strong economic and military recovery, and 2) a decade of peace and prosperity elsewhere, which
became the “Roaring ’20s.”
During that time the United States also followed a classic capitalist approach to resource allocation and
New York became a rival financial center to London, channeling debt and investments into various
businesses.
Other countries became more competitive and prosperous and increasingly challenged the leading
powers. Most importantly Germany, Japan, and the US got stronger economically and militarily in the
classic ways laid out in Chapter 1. However, the US was isolationist and didn’t have a big colonial
empire past its borders so it was essentially out of the emerging conflict. As shown in the chart of the
standing of empires above, Germany and Japan both gained in power relative to the UK during this
interwar period, though the UK remained stronger.
As is typical, the debts and the wealth gaps that were built up in the 1920s led to the debt bubbles that
burst in 1929 which led to depressions, which led to the printing of money, which led to devaluations of
currencies and greater internal and external conflicts over wealth and power in the 1930s. For example,
in the United States and the UK, while there were redistributions of wealth and political power, capitalism
and democracy were maintained, while in Germany, Japan, Italy, and Spain they were not maintained. Russia
played a significant peripheral role in ways I won’t delve into. China at the time was weak, fragmented, and
increasingly controlled by a rising and increasingly militaristic and nationalistic Japan. To make a long story
short, the Japanese and Germans started to make territorial expansions in the early to mid-1930s,
which led to wars in Europe and Asia in the late 1930s that ended in 1945.
As is typical, before all-out wars were declared there was about a decade of economic, technological,
geopolitical, and capital wars when the conflicting powers approached comparability and tested and tried to
intimidate the other powers. While 1939 and 1941 are known as the official start of the wars in Europe and
the Pacific, the wars really started about 10 years before that, as economic conflicts that were at first limited
progressively grew into World War II. As Germany and Japan became more expansionist economic and
military powers, they increasingly competed with the UK, US, and France for both resources and influence
over territories.
That brought about the second world war which, as usual, was won by the winning countries coming
up with new technologies (the nuclear bomb, while the most important, was just one of the newly
invented weapons). Over 20 million died directly in the military conflicts, and the total death count was
still higher. So 1930-45, which was a period of depression and war, was a terrible time.
The Rise of the American Empire and the US Dollar After World War II
As is typical after wars, the winning powers—most importantly the US, Britain, and Russia—met to set
out the new world order. While the Bretton Woods Conference, Yalta Conference, and Potsdam Conference
were the most noteworthy, several other meetings occurred that shaped the new world order, which included
carving up the world and redefining countries and areas of influence and establishing a new money and credit
system. In this case, the world was divided into the US-controlled capitalist/democratic countries and Russia-
controlled communist and autocratically controlled countries, each with their own monetary systems.
Germany was split into pieces, with the United States, Great Britain, and France having control of the West
and Russia having control of the East. Japan was under US control and China returned to a state of civil war,
mostly about how to divide the wealth, which was between communists and capitalists (i.e., the Nationalists).
Unlike after World War I when the United States chose to be relatively isolationist, after World War II the
United States took the primary leadership role as it had most of the economic, geopolitical, and military
responsibility.
The US followed a capitalist system. The new monetary system of the US-led countries had the dollar
linked to gold and had most other countries’ currencies tied to the dollar. This system was followed by
over 40 countries. Because the US had around two-thirds of the world’s gold then and because the US was
much more powerful economically and militarily than any other country, this monetary system has worked
best and carried on until now. As for the other countries that were not part of this system—most importantly
Russia and those countries that were brought into the Soviet Union and the satellite countries that the Soviets