Britain and America in History and the Future
Cycles of War and Prosperity
The Anglo-American Hegemonic Cycle
* Idealised Cycle - Not to Scale
* Germany and Austria proposed and then renounced a customs union in 1931.
* The European Union passed through a customs union stage on the path to fuller economic integration.
"... whereas in 2007 both the Dow Jones and the S&P 500 exceeded their previous highs reached in 2000 in US dollar terms, these indices failed to make new highs in Euro terms. In addition, whereas the US economy expanded in US dollar terms between 2001 and 2007, in Euro terms it actually contracted!
"... Since the end of 1999, the S&P 500 has delivered a total return after inflation of about MINUS 25%" (Marc Faber, Everyone is Busily Debasing Their Currency, dailyreckoning.com.au, November 12, 2009).
"It is hard to deny that [in the aftermath of the Iraqi invasion] America looks weaker than it did in 2000" (The Economist, Still No.1, economist.com, June 28, 2007).
Date for top of American cycle: Nominal high for Dow 2007 - corresponding to the non-public debt cycle - chosen for the hegemonic top as the coming crash - after the bursting of the Government Bailout Bubble - will be identified, in the general public eye, with the nominal high. But the Valuation high for the Dow in 2000 - corresponding to technological cycle - is the alternative top.
"The US produces a larger share of world output and takes a bigger share of world imports today than either 15 or 30 years ago. Its stockmarket amounts to almost half the world's total, a marked increase on the one-third share of 15 years ago.
"So, despite the long-term challenge to the US from China for position of global economic leader, the reality is that the US is probably more important in economic terms today than it has ever been" (Michael Hume, Still pulling together as America calls the shots, AFR, July 30, 2007, p.23).
In the technological cycle, the boom after the 1920-21 recession, after the end of WW1, corresponds to the boom after the 1990-91 recession, after the end of Cold War. Cars and Radio in the former boom corresponds with Computers and Internet in the latter. (See James B. Stack's, What's Left of the New Era? (Radio vs Internet), prudentbear.com, May 19, 2000 for a primer).
In the debt cycle, the terror attack on September 16, 1920 in the heart of the financial district of New York, in a recession, when more than 30 people were killed and hundreds injured by a horse-drawn-wagon-bomb, corresponds to the terror attack of September 11, 2001 in the heart of the financial district of New York, in a recession, when more than 2,600 were killed by commercial-airline-bombs. Housing booms followed peaking in 1925 and 2005/6.
The international crisis of 1927 'rhymes' with the global crisis of 2007-2009 - a signal for the last sharemarket rally of that 'stock' cycle. But see point (3) below for the preference of the 1974-76 rally over 1927-29 for the chart above. The 1976 rally high was below the Dow nominal high of 1973.
A stockmarket crash leading to deflation and depression is the final act to correspond with 1929-33. (Total credit market debt was 176% of GDP at the stockmarket peak in 1929 and 287% in 1933 at the end of the Hoover recession; at end of 4Q 2008, it was 370% of GDP, more than double that of 1929).
HISTORICAL DATA FOR CHART
1783 - End of American War of Independence
1787 - End of postwar recession - start of war-inflation upwave
1815 - End of Napoleonic Wars - end of war-inflation upwave
1819 - End of postwar recession - start of asset-bubble phase of upwave
1825 - Stockmarket crash - start of downwave
1833 - Start of last expansion of the downwave
1837 - End of last expansion of the downwave - stockmarket crash - start of last recession of downwave
1843 - End of downwave - start of war-inflation upwave
1865 - End of American Civil War - end of war-inflation upwave
1867 - End of postwar recession - start of asset-bubble phase of upwave
1873 - Stockmarket crash - start of downwave
1886 - Start of last expansion of the downwave
1893 - End of last expansion of the downwave - stockmarket crash - start of last recession of downwave
1896 - End of downwave - start of war-inflation upwave
1918 - End of First World War - end of war-inflation upwave
1921 - End of postwar recession - start of asset-bubble phase of upwave
1929 - Stockmarket crash - start of downwave
1932 - Start of the expansion of the downwave
1937 - End of the expansion of the depression - stockmarket crash - start of last recession of downwave
1942/49 - End of downwave - start of war-inflation upwave
1989 - End of Cold War - end of war-inflation upwave
1991 - End of postwar recession - start of asset-bubble phase of credit-expansion cycle
2000/2007 - Stockmarket crash - start of downwave
NOTES
(1) Dates in chart may vary according to the different measurement criteria of historians.
(2) The end of the war-inflation upwave, (e.g. 1896-1918), roughly coincides with the end of a war - actual date of end of the upwave may vary by a number of years from the end of the war; in this example it was in 1920.
(3) In viewing the future numerous past economic cycles need to be considered, especially one not included in the chart of the Anglo-American Hegemonic Cycle. The 1990s-2000s has a 'rhyme' with the 1960s-1970s. The bear market rally from 1970 to 1973 is 'rhymed' with 2002 to 2007; the recession of 1973-75 has a 'rhyme' with 2007-09 and the bear market rally of 1974-76 looks likely to 'rhyme' with 2009-??
If the rise in the Dow Jones Industrial Average in the last rally of this cycle does not surpass the 2007 high, similar to the 1974-76 rally, then the 2000 Dow valuation high rhymes with the 1966 valuation high and the 2007 Dow nominal high rhymes with the 1973 nominal high.
The 'rhyme' of the 1960s/1970s/1980s with the 1990s/2000s/2010s appears to be the primary 'rhyme' to view the future, even if the Dow achieves a new nominal high; with the debt cycle 'rhyme' of the 1920s with the 2000s as the secondary 'rhyme'.
The American Post-2000 economy is also following the pattern of the British Post-1873 economy:
"The famous depression in Great Britain of the 1870s, traditionally regarded as a period of unrelieved economic decline and difficulty, in fact falls into two quite distinct parts. The first, embracing the years 1874-7, is marked by maintained or slowly rising levels of production, with activity at home compensating losses, direct and secondary, due to the cessation of railway building and other new developments in America and elsewhere. Britain's position in the preceding boom had been that of supplying capital goods and capital to developing areas. When such orders fell drastically and the inducement to invest abroad slackened, funds were diverted into home and public building, the opening of new mines, a variety of technical improvement involving the manufacture and use of steel, and the installation of all kinds. This immediate shift in the character of investment helped sustain average annual employment above 95 per cent. until 1878. From the last quarter of 1877 to the middle of 1879 output in almost every branch of trade declined and unemployment rose to severe high levels. This secondary phase is paralleled closely by waning activity in the building trade, where a peak was reached late in 1876...
"In the money market a variety of factors tended to keep the market from the ease of depression and a revival of confidence...
"Until the latter stages of depression, the general position of labour was maintained... But with the building boom over, and internal investment low in 1878-9, unemployment mounted to the highest point in the half-century before the First World War" (W.W. Rostow, British Economy of the Nineteenth Century, (London: Oxford University Press, 1948), pp.179-81).
(4) The 'Anglo-American Hegemonic Cycle' takes as its starting-point the 'Kondratiev Wave': "In the early 1920s a Russian economist N.D. Kondratiev, later an early victim of Stalin, discerned a pattern of economic development since the late eighteenth century through a series of "long waves" of from fifty to sixty years, though neither he nor anyone else could give a satisfactory explanation of these movements, and indeed sceptical statisticians have even denied their existence. They have since been universally familiar in the specialist literature under his name. Kondratiev, by the way, concluded at the time that the long wave of the world economy was due for its downturn. He was right... That good predictions have proved possible on the basis of Kondratiev Long Waves - this is not very common in economics - has convinced many historian and even some economist that there is something in them, even if we don't know what" (Eric Hobsbawn, Age of Extremes, (London: Abacus, 1995), p.87).
(5) Future Watch is, therefore, more interested in coincidences than with causes. An explanation for a given outcome may be mistaking cause with coincidence. An illustration:
"The advent of 'free trade' as the prevailing ethos coincided with an economic boom, lasting from the early 1850s to the early 1870s. Contemporaries saw the first as causing the second; economic historians have been more sceptical. The removal of tariff barriers probably had only a marginal impact on the British economy, but the ascendancy of 'free trade', in its larger sense of national commitment to economic progress, was closely related to an entrepreneurial enthusiasm which all classes seemed to have shared... The free-trade movement accompanied rather than anticipated the commitment of the British economy to manufacturing, transport, and service industries with an urban base..." (Kenneth O. Morgan, editor, "The Oxford History of Britain", Revised Edition, (Oxford, Oxford University Press, 1999), pp.528,520).
"The period 1892-1914 raises some difficult problems for liberal theories of foreign trade. The evolution of the European economy reveals a disturbing correlation. Grossly oversimplified this can be expressed in the following equations: protectionism = economic growth and expansion of trade; liberalism = stagnation in both... the return to protectionist trade policies undoubtedly coincided with a considerable change in the main economic trend, leading to a period of growth unprecedented in European history... foreign trade in the protectionist countries grew more rapidly than in the liberal countries..." (Paul Bairoch, "European trade policy, 1815-1914", The Cambridge Economic History of Europe, Vol.8, The Industrial Economies: The Development of Economic and Social Policies, (Cambridge, Cambridge University Press, 1989, p.69-70).
Since various confluences of coincidences of the past have been indicators of the future they are given the benefit of the doubt today, taking into account the circumstances of the times.
(6) "Finance and growth go together. It was no accident that the acceleration in growth in the industrial revolution was associated with the development of modern banking and capital markets.
"By the same token, disruption to the financial sector is costly to the real economy, as is only too clear in history" (Glen Stevens, Finance and Economic Development, rba.com.au, December 12, 2006).
(7) The coincidences between "War - leaving 'gold' standard - credit expansion - asset bubbles and busts" will be observed. For example: Britain went off 'gold' during the Napoleonic Wars, America during her Civil War, Britain in WW1 and America during Vietnam a theatre war of the Cold War - the four 'turning point' wars of the 'Anglo-American Hegemonic Cycle'; marginal [or not so marginal] sources of liquidity - country banks in the first two and Wall Street 'markets' in the last two - contribute to the precarious boom and bust; et cetera.
"The ballooning of the broker call loan market in the late-twenties evolved into the mechanism providing the marginal source of liquidity for the asset markets and the increasingly finance and asset-based economy" (Doug Noland, Booming Broker Finance and Market Tops, prudentbear.com, March 18, 2005).
"In the Crash [of 1929] the immediate problem to be dealt with by the Federal Reserve and the New York City banks was the collapse of the call loan market..." (Barrie A. Wigmore, The Crash and Its Aftermath, (Wesport: Greenwood Press, 1985), p.96).
"(George) Harrison (CEO of NY Fed after the death of B. Strong) ... went on to blame the 'bootleg banking system' through which corporations and individuals lent to brokers and dealers outside the regular banking system" (Allan Meltzer's, A History of the Federal Reserve, p.252, quoted in Doug Noland's article Monetary Instability and Lessons Not Learned from the History of the Fed, prudentbear.com, June 18, 2004).
"Contrary to popular wisdom, banks - institutions that take deposits - aren't the main problem...
"The real collapse has occurred in securities markets. Since the 1980s, many debts (mortgages, credit card debts) have been "securitized" into bonds and sold to investors - pension funds, mutual funds, banks and others" (Robert J. Samuelson, Beyond Wall Street Bashing, washingtonpost.com, February 9, 2009).
"Today, Wall Street "structured finance" is The Speculative Bubble - the marginal source of liquidity for both the financial and economic spheres" (Doug Noland, Booming Broker Finance and Market Tops, prudentbear.com, March 18, 2005).
"America faces twin financial crashes... one in the regulated banking sector and a simultaneous collapse of the "shadow banking system", the universe of hedge funds and investment banks responsible for much of the recent securitisation boom as well as for the sharp rise in financial leverage" (The Economist, Worse than Japan? economist.com, February 12, 2009).
What's Ahead for America?
History doesn't repeat itself - but it rhymes
- attributed to Mark Twain
"Today, the United States is undoubtedly the most powerful country in the world by far. Its economy is more than twice the size of the nearest contender (Japan), it spends more on defence than the next seven or eight countries combined and it leads the world in the information revolution. American culture is pervasive. The US is the only super power and it faces no peer competitor in the foreseeable future. Not since the Roman Empire has any country been so dominant" (Paul Dibb, Has US power passed its peak? afr.com.au, January 25, 2001).
"Both Great Britain and the US have been fiercely maritime cultures. The British empire was made possible by a paramount navy that for two centuries allowed it a unique mobility of power. By the same token, once America ... had extended from sea to shining sea, its rulers quickly became aware of what AT Mahan called, in 1886, the "influence of power upon history". Today, the US navy dwarfs all other navies firepower and oceanic spread, and this for the same reasons that the Royal Navy once ruled the waves. For America in 2002, as for Britain in 1902, naval supremacy provides mobility of power and safeguards a global system of capitalism..." (Linda Colley, What Britannia taught Bush, guardian.co.uk, September 20, 2002).
"From the end of the seventeenth century through to the beginning of the twenty first ... maritime supremacy has been the near monopoly of the English-speaking peoples. It has underwritten their defeat of other empires in all quarters of the globe, their immense commercial prosperity, their pre-eminence in the advancement of the natural sciences and their development of systems of constitutional government which remain the envy of all oppressed peoples" (Paul Monk, Sea Power and 'the Augumented Indies', Australian Financial Review, August 2, 2002, Review 8-9).
"In 1897 the Kaiser, already in possession of Europe's most powerful army, had ordered the construction of a German High Seas Fleet. He had seen it from the start as a deliberate challenge to Britain's command of the seas, and so to the established order of things. One day, he told his admirals and constructors, it would be God's Instrument of Justice - 'until then, silence and work'. By 1914, the work was done, the silence broken, and as Europe burst like an abscess into war, Queen Victoria's Empire found itself challenged by equal force of arms for the first time since she had succeeded to the throne, almost eighty years before. The grand illusion was collapsing" (Jan Morris, Farewell the Trumpets, (London: Faber & Faber Ltd, 1998), pp.155-56).
"The maritime power of the United States rose in the shadow of British naval supremacy from the 1880s to the 1930s. Then, as a direct consequence of saving the British Empire from the challenges of Germany and Japan in two world wars, it took Britain's place as the supreme naval and indeed global power after 1945" (Monk, ibid.,).
"... the review of maritime strategy underway in the U.S. is demonstrating that naval power is as important in today's age of globalization as in the first age of globalization a century ago...
"Without state-of-the-art maritime capabilities - like the mobile "global fleet station" envisaged by the U.S. - we shall have no way of responding to ... challenges, save an increasingly anachronistic nuclear deterrent" (Niall Ferguson, Global leaders need to rule the seas, latimes.com, April 16, 2007).
Will America follow in Britain's footsteps?
"At the end of the nineteenth century Britain possessed the wealthiest and most powerful economy that the world had ever known. The average income of its citizens was greater than that of any other country, the majority of the world's trade was carried out in its ships and financed by its institutions while its external investments surpassed those of all the other major economies combined. It had been the first nation to undergo industrialization, the first to install modern transport networks, the first to develop the financial infrastructures required to support industry at home and commerce and investment abroad" (Roderick Floud, The Economic History of Britain Since 1700, Volume 2:1860-1939, Second Edition, (Cambridge, CUP, 1994, p.1).
"It is, in fact, the distinguishing characteristic of the British Empire that it spread liberty around the globe as no other empire had done..." (Monk, ibid.,).
"There was no parallel in British-controlled territories to the unspeakable cruelties practised by the Dutch, the Belgians, the Portuguese, the French, the Germans and the Italians in the areas they occupied" (Paul Johnson, The Offshore Islanders, (London: Weidenfeld & Nicholson, 1992), p.345).
"...Britain, a country the size of New Mexico was ... the dominant power. Though Britain was increasingly challenged by Germany, united only recently as 1870, Queen Victoria presided over a fifth of the earth's surface and a quarter of its population, the greatest empire the world had ever seen. Winston Churchill was in his second year at Harrow in 1889 and like every other English schoolboy he sang, "Rule Britannia, Britannia rules the waves / Britons never, never shall be slaves," and with good reason: the Royal Navy was stronger than the two next largest fleets put together (Russia and France). One third of all sea going ships were British. Of every 1,000 tons of shipping passing through the Suez Canal, controlled by Britain, 7000 tons were British, 95 German and only 2 American... Britain was the world's banker, insurance broker and commodity dealer, and easily its leading investor. British companies and individuals owned large stakes in American mines, land and railroads: three quarters of the foreign investments in the United States, and in the world, were British..." (Harold Evans, The American Century, (New York: Alfred A. Knopf, 1999), p.xxiii).
"The victory [in 1907] of Victor Grayson, a raving Socialist, in the West Riding of Yorkshire raised frightening prospects... with a gift for oratory... he preached Socialism as the deliverance of the poor with a fervor that swept through the mill towns like fire. His wild antics in the House twice caused his suspension and attracted attention all over Europe. The Kaiser was reported to have proposed invading England with an Army corps or two, proclaiming that he had come not as an enemy but as Victoria's grandson to deliver England "from the Socialist gang which is ruling the country." In cooperation with King Edward [his uncle] he would dissolve Parliament and re-establish autocratic monarchy as feudatory of Germany" (Barbara Tuckman, The Proud Tower, (New York, Ballantine Books, 1996, pp.379-380).
"The Nazi German invasion of Britain would have not been a gentle affair. The captured German papers leave no doubt of that. On September 9 [1940] Brauchitsch, the Commander in chief of the Army, signed a directive providing that "the able-bodied male population between the ages of seventeen and forty-five [in Britain] will, unless the local situation calls for an exceptional ruling, be interned and dispatched to the Continent... In no other conquered country, not even in Poland, had the Germans begun with such a drastic step ...[the plans]... seem designed to ensure the systematic plunder of the island and the terrorization of its inhabitants ... Everything but normal household stocks were to be confiscated at once" (William L. Shirer, The Rise and Fall of the Third Reich, (Sydney: Random House Australia, 1998), p.782).
(Tim Shipman, New map of Britain that makes Kent part of France...and it's a German idea, dailymail.co.uk, September 4, 2006).
The End of the Anglo-American era?
"The 'American Century' only began 60 years ago. But it seems already to be over, with the disaster of Iraq forcing some of the United States' ruling elites to realise that its hegemony has been severely weakened" (Philip S. Golub, The sun sets early on the American Century, mondediplo.com, October 4, 2007).
"If you want to know what London was like in 1905, come to Washington in 2005... As Joseph Chamberlain, the British colonial secretary, put it in 1902: "The weary Titan staggers under the too vast orb of his fate."
"The United States is now that weary Titan. In the British case, the angst was a result of the unexpectedly protracted, bloody and costly Boer war, in which a small group of foreign insurgents defied the mightiest military the world had seen; concern about the rising economic power of Germany and the United States; and a combination of imperial overstretch with socio-economic problems at home. In the American case, it's a result of the unexpectedly protracted, bloody and costly Iraq war, in which a small group of foreign insurgents defies the mightiest military the world has seen; concern about the rising economic power of China and India; and a combination of imperial overstretch with socio-economic problems at home" (Timothy Garton Ash, Stagger on, weary Titan, guardian.co.uk, August 25, 2005).
The Nineteenth Century was Britain's Century. As the richest nation in the world entered the Twentieth Century it was conceivable that the new century would also belong to her. But it was not to be. The Twentieth Century was instead the American Century.
As America, the world superpower, enters the Twenty-first Century will she also, like Britannia before her, forfeit her world status? Will she be challenged by Germany, recently reunited in 1990? If so, will the demise of America mean that Americans and Britons will become slaves?
""Wilhelm II wanted colonies and military bases around the world," author Henning Sietz wrote in Die Zeit. "The United States was increasingly getting in the Kaiser's way.""
"Beginning in 1897, a German navy lieutenant named Eberhard von Mantey was assigned the task of preparing an invasion of the United States after German and American interests had collided in the Pacific.
"Von Mantey's aim was to find a way to force the United States to sign a treaty giving Germany free reign in the Pacific and Atlantic. He rejected ideas of a naval blockade or a naval battle and made plans for an invasion of the northeast instead" (Kaiser Wilhelm's Germany Had Plan to Take New York, reuters.com, May 8, 2002).
There is a double rhyme here - German and European unification:
"... there are obvious analogies between the creation of a united Germany in the mid-nineteenth century and the history of European integration in the twentieth" (Harold James, A German Identity 1770-1990, (London: Weidenfeld and Nicolson, 1989), p.218).
Prussian hegemony of the German empire (northern and southern states) is the rhyme for German hegemony of a future European Superpower/Empire (western and eastern states).
History and Bible prophecy provide the answers to the above and other questions, including, why, from a biblical perspective, America, for all intents and purposes, did not end up with a territorial empire and why Britons and Americans came to dominate the world in the last two centuries.
USA - Superpower without a Territorial Empire. Why?
"After centuries in which imperial territory and commerce went together, the United States has found how to enjoy imperial status without (mostly) the pain of empire: through the power of the purse and the media, free trade, trustworthy money and skilled armies not of colonial garrisons or officials, but of scientist and technicians, executives and entrepreneurs. And salesmen...
"As the millennium ended, the United States was the greatest power in history, the only one whose troops and diplomats, traders and bankers, factories and film makers, reporters, camera-men, currency and computers have dominated the entire planet (plus, briefly, a little of the moon)...
"Of all history's great powers ... what did it not end up with? A territorial empire. For all its hegemony of the West, and then the world, the United States did not build outward from its all-but colonies. Hawaii and Puerto Rico apart, it retreated from them. Even when next-door Cuba turned to communism, it left Cubans exiles try, and fail, at the Bay of Pigs, to win it back...." (The Economist, 1999 The strange hyperpower, Millennium Edition, December 31, 1999, p.51).
"...the American people were perhaps the most reluctant imperialists in history. No sooner had they acquired an overseas empire [as a result of the 1898 Spanish-American War] than they set in motion the process of its dissolution or transformation" (American Imperialism, Britannica CD 99 Multimedia Edition ©1994-99, Encyclopaedia Britannica (EB), Inc.).
"Americans are not, at heart, an imperial people. Even benevolent hegemons sometimes have to act ruthlessly, and they need a staying power that does not come easily to people who are reasonably content with their own lives and society" (Francis Fukuyama, After Neoconservatism, nytimes.com, February 19, 2006).
"We are as a city set upon a hill, in the open view of all the earth, the eyes of the world are upon us because we profess ourselves to be a people in covenant with God ... Let us study so to walk that this may be our excellency and dignity among the nations of the world among which we live; that they may be constrained to say of us, only this people is wise, a holy and blessed people ... We are the seed that the Lord hath blessed" - Peter Bulkeley, a founder and the first minister (non-Confirmist) of Concord, Massachusetts, from a sermon of 1651, quoted by Jonathan Raban, Pastor Bush, guardian.co.uk, October 6, 2004.
"We are the peculiar chosen people, the Israel of our time. We bear the ark of the liberties of the world" - Herman Melville, American author, 1850.
Part of the answer to the above question may be traced back over 3,500 years ago to an event recorded in Genesis, the first book of the Bible.
The Patriarch Jacob/Israel had twelve sons of which two, Judah (the father of the Jews) and his half-brother Joseph, would be beneficiaries of two great blessings:
"For Judah prevailed above his brethren, and of him came the chief ruler; but the birthright was Joseph's" (1 Chronicles 5:2).
Jacob adopted two of his grandchildren, the children of Joseph, as sons, so that the birthright blessing of Joseph would be realised in his two boys:
"...he [Manasseh] shall become a people, and he also shall be great; but truly his younger brother [Ephraim] shall be greater than he, and his seed shall become a multitude of nations" (Genesis 48:19).
"And Jacob called unto his [twelve] sons, and said, Gather yourselves together, that I may tell you that which shall befall you in the last days" (Genesis 49:1; cp. Genesis 49:28).
Manasseh was to be come a great nation but Ephraim was to become a "commonwealth" of nations. No where in Biblical or in the secular history of the time of the Biblical writers do we see the actual fulfilment of the descendants of Ephraim becoming a multitude of nations.
The apostle Peter, around 64-68 AD, wrote:
"Knowing this first, that there shall come in the last days [future tense] scoffers, walking after their own lusts, And saying, Where is the promise of his [Christ's] coming?...' (2 Peter 3:3-4).
The realisation of the "multitude of nations," it may be argued, was to be fulfilled in the broad period between Christ's ascension [A.D.30] and His yet future return to the earth.
It is the contention of this booklet that the United States of America, is descended from Manasseh and fulfils the "great nation" blessing, and that the English peoples of England, Australia, Canada, New Zealand and South Africa, are descended from Ephraim, and fulfils the "multitude" of nations blessing:
"The Balfour Report from the 1926 Imperial Conference declared the United Kingdom and its Dominions equal in status in all matters of internal and external affairs. This replaced the principle of a hierarchical relationship with one of 'autonomous communities within the British empire, equal in status, in no way subordinate one to another in any aspect of their domestic or external affairs, though united by common allegiance to the Crown, and freely associated as members of the British Commonwealth of Nations'.
"This document represented an important step on the road to independent nationhood. This step was based on agreement to this report at the 1926 Imperial Conference, by which the British Commonwealth accepted the principles underpinning the autonomy of the self-governing Dominions. The international recognition of the free and equal status of the Dominion members of the League of Nations was thus affirmed within the British Commonwealth. The law enacting these principles was the Statute of Westminster in 1931..." (foundingdocs.gov.au & www.history-nz.org).
The "seven sovereign states, each possessing a parliament, an independent elected government and freedom of decision in foreign policy were Britain, the Irish Free State, Canada, Newfoundland, Australia, the Union of South Africa and New Zealand. The British colonial empire remained unchanged; it consisted of the crown colonies and protectorates in Africa, Asia, the West Indies and the Pacific - all subordinated to the crown and the British parliament" (Hermann Kinder & Werner Hilgeman, The Inter-War Period/The British Commonwealth (1919-39), "The Penguin Atlas of World History", (Ringwood: Penguin Books, 1896), Vol.2, p.170).
Newfoundland joined Canada in 1949. Though the Irish Free State, now Eire, was a self-governing dominion, the southern Irish are from the tribe of Dan - a half-brother of Joseph.
The main section of this booklet is divided into two parts. The first part is especially for those who would not agree with the Biblical identification, but would like to be aware of, using the historical precedent, a possible future for the British and American peoples. The second part looks more at the Bible for the identity and future of the British and American peoples, bolstering the historical projection.
Overview
"For nearly all of human history, economic advance has been so slow as to be imperceptible within a span of a lifetime...
"From about 1750, this iron law of history was broken. Growth began to be no longer invisibly slow nor confined, as it largely had been before, to farming..." (The Economist, How mankind got rich, Millennium Edition, December 31, 1999, p.10).
Coinciding with this explosion of growth was the separation of the American colonies from Britain:
September 3, 1783 "Definitive Treaty of Peace between Great Britain and United States, signed at Paris. It recognized the independence of the United States" (William Langer, An Encyclopaedia of World History, p.562).
From the 1780s first Britain then America rose to world hegemony - Pax Britannica and Pax Americana. To be world hegemon an industrial power has to fulfil two requirements: (1) it is the superdominant world economy; and (2) it provides the diplomatic leadership of the Western world.
"When one nation enjoys cheap military predominance, along with disproportionate shares of manufacturing output and financial power, the world tends to enjoy free trade and monetary stability, and thus prosperity. When the predominate power fades, borders and barriers proliferate, access to markets is curtailed, and debts are repudiated. Often, major wars begin at a time when the predominant power has weakened, but when several nations are wealthy enough to fight" (James Dale Davidson & William Rees-Mogg, The Great Reckoning, Revised Edition, (London, Sidgwick & Jackson, 1993), p.265).
In looking at the rise and fall of Britain and the rise and the soon coming fall of America we have employed the "Anglo-American Hegemonic Cycle", from here on referred to as the "war-inflation/peace-deflation hegemonic cycle" (WIPDHC). This cycle began just after the big-bang of the Industrial Revolution in 1785. The end of the America War of Independence (1775-1783) resulted in a post-war recession (1784-86). The recovery in 1787 from the postwar economic crisis was the immediate ascent of the Anglo-Saxon peoples to world hegemony.
The history and current events quoted in the Introduction outline a broad pattern that is more or less observed in, and relevant for, the corresponding phases of the WIPDHC. The Introduction therefore provides the template to view the main section of this booklet. The Introduction also is a summary of the argument of the booklet.
THE FUTURE WATCH WAR-INFLATION/PEACE-DEFLATION HEGEMONIC CYCLE (WIPDHC)
"Any systematic explanation of the inflation cycle must include some account of the role of war. Inflation is the monetary footprint of war" (Davidson and Rees-Mogg, p.358).
The Future Watch WIPDHC is an idealised cycle based on the patterns of history. The WIPDHC is a template to view the future direction of world events.
Some critical points on the WIPDHC may not be technically correct. Why? History does not repeat exactly but there are some general trends which are common to each cycle but vary according to the different factors of each historical period, especially the stage of industrial development a country is at - whether it is a young and growing or a mature and declining nation. To establish a pattern we have modified the cycle to take in account of the variation in the repeating trends. The variations, which will be explained, are still compatible with the historical pattern.
While looking at the economic-war history of both nations, prior to and including their respective industrial revolutions, the British account will conclude basically with the First World War. Britain grew and matured industrially, and therefore acceded to world hegemony before America, so that Britain provides the historical template to view the decline of America and its march to a catastrophic war, seeing that there are many parallels between the British and American ascent to and experience as world hegemon.
"Industrialized economies were already dominated by the business cycle, at least from the end of the Napoleonic Wars, but this affected, in practice, only Britain, perhaps Belgium and the small sectors of other economies geared to the international system. Crises not linked with simultaneous agrarian disturbances, e.g. that of 1826, 1837 or 1839-42, shook England and the business circles of the eastern America seaboard or Hamburg, but left most of even Europe reasonably untroubled" (Eric Hobsbawn, Age of Capital 1848-1875, (London: Cardinal, 1988), p.85).
The WIPDHC of Britain and America roughly coincide following a similar pattern especially because of the economic interactions of these 'brother' nations. A good example of this is that the upturn in the British economy from 1832 to 1836 had it parallel in America from 1833 to 1837.
While Britain, the frontrunner of the Industrial Revolution, sets the pattern for future longwave cycles, it is America, with its propensity for excess combined with the reality that the economic and political fortunes of the Anglo-Saxon-Celtic world revolve around her, the dates chosen for the longwave cycle chart gives British dates for the first upwave, but beginning with 1833-1837 they are American ones.
With the spread of industrialization after 1848, the critical points of the cycle basically impacts the integrating global economy - varying in degree in relationship to a nation's developmental stage and its economic position as, or relative to, the world hegemon.
TO BE NUMBER ONE
Much of the economic history of the nineteenth and twentieth century may be explained by the drive of other nations to catch up with Britain and America respectfully:
"The Industrial Revolution in England changed the world and the relations of nations and states to one another. For reasons of power, if not of wealth, the goals and tasks of political economy were transformed. The world was now divided between one front-runner and a highly diverse array of pursuers. It took the quickest of the European "follower countries" something more than a century to catch up" (David Landes, The Wealth and Poverty of Nations, (London, Abacus, 1999, p.231), chapter entitled "Pursuit of Albion"). Hence the First World War.
"In the first three decades of the twentieth century, the United States opened up a massive technological and economic lead over the rest of the world. By 1928, America produced 40 per cent of world manufacturing-output, and her per-capita GDP eventually rose to a level about 60 per cent above her nearest rival. This lead in per-capita GDP was not closed until the 1980s... When many countries began to catch up, the United States responded with an awesome transformation of its industrial base - and again left its competitors in its wake...
"Much of the economic history of the twentieth century was driven by the needs of other countries to catch up with the Americans - at great social, political, and physical costs, including successive wars and a world-wide depression.
"The next question which flows from this is obvious. If the systematic changes currently sweeping through the world economy are as severe as those in the early part of this century, is it possible that they could lead to similar consequences? The answer to this question is a very broad 'Yes'. The first fifty years of the twenty-first century could be as disastrous as the first 50 years of the twentieth century were" (Peter Brain, Beyond Meltdown: The Global Battle for Sustained Growth, (Melbourne: Scribe Publications, 1999), pp.2-3).
THE CYCLES
The War-Inflation/Peace-Deflation Hegemonic Cycle comprise two general components: the 'upwave' and 'downwave'. The upwave of the cycle is a period characterised by war and asset inflation while the downwave is a period characterised by deflation or depression. The upwave and downwave of a cycle is referred to as a longwave.
As a generalization: the upwave is a period characterized by expansion - contraction - expansion in an inflationary environment, while the downwave is characterised by contraction - expansion - contraction in a deflationary or depressionary background.
In the WIPDHC the upwave comprises an upward leg of expansion, then a downward leg of contraction, followed by an upward leg of expansion. The first leg of the upwave, which is a period characterised by war-peaking inflation - war causing goods-price inflation to peak - (as opposed to the second leg which is characterised by asset-price inflation), and is referred to as a period of 'war-peaking' inflation, is depicted as a straight line but it should be a series of expansion-contractions, ending with an expansion, the number depending on the wealth of the world economy as it interacts with the war cycle along with the concentration and cooperation of industrial nations, to sustain a long period of growth. The contractions of these cycles are normal recessions from which the economy quickly recovers and the expansion continues - life goes on as normal.
WAR-PEAKING INFLATION IN UPWAVES
"Not until a series of major advances opened new eras of investment around the turn of the [twentieth] century was the deceleration reversed". [The end of the downwave - the end of the "Great Depression" of the Nineteenth Century"]. "These years saw the lusty childhood, if not the birth, of electrical power and motors; organic chemistry and synthetics; the internal combustion engine and automotive devices; precision manufacturing and assembly-line production - a cluster of innovations that have earned the name of the Second Industrial Revolution... this cluster of innovation marked the start of a new upswing, a second cycle of industrial growth..." (David Landes, "Technological Change and Development in Western Europe, 1750-1914", The Cambridge Economic History of Europe, Vol.6, Pt.1, (Cambridge, CUP, 1965), pp. 462-63).
British dominance was driven by the First Industrial Revolution with American dominance by the Second - as reflecting in the halves of the WIPDHC.
"From 1896 to 1914, prices continued their slow, steady rise". [Prices rose by 40 to 50 percent in America]. "Then suddenly a new trend appeared. The outbreak of war in 1914 shattered not only the peace of Europe but also its economic stability. A symptom and cause of that disruption was a massive surge of inflation in every western nation. From 1914 to 1919, wholesale prices doubled in the United States, trebled in Britain, quadrupled in Germany, and sextupled in Italy... In 1920, these trend lines broke. A severe economic depression occurred throughout the world..." (David Hackett Fischer, The Great Wave, (New York: OUP, 1996), pp.190-191).
As history does not repeat exactly inflation may not be as strong in certain periods. In the period from 1850 to 1873 inflation is rather subdued but there was a peak in western Europe in 1857 around the end of the Crimean War; and in America wholesale commodity prices peaked in 1864 around the end of the American Civil War. This pattern of inflation peaking with around the end of a war occurs in other upwave periods. The comments below provide a perspective:
"On one point, however - the periodization of the long trends - all [the exponents] agree. Beginning with the late eighteenth century, they would punctuate the economic history of the industrial era roughly as follows: 1790-1817, inflation; 1817-50, deflation; 1850-73, inflation; 1873-1896, deflation; 1896-1914, inflation. (The exact dates will vary from one analysis to another, but the schema and the approximate points of demarcation remain the same.) Moreover, most would agree on the cyclical character of these fluctuations... The main source of difficulty is the optical illusion produced by the contrast between the boom of the 1850's and the depression of the 1870's: each stands out and seems to usher in a new era, marking off a period of inflationary upswing from 1850 to 1873. In fact, the price series show no such long trend. The long deflation that begins after the Napoleonic wars is momentarily reversed by the influx of bullion and the credit boom of the 1850s. But the inflation last no longer than the upturn of the short cycle. Prices break in 1857, and while they have their ups and downs over the next decade and a half, the trend is slightly falling (at most, level in some cases), with a sharp decline setting in from 1873.
"The path of prices varied somewhat from one country to another, for each felt the impact of boom and bust differently according to political as well as economic circumstances. For all major economies of western Europe, however - Great Britain, Germany, France, Belgium - the trough of 1873-96 is an extension of the path traced in 1820-50.
"In sum, the nineteenth century was marked by protracted and sharp deflation, stretching from 1817 to 1896 with only one short interruption of some six or seven years. In the long history of money and prices from the Middle Ages to the present , there is nothing like it... Moreover, unlike these earlier periods, when falling prices were linked to catastrophe, depopulation, and widespread depression, the nineteenth century was a period of peace..." (Landes, pp.460-61).
("But it was also the century of wars of unification and centralisation, in which smaller political societies of all kinds were crushed into vast states. This period was a century of relative peace only if the concept of war is limited to conflicts between large-scale nation-states... It is no exaggeration to say that the 19th century was a Hundred Years' War against smaller polities of all kinds in favour of unification, centralisation and consolidation; and the 20th was an Eighty Years' War between the gigantic leviathans created in the 19th century" (Donald W. Livingston, The case for dismantling leviathan, AFR, May 24, 2002, Review 4)).
"Whatever its defects, the Congress of Vienna at least inaugurated a period of ninety-nine years in which Western Europe was free from long and devastating wars. That of 1870-1 was short and cannot be called devastating, when compared with those of any other century. It did not divert the course of civilisation; cripple or destroy great industries; completely ruin populous cities; throw wide stretches of land of cultivation; or impose a fearful strain on the population of the combatants. The great wars of other centuries have done some or all of these things. Recovery from them has often been a matter not of years but of decades and generations. And between 1815 and 1914 the short, bitter struggle of 1870-1 stands alone. Compared withe the wars of other centuries those of 1859 and 1866, for instance, were hardly campaigns - just battles. The crops were trampled at Solferino or Sadowa - not much more. The Crimean War was fought en champ clos, like a tournament, and that far to the east" (J.H. Clapham, Economic Development of France and Germany 1815-1914, (Cambridge: CUP, 1968, pp.3-4).
In the description of the period from 1850 to 1873, to follow, the weight of the argument allows for designating this period as an upwave. (Note: The British wholesale prices peak of 1873 was higher than in 1857; in an index series from 1840 to 1895, wholesale prices in 1842 was just over 80, with 1873 at just over 110; this peak in the mania period (1871-73), after the end of the Franco-Prussian War (1871), was c.15 points above the seventies decade average. The mania stage often starts after international difficulties; the mania of the late 1990s started with the lowering of interest rates as a response to the Russian devaluation, the threat of currency collapse in Brazil and other countries, and the near-collapse of the Long Term Capital Management hedge fund).
A NON-LINEAR WORLD
"Most of the time, most people expect current conditions to continue for the immediate future... Wherever prosperity exist, it is natural for people to expect prosperity to continue" (Davidson and Rees-Mogg, p.254).
Or conversely,
'Whenever depression exists, it is natural for people to expect depression to continue.'
"The years from 1873 to 1896 seemed to many contemporaries a startling departure from historical experience. Prices fell unevenly, sporadically, but inexorably through crises and boom - an average of one-third on all commodities. It was the most drastic deflation in the memory of man. The rate of interest fell too... And profits shrank, while what was now recognized as periodic depressions seemed to drag on interminably. The economic system appeared to be running down. Then the wheel turned. In the last years of the century, prices began to rise and profits with them. As business improved, confidence returned - not the spotty, evanescent confidence of the brief booms that had punctuated the gloom of the preceding decades, but a general euphoria such had not prevailed since the Grunderjahre of the early 1870's. Everything seemed right again... In all of western Europe, these years live on in memory as the good old days - the Edwardian era, la belle epoque" (Landes, pp.458-59).
Future Watch is interest in the turning points of the cycle which are the signals that the 'conventional' expectations for the future are soon to be turned upside down. This is why, in the upwave, we have a straight line for the period of 'war-peaking' inflation. We are basically interested in the beginning and end of this period of the upwave.
The war-inflation phase, that is a period characterised by 'war-peaking' inflation, peaks at the end of the first leg while the asset-bubble phase, that is a period characterised by asset-price inflation, peaks at the end of the second leg, which is the end of the upwave.
The end of the period of 'war-peaking' inflation to the end of the asset-inflation phase maybe considered a transition stage to a period of sustained deflation or depressionary conditions, when the inflationary excess are purged. It is characterised by mild inflation, relative to the preceding period, i.e. disinflation ("the process of reducing the rate of inflation") as in the 1990s or mild deflation as in the 1920s:
"Remember inflation, the beast that ravaged pay, pensions and savings in the 1970s and 1980s?... inflation [in the 1990s] has indeed been lower than most people expected" (The Economist, Survey: The World Economy, September 28, 1996, p.39).
(Bill Gross, How We Learned to Stop Worrying (so much) and Love "Da Bomb",
pimco.com, May/June 2007).
"... most of the net rise in prices that has occurred in human history took place between the late 1940s and about 1990 [during the Cold War]... In Australia's case,... By the second half of the 1960s, it was clearer that the price level had acquired a persistent upward trend... [I]nflation reached nearly 20 per cent during the mid 1970s [coinciding with the end of the Vietnam war 1975]... Thereafter [during the so-called "Second Cold War"] policies aimed at reducing it, with mixed success at first, but more lasting success in the aftermath of the early-1990s downturn [the 'primary' post-Cold war recession]. A number of other countries had more clearly broken the back of serious inflation in the early 1980s; we [in Australia] took a little longer. But in general it could be said that the period of really serious inflation in the western world lasted from the late 1960s until the early 1990s [the end of the Cold War].
"The subsequent decade has been a period of low inflation almost everywhere. Most recently, with a global business cycle downturn, inflation globally has declined further, and is currently low to very low in most places..." (Glen Stevens, Inflation, Deflation and All That, rba.gov.au, December 4, 2002).
"Every recession during the past four decades has been preceded by a marked rise in inflation. During this expansion, inflation has remained relatively subdued" (The Economist, Special: America's peculiar economic cycle, March 10, 2001, p.75).
"...Far from being an inflationary decade, the [nineteen] twenties were the reverse... the 1920's were, if anything, a time of relative deflation: from 1923 to 1929 - to compare peak years of the business cycle ... wholesale prices fell at the rate of 1 per cent per year..." (Milton Friedman and Anna Jacobson Schwartz, A Monetary History of the United States, 1867-1960, (Princeton: Princeton University Press, 1963), pp.298, 699).
PEACE AND MANIAS
Before looking at the parameters employed in the downwave of the WIPDHC, we will look at the period following the end of the Cold War. The end of the Cold War signalled the end of the period of 'war-peaking' inflation, which also a signal for a post-war boom. The events that occur in this period are the catalyst for a period of deflation.
"War causes inflation. Inflation causes economic decline or even bankruptcy that necessitates peace. Peace frees resources for productive use. More production raises output and lowers prices" (Davidson and Rees-Mogg, p.362).
The end of a period of 'war-peaking' inflation coincides with the end of or soon after the end of a war and is 'signalled' by a post-war recession. The end of the "Cold War," symbolised by the fall of the Berlin Wall on November 9, 1989, came when the Soviet Union could no longer afford to 'wage' it. The postwar recession in the Western world occurred in 1990-91.
"In economic terms, the period since 1940 has been equivalent to fifty years of war. It was a half-century of unprecedented military outlays for weapons of unprecedented destructive might... As military spending is cut in real as well as relative terms, U.S. industrial competitiveness will increase, and so will output. The sudden dampening of conflict and trends to lower military spending are deflationary..." (Davidson and Rees-Mogg, p.365).
After the postwar recession there is a period of prosperity. This period, as mentioned, is characterised by disinflation or mild deflation:
"Alberto Alesina, a professor of economics and government at Harvard, points out that the 1990s saw an unusual combination of factors: an economic boom that poured money into the taxman's coffers and a post-cold-war "peace-dividend" that reduced defence spending from 5.8% of GDP in 1988 to 3.1% in 1998" (The Economist, Divide and rule, October 23, 2004, p.36).
"The end of the Cold War in the late 1980s allowed governments to cut inflationary, non-productive defence spending" (Bloomberg and Agencies, Flawed but compelling: the Dow has the world under a spell, SMH, March 18, 1999, p.28).
"Since the end of the cold war it is reckoned that six million servicemen have been thrown on to the employment market with little to peddle but their fighting and military skills. The US military is 60% the size of a decade ago, the Soviet collapse wrecked the colossal Red Army, the East German military melted away, the end of apartheid destroyed the white officer class in South Africa. The British armed forces, notes Mr [Peter] Singer, [a security analyst at Washington's Brookings Institution], are at their smallest since the Napoleonic wars" (Ian Traynor, The privatisation of war, guardian.co.uk, December 10, 2003).
"...global defence spending [fell] 40 percent between 1987 and 1998" (Aphrodite Karaolis, Global Newsstand: Defensor Pacis, Foreign Policy, Summer 2000, p.151).
"The 1997 defence expenditure to GDP ratios for major Western powers, 3.4 per cent for the US, 3 per cent for France, 2.7 per cent for the UK, 2 per cent for Italy and just 1.6 per cent for Germany - were the lowest since the 1920s..." (Niall Ferguson, Cash Nexus, (Penguin Books, 2002, p.391).
"A large part of the explanation of the recovery in America's competitiveness lies with the trillions of dollars that American taxpayers have spent on military and space research over the past 50 years, and the more recent run-down in defence spending, [that is, after the Cold War], which has transferred massive, leading-edge knowledge-based skills to industry" (Brain, p.229).
The pattern from history is that war, especially turning point wars, promotes the development of new inventions and new industries (e.g., computers and the nuclear industry in WW2), or in some cases, suspends the development of a nascent industry (e.g. commercial-television in America in WW2). The potential of 'war-baby' inventions and growing pre-war inventions can then be fully exploited in peace-time when a number of factors come together to create a virtuous circle. The Internet was a product of the Cold War which became commercially viable in the popular market in the postwar boom:
"The Internet had its origin in U.S. Department of Defence program called ARPANET (Advanced Research Projects Agency Network), established in 1969 to provide a secure and survivable communications network for organizations engaged in defense-related research" (EB, Internet).
"The Internet got going properly only with the invention of the World Wide Web in 1990 and the browser in 1993" (The Economist, Survey: The new economy, September 23, 2000, p.1).
"Investment, especially in information technology, (IT), has been the driving force of America's expansion. Business investment has almost doubled its share of GDP over the past decade... As a result, the American economy has enjoyed a splendidly virtuous cycle: strong investment has lifted productivity growth and helped to hold down inflation; this has boosted profits and share prices. That, in turn, reduces the cost of capital and so encourages further investment and productivity gains. Meanwhile, faster growth in America has resulted in a stronger dollar, which also helped to hold down inflation and interest rates and so supported growth" (The Economist, Special: America's economy, December 9, 2000, p.86).
The 1990s, after the Cold War, followed the pattern of the 1920s, after the First World War:
"The [first world] war, moreover, had prompted endless new inventions, some of which were not merely destructive but could afterwards be applied to peaceful service. So a war gave a great new impulse to the spirit of invention. In America, invention became almost a trade, and something like mass production was brought to bear upon it. Captains of industry who had held the academic life in low esteem began to install laboratories...and hired university professors to run these laboratories... Accordingly, in the decade 1920-1929 more patents were granted in America than in its entire first century - the peak years being 1926 and 1929... There were also innumerable technological improvements not recorded in the patent office. Great strides were taken by the electrical, chemical and transportation industries. Road building became active. Scientific management struck a new tempo. Efficiency engineers came into their own. People began to talk of a new Era" (Irving Fisher, Booms and Depressions, (London: George Allen and Unwin), pp.71-72).
(See Parallels - 1920s and 1990s for the many 'rhymes' between post World War 1 and post Cold War American economies).
The pattern then is that the end of a turning point war signals or marks the end of the period of 'war-peaking' inflation. The end of the first leg of the WIPDHC upwave has been reached. A post-war recession then follows. The 'war-peaking' inflation is over but the asset-price inflation phase of the WIPDHC takes over. The peak of the asset-price phase is reached at the end of the postwar boom.
In the postwar boom some favourable economic factors come together to create a virtuous cycle. It is considered a new era where growth can be sustained indefinitely by the blossoming of new inventions and industries that were created in the preceding war, and the coming of age of 'evolving' prewar technologies. (We will see below a precedent of time lags between the invention of a new 'disruptive' technology and the reaping of the benefits by business and the consumer, especially in a post-war environment).
The optimism generated by the recovery leads to a boom which results in a bust ending the upwave of the cycle:
"Some crises occur immediately at the beginning or end of a war, or soon enough after the end to permit a few expectations to be falsified... At the end [of a war] there are the crisis of... [and] 1920. Moreover, seven to ten years after a war, long enough for expectations formed at the end of the original crisis to be falsified, comes an impressive series of crises... and of course 1929" (Charles Kindleberger, Manias, Panics, and Crashes, (USA: Basic Books, 1989), p.46).
The immediate post-war recession, that coincides with the end of the span of 'war-peaking' inflation, such as 1920-21 and 1990-91, maybe referred to as the primary postwar recession while the recession after the end of the asset-price inflation phase maybe referred to as the secondary postwar recession. The primary postwar recession is mild in comparison to the secondary recession. Because of the 'double' pattern in the latest upwave, the recession of 2001 is a prelude to the real secondary recession yet to begin.
"The crash [of the bubble] is then followed by a wind-down period, interrupted by numerous suckers' rallies, which absorb cash from optimists expecting an early recovery. Ultimately, assets are deflated by about 90 percent" (Davidson and Rees-Mogg, p.146).
The crash of the stockmarket signals the end of the asset-price inflation leg of the upwave. The ready availabilty of credit, or the expansion of credit, is the hallmark of the asset-price-bubble phase of the WIPDHC. Severe credit contraction is then the hallmark of the second phase of first leg of the deflationary downwave. The 'virtuous' cycle then becomes a 'vicious' cycle.
Note: While the end of a turning point war signals the end of the 'war-peaking' period the actual peak in inflation may occur before or after the war's end. For example, while WWI ended in 1918 the inflation peak occurred in 1920. In the post-war Cold War boom, credit inflation has continued after the stockmarket peak, with housing continuing its asset-price expansion. But this is a consequence of fighting against the needed purge of the inflationary excesses of the upwave. The first stage of the downwave is mild so this post-2000 stockmarket bubble-bust period fits this pattern.
In the 2000s a wealthier world economy, with expanded roles of government and consumers, combined with a complex and powerful financial sector, has followed the more resilient pattern of the 1970s, the post-go-go years, as opposed to the short recovery of 1930. The bear market rally of 1970-1973 followed by recession, recovery and recession is the pattern for the 2002-2007 rally, followed by recession, recovery and depression.
"... the sobering reality that for many Americans the Great Depression brought times only a little harder than usual... what historian James Patterson has called the "old poverty" that was endemic in America well before the Depression hit. By his estimate even in the midst of the storied prosperity of the 1920s some forty million Americans [out of a population of around 120 million], including virtually all nonwhites, most of the elderly, and much of the rural population, were eking out unrelievedly precarious lives that were scarcely visible and practically unimaginable to their more financial secure countrymen... From this perspective, the Depression was not just a passing crisis but an episode that revealed the deeply rooted structural inequities in American society.
"The "old poor" were among the Depression most ravaged victims, but it was not the Depression that had impoverished them. They were the "one-third of a nation" that Franklin Roosevelt would describe in 1937 as chronically "ill-housed, ill-clad, ill-nourished." By suddenly threatening to push millions of other Americans into their wretched condition the Depression pried open a narrow window of political opportunity to do something at least on behalf of that long-suffering one-third, and in the process to redefine the very character of America" (David M. Kennedy, Freedom From Fear: The American People in Depression and War 1929-145), New York, OUP, 2001, pp.16, 168). (No post-crash consumer boom here).
In the US in 1929 federal government spending was only 3 percent of GNP compared with 20 percent in the 1990s and while the car was at the heart of the consumer boom there was one registered car for every five people in 1929. Hence, monetary and fiscal stimulus today has provided a stronger prop for the economy compared with post-1929, but will only delay and aggravate the inevitable:
"From the cyclical peak in August 1929 to the cyclical trough in March 1933, the stock of money fell by over a third" (Friedman & Schwartz, p.299). From September 17, 2001 to July 14, 2003 M3 money stock increased by 12.5%). ("The money stock is the total amount of money available in a particular economy at a particular point in time"; "Just as very large scale inflations are normally the result of large percentage increases in the money stock, large-scale deflations are normally the consequence of substantial reductions in the available money stock"" Paul M. Johnson, www.auburn.edu/~johnsonpm).
"Henry Ford had followed this credo in cutting the prices of his cars to spur sales, as savvy businessmen had long done in the belief that rising prices discouraged buyers while falling prices attracted them... It was painfully clear that the health of the nation depended on installment buying... A banker estimated that 95 percent of the nation's business was done on credit. "Do away with installment buying suddenly," declared the Wall Street Journal [on February 19, 1930], "and the country might face a real industrial depression" (Maury Klein, Rainbow's End: The Crash of 1929, (Oxford, OUP, 2001), p.259).
THE DOWNWAVE
"Much of banking history consists of one speculative bubble after another... Each tends to be fuelled by an explosion of credit, a wave of unwarranted optimism and a subsequent mispricing of risk" (The Economist, Handle with care, October 3, 1998, p.15).
"[A] decline in general economic prospects makes it difficult for some borrowers to pay, creating losses to banks in the form of both lost income and bad debts... If the initial bank losses are on a large scale to severely damage the equity base of the banking system, or to threaten the minimum requirements of the regulatory authority ... the banks have no option but to curtail or cease new lending. In extreme liquidity crises, banks stop rolling-over existing loans or even start calling-in loans before their maturity date, if the lending contract allows them to do so. This imposes a credit crunch on the economy, which forces the non-finance sector to curtail activity. This will, of course, impose further loses on the banking system, leading to an intensification of recessionary tendencies... If there is no effective lender of last resort facility, and banks start failing, a financial meltdown will occur. As soon as customers lose confidence in the banks, and demand their deposits back in cash, bank failures multiply, which further intensifies the credit-crunch cycle.
"This is what happened between 1929 and 1933 in the United States. In 1929, there were 28,000 banks in the United States. By 1933, the vicious cycle of bank closures mutually reinforcing the declining economy conditions had led to half the banks failing. This rate of banking failure in effect confiscated assets from the household and corporate sectors. Between 1929 and 1933, depositors in the United States' banking sector had one-in-ten chances of losing their funds" (Brain, pp.139-40).
As a general rule the downwave begins and ends with a contraction - a contraction is also known as a recession.
In between the bookend contractions are alternating periods of expansion and contraction.
In the downwave of 1873-1897, there were six contractions and five expansions, as defined by the NBER. Therefore the downwave is not a linear experience.
The WIPDHC cycle places emphasis on the turning points of the cycle. So that, as a general rule, the down-legs of the downwave are the beginning and ending contractions.
The WIPDHC cycle, as mentioned before, has as its starting point the Kondratiev wave (K -Wave). The K-wave was originally defined by the upwave and downwaves of the wholesale prices index (PPI).
The average length of the two downwaves, as defined by the WIPDHC cycle, that ended in 1843 and 1896 was 21 years.
The end of deflation, in these episodes, coincided with the end of depressionary conditions.
But the downwave, beginning in 1929, departed somewhat from the script, as did the following upwave, so modifications, based on the patterns of the previous downwaves, are made.
In going forward from 1929 the CPI will be employed as the measure of inflation instead of the PPI. The Price/Earnings Ratio longwaves will be employed to define the longwaves instead of the PPI.
Looking at the 1930s we see that:
"The depression of the 1930s was the most severe in American history, in terms of unemployment and the fall of output. Popular culture credits the New Deal with rescuing the economy from collapse. This is wrong. The National Bureau of Economic Research dates the recovery to March 1933. The stockmarket market rebounded from the nadir of depression in July 1932. The recovery after the New Deal was instituted from 1933 forward was actually less robust than the recoveries from previous depressions" (Davidson & Rees-Mogg, p.347).
"...while certain other major powers steadily recovered output by the middle to late 1930s, the United States suffered a further economic convulsion in 1937 which lost much of the ground gained over the preceding five years... the overall consequence was that in the year of the Munich crisis, the US share of world manufacturing output was lower than at any time since around 1910" (Paul Kennedy, The Rise and Fall of the Great Powers, (London: Fontana Press, 1989), p.426).
"I want to suggest in this study that the difficulty experienced by the American economy in the 1930s was an outgrowth of secular trends in development. By the 1920s, the economy had entered an era characterized by the emergence of dramatically new demand patterns and investment opportunities foreshadowed and indeed encouraged a shift in the composition of national output. But such a qualitative transformation created impediments to the recovery process in the thirties. These impediments derived from the difficulty of altering technology and labour skills to meet demands for new investment and consumer goods at a time of severe financial instability. In this sense, long-term growth mechanisms played a major role in the cyclical problems of the interwar period" (Michael A. Bernstein, The Great Depression, Delayed Recovery and Economic Change 1929-1939, (Cambridge: Cambridge University Press, 1987), p.20).
"It was not until the actual outbreak of World War II in Europe, a decade after the depression began, that U.S. industrial output exceeded its 1929 highs. From 1929 to 1939, adult unemployment averaged 18 percent" (Davidson & Rees-Mogg, p.347).
Industrial output surpassed the 1929 high in the expansion that began in June 1938.
If the downwave is defined by the information above the starting contraction is from 1929 to 1933, followed by the expansion of 1933 to 1937, with the ending contraction from 1937-38.
This downwave would only be nine years long, less than half as long as its predecessors.
But if we use the P/E ratio longwaves the end of the downwave would be 1942 or 1949, based on the method of calculation.
The following observations lend weight to defining the later ending point of the downwave in 1949, which would bring it length into line with its predecessors.
"The year 1949 was chosen as the beginning year in the study, since prior to 1949, excluding the eight year period 1941 through 1948, inflation was basically non-existent in the United States on a continuing basis, and typically occurred only during war-time periods. The eight year period from 1941 through 1948 was excluded, since it contains the five year period 1941 through 1945, representing the years of World War II - an inflationary period -and the three year period following World War II, 1946 through 1948. The three years from 1946 through 1948 can be characterized as a period when pent-up demand, which accumulated during the war years, was unleashed in the form of increased consumer spending - which generated inflation. Thus the eight year period from 1941 through 1948 was atypical regarding the rates of inflation that have been experienced in the United States. As a result, 1949 will be the beginning year for measuring increases in the price level...
"It must be mentioned that during the 46 year period 1949 through 1994 there were only 2 deflationary years - 1949 [-2.1] and 1954 [-0.7]. Beginning with 1913 and going forward through 1994, deflationary years occurred during 1921, 1922, 1926 through 1928, 1930 through 1932, 1938, 1949 and 1954" (Christopher T. Manos, System, method and program product for managing and controlling the disposition of financial resources, patentstorm.us, Patent issued March 16, 1999).
NOTES
The FW cycle follows the inflation-deflation cycle of Britain and America. In Germany in the 1930s the dowwave was only one leg of deflation-depression before the economy recovered. Therefore in the future downwave from the American pinnacle, according to the FW cycle, there may be one or more periods of contraction-expansion finishing with a contraction.
"Before World War II, it was common to refer to any business cycle downturn as a "depression." This confused the short-term cycles ... what we now call "recessions" ... with the long-term cycles what we now call "depressions"" (Davidson & Rees-Mogg, p.371). The longer-term depression may be referred to as "great" depression to distinguish it from a short-term depression or recession of the upwaves.
"In real terms - that is, after adjusting for inflation - the average American worker today earns roughly nine times as much as his 1840 counterpart. That's because today's worker is roughly nine times as productive... Today's workers are more productive because they're working with better equipment - computerized looms instead of handlooms, for example" (Steven E. Landsburg, Why the Stimulus Shouldn't Stimulate You, washingtonpost.com, January 2008).
The length of the first two longwaves measured from market peak to market peak was roughly 53 years. It was around 70 years from the peak in 1929 to the peak in 2000. It is our contention that a more productive and weathier world economy, with a particular geo-political construct, was able to extend the longwave but not extinguish it.
"A brilliantly inventive generation has harnessed computing power and financial theory to transform the world of finance. Trillion-dollar global markets have sprung up on the back of techniques for converting loans, interest payments, default risk and who knows what else into new securities that could be chopped up and repackaged in mind-boggling combinations, sold and resold. Much good has come of that - and not only fat bonuses on Wall Street and in the City. The most valuable result of the new finance is that more people and businesses have gained access to credit on better terms" (The Economist, Only human, economist.com, October 18, 2007).
THE FUTURE
"... the information revolution. Almost everybody is sure of two things about it: first, that it is preceding with unprecedented speed; and second, that its effects will be more radical than anything that has gone before. Wrong, and wrong again. Both in its speed and its impact, the information revolution uncannily resembles its two predecessors within the past 200 years, the first industrial revolution of the later 18th and early 19th centuries, and the second industrial revolution of the late 19th century...
"The two industrial revolutions also bred new theories and new ideologies. The Communist Manifesto was a response to the first industrial revolution; the politcal theories that together shaped the 20th-century democracies - Bismarck's welfare state, Britain's Christian Socialism and Fabians, America's regulation of business were all responses to the second one...
"All this suggest that the greatest changes are almost certainly ahead of us... It will, of course, be important, but it will be only one of several important new technologies. The central feature of the next society, as of its predecessors, will be new institutions and new theories, ideologies and problems" (Peter Drucker, A survey of the new future, The Economist, November 3, 2001, pp.19-20).
TRANSPORTATION BOOMS LEAD TO BUSTS
"In almost every case depression in America has followed an overexpansion of transportation facilities and land speculation. Thus the panic of 1837 was preceded by a boom in canal building; the panics of 1857, 1873, and 1893, by overexpansion in railroad building; and the depression of the 1930s, by extensive automobile and road building... While the outstanding causes of these current cycles of prosperity and depression in the United States appear to be much the same, there are always some differences, for history never repeats itself in detail" (Faulkner, p.638).
Today: "This was a transport revolution that depended, like others before it, on men digging holes in the ground. In spite of the "virtual reality" of "cyberspace" and the "weightless economy", the telecoms bubble has a solid, physical underpinning - just as did past manias for building railways and canals.
"Ditches were cut for fibre-optic networks, masts were erected for mobile phone antennae and elaborate engines were assembled in microchip "foundries" to power the flow of data around the world. There was even a short-lived craze for building carrier "hotels" and data storage centres at optical transport nodes - echoing the grand hotels and warehouses built alongside docks and railway junctions" (Dan Roberts, The tangled legacy of a derailed revolution, ft.com, September 6, 2001).
1850-1873
Railroads and Telegraph
|
1921-1929
Cars and Radio
|
1991-2000
Computers and Internet
|
PAX BRITANNICA AND PAX AMERICANA
""The extension and use of railroads, steamships, telegraphs, break down nationalities and bring peoples geographically remote into close connection commercially and politically. They make the world one, and capital, like water, tends to a common level." The diction aside, it might be a World Bank press release written this morning. It is, in fact, David Livingstone, reflecting on his experiences in Africa in the 1850s" (The Economist, The early pioneers, economist.com, July 26, 2007).
In the WIPDHC there are two major upwaves for Britain to reach its pinnacle before decline: 1787 to 1825 and 1843 to 1873 - technically the British upwave was from 1848 to 1873; and two for America to reach its pinnacle before decline: 1896 to 1929 and 1942/49 to 2000/??.
In the first major British upwave, Britain, by the end of the Napoleonic Wars in 1815 was world hegemon in the economic and diplomatic spheres. In the first American upwave, after the First World War America met arguably only one of the two requirements for world hegemon:
"The war had quickly catapulted the Americans close to the position of world economic leadership that the British had taken nearly a century to reach. Perhaps the very speed of that advanced helped to frustrate its final success, as did the markedly different structure of the American economy compared to the British, and of the postwar global system compared to that before 1914. Despite the vastly increased role that America was now called upon to play in the international economic order, she had neither the skills, nor the wisdom, nor the compulsion of interest, to play the role as productively as Great Britain had played her part in the nineteenth century. And despite the dreams of some men at the time, and the claims of some historians later, the United States was not in 1919, nor even in 1929, yet heir to the mantle of "empire" that history was stripping from the backs of the British. America was still a pretender to the title. Her time was yet to come, in another war, a generation later" (David M. Kennedy, Over Here - The First World War and American Society, (New York: Oxford University Press, 1982), pp.346-347).
"...the United States ... clearly the most powerful nation in the world by 1919 ... preferred to retreat from the centre of the diplomatic stage. In consequence, international affairs during the 1920s and beyond still seemed to focus either upon the actions of France and Britain, even though both countries had been badly hurt by the First World War, or upon the deliberation of the League [of Nations], in which French and Britain statesmen were pre-eminent" (Paul Kennedy, The Rise and Fall of the Great Powers, (London: Fontana Press, 1989), p.357).
It took the Great Depression and the Second World War for America to assumed the diplomatic leadership of the West to complement its economic and military role.
In looking, therefore, at the parallels, between the rise of Britain and America the dates of 1815 and 1918 are critical as well as 1815 and 1945.
In looking at the period as world hegemony for Britain, starting in 1815, and America, starting in 1945 we have a general reflective symmetry in their economic development:
Britain
1819 - 1825
Post war prosperity - 6 years
1825 - 1848
Transition - 24 years
Competition from America and Europe
1848 - 1873
New era - 24 years
Victorianization of the World
Ideology - "economic rationalism"
Disruptive technology: Railway
Exported matrix of new industrial age
1873 - 1914
Not as strong and innovative in new age
Overtaken by competitors - America & Germany
|
America
1950 - 1973
Postwar prosperity - 23 years
1973 - 1995
Transition - 22 years
Competition from Germany and Japan
1995 - 2000
New era - 5 years
Americanization of the World
Ideology - "economic rationalism"
Disruptive technology: Internet
Exported matrix of new infotronics age
2000 - WW 3
Not as strong and innovative in new age?
Overtaken by competitors - Europe and Japan?
|
Note: For America, 1995-2000 was selected, when productivity increased, to parallel 1819-1825. We could have used 1991-2000 when manufacturing surged.
(The end of the Civil War in the British empire in 1783, coinciding with the big-bang of Britain's Industrial Revolution, up to the end of the Napoleonic wars in 1815 is 'rhymed' with the end of the American Civil War in 1865, coinciding with the take-off of Americas Industrial Revolution, up to the end of the Second World War in 1945). Britain and America became world hegemon in 1815 and 1945 respectfully. The three dividing periods of the British economy from 1815 to the stockmarket crash in 1873 were reflected, in a rough mirror reverse way, in length and some characteristics, with the American economy from 1945 to the Nasdaq crash in 2000:
"From 1950 to 1973, the developed economies enjoyed their fastest sustained period of economic growth of the whole century, with the fastest sustained rise in productivity and in incomes, and with low male unemployment" (The Economist, Survey: 20th Century, September 11, p.15).
"For most of the postwar era, Western Europe and Japan slowly gained ground on the U.S. by adopting U.S. technology and adding their own innovations. In 1970, the U.S. per capita income was 31% higher than that of other major industrialized countries. By 1991, the difference had narrowed to only 10%. But with the dawn of the Internet Age, the gap has started to widen again, to more than 22% this year [1999]" (Michael J. Mandel & Irene M.Kunii, The Internet Economy: The World's Next Growth Engine, businessweek.com, October 4, 1999).
"[The American] lead in per-capita GDP was not closed until the 1980s... When many countries began to catch up, the United States responded with an awesome transformation of its industrial base - and again left its competitors in its wake..." (Peter Brain, Beyond Meltdown: The Global Battle for Sustained Growth, (Melbourne: Scribe Publications, 1999), p.2-3).
"The 1840s remained ... a decade of crisis, even in terms of classical economics. British industry was still dominated by textiles, and the market for them was both finite and subject to increasing competition from American and Europe" (Morgan, p.505).
"Britain saved herself, and so the world, by expanding out of crisis through the explosion of railway technology, by creating, and then exporting, the matrix of heavy industry based on coal and steel. The United States and Germany became great industrial powers. Other countries - France, Belgium, Austria, even Russia and Japan - began to follow. The modern economy took shape in the middle decades of the century, and for a time it seemed possible that his shape would be essentially English, with London as the financial pivot, and unrestricted free trade, by treaty or unilateral action, as the dynamic of unlimited self-sustaining growth. The world was going England's way: hence the almost crazy optimism of the 1850s and 1860s" (Paul Johnson, The Offshore Islanders, p.327).
THE CHALLENGERS
"Over the past two centuries, the place to look for technological change has been manufacturing industry. This is still true, despite all the talk of a post-industrial age. If anything, manufacturing has been increasing in importance, because elaborately transformed manufactured goods have increased as a proportion of world trade and hence as a conduit of prosperity and depression between nations" (Brain, p.39).
"An economic study done in the 1980s found that it still took upwards of 10 years for an important innovation made in one country to be adopted elsewhere. That's about how long it took American automakers to adopt Japanese manufacturing methods after Japanese cars took a large share of the U.S. market in the early 1980s" (Michael J. Mandel & Irene M.Kunii, The Internet Economy: The World's Next Growth Engine, businessweek.com, October 4, 1999).
"Once the microeconomic roots of disruptive technology are understood, policymakers can learn how to transform relatively stagnant economies such as Japan's, Germany's, and India's..." (Clayton Christensen, Thomas Craig, Stuart Hart, The Great Disruption, Foreign Affairs, March/April, 2001).
THE HUNGRY EAGLE FEEDS BEST
"If this export of the means of production were continued indefinitely, it would simply be the end of the vital prerequisite for European Industry. Therefore international agreements on limiting the export of the means of production are necessary" (Adolf Hitler, cited by Harold James: The End of Globalization: Lessons from the Great Depression, (Cambridge, Harvard University Press, 2001), p.106).
"Germany exports more goods than any other country and has the world's third-largest economy" (Craig Whitlock, Germans Haven't Forgotten Schroeder's Unfulfilled Pledge, washingtonpost.com, September 16, 2005).
When Britain matured as an industrial society the "young" America eagle overtook her. Now that America has also matured it is likely that Europe led by the a relatively "young" German eagle will overtake her.
"...for nearly a century ... Britain was evidently the country with the fastest rate of economic growth. Indeed, during their Industrial Revolution the British invented modern economic growth... any valid explanation of Britain's relatively slow growth ... must also take into account the gradual emergence of the "British disease." Britain began to fall behind in relative growth rates in the last decades of the nineteenth century..." (Mancur Olson, The Rise and Decline of Nations, (London: New Haven: Yale University Press, 1982), pp.77-79).
"The leading Great Power cannot maintain its status indefinitely if its economy is in relative decline. Moreover, because this decline is relative and gradual, it is insidious, not dramatic; as one economic historian has noted, "a country whose productivity growth lags 1 percent behind other countries over one century can turn, as England did, from the world's undisputed industrial leader into [a] mediocre economy..."" (Kennedy, p.295).
"A second-class power ... the most obvious fact: the reduction in Britain's share of world production and trade, and its consequence decline as an international power. Given the size and resources of other countries, together with the diffusion of industralization among nations more comparable to Britain itself, it was inconceivable that the country could continue to occupy a very significant or autonomous position in international affairs. Britain simply lacked the distinctive wealth necessary to maintain anything like its 'historical' role, first as a major policeman in imperial and quasi-imperial affairs, and then as a premier 'player' on the world scene... [also] Adam Smith's advice to an anxious correspondent remains as valid in the late twentieth century as in the late eighteenth century: 'Be assured my young friend, that there is a deal of ruin in a nation' (Sinclair 1831:390-1)" (Barry Supple, "British economic decline since 1945", The Economic History of Britain since 1700, Volume 3:1939-1992, Revised Edition, (Cambridge, Cambridge University Press, 1994, pp.332, 346).
"In the several decades before the first World War, then, Great Britain had found itself overtaken industrially by both the United States and Germany, and subjected to intense competition in commercial, colonial, and maritime spheres. Nonetheless, its combination of financial resources, productive capacity, imperial possessions, and naval strength meant that it was still probably the 'number-one' world power, even if its lead was much less marked than in 1850. But this position as number one was also the essential British problem. Britain was now a mature state, with a built-in interest in preserving existing arrangements or, at least, in ensuring that things altered slowly and peacefully" (Kennedy, p.298).
"... some decline in manufacturing industry's share of employment and output in a mature economy is to be expected - and welcomed. For it reflects economic progress in the form of relatively rapid productivity growth in many manufacturing sectors and the continued enhancement of living standards. High productivity means that manufacturing industry's demand for labour expands relatively slowly, or not at all, while the relative cost of fabricating goods and (therefore) their prominence in the national accounts fall. Further, private affluence and 'maturing' consumption patterns bring disproportionate increases in the demand for leisure, health, educational, and public and personal services, and these tend to be labour intensive. The inevitable result is that industry's shares of employment, consumption and current output fall, while those of the service sector rise. To a large extent, such structural changes are symptoms of maturity rather than decline..." (Supple, p.334).
SCIENCE, EDUCATION AND RELATIVE DECLINE
America today:
"... the American share [of Nobel Prizes], after peaking from the 1960's through the 1990's, has fallen in the 2000's to about half, 51 percent. The rest went to Britain, Japan, Russia, Germany, Sweden, Switzerland and New Zealand.
""We are in a new world, and it's increasingly going to be dominated by countries other than the United States," Denis Simon, dean of management and technology at the Rensselaer Polytechnic Institute, recently said at a scientific meeting in Washington.
"Europe and Asia are ascendant, analysts say, even if their achievements go unnoticed in the United States..." (William J. Broad, U.S. Is Losing Its Dominance in the Sciences, nytimes.com, May 3, 2004).
"... despite the technical prowess of its universities, fewer Americans are taking undergraduate degrees in natural sciences and engineering than students in almost any other rich country... only 6% of American 24-year olds have first degrees in those subjects, a lower figure even than in Europe and far lower than in the stars on this measure, Finland and (surprisingly Britain). America's universities lead the world in all sciences, but many of their students, especially postgraduates, are foreign than Americans..." (Bill Emmott, A survey of America's world role, The Economist, June 29, 2002, p.26).
"... because of the steady erosion of science, math and engineering education in U.S. high schools, our cold war generation of American scientists is not being fully replenished. We traditionally filled the gap with Indian, Chinese and other immigrant brainpower. But post-9/11, many of these foreign engineers are not coming here anymore, and, because the world is now flat and wired, many others can stay home and innovate without having to emigrate.
"If we don't do something soon and dramatic to reverse this "erosion," Shirley Ann Jackson, the president of Rensselaer Polytechnic and president of the American Association for the Advancement of Science, told me, we are not going to have the scientific foundation to sustain our high standard of living in 15 or 20 years" (Thomas L. Friedman, Fly Me to the Moon, nytimes.com, December 5, 2004).
Britain yesterday:
"Britain's relative lack of skills and knowledge (who could have imagined this eventuality in the first half of the nineteenth century?)..." (Landes, p.575).
"During the nineteenth century, Oxbridge and the public schools produced very few men of distinction in the sciences, engineering and the organisation of industry. Their products dominated politics, the Bar and the Church.. Not until Dr Sanderson went to Oundle towards the end of the century did any major public school take science seriously (though T.H. Huxley was made a fellow of Eton). More ominous, in the long run, was the way in which the anti-science bias spread downwards from the elite schools, to embrace virtually the whole education system... Even in conservative circles, there was some awareness that a great industrial nation like Britain was storing up trouble for herself. The Quarterly Review warned in 1867:
"England, at least as far as the natural and experimental sciences are concerned, seems in danger of sinking to the condition of what in political language would be called a third- or fourth-rate power. Our greatest men are perhaps still greater than those of any other nation; but the amount of quiet, solid, scientific work done in England is painfully less than that done in Germany, less even than done in France."
"Oxbridge resisted the advance of science just as doggedly. Until the last decade of the century the amount of scientific work done in either university was negligible and the number of graduate engineers produced by Britain was already small by comparison with the United States and Germany. The relative decline of Britain as a great industrial nation was already apparent by the 1870s, and pronounced by the 1880s; and it has, of course continued ever since. It was produced by a number of factors, but by far the most important was the backwardness of the English education system..." (Paul Johnson, The Offshore Islanders, pp.302-33).
"The continued explosion of scientific knowledge will be best exploited by societies that are steadily raising educational standards, technical training, and work-force skills, which America is not" (Kennedy, p.314).
"At the very top, [America] has the best universities in the world. But for the bulk of the population, Japan and Europe provide a better education. This could seriously hold back America's economy in the years ahead. Japan and Europe may have been slower to adopt IT, but once they get around to it, the economic pay-off could be bigger than in America. As Paul Saffo, at California's Institute of the Future, puts it. "The early bird may catch the worm, but it is always the second mouse that gets the cheese"" (The Economist, Survey: The New Economy, September 23, 2000, p.34).
DECLINE OF AMERICA AND THE RISE OF EUROPE
Free-Trade-Area indicator:
"The economic boom, felt everywhere but most intensively in Britain, sent government revenues soaring, and in the years 1823-25, the new Chancellor of the Exchequer earned himself the name "Prosperity" Robinson by across the-board reductions in taxes and duties... Many inland duties went altogether, so that Britain, and to a great extent Ireland, became the largest free-trade area in the world. All kinds of ancient regulations, quotas, bounties and taxes, which interfered with the free flow of goods and services, were dumped, leaving the market to determine price and quantity" (Paul Johnson, Birth of the Modern, (London: Orion Books, 1992), pp.878-88).
"... America's ascent to world leadership in manufacturing was driven by agriculture... natural resources and [other] advantages were reinforced by a unique combination of protection and laissez-faire in federal and state policy. The freedom of interstate commerce ... made America by the 1860s the largest free-trading area in the world. But this was accompanied by high external tariffs ... from 1861 onwards. Thus the United States enjoyed simultaneously the advantages both of free trade and of protection. As a result the homemarket was buying 97 percent of its manufactures from domestic producers by 1900" (Paul Johnson, A History of the American People, p.442).
"European Economic Area (EEA), [an] association formed to establish a single market and free-trade area among countries of the European Union (EU) and the European Free Trade Association (EFTA). The EEA is the largest free-trade zone in the world. It has 30 members, comprising the 27 EU countries plus Iceland, Liechtenstein, and Norway. Switzerland, the only member of EFTA that did not join the EEA, maintains observer status" (European Economic Area, encarta.msn.com/encyclopedia).
"Looking back at the long history of Europe falling behind the U.S. and then catching up, it is hard to avoid the conclusion that this topic has more to do with politics and history than with economics. The sources of U.S. advantage prior to 1913 center on its internal common market, an achievement of the Founding Fathers, Abraham Lincoln, and the Union Army, rather than any particular genius at business or technology, and free internal trade led in turn to exploitation of raw materials and leadership in materials-intensive manufacturing. Postwar Europe gradually rid itself of internal trade barriers and largely caught up to the American productivity frontier as a result. But America's nineteenth century advantage went far beyond its internal common market. Even a hypothetical United States of Europe, formed in 1870, could not have matched America's land-rich "newness" that fostered large-scale farms, internal mobility, a flood of immigrants without an overlay of class conflict, and a continuing effort to invent new machines and production techniques to replace scarce labor.
"America's productivity advantage opened a wider gap with Europe during 1913-50, not just because the U. S. avoided wartime damage, but because it was able to exploit the great inventions, particularly electricity and the internal combustion engine, 30 to 40 years earlier than Europe. As open trade and immigration were cut off between 1930 and 1950, and New Deal legislation allowed unions to flourish, unskilled and semi-skilled labor was able to earn relatively high wages that created further incentives for capital-labor substitution.
"As Europe recovered from war in the 1950s and 1960s, there was a rich menu of technology to exploit, and closing the gap with the American productivity frontier was only a matter of time. But closing the gap involved more than mere European mimickry of previous American achievements. The U. S. lost not only its superior access to raw materials, but also its technological leadership in key areas of manufacturing, including automobiles and machine tools. The revival of immigration and return of open trade pushed down the relative wages of unskilled workers and promoted indiscriminate hiring of unskilled domestic and immigrant workers to perform menial jobs in the service sector that had largely disappeared in Europe.
"The twenty-first century begins on an ambiguous note. Europe envies the U. S. hightech boom of the late 1990s and its associated productivity revival. Try as it might, Europe can't duplicate the American productivity revival, no matter how much hardware and software it buys from Dell, Intel, and Microsoft" (Robert J. Gordon, Two Centuries of Economic Growth: Europe Chasing the American Frontier, March 30, 2004, http://faculty-web.at.northwestern.edu/economics/gordon, pp.37-39).
"The outstanding performance of American productivity growth since 1995 raises the danger of a resurgent American triumphalism... No doubt the growing American dominance of innovation in ICT [information and communication technology], biotech, and pharmaceuticals reflects in part the fruitful collaboration of government research funding, world-leading private universities, innovative private firms, and a dynamic capital market. However, we should be cautious. The favorable preconditions that fostered innovation after 1995 did not prevent the U. S. from experiencing the dismal 1972-95 years of the productivity growth slowdown and near stagnation of real wages, and they do not give the U. S. an advantage in many other industries. A quarter century after the invasion of Japanese auto imports, the quality rankings of automobiles still are characterized by a bimodal distribution in which Japanese nameplates (even those manufactured in the U. S.) dominate the highest rankings and American nameplates dominate the lowest. The U. S. shows no sign of regaining leadership in the manufacturing of computer peripherals or machine tools. The U. S. innovation infrastructure remains fertile soil when the right seeds are planted, as after 1995, but fertile soil without the right seeds can lie fallow for decades" (Gordon, Why was Europe Left at the Station When America's Productivity Locomotive Departed? March 31, 2004, http://faculty-web.at.northwestern.edu/economics/gordon, pp.34-35).
"The legacy of our [American] fiscal profligacy in the context of looming needs [rising longevity, escalating healthcare costs and insufficient healthcare quality, inadequate retirement saving and saving systems, a looming fiscal train wreck, mediocre public education, and an unsustainable energy infrastructure] may rob us not only of the resources we need to sustain our competitive edge in the global economy, but also erode the desire. A geriatric society, one eager to protect old jobs instead of creating new ones, may be reluctant to invest, to take risks, and to innovate, undermining the productivity that will help it survive and flourish" (Richard Berner, America's Long-Term Challenges: Part II, morganstanley.com, May 24, 2004).
"The slowdown in British productivity and the decrease in competitiveness in the late nineteenth century has been one of the most investigated issued in economic history. It involved such complex issues as national character, generational differences, the social ethos, and the educational system as well as more specific economic reasons like low investment, out-of-date plant, bad labour relations, poor salesmanship, and the rest. For the student of grand strategy, concerned with the relative picture, these explanations are less important than the fact that the country as a whole was steadily losing ground. Whereas in 1880 the United Kingdom still contained 22.9 per cent of total world manufacturing output, that figure shrunk to 13.6 per cent by 1913; and while its share of world trade was 23.2 per cent in 1880, it was only 14.1 per cent in 1911-13. In terms of industrial muscle, both the United States and Imperial Germany had moved ahead. The 'workshop of the world' was now in third place, not because it wasn't growing, but because others were growing faster"(Kennedy, The Rise and Fall of the Great Powers, p.294).
"A few years ago, Professor Samuel Huntington suggested that "the baton of world leadership" [in the 21st century] may pass from America not to Japan, or China, or Russia, but to a European federation:
""The European Community, if it were to become politically cohesive, would have the population, resources, economic wealth, technology and actual and potential military strength to be the preeminent power of the twenty-first century... It is also possible to conceive of a European ideological appeal comparable to the American one... A federation of democratic, wealthy, socially diverse, mixed economy societies would be a very powerful force on the world scene. If the [21st] century is not the American century it is most likely to be a European century"" (Kennedy, pp.258-59).
EUROPEAN HEGEMONY?
"Every modern transition of world power supremacy has involved an ally or former colony of the previous hegemonic power" (Davidson & Rees-Mogg, p.137).
United Provinces of the Netherlands (Protestant) then United Kingdom of Great Britain and Ireland (Protestant) now United States of America (Protestant) next United States of Europe (Catholic).
"The 1990s should be seen as but a temporary interlude between eras of cosmic competition. And America's allies in the last round (against the Soviet Union) are shaping up as opponents in the new one" (Daniel Pipes, Europe vs. America, capmag.com, January 21, 2003).
"History is coming full circle. After breaking away from the British Empire, the United States came together as a unitary federation, emerged as a leading nation, and eventually eclipsed Europe's Great Powers. It is now Europe's turn to ascend and break away from an America that refuses to surrender its privileges of primacy. Europe will inevitably rise up as America's principal competitor. Should Washington and Brussels begin to recognize the dangers of the growing gulf between them, they may be able to contain their budding rivalry. Should they fail, however, to prepare for life after Pax Americana, they will ensure that the coming clash of civilizations will be not between the West and the rest but within a West divided against itself... and America remains largely oblivious" (Charles A. Kupchan, The End of the West, The Atlantic Monthly, November 2002, p.42-44).
"The central fact of global politics from 1890 to 1914 was Britain's relative decline. This occurred naturally, as industrial power diffused, but was aggravated by the particular challenge of Germany. Overextended, the British sought partners to share the burdens of a world empire and were obliged in return to look kindly on those partners' ambitions" (EB, 20th-Century International Relations).
"An assassination in the Balkans may have provided the 'spark' for war, and the conflagration which followed drew in many countries, for varying reasons. Yet, so far as the British and German governments were concerned, the 1914-18 conflict was essentially entered into because the former power wished to preserve the existing status quo whereas the latter, for a mixture of offensive and defensive motives, was taking steps to altar it. In that sense, the wartime struggle between London and Berlin was but a continuation of what had been going on for a least fifteen or twenty years before the July crisis itself" (Paul M. Kennedy, The Rise of the Anglo-German Antagonism 1860-1914, (Amherst: Humanity Books, 1980), p.470).
"The first industrial nation had offered the world a remarkable public experiment in liberal, capitalist democracy whose success was premised on free trade and world peace. Tuesday, 4 August 1914 brought that experiment to an abrupt end" (Morgan, p.581).
"...it is no coincidence that World War I started when it did. The United Kingdom's share of world manufacturing output shrank from almost 32 percent in 1870 to just 14 percent in 1913. Sometime during that year, German output exceeded that of Britain for the first time. The Great War then became a test of strength between two powers. Similar global wars had been fought in the past almost every time a hegemonic power was displaced and a new world order created.... the Pax Britannica was over" (James Dale Davidson & William Rees-Mogg, Blood in the Streets, (New York: Summit Books, 1987), pp.65-66).
"Charles Kupchan of America's Council on Foreign Relations argues ... "If Europe defines its identity in terms of countering U.S. power, the world is likely to return to a balance-of-power system reminiscent of the era prior to World War I - with the same disastrous consequences."
"The idea that Europe and America might actually come into armed conflict still seems absurd. But the notion that Europeans and Americans may increasingly be rivals rather than partners seems less implausible than it once did" (The Economist, "Old Europe" views Iraq, May 15, 2004, p.50).
(The Economist, Against anti-Europeanism - Anti-Europeanism is a bad response to anti-Americanism, economist.com, April 26, 2007).
An example for the future:
"The European Union will countersue the United States at the World Trade Organization in the long-simmering dispute over government subsidies to their respective aircraft makers, the European trade commissioner said Tuesday.
"Months of efforts to settle the differences bilaterally all but evaporated late Monday when the office of the United States trade representative said it would file a case against Europe for subsidizing Airbus, a rival of Boeing in passenger and cargo aircraft. On Tuesday, the United States made good on that pledge.
""I am disappointed that the U.S. has chosen this confrontation with Europe," Peter Mandelson, the European trade representative, said at a news conference at the European Commission headquarters. "It will be hard fought on both sides and, I can assure you, Europe's interests will be fully defended."
"The tit-for-tat legal action would be the biggest and most complicated trade dispute ever to face the W.T.O., Mr. Mandelson said. The dispute over billions of dollars in subsidies received by both companies in the last 13 years may harm global talks to reduce trade barriers, he warned.
"The world's two biggest trading blocs will be distracted now by "a grudge fight between two companies competing for share of a global market that is big enough for both of them," he said, when they should be channeling their energies into making the current global trade round a success" (Paul Meller & Elizabeth Becker, Europe Strikes Back in Plane Dispute, nytimes.com, June 1, 2005).
The German Empire after the stockmarket crash in 1873 up to the First World War and Germany after the stockmarket crash of 1929 to the Second World War provides the historical template to view the future, that is, from the stockmarket crash in 20?? up to the Third World War - the end of Pax Americana.
"For we must consider that we shall be as a City upon a hill. The eyes of all people are upon us. So that if we shall deal falsely with our God in this work we have undertaken, and so cause him to withdraw his present help from us, we shall be made a story and a byword throughout the world"
- John Winthrop, governor of Massachusetts Bay Colony, "A Modell of Christian Charity," discourse written aboard the Arbella during the voyage to Massachusetts in 1630.
THE PAST IS PROLOGUE
"Gold, juniper wood, and jewels. King Solomon ran an open economy, and his fleet brought to Israel all the above and more. He was committed to globalization before the world knew there was a globe"
- ExonMobil advertisement in Foreign Affairs, November/December 2000
In the chart above, details of which are covered in the body of the booklet, we have three periods that divide each of the eras of world hegemony of Britain and America: Boom-Transition-Boom.
Britain and America were propelled to world hegemony by war (1815 & 1945). Britain's world hegemony ended with war and history suggest that America's will too. The window of Anglo-Saxon world hegemony occurred after the end of Napoleon's Grand Empire, and, according to Bible prophecy, this window will be closed by an end-time European empire of "iron and clay". The Anglo-Saxons dominated the world while continental Europe was in relative eclipse.
It is the contention of this booklet that Britain and America are descendants of the tribes of Ephraim and Manasseh. Ephraim and Manasseh were two major tribes of the nation(s) of Israel who occupied the land of Palestine from around 1400 BC to 600 BC. The typology of this period foreshadowed the pattern of Britain and America in the last days.
After the Davidic wars of the first half of the 10th century BC the kingdom of Israel enjoyed a period of dominance in the Middle East. This era was between the decline of the middle-Assyrian empire and the greatest period of the neo-Assyrian empire.
This era of predominance maybe divided into three periods: the boom years of Solomon - transition - boom years of Jeroboam II and Uzziah. The latter period of "economic prosperity and international influence" was "second only to Solomon's golden age" (Thomas E. McComiskey, Amos, Expositor's Bible Commentary, Edited by Frank E. Gaebelein, (Grand Rapids: Zondervan Publishing, House, 1992), p.269).
Within 40 years of the death of Jeroboam II the tribes of Ephraim and Manasseh were defeated by the Assyrians and taken away into captivity, and have been lost to secular history.
A prophet's description of the earlier descendants of Ephraim and Manasseh is also a warning for the latter day descendants:
"Amos, one of the prophets who lived during Jeroboam's reign (Amos 1:1), has left us ... a series of pictures, of the moral and spiritual decay that was fast leading the nation to destruction. The people bragged about their military victories (6:13) and suffered from a false sense of security (6:1). They were inordinately proud of their great houses of dressed stone decorated with inlaid ivory work and of their pleasant vineyards with their trailing grape vines and luscious fruit; but they were not concerned that it all came from exactions from the depressed and needy (5:11). They were shamelessly immoral (Am 2:7). They ate and drank and sang; they perfumed themselves and listened to music lying upon fine couches; but the woes of the common folk and their grinding poverty did not concern them at all (6:4-6). They celebrated their religious festivals with many blood offerings and with elaborate choral worship, but there was flagrant injustices everywhere, and a judge could be bribed with a piece of silver or a pair of shoes (2:6)" (M.S. Seale, "Jeroboam", International Standard Bible Encyclopedia, Edited by Geoffrey W. Bromiley, Vol.2, p.998).
Part 2 of the booklet will go into more detail and argue from the Bible that Britain and America are Ephraim and Manasseh and that the Germans are the Assyrians which the Bible says, in its prophetic genre or code, will be prominent in the end-time. It will also look in more detail at the typology of ancient Israel as it foreshadows end-time Israel in its golden age before World War 3. It will also look at ancient and end-time Israel from the Bible and from the typology of end-time Israel from secular history as it looks forward to a future godly golden age of Israel after WW 3.