and technologies, stronger competitiveness, higher output and trade, a stronger military and financial
center, and a more widely used reserve currency.
At this time several other countries used this period of relative peace and prosperity to get richer and
stronger by colonizing enormous swaths of the world. As is typical during this phase, other countries
copied Britain’s technologies and techniques and flourished themselves, producing prosperity and, with
it, great wealth gaps. For example, during this period there was the invention of steel production, the
development of the automobile, and the development of electricity and its applications such as for
communications including Alexander Graham Bell’s telephone and Thomas Edison’s incandescent light bulb
and phonograph. This is when the United States grew strongly to become a leading world power. These
countries became very rich and their wealth gaps increased. That period was called “the Gilded Age” in the
US, “la Belle Époque” in France, and “the Victorian Era” in England. As is typical at such times the
leading power, Great Britain, became more indulgent while its relative power declined, and it started to
borrow excessively.
As other countries became more competitive, the British empire became more costly and less profitable
to maintain. Most importantly other European countries and the US got stronger economically and militarily
in the classic ways laid out in Chapter 1. As shown in the chart of the standing of empires above, the US
became a comparable power economically and militarily around 1900 though the UK retained stronger
military power, trade, and reserve currency status, and the US continued to gain relative strength from there.
From 1900 until 1914, as a consequence of the large wealth gaps, there became 1) greater arguments
about how wealth should be divided within countries and 2) greater conflicts and comparabilities in
economic and military powers that existed between European countries. As is typical at such times the
international conflicts led to alliances being formed and eventually led to war. Before the war the
conflicts and the alliances were built around money and power considerations. For example, typical of
conflicting powers that seek to cut off their enemies’ access to money and credit, Germany under Bismarck
refused to let Russia sell its bonds in Berlin, which led them to be sold in Paris, which reinforced the French-
Russian alliance. The wealth gap in Russia led it to tumble into revolution in 1917 and out of the war, which
is a whole other dramatic story about fighting over wealth and power that is examined in Part 2 of this book.
Similar to the economically motivated shipping conflict between the British and the Dutch, Germany sank
five merchant ships that were going to England in the first years of the war. That brought the United States
into the war. Frankly, the complexities of the situations leading up to World War I are mind-boggling, widely
debated among historians, and way beyond me.
That war, which was really the first world war because it involved countries all around the world
because the world had become global, lasted from 1914 until 1918 and cost the lives of an estimated 8.5
million soldiers and 13 million civilians. As it ended, the Spanish flu arrived, killing an estimated 20-50
million people over two years. So 1914-20 was a terrible time.
The Rise of the American Empire and the US Dollar After World War I 3
As is typical after wars, the winning powers—in this case the US, Britain, France, Japan, and Italy—
met to set out the new world order. That meeting, called the Paris Peace Conference, took place in early
1919, lasted for six months, and concluded with the Treaty of Versailles. In that treaty the territories of the
losing powers (Germany, Austria-Hungary, the Ottoman empire, and Bulgaria) were carved up and put under
the controls of the winning empires and the losing powers were put deeply into debt to the winning powers to
pay back the winning countries’ war costs with these debts payable in gold. The United States was then
clearly recognized as a leading power so it played a role in shaping the new world order. In fact the term “new
world order” came about in reference to US President Woodrow Wilson’s vision for how countries would
operate in pursuit of their collective interest through a global governance system (the League of Nations)
which was a vision that quickly failed. After World War I the US chose to remain more isolationist while
Britain continued to expand and oversee its global colonial empire. The monetary system in the immediate
post-war period was in flux. While most countries endeavored to restore gold convertibility, currency stability
against gold only came after a period of sharp devaluations and inflation
The large foreign debt burdens placed on Germany set the stage for 1) Germany’s post-war
inflationary depression from 1920 to 1923 that wiped out the debts and was followed by Germany’s