military forces into a profitable economic/political/military system. For example, the Dutch created the Dutch East
India Company, the British created the British East India Company, the US created the military-industrial complex,
and China has Chinese state capitalism. Such economic, political, and military coordination has proved essential
for all empires to profitably expand.
In a nutshell, the top phase typically occurs because within the successes behind the ascent lie the seeds of decline.
More specifically, as a rule:
Prosperous periods lead to people earning more, which naturally leads them to become more expensive,
which naturally makes them less competitive relative to those in countries where people are willing to work
for less.
Those who are most successful typically have their ways of being more successful copied by emerging
competitors, which also contributes to the leading power becoming less competitive. For example, British
shipbuilders, who had less expensive workers than Dutch shipbuilders, hired Dutch shipbuilding architects to
design ships that were built more cost-effectively than the Dutch ships. Because it takes less time and money
to copy than invent, all else being equal, emerging empires tend to gain on mature empires through copying.
Those who become richer naturally tend to work less hard, engage in more leisurely and less productive
activities, and at the extreme, become decadent and unproductive. That is especially true as generations
change from those who had to be strong and work hard to achieve success to those who inherited wealth—
these younger generations tend to be less strong/battle-hardened, which makes them more vulnerable to
challenges. Over time people in the prosperous society tend to want and need more luxuries and more leisure
and tend to get weaker and more overextended in order to get them, which makes them more vulnerable.
The currencies of countries that are richest and most powerful become the world’s reserve currencies, which
gives them the “exorbitant privilege” of being able to borrow more money, which gets them deeper into debt.
This boosts the leading empire’s spending power over the short term and weakens it over the longer run. In
other words, when borrowing and spending are strong, the leading empire appears strong while its finances
are in fact being weakened. That borrowing typically sustains its power beyond its fundamentals by financing
both domestic over-consumption and the military and wars that are required to maintain its empire. This over-
borrowing can go on for quite a while and even be self-reinforcing, because it strengthens the reserve
currency, which raises the returns of foreign lenders who lend in it. When the richest get into debt by
borrowing from the poorest, it is a very early sign of a relative wealth shift. For example, in the 1980s, when
the US had a per capita income that was 40 times that of China’s, it started borrowing from Chinese who
wanted to save in US dollars because the dollar was the world’s reserve currency. This was an early sign of
that dynamic beginning. Similarly, the British borrowed a lot of money from its much poorer colonies,
particularly during WWII, and the Dutch did the same before their top, which contributed to the reversals in
their currencies and economies when the willingness to hold their currency and debt suddenly fell. The United
States has certainly done a lot of borrowing and monetization of its debt, though this hasn’t yet caused a
reduced demand for the US currency and debt.
The leading country extends the empire to the point that the empire has become uneconomical to support and
defend. As the costs of maintaining it become greater than the revenue it brings in, the unprofitability of the
empire further weakens the leading country financially. That is certainly the case for the US.
Economic success naturally leads to larger wealth gaps because those who produce a lot of wealth
disproportionately benefit. Those with wealth and power (e.g., those who benefit commercially and those who
run the government) naturally work in mutually supportive ways to maintain the existing system that benefits
them while other segments of the population lag, until the split becomes so large that it is perceived as
intolerably unfair. This is an issue in the US.
The decline phase typically happens as the excesses of the top phase are reversed in a mutually reinforcing set of
declines, and because a competitive power gains relative strength in the previously described areas.
When debts become very large, when the central banks lose their ability to stimulate debt and economic
growth, and when there is an economic downturn, that leads to debt and economic problems and to more
printing of money, which eventually devalues it.
When wealth and values gaps get large and there is a lot of economic stress (wherever that stress comes
from), there are high probabilities of greater conflict between the rich and the poor, at first gradually and then