The Rise

The rise. Successful new orders that rise, both internal and external, are typically started by powerful revolutionary leaders doing four things. First, they win power by gaining more support than the opposition. Second, they consolidate power by converting, weakening, or eliminating the opposition so they don't stand in their way. Third, they establish systems and institutions that make the country work well. And fourth, they pick their successors well, or create systems that do that, because a great empire requires many great leaders over several generations.

At this stage soon after winning the fight, there was typically a period of peace and growing prosperity because the leadership is clearly dominant and has broad support so no one wants to fight it. During this phase, leaders within the country have to design an excellent system to raise the country's wealth and power. First and foremost, to be great they must have strong education, which is not just teaching knowledge and skills, but also strong character, civility and work ethic.

These are typically taught in the family, schools and religious institutions. That provides a healthy respect for rules and laws, order within society, low corruption, and enables them to unite behind a common purpose and work well together. As they do this, they increasingly shift from producing basic products to innovating and inventing new technologies. For example, the Dutch rose to defeat the Habsburg empire and become superbly educated.

They became so inventive that they came up with a quarter of all major inventions in the world. The most important of which was the invention of ships that could travel around the world to collect great riches and the invention of capitalism as we know it today to finance those voyages. They, like all leading empires, enhanced their thinking by being open to the best thinking in the world. As a result, the people in the country become more productive and more competitive in world markets, which shows up in their growing economic output and rising share of world trade.

You can see this happening now as the US and China are roughly comparable in both their economic outputs and their shares of world trade. As countries trade more globally, they must protect their trade routes and their foreign interests from attack. So they develop great military strength. If done well, this virtuous cycle leads to strong income growth, which can be used to finance investments in education, infrastructure, and research and development.

They must also develop systems to incentivize and empower those that have the ability to make or take wealth. In all of these cases, the most successful empires used a capitalist approach to develop productive entrepreneurs. Even China, which is run by the Chinese Communist Party, used a form of this capitalist approach. (cash registers ringing) Deng Xiaoping, when asked about this, said, "It doesn't matter if it's a white cat or a black cat, "as long as it catches mice."

And "it's glorious to be rich." To do this well, they must develop their capital markets. Most importantly, their lending, bond and stock markets. That allows people to convert their savings into investments, to fund invention and development and share in the successes of those who make great things happen. The Dutch created the first publicly listed company, the Dutch East India Company, and the first stock market to fund it, which were integral parts of the system that produced massive wealth and power.

As a natural consequence, the greatest empires developed the world's leading financial centers for attracting and distributing the world's capital. Amsterdam was the world's financial center when the Dutch were preeminent, London when the British were on top, New York is now, and China is quickly developing its financial centers. Most importantly, the capitalists, the governments and the military must work together.

Not only did the Dutch work well together, they were one in the same. The Dutch East India Company was granted a trade monopoly from the government and had its own officially sanctioned military to go out into the global markets to make and take wealth. The British followed with the British East India Company and had a similar coordination of their government, business and military operations. The US Military Industrial Complex followed suit, as does the Chinese system today.

As the country becomes the largest international trading empire, its transactions can be paid with its currency, making it the preferred global medium of exchange, and because their currency is so widely accepted and frequently used, people around the world want to save in it, making it the preferred store hold of wealth. And thus the world's leading reserve currency. The guilder was the world's main reserve currency when the Dutch led world trade.

The pound was when the British led. And the dollar has been since the US led. Naturally, China's currency is increasingly being used as a reserve currency. Having a reserve currency enables the empire to borrow more than other countries. That advantage is huge. Think about it. People all over the world are eager to save and hence lend back their currency to the empire. Countries without a reserve currency don't have that.

And when the empire runs out of its own money, remember the United States in 1971, they can always print more. The exorbitant privilege afforded by the empire's reserve currency leads borrowing to increase and the beginning of a financial bubble. This series of cause and effect relationships, leading to mutually supportive financial, political and military powers, bolstered by the borrowing power of a reserve currency, have gone together since history began to be recorded. All the empires that became the most powerful in the world followed this path to the top.