will predict what comes next.“
[6] “mega-politics” from the book “The Sovereign Individual: Mastering the Transition to the Information Age“
Brave search engine summary: “mega-politics the sovereign individual”
“The Sovereign Individual Mega-Politics
The concept of ‘mega-politics‘ in ‘The Sovereign Individual‘ refers to the large-scale structural patterns and forces that shape human societies and political systems over time. The book, written by James Dale Davidson and William Rees-Mogg, explores how factors such as topography, climate, microbes, and technology influence the distribution of power and the evolution of governance.
These megapolitical forces determine the ability of individuals and groups to project power and shape their destinies.
According to the authors, megapolitics operates outside the realm of conscious direction and is driven by underlying structural changes in society. For example, topography has historically influenced the development of agricultural societies, with access to water determining the power dynamics between farmers and those in control of resources. Similarly, climate changes can lead to political instability, especially in societies already facing fragility. Microbes, such as diseases, have also played a role in shaping history, as seen in the impact of European diseases on Native American populations.
Technology, however, is described as the most significant driver of megapolitical change. The accessibility of technology, particularly in terms of cost, organization, and distribution, determines whether power is centralized or decentralized. For instance, the shift from heavy cavalry to rifles allowed individuals to gain more autonomy, while the complexity of missile technology requires large-scale organization, reinforcing centralized power. The authors argue that the information revolution, driven by advancements in computing and microprocessors, is accelerating these changes, leading to a future where individuals have greater control over their lives and economic destinies.
The book predicts that the rise of the information age will lead to the decline of traditional political institutions and the emergence of a new form of governance where individuals, or “sovereign individuals,” have more autonomy. This shift is compared to historical transitions, such as the move from feudal societies to industrial ones, and is expected to be even more rapid due to technological advancements. The authors suggest that the balance of power will increasingly favor individuals, as technology enables greater financial independence and reduces the influence of the state.
In the context of modern developments, the book’s ideas have been linked to the rise of cryptocurrencies like Bitcoin, which are seen as tools that empower individuals by providing financial sovereignty and reducing reliance on traditional institutions. The authors’ vision of a future where individuals can operate outside political boundaries is increasingly relevant in the digital age, where cyberspace and decentralized technologies are redefining the relationship between individuals and the state.“
[7] sclerotic
/sklə-rŏt′ĭk/
adjective
- Hard; firm; indurated; — applied especially in anatomy to the firm outer coat of the eyeball, which is often cartilaginous and sometimes bony.
- (Anat.) Of or pertaining to the sclerotic coat of the eye; sclerotical.
- (Med.) Affected with sclerosis; sclerosed.
[8] Ludwig von Mises and “Pillars Of Society“
Brave search engine summary: “von mises pillars of society”
“Ludwig von Mises Pillars of Society
Ludwig von Mises outlined several key pillars that he believed were essential for a prosperous and free society:
- Limited Government Intervention: Von Mises advocated for minimal government involvement in the economy, emphasizing the importance of free markets and individual liberties.
- Property Rights: He stressed the significance of secure property rights as a foundation for economic stability and individual freedom.
- Free Markets: Von Mises believed that free markets, where individuals engage in voluntary exchange, are the most efficient means of allocating resources and generating wealth.
- Individual Freedom: He argued that individual freedom is crucial for personal development and societal progress, allowing individuals to pursue their goals and interests.
These principles form the basis of von Mises’ classical liberal philosophy and are central to his critique of socialism and interventionist policies.“
[9] “written language, civics, the rule of law, and hard money“
Writer’s Note: I freely admit that the “four pillars” of written language, civics, the rule of law, and hard money will be very different from country to country and time to time. What I consider most important is that there are earnest attempts by governments to implement these four principles. Doing that naturally restrains the state and allows for individual freedom to flourish.
[10] Books on economics or civics which contain the word “leviathan” in the title
Brave search engine summary: “economics book leviathan“
“Leviathan Economics Book
Thomas Hobbes’ “Leviathan“, published in 1651, touches upon economic themes within its broader political philosophy. Hobbes argued that equal justice includes the equal imposition of taxes, emphasizing that the equality of taxes does not depend on equality of wealth but on the equality of the debt every man owes to the commonwealth for his defense and the maintenance of the rule of law. He also supported public support for those unable to maintain themselves through labor, presumably funded by taxation, and advocated for public encouragement of works like navigation to employ the poor who could work.
In a different context, the term “Leviathan” has been used in economic literature to describe models of government behavior. Geoffrey Brennan and James Buchanan developed the Leviathan model of government in their 1980 book The Power to Tax, where government is assumed to act as a monopolist that maximizes tax revenues.
Additionally, there is a book titled Living with “Leviathan: Public Spending, Taxes, and Economic Performance“, which explores the implications of government spending and taxation on economic performance. This book is available for purchase online, including in India.”