As is typical, the rising great power challenged the existing leading power in a war to test them both
economically and militarily. The English hurt the Dutch economically by hurting their shipping business
with other countries. The British attacked the Dutch. Other competing countries, most importantly France,
took this as an opportunity to grab shipping business from the Dutch. That war, known as the Fourth Anglo-
Dutch War, lasted from 1780 to 1784. The British won it handily both financially and militarily. That
bankrupted the Dutch and caused Dutch debt and equities, the Dutch guilder, and the Dutch empire to
collapse. In the next section we will look at that collapse up close.
At that time, in the late 18th century, there was a lot of fighting between countries with various shifting
alliances within Europe. While similar fights existed around the world as they nearly always do, the only
reason I’m focusing on these fights is because I’m focusing just on the leading powers and these were the
leading two. After the British defeated the Dutch, Great Britain and its allies (Austria, Prussia, and Russia)
continued to fight the French led by Napoleon in the Napoleonic Wars. Finally, after around a quarter-
century of frequent fighting since the start of the French Revolution, the British and its allies won in
1815.
The Rise & Decline of the British Empire and the British Pound
As is typical after wars, the winning powers (most notably the UK, Russia, Austria, and Prussia) met to
agree on the new world order. That meeting was called the Congress of Vienna. In it the winning powers re-
engineered the debt, monetary, and geopolitical systems and created a new beginning as laid out in the Treaty
of Paris. That set the stage for Great Britain’s 100-year-long “imperial century” during which Great
Britain became the unrivaled world power, the British pound became the world’s dominant currency,
and the world flourished.
As is typical, following the period of war there was an extended period—in this case 100 years—of
peace and prosperity because no country wanted to challenge the dominant world power and overturn
the world order that was working so well. Of course during these 100 years of great prosperity there were
bad economic periods along the lines of what we call recessions and which used to be called panics (e.g., the
Panic of 1825 in the UK, or the Panics of 1837 and 1873 in the US) and there were military conflicts (e.g., the
Crimean War between Russia on one side and the Ottoman empire with a coalition of Western European
powers as allies on the other), but they were not significant enough to change the big picture of this being a
very prosperous and peaceful period with the British on top.
Like the Dutch before them, the British followed a capitalist system to incentivize and finance people to
work collectively, and they combined these commercial operations with military strength to exploit
global opportunities in order to become extremely wealthy and powerful. For example the British East
India Company replaced the Dutch East India Company as the world’s most economically dominant company
and the company’s military force became about twice the size of the British government’s standing military
force. That approach made the British East India Company extremely powerful and the British people very
rich and powerful. Additionally, at the same time, around 1760, the British created a whole new way of
making things and becoming rich while raising people’s living standards. It was called the Industrial
Revolution. It was through machine production, particularly propelled by the steam engine. So, this
relatively small country of well-educated people became the world’s most powerful country by
combining inventiveness, capitalism, great ships and other technologies that allowed them to go global,
and a great military to create the British empire that was dominant for the next 100 years.
Naturally London replaced Amsterdam as the world’s capital markets center and continued to innovate
financial products.
Later in that 100-year peaceful and prosperous period, from 1870 to the early 1900s the inventive and
prosperous boom continued as the Second Industrial Revolution. During it human ingenuity created
enormous technological advances that raised living standards and made those who developed them and
owned them rich.
This period was for Great Britain what “the Dutch Golden Age” was for the Dutch about 200 years
earlier because it raised the power in all the eight key ways—via excellent education, new inventions