Currency Wars_ The Making of the Next Global Crisis - James Rickards [78]
In a globalized world, what was old was new again. A first age of globalization had occurred from 1880 to 1914, roughly contemporaneous with the classical gold standard, while the period from 1989 to 2007 was really the second age of globalization. In the first, the wonders were not the Internet or jets but radio, telephones and steamships. The British Empire operated an internal market and single-currency zone as vast as the European Union. In 1900, China was open to trade and investment, albeit on coercive terms, Russia had finally begun to throw off its late feudal model and modernize its industry and agriculture, and a unified Germany was becoming an industrial colossus.
The effect of such developments on finance was much the same at the turn of the twentieth century as at the turn of the twenty-first. Bonds could be issued by Argentina, underwritten in London and purchased in New York. Oil could be refined in California and shipped to Japan on credit provided by banks in Shanghai. The newly invented stock ticker brought near real-time information from the New York Stock Exchange to “wire house” brokerage offices in Kansas City and Denver. Financial panics with global repercussions did occur with some frequency, notably the Panic of 1890, involving South American defaults, and the rescue of the leading London bank, Baring Brothers. This first age of globalization was a time of prosperity, innovation, expanding trade and financial integration.
In August 1914, it all collapsed. A London banker, surveying the scene from the window of his City club early that summer and contemplating the pace of progress in his time, could not have imagined the run of tragedy that would ensue over the next seventy-five years. Two world wars, two currency wars, the fall of empires, the Great Depression, the Holocaust and the Cold War would pass before a new age of globalization began. In 2011, globalized finance is omnipresent; whether it is here to stay remains to be seen. History shows that civilization and the globalization it presents are no more than a thin veneer on the jagged edge of chaos.
State Capital
Globalization was not the only geopolitical phenomenon developing in the late twentieth century; state capitalism was another. State capitalism is the in-vogue name for a new version of mercantilism, the dominant economic model of the seventeenth through nineteenth centuries. Mercantilism is the antithesis of globalization. Its adherents rely on closed markets and closed capital accounts to achieve their goal of accumulating wealth at the expense of others.
Classical mercantilism rests on a set of principles that seem strange to modern ears. The main forms of wealth are tangible and found in land, commodities and gold. The acquisition of wealth is a zero-sum game in which wealth acquired by one nation comes at the expense of others. International economic conduct involves granting advantages to internal industries and imposing tariffs on foreign goods. Trading is done with friendly partners to the exclusion of rivals. Subsidies and discrimination are legitimate tools to achieve economic goals. In its most succinct form, the mercantilist takes the view that trade is war. Success in mercantilism was measured by the accumulation of gold.
Although mercantilism had its roots in the Hundred Years’ War of the fourteenth and fifteenth centuries, it reached new heights with the formation of the East India Company in England in 1600 and the Dutch East India Company in the Netherlands in 1602. While these companies operated as private stock companies, they were given wide-ranging monopolies supported by the power to raise armies, negotiate treaties, coin money, establish colonies and act in the place of the government in dealings in Asia, Africa and the Americas. Scholars have focused on the private features of these firms, such as stock ownership, dividends and boards of directors. However,