"More Empires Have Fallen Because Of Reckless Finances Than Invasion" → Washingtons Blog
"More Empires Have Fallen Because Of Reckless Finances Than Invasion" - Washingtons Blog

Monday, February 8, 2010

"More Empires Have Fallen Because Of Reckless Finances Than Invasion"

While Eric Margolis' entire comment in the Toronto Sun is a must-read, the following two quotes really hit the nail on the head:

More empires have fallen because of reckless finances than invasion...

If Obama really were serious about restoring America’s economic health, he would demand military spending be slashed, quickly end the Iraq and Afghan wars and break up the nation’s giant Frankenbanks.

Margolis is right.

As I have repeatedly shown, war is bad for the economy. According to a Nobel prize-winning economist, the head of JP Morgan and others, the Iraq war and the war on terror in general were huge factors in destroying our economy.

America is a dying empire, destroying the last of its resources to fight unnecessary wars. Instead of rebuilding our economy so that we can once again be a strong nation, we are wasting trillions fighting those unnecessary wars, thus guaranteeing that we do not have the economic resources to defend ourselves in the future from real threats.

Don't believe me?

Well, our military and intelligence leaders say that the economic crisis is now the biggest threat to America's national security.

And as leading economic historian Niall Ferguson recently wrote in Newsweek:

Call the United States what you like—superpower, hegemon, or empire—but its ability to manage its finances is closely tied to its ability to remain the predominant global military power...

This is how empires decline. It begins with a debt explosion. It ends with an inexorable reduction in the resources available for the Army, Navy, and Air Force...

If the United States doesn't come up soon with a credible plan to restore the federal budget to balance over the next five to 10 years, the danger is very real that a debt crisis could lead to a major weakening of American power.

The precedents are certainly there. Habsburg Spain defaulted on all or part of its debt 14 times between 1557 and 1696 and also succumbed to inflation due to a surfeit of New World silver. Prerevolutionary France was spending 62 percent of royal revenue on debt service by 1788. The Ottoman Empire went the same way: interest payments and amortization rose from 15 percent of the budget in 1860 to 50 percent in 1875. And don't forget the last great English-speaking empire. By the interwar years, interest payments were consuming 44 percent of the British budget, making it intensely difficult to rearm in the face of a new German threat.

Call it the fatal arithmetic of imperial decline. Without radical fiscal reform, it could apply to America next.

And William R. Hawkins (formerly an economics professor at Appalachian State University, the University of North Carolina-Asheville, and Radford University) fills in some details on the fall of the Hapsburg empire:

Spain was the first global Superpower...With Spain as its political base, and gold and silver flowing in from its American colonies, the Hapsburg dynasty became the dominant power in Europe. It controlled rich parts of Italy through Naples and Milan, and Central Europe from the Netherlands through the Holy Roman Empire to Austria. In the 16th century it added the far distant Philippine islands to its empire. The Hapsburgs held off the Ottoman Turks, whose resurgent wave of Islamic conquest in the 16th century swept across the Balkans and nearly captured Vienna.

The Hapsburgs went into decline in the 17th century, and while any such momentous event has many causes, for our purposes the focus will be on the economic collapse of Spain, which not only sapped the empire of strength but served to build up the power of its rivals.

The demands of empire required a strong and growing economy, but Spain did not keep up with the economic expansion that was taking place in other parts of Europe. Madrid’s financial base fell out from under its empire. Spain could continue to consume in the short term because of the flow of precious metals from American mines, but it could not produce the goods it needed at home, which in the long-run proved fatal to its standing as a Great Power and as an advanced society.

Spanish imports were double exports and the precious metals became scarce within weeks of the arrival of the American treasure fleets as the money flowed to Spain's many creditors. What industry there was, along with banking and shipping, was in the hands of foreign owners. As a modern historian, Jaime Vicens Vives, has concluded, “This was one of the fundamental causes of the Spanish economy's profound decline in the seventeenth century, maritime trade had fallen into the hands of foreigners.” This, plus the “opening of the internal market to foreign goods,” produced a “fatal result.” Spain's exports were at the same time under heavy pressure by competitors in third country markets. A nation that cannot control its domestic market will seldom be able to sustain itself in foreign markets, which are inherently less accessible and more unstable.

Yet, Spanish leaders were deluded by a sense of false prosperity. This is testified by the statement of a prominent official, Alfonso Nunez de Castro in 1675: “Let London manufacture those fine fabrics of hers to her heart's content; let Holland her chambrays; Florence her cloth; the Indies their beaver and vicuna; Milan her brocade, Italy and Flanders their linens...so long as our capital can enjoy them; the only thing it proves is that all nations train their journeymen for Madrid, and that Madrid is the queen of Parliaments, for all the world serves her and she serves nobody.” A few years later, the Madrid government was bankrupt. The Spanish nobleman had foolishly elevated consumption, a use for wealth, above production, the creation of wealth.

Historians have traced the flow of Spanish gold and silver across the markets of Europe. Those who “served” Spain by establishing industries to manufacture goods for the Spanish market gained the money. Spain’s rivals, France, Holland (which started a successful revolt in 1568) and England, prospered by their trade surpluses, and reinvested the money to expand their own capabilities. Another modern expert on Hapsburg history, Henry Kamen, has cited contemporary sources who referred to 17th century Spain as “the Indies for the foreigner.” The military empire of the Hapsburgs became the economic colony of other powers, or, to use a current phrase, Spain was the “engine of growth” for the rest of the continent.

Where there were jobs and prosperity, there was also rapid population growth, and rising tax revenue. Rival powers were able to field and finance military forces that could defeat the once superior Spanish forces both on land and at sea. The irony of this is that Spain was ruled by a warrior aristocracy tempered by centuries of constant warfare against Islamic hordes and Christian heretics. These nobles looked down on merchants and manufacturers and disparaged their mundane professions only to find that without a strong domestic business class they could not afford the fleets and armies that guarded the empire they had built.

Today, the American “empire” is also trying to consume more than it produces. The U.S. trade deficit is nearing Spain’s nadir of imports being double exports. Both government spending and private consumption are financed heavily by debt. Washington is printing money, the modern equivalent of digging gold out of the ground, rather than earning the means to pay its bills. And the political and military elites are apparently indifferent to the fate of domestic business and industry. Americans must learn ... from the Spanish experience ... and take corrective action while they still can.
As for the need to break up the "Frankenbanks", see this.


  1. Excellent post.

    Really enjoyed the historical comparison!

    Im reading a book called Empire of Debt - by - William Bonner, Addison Wiggin.
    It covers a many interesting similarities of empires.

    Lastly, I write a blog
    The Bullish Bear Blog.

    Do take a look

  2. but we can't break up the banks because of the WTO treaty. we got to nullify that first.

    i read that somewhere.... :O)

  3. Noteworthy Empires, be it sea-faring or not, get shattered either commercially or militarilly in what is known today as Germany while trying to secure and dominate the western parts of the silk road. After failing in Germany said empires had always tried to regain iniative by controling the silk road further to the east, which lead them directly into Afghanistan. It is there where all those former vibrant empires with their last offensive army reserves are buried now. That's why Afghanistan and its ungrateful terrain has become known as the grave-yard of empires.

    Except for the Brits, who are right now trying to bury themselves for the third time in Afghanistan, all other empires suceeded the first time.

    Let's wait and see if the US-Empire got what it takes to survive a stroll into Afghanistan.

  4. It doesn't take an economist to figure out that spending resources and labor on bombing a far away land hurts the economy of the invader. It is obvious that O'bummer works for supranational interests, not those of the USA.

    The problem that the American nationalists don't get is that to tackle such a supranational force, they have to also get involved with the rest of the groups resisting against it around the world.

    If in every country's patriot movement is struggingling independently while being biased against other nations then the the internationalists will win for sure.

  5. If the "economic crisis is now the biggest threat to America's national security" would not Goldman Sachs and the Wall Street banks be under investigation for terrorism?

    So I cannot take this comment seriously.

  6. If we cut military spending wouldn't that seriously dent our manufacturing sector, destroy jobs, and a weaken a source of upward economic mobility? Surely there is room for some cuts, but I'd beware of deep ones.

    I was raised in a rural area with little industry, and probably 1/5 to 1/8 of the boys I went to elementary school with have served in the military. Many of them used money they saved working in the military to start small businesses or build a nest egg, or used the GI Bill to make it through college.

    One of America's primary exports is war. The American war machine probably feeds 50x more people than it kills on an annual basis.

    Robust military spending and reckless military deployment do not have to go hand in hand.

  7. Anonymous touches on a couple important point.

    Though US military spending is currently ludicrous, it must be incrementally lowered - say, 10% a year for 10 years. Otherwise, worse side-effects may arise.

    There simply is not enough money in America to sustain the "standard of living" we have come to expect. It is simply a fantasy, given wings by excessive debt. IMO, the true "reality" is when the financial bubble-of-the-day has burst and sunk about 3/4 of the way to the bottom. That level is a standard of living we must accept as a society.

  8. War in Afghanistan is much like owning a boat. while it looks great sitting there. it is a hole in the water at which you throw money. Looks good on paper, but there are some serious design flaws. The U.S. is the last modern industrialized nation without universal health care. yet the money thrown away in wars over the last 10 yrs (with no end in sight ) could EASILY have paid for health-care for the next 20yrs. our congress no longer looks to the needs of the People(jobs,export goods, self reliance as a country)and looks to those who will help them retain their position.

  9. while the Japanese took things to an extreme there is something to be said for the shogunate Era. One MUST first care for ones self. the drowning man can save no-one.I hear many complaints our last president and this new president. remember that he can ONLY do what our congress LETS him do.HE could veto everything that comes across his desk Yet it can still be passed by congress. The Obverse is not true. if he says yes to something and congress says no then it is NO.
    when we look at trends that have allowed our manufacturing industry/base to move over seas we must look to congress because they in the end are the authority responsible.
    Check out how American companies over seas are taxed, it encourages them to invest even more money over there. let alone the amount of tax dollars spent in countries with Amer. corps. to"protect our interests". this should be frightening.


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