Chapter 4
The Big Cycles of the Dutch and British Empires and Their Currencies
Published 05/26/20
Note: To make this an easier and shorter article to read, I tried to convey the most important points in simple
language and bolded them, so you can get the gist of the whole thing in just a few minutes by focusing on what’s
in bold. Past chapters from the series can be found here: Introduction, Chapter 1 and Chapter 2. Additionally, if
you want a simple and entertaining 30-minute explanation of how what a lot of what I’m talking about here works,
see “How the Economic Machine Works,” which is available on YouTube.
In Chapter 1 (“The Big Picture in a Tiny Nutshell”), I looked at the archetypical rises and declines of empires and
their reserve currencies and the various types of powers that they gained and lost, and in Chapter 2 (“The Big
Cycle of Money, Credit, Debt, and Economic Activity”) and its appendix (“The Changing Value of Money”) I
reviewed the big money, credit, and debt cycles. In this chapter, I will review the rises and declines of the Dutch,
British, and American empires and their reserve currencies and will touch on the rise of the Chinese empire.
While the evolution of empires and currencies is one continuous story that started before there was recorded
history, in this chapter I am going to pick up the story around the year 1600. My objective is simply to put
where we are in perspective of history and bring us up to date. I will begin by very briefly reviewing what the
Big Cycle looks like and then scan through the last 500 years to show these Big Cycles playing out before
examining more closely the declines of the Dutch and British empires and their reserve currencies. Then I will
show how the decline of the British empire and the pound evolved into the rise of the US empire and US dollar
and I will take a glimpse at the emergence of the Chinese empire and the Chinese renminbi.
That will bring us up to the present and prepare us to try to think about what will come next.
The Big Cycle of the Life of an Empire
Just as there is a human life cycle that typically lasts about 80 years (give or take) and no two are exactly the
same but most are similar, there is an analogous empire life cycle that has its own typical patterns. For
example, for most of us, during the first phase of life we are under our parents’ guidance and learn in school until
we are about 18-24, at which point we enter the second phase. In this phase we work, become parents, and take
care of others who are trying to be successful. We do this until we are about 55-65, at which time we enter the third
phase when we become free of obligations and eventually die. It is pretty easy to tell what phases people are in
because of obvious markers, and it is sensible for them to know what stages they are in and to behave
appropriately in dealing with themselves and with others based on that. The same thing is true for
countries. The major phases are shown on this chart. It’s the ultra-simplified archetypical Big Cycle that I
shared in the last chapter.
In brief, after the creation of a new set of rules establishes the new world order, there is typically a peaceful
and prosperous period. As people get used to this they increasingly bet on the prosperity continuing, and
they increasingly borrow money to do that, which eventually leads to a bubble. As the prosperity increases

the wealth gap grows. Eventually the debt bubble bursts, which leads to the printing of money and credit
and increased internal conflict, which leads to some sort of wealth redistribution revolution that can be
peaceful or violent. Typically at that time late in the cycle the leading empire that won the last economic and
geopolitical war is less powerful relative to rival powers that prospered during the prosperous period, and
with the bad economic conditions and the disagreements between powers there is typically some kind of war.
Out of these debt, economic, domestic, and world-order breakdowns that take the forms of revolutions and
wars come new winners and losers. Then the winners get together to create the new domestic and world
orders.
That is what has repeatedly happened through time. The lines in the chart signify the relative powers of the 11
most powerful empires over the last 500 years. In the chart below you can see where the US and China are
currently in their cycles. As you can see the United States is now the most powerful empire by not much, it is
in relative decline, Chinese power is rapidly rising, and no other powers come close.
Because that chart is a bit confusing, for simplicity the next chart shows the same lines as in that chart except for
just the most powerful reserve currency empires (which are based on an average of eight different measures of
power that we explained in Chapter 1 and will explore more carefully in this chapter).
The next chart offers an even more simplified view. As shown, the United States and China are the only two
major powers, you can see where each of their Big Cycles is, and you can see that they are approaching
comparability, which is when the risks of wars of one type or another are greater than when the leading powers are
earlier in the cycle. To be clear, I didn’t start out trying to make an argument and then go looking for stats to
support it; doing that doesn’t work in my profession as only accuracy pays. I simply gathered stats that reflected
these different measures of strength and put them in these indices, which led to these results. I suspect that if you
did that exercise yourself picking whatever stats you’d like you’d see a similar picture, and I suspect that what I’m
showing you here rings true to you if you’re paying attention to such things.