Everything that has happened happened because of causes that made it happen, so reality works like a perpetual motion machine that began an eternity ago and will take us into the future.

That perspective has driven my approach to life which has led to whatever success I have had–i.e., I seek understanding of how the reality machine works to build into mental models that allow me to produce bets that, if they are better that those are taking the opposite side of the bets, are profitable.

I’m now at a stage in my life that I want to share my thinking with you to take or leave as you like. I know (and I want you to know) that I will be wrong as well as right. For several reasons, I believe I will be more right than wrong, but I don’t want to bet on that. What I want to give you is the reasoning behind my conclusions for you to assess for yourself.

In my study “Principles for Dealing with The Changing World Order” which is being turned into a book, I explain the cause/effect relationships and my mental model for how the world works. In this excerpt that I am sharing now, I explain what I believe are the key determinants that drive “the machine” that is behind the rises and falls of empires and the values of money through time.

I will first summarize them at a high level and then, in the coming weeks, I will share more detailed descriptions of a number of them. If you’re interested in what you read below and would like to preorder the book, which is more comprehensive, you can do that here.

alphagamma ray dalio The Determinants of How the Perpetual Motion Machine Works finance

As the saying goes, and most people agree, “history rhymes.” It “rhymes” because its most important events repeat, though never in exactly the same way. That is because, while the cause/effect relationships behind those events are timeless and universal, all things evolve and influence each other in different ways.

By studying many analogous events in different times and places, their underlying causes and effects become clearer. I have learned that history’s continuously evolving story transpires like a perpetual-motion machine that is driven by cause/effect relationships that both evolve and repeat over time.

To deal with the realities that are coming at me, my process is to:

  • Interact with this machine and try to understand how it works
  • Write down my observations of its workings, along with the principles I have learned for dealing with them
  • Backtest those principles through time
  • Convert the principles into equations and program them into a computer that helps me with my decision making
  • Learn from my experiences and my reflections on my experiences, so I can refine my principles
  • Do that over and over again

Imagine a chess player who records their criteria for making different moves in different situations, which they then encode into a computer that plays alongside them like a partner. Each player brings what they are best at to the game.

The human player is more inventive, more lateral in thinking, and better able to reason, while the computer can calculate more data faster, is better able to identify patterns, and is much less emotional.

This never-ending process of learning, building, using, and refining in partnership with computers describes what I do, except my game is global macro investing, not chess.

In this chapter, I will share my description of the workings of the perpetual-motion machine that drives the rises and declines of empires and their reserve currencies as I have come to understand it thus far, giving you a glimpse into how I play my game

While I’m sure my mental model is wrong and incomplete in any number of ways, it is the best one that I have now and it has proven invaluable to me. I am passing it along for you to probe and explore, take or leave, and build on as you like.

My hope is that I will prompt you and others to think about the timeless and universal cause/effect relationships that drive the realities that are coming at us, and the best principles for dealing with them. By stress testing and improving this model through full-throated debate, we will get to the point where we have a largely agreed-upon template of the processes and their causes.

By using that template, we can then strive to agree on which stage each country is in and what the best practices are for interacting with it, whether we are individuals taking care of our own interests or we are leaders taking care of our country’s.

In the last chapter, I conveyed a very simplified description of the determinants of the evolution and cyclical rises and declines of empires— most importantly, what I believe to be the primary drivers of the Big Cycles. In this chapter, I will explain the model in much greater detail.

It is based on what I saw happen repeatedly through time in the 11 leading empires of the last 500 years, the 20 most important countries of the last 100 years, and the major dynasties of China over the last 1,400 years.

To be clear, I do not consider myself to be an expert historian in these cases, and these cases represent only a small percentage of all cases. I only glanced at some of the most important empires in early history, such as the Roman, Greek, Egyptian, Byzantine, Mongol, Han, Sui, Arab, and Persian empires, and I completely neglected many of the other empires that have risen and declined throughout the world in Africa, South Asia, the Pacific Islands, and precolonial North and South America.

In other words, what I didn’t examine was much greater than what I did examine. Still, I believe I have seen enough to develop a good mental model that applies to most countries, which has been very helpful to my efforts to understand what is going on today and which helps me to form a valuable, though hazy, picture of the future.

The construction of my mental model of the perpetual-motion machine

Just as we can see the arc of the human life cycle from birth to death and how one generation impacts the next, we can do the same with countries and empires. We can see how values, assets, liabilities, and experiences are handed down and how their evolutionary effects ripple out across the generations. We can tell when an empire is approaching its peak and when it is in decline.

All peoples throughout history have had systems or orders for governing how they deal with each other. I call the systems within countries “internal orders,” those between countries “external orders,” and those that apply to the whole world “world orders.” These orders affect each other and are always changing. 

Such orders have always existed at every level—within families, companies, cities, states, and countries, as well as internationally. They determine who has what powers and how decisions are made, including how wealth and political control are divided. What they are and how they run is a function of human nature, culture, and circumstances.

The US now has a certain set of existing political conditions within its democratic system, but both the conditions and the system are ever-changing be- cause of the pressure of timeless and universal forces.

The way I see it, at any moment in time there are both 1) the existing set of conditions that include the existing domestic and world orders and 2) timeless and universal forces that cause changes in these conditions.

Most people tend to pay too much attention to what exists relative to the timeless and universal forces that produce the changes. I do the opposite in my attempt to anticipate change.

Everything that has happened and everything that will happen has had and will have determinants that make it happen. If we can understand those determinants, we can understand how the machine works and anticipate what will likely be coming at us next.

Since everything that happened and will happen was and is due to the interactions of the parts of this perpetual-motion machine, one can say that everything is predestined. I believe that, if we had a perfect model that took every cause/effect relationship into consideration, we could perfectly forecast the future—that the only thing that stands in the way is our inability to model all those cause/effect dynamics. While that might or might not be right, it tells you where I’m coming from and what I’m striving for.

Most people don’t see things that way.  Most people believe the future is unknowable and that destiny doesn’t exist. To be clear, while having a perfect model that gives a nearly perfect picture of that pre-destined future would be great, I don’t expect my model to come close to that. My goal is simply to have a crude yet evolving model that gives me a leg up relative to the competition and relative to the position I would be in if I didn’t have the model.

To build this model, I looked at history quantitatively as well as qualitatively because 1) by measuring conditions and their changes, I can more objectively determine the cause/effect relationships behind them, develop a likely range of expectations, and systemize my decision making accordingly but 2) I can’t measure everything quantitatively.

My process is to look at many cases to observe how their determinants created the effects that define them. To give a simple example, a lot of debt (a determinant) together with tight money (another determinant) will typically produce a debt crisis (the effect). 

Similarly, when the three big cycles that I described in the last chapter come to together in a bad way (heavy indebtedness with the central bank printing a lot of money; internal conflict stemming from gaps in wealth, values,  and politics; and the rise of one or more competing powers), that typically leads to the decline of an incumbent empire.

In my mental model, the relationship between the determinants and their effects in the various cases looks like this:

No alt text provided for this image

Determinants lead to effects that become subsequent determinants that produce subsequent effects that become linked together in many cases.

So we can look at each case and see what happened (the effect) and what made it happen (its determinants).

Or we can look at the determinants to see the effects they had to make up the various cases. The determinants are both what exists and the energy that produces changes; like energy and matter, at the end of the day they’re the same. They create new circumstances and new determinants that create the next changes.

That is how I quite literally try to model the perpetual-motion machine.

The 3, the 5, the 8, and the 18 determinants

In the last chapter, I introduced you to what I believe are the three big cycles and the eight most important determinants of the rises and declines of empires and their currencies.

Because thinking about all of these determinants and their interactions is complex, I suggest that you keep the three big cycles in mind as the most important things to watch:

1. the cycle of good and bad finances (e.g., the capital markets cycle)

2. the cycle of internal order and disorder (due to degrees of cooperation and fighting over wealth and power largely caused by wealth and values gaps), and

3. the cycle of external order and disorder (due to the degrees of the competitiveness of existing powers in fighting for wealth and power).

I hope you will join me in trying to understand these three cycles and know where countries are in them. History and logic show that when a country simultaneously has all three in their good phases it is strong and rising, and when all three are in their bad phases it is weak and declining.

If I were to add two more determinants to keep in mind, they would be

4. the pace of innovation and technological development to solve problems and make improvements and

5. acts of nature, most importantly droughts, floods, and diseases.

That is because innovation and technological advances can solve most problems and further evolution, and acts of nature such as droughts, floods, and diseases have had enormous impacts throughout history.

These are the five most important forces, which I call the “Big Five,” so when they are moving in the same direction—toward improving or toward worsening—most everything else follows.

I also introduced the eight powers that I could measure that seemed to be the most important. You can review them along with the big cycles in the following list. 

These indicators both reflect and drive the upswings and downswings. The chart of the archetypical rise and decline by factor in Chapter 1 showed the average readings of these along the path of the archetypical cycle. Each of these types of power rising and declining in cycles comes together with the other cycles to make the one Big Cycle of the empire’s rise and decline.

And then there are the other determinants such as geology/ geography, rule of law, and infrastructure that matter too.

[1] I want to clarify the difference between a determinant and a cycle because sometimes I will use these terms in ways that might not be clear.

A determinant is a factor (e.g., the supply of money) while a cycle is a series of self-reinforcing determinants that lead to events transpiring in a certain way—e.g., central banks making lots of money and credit available eventually leads to strong economic growth, inflation, and bubbles, which then prompt central banks to reduce the money supply, which produces market and economic downturns, which then lead the central banks to increase the supply of money to . . . etc.

So, cycles themselves are determinants that are a collection of complementary forces that interact in a process to produce the same results again and again through time.

The whole list of 18 factors* included in my model is shown on the next page. You can also read a detailed description of all 18 at the end of Chapter 14.

No alt text provided for this image

That’s a lot. It is both too little and too much—too little to do full justice to the subjects (which have all been the focus of whole books and doctoral theses) and too much to process and digest.

I have tried to cram a small portion of what I’ve learned about them into the summaries that follow. Fuller accounts of a number of these dynamics are contained in an addendum immediately following this chapter if you’re interested in diving more deeply into any of them.

While I’m sure that what follows doesn’t include all the most important determinants, I also know that the ones I’m highlighting here and in the following chapters represent the most important influences that have repeatedly driven the most important events throughout history. 

Of course, I look forward to being corrected and guided by others to make my descriptions more complete.

Exploring the determinants and dynamics

I find that knowing the different circumstances countries face, as well as the strategies and group dynamics they bring to facing these circumstances, helps me understand what moves are likely to come next and how these moves will impact the key determinants. I will explain a bit more about how these look to me, which I will do by examining the machine from the top down.

As I see it, the determinants and dynamics that drive events fall into two types:

1. Inherited Determinants: They include a  country’s geography, geology, and acts of nature such as weather and diseases.

2. Human Capital Determinants: They are the ways people are with themselves and each other. They are driven by human nature and different cultures (which differentiate their approaches).

These two big categories contain within them many important factors, ranging from qualities that are highly specific to countries (like their geography) to those that are universal (like the human tendency to favor short-term gratification over long-term goals), and they can be discerned at every level, whether in individuals, cities, countries, or empires.

Inherited determinants

By inherited determinants of a country’s well-being I mean its geography, geology, genealogy, and acts of nature. 

These are big drivers of each country’s and each people’s stories. For example, you can’t understand the success of the United States without recognizing that it is separated from European and Asian powers by two oceans and blessed with most of the minerals, metals, and other natural resources it needs to be prosperous and self-sufficient, including the topsoil, water, and temperate climate that allows it to produce most of its own food.

These factors enabled it to be largely isolationist until a little more than a century ago while investing in education, infrastructure, and innovation in ways that made it strong. Let’s briefly review those.

1. Geography.

Where a country is, what’s around it, and what its terrain is like are all important determinants.

 For example, the geographies of the United States and China—both with large expanses of land bounded by large natural barriers of water and mountains— created the inclination for them to be one big whole, increasing the commonalities of their people (e.g., shared language, government, culture, etc.).

In contrast, the geography of Europe (i.e., having many more natural boundaries within it) reinforced its divisions into different states/countries, leading to fewer commonalities among its people (e.g., different languages, governments, cultures, etc.).

2. Geology.

The natural resources on and under a country’s surface are critically important, but geology should not be overvalued relative to human capital.

History shows us that every commodity has declined in value (in inflation-adjusted terms) with big up and down cycles around that downtrend. That is because inventiveness changes what is in demand—e.g., new energy sources replacing old ones, fiber-optic cable replacing copper wiring, etc.—and natural resources are depleted over time.

Many Middle  Eastern countries’  wealth, power, and relevance to the rest of the world rose with the importance of petroleum and may fall as the world turns away from fossil fuels. The most vulnerable position to be in is having a high reliance on one or a few commodities because they are highly cyclical and sometimes lose value altogether.

3. Acts of Nature.

Acts of nature come in many forms, such as epidemic diseases, floods, and droughts. Throughout history they have affected the well-being of countries and the course of their evolution even more than wars and depressions. 

The Black Death killed an estimated 75–200 million people in the years around 1350, and smallpox killed more than 300 million people in the 20th century, which is more than double the number that died in its wars.

Droughts and floods have caused massive famines and loss of life. Such catastrophes tend to come along unexpectedly and act as stress tests, revealing the underlying strengths and weaknesses of societies.

4. Genealogy.

Regarding genealogy, I’m no expert on genetics, so I have little to offer other than to say that all people come into this world with inherited genes that affect how they behave to some ex- tent, so it is logical that the genetic makeup of a country’s population should have some effect on its outcomes. 

Having said that, I should point out that most of the evidence I have seen indicates that only a small percentage (15 percent or less) of the variations in the behaviors of people between populations could potentially be explained by genetic differences, so genetics seems to be a relatively minor determinant in relation to the other influences I am mentioning.

Human capital determinants

  • While the inherited assets and liabilities of a country are very important, history has shown that the way people are with themselves and others is the most important determinant. By that I mean whether they hold themselves to high standards of behavior, whether they are self-disciplined, and whether they are civil with others in order to be productive members of their societies is most important. These qualities plus flexibility and resilience (i.e., the capacity to adapt to both “bad” and “good” things) allows people to minimize setbacks and maximize opportunities. Character, common sense, creativity, and consideration in most people make for a productive society. Because capital is an income-producing asset, human capital can be defined as a human who generates income.
  • When humans have the capacity to produce more revenue than they expend, there is good human capital and self-sufficiency. I call this “self-sufficient plus,” which is what all people, companies, and countries should strive for in order for them individually and collectively to be strong financially. The likelihood of having good human capital and being “self-sufficient plus” is improved through quality education, a culture of hard work and cooperation, training, etc. Societies that don’t have good human capital are either drawing down their resources or getting deeper into debt they won’t be able to pay back (i.e., they’re headed for trouble).
  • While many countries have natural resources that they are able to draw upon, human capital is the most sustainable capital because inherited assets that are drawn down eventually disappear, whereas human capital can exist forever. Human capital is why people who come up with new ideas and build them out (e.g., entrepreneurs) beat giants with vast resources (just look at Elon Musk and his startup Tesla, which rivals resource-rich General Motors, Ford, and Chrysler; or Steve Jobs and Bill Gates, whose computer startups surpassed giants like IBM; and so on). Great human capital allows people to overcome their weaknesses and identify and capitalize on their opportunities. It is the attribute that has allowed small countries like the Netherlands, England, Switzerland, and Singapore to achieve great wealth and (in some cases) power.

The most important human nature determinants

Across societies and throughout time, people share the same human nature, which makes them much more alike than different. People behave similarly when faced with similar circumstances, driving the Big Cycles.

5.  Self-Interest.

Self-interest, especially self-survival, is the most powerful motivator for most people, organizations, and governments. However, which self-interest—e.g., the individual’s, the family’s, the country’s, etc.—matters most is a critical determinant of the society’s success. See the addendum that follows this chapter to learn more.

6. The Drive to Gain and Keep Wealth and Power. 

The quest for wealth and power is a powerful motivator of individuals, families, companies, states, and countries, though that’s not totally true because different individuals, families, companies, states, and countries value wealth and power differently relative to other things.

For some, wealth and power are not nearly as important as other things that life has to offer. But for most, especially those who become the most wealthy and powerful, the pursuit of wealth and power is all-consuming.

To be successful over the long run, a country must earn an amount that is at least equal to what it spends. Those that earn and spend modestly and have a surplus are more sustainably successful than those that earn and spend a lot more and have deficits.

History shows that when an individual, organization, country, or empire spends more than what it earns, misery and turbulence are ahead. For more, see the addendum.

7. Capital Markets.

The ability to save and obtain buying power through one’s capital markets is essential to a country’s well-being.

For that reason, how well they are developed is an important determinant of a country’s success.

8. The Ability to Learn from History.

Most people don’t have this, which is an impediment, though it varies by society. For example, the Chinese are excellent at this. Learning from one’s own experiences is not adequate because, as explained earlier, many of the most important lessons don’t come in one’s lifetime.

In fact, many encounters in the future will be more opposite than similar to what one encountered before in life. Since the peace/boom period at the beginning of the cycle is opposite to the war/bust period at its end, the periods people face later in their lives are more likely to be more opposite than similar to the ones they encountered earlier in their lives.

More specifically, in my opinion, if you don’t understand what happened since at least 1900 and how that rhymes with what is happening now, there is a high likelihood that you will find yourself in trouble.

9. The Big Multigenerational Psychological Cycle.

Different generations think differently because of their different experiences, which leads them to make their decisions differently, which affects what happens to them and to subsequent generations. 

This is reflected in the adage “from shirtsleeves to shirtsleeves in three generations.” Three generations is also roughly the length of time of a typical long-term debt cycle. However, history shows that when these cycles are handled well— i.e., strong human capital is maintained over many generations—they can go on for many generations. This multigenerational cycle takes place over several stages that are described in the addendum to this chapter.

10. Favoring Short-Term Gratification over Long-Term Well-Being.

This is another differentiator of people’s and society’s successes. Those who favor long-term well-being over short-term well-being tend to do better. The human propensity to choose short-term enjoyment over long-term well-being naturally exaggerates the highs and lows of the cycle because it pulls the good times forward at the expense of the future. That happens in many harmful ways, most classically by creating the debt boom and bust cycle.

Governments are especially vulnerable to this because of how the political dynamic works. More specifically, a) politicians are motivated to prioritize the near term over the long term, b) they don’t like to face limitations and difficult financial trade-offs (e.g., choosing whether to spend on the military for defense or to spend on social programs), and c) it is politically threatening to take money away from people by taxing them. This leads to a host of political and other problems.

11. Humanity’s Inventiveness.

Humanity’s greatest power is what drives human evolution, which is manifest in increased productivity and higher living standards. 

Unlike other species, humans have a unique capacity to learn and evolve their intellectual understanding; plus, they invent things that materially change their circumstances, producing advances in everything.

These advances produce the up- ward trending corkscrew I described in Chapter 1. To imagine what it would be like if humankind didn’t have this ability, look at other species. Without humanity’s unique ability to invent, our lives would be pretty much the same generation after generation.

Because there would be far fewer new things, there would be fewer surprises and advances. In fact, some periods of human history were very much like that. However, it varies greatly from one society to another. For more, see the addendum to this chapter.

Determinants shaped by culture

12. Culture.

As the saying goes, “culture is destiny.” Cultural differences—differences in how people believe they should be with each other—matter enormously. All societies create cultures based on how they think reality works, and they all provide principles for guiding how people should deal with reality, and most importantly how they should deal with each other. 

Culture drives the formal and informal ways each society works. Individuals known and unknown, such as Jesus, Confucius, Mohammed, Buddha, Mahavira, Guru Nanak, Plato, Socrates, Marx, and many others, have conveyed approaches to life that were captured in books such as the Hebrew Bible and the New Testament, the Talmud, the Quran, the I Ching, the Five Books and Four Classics, the Analects, the Upanishads, the Bhagavad Gita, the Brama Sutras, MeditationsRepublicMetaphysicsThe Wealth of Nations, and Das Kapital.

These, together with the discoveries of scientists, artists, politicians, diplomats, investors, psychologists, etc., all encountering their realities and adapting to them in their own ways, are what determines a people’s culture.

13. Openness to Global Thinking.

This is a good leading indicator of strength because isolated entities tend to miss out on the world’s best practices, which weakens them, while learning about the best the world has to offer helps people be their best. 

Isolation also prevents them from benefiting from the challenge of facing off against the world’s best competitors. History is littered with cases in which countries were isolated, sometimes because they chose to cut themselves off to protect their cultures (e.g., the late Tang, late Ming, and early PRC periods in China, and the Edo period in Japan) and sometimes because of circumstances like natural disasters and internal fighting.

Both reasons lead them to fall behind in their technology, with terrible consequences. In fact, it is one of the most common reasons for empires and dynasties failing.

14. Leadership. 

Everything I’ve mentioned so far is influenced by the people in leadership positions. Life is like a game of chess or the Chinese board game Go, in which every move helps determine the outcome and some players know how to make better moves than others.

In the future, more and more of those moves will be made with the aid of computers, but for now they are still made by people. In reading history you see over and over how its course has been changed by the uniqueness—sometimes excellence, sometimes terribleness—of a relatively few people in key areas such as the government, the sciences, finance and commerce, the arts, and so on.

In each generation, roughly a few hundred people made all the difference. Studying what these key people in these key roles were like, what they did in different situations, and the consequences of what they did helps us understand how this perpetual-motion machine works.

Determinants shaped by how individuals and groups interact with each other

15. Wealth Gaps. 

Large and widening wealth gaps tend to lead to periods of greater conflict, especially when economic conditions become bad and people are fighting over a shrinking pie.

16. Values Gaps. 

While wealth matters, it is not the only thing that people fight over. Values (e.g., in religions and ideologies) matter a lot too. History shows us that widening values gaps, especially during periods of economic stress, have tended to lead to periods of greater conflict, while shrinking values gaps tend to lead to periods of greater harmony.

This dynamic is driven by the fact that people tend to coalesce into tribes that are bound together (often informally) by the magnetism of their members’ commonalities. Naturally, such tribes operate with each other in ways that are consistent with their shared values. When under stress, people with greater values gaps also prove to have greater conflict.

They frequently demonize members of other tribes rather than recognizing that those other tribes, like themselves, are simply doing what is in their self-interest in the best ways they know how.

17. Class Struggles. 

In all countries throughout time, though to varying degrees, people are sorted into “classes,” either because they choose to be with people like themselves or because others assign them to a class.

 Power is usually shared among three or four classes who in aggregate make up only a small percentage of the population. The classes people are in typically determine who their friends and allies are and who their enemies are.

They are sorted into these classes whether they like it or not because people stereotype. While rich and poor are the most common class distinctions, there are many other important ones, such as race, ethnicity, religion, gender, lifestyle, location (e.g., urban versus rural), and politics (right versus left).

Early in the Big Cycle, when times are good, there is generally more harmony among the classes, and when things are bad toward the end, there is more fighting. Class warfare has profound effects on the internal order, which I will explore in Chapter 5. For more on this determinant, see the addendum to this chapter.

18. The Political Left/Right Cycle. 

In all societies there are swings between the political left and the political right that determine how wealth and power are distributed. The swings are sometimes peaceful and sometimes violent and are always important to understand.

Typically, the big cycle in the capital markets, along with cycles in wealth, values, and class divisions, drive the political left/right cycle because these create the motivations for political change. When capital markets and economies are booming, wealth gaps typically increase. While some societies succeed at striking a relatively sensible and steady balance between left and right, more frequently we see cyclical swings between norms.

These swings typically occur throughout empires’ rises and declines, in roughly 10-year cycles. The big economic crises that mark the end of the Big Cycle often herald revolutions. For more, see the addendum to this chapter.

19. The Prisoner’s Dilemma Must Be Solved for Peace to Exist. 

The prisoner’s dilemma is a concept from game theory that explains why, even when the best thing for two parties to do is to cooperate, the logical thing for each to do is to kill the other first.

That is because survival is of paramount importance, and while you don’t know for certain if your opponent will attack you, you do know that it is in their interest to defeat you before you defeat them.

It’s for this reason that deadly wars are best avoided by both sides establishing mutually assured protections against existential harms. Exchanging benefits and creating interdependencies that would be intolerable to lose further reduces the risk of conflict.

20.  Whether There Are Win-Win Relationships or Lose-Lose Relationships. 

It is up to both parties to choose what kind of relationship they have. That is true at all levels of relationships, from individuals up to countries.

Most fundamentally, parties can choose whether to have a cooperative win-win relationship or a threatening lose-lose relationship—i.e., to be allies or enemies—though actions by both determine what type of relationship they will have and whether it will work well. To be clear, win-win relationships can exist between competitors as long as each side does not pose an existential risk to the other (see the prisoner’s dilemma).

All that’s required is that they know and respect each other’s existential red lines.  Parties in win-win relationships can have tough negotiations, competing like two friendly merchants in a bazaar or two teams at the Olympics. Having win-win relationships is obviously better than having lose-lose relationships, but sometimes there are irreconcilable differences that must be fought over because they can’t be negotiated away.

21. The Big Balance of Power Cycle That Drives the Big Peace/ War Cycle Both Within Countries and Between Countries. 

The balance of power dynamic is the timeless and universal dynamic of al- lies and enemies working to gain wealth and power. It drives virtually all struggles for power, from office politics to local politics, and from national politics to geopolitics. In some cultures this game is played a bit differently than in other cultures—e.g., in Western society it is played more like chess while in Asian societies it is played more like Go—though the objective is the same: to dominate the other side.

It has always existed and still exists everywhere and appears to transpire along a consistent series of steps, which I describe in more detail when discussing the internal order in Chapter 5 (even though these same forces apply equally to internal and external power struggles). For a more complete explanation of how the balance of power cycle works, see the addendum to this chapter.

22. Military Strength and the Peace/War Cycle.

 History shows us that military strength—whether one’s own or another’s via alliances—is a critical determinant of outcomes, sometimes because the mere threat of force is power and sometimes because the use of force is required.

Military strength is readily observable and measurable, but it can also be qualitatively assessed. Internationally, military strength is especially important because there is no effective international judicial and enforcement system. This leads to countries needing to fight to test their relative powers and a cycle of war and peace that I will explain when discussing the external order cycle in Chapter 6.

All these things come together to determine internal orders, external orders, and how they change

I have repeatedly seen all of these determine the levels and the rises and declines in wealth and power of all peoples. I have seen them together create the circumstances the people of a country and/or its leaders face and how they face them. They drive the internal and world orders and changes in them.

Like everything else, internal orders and world orders are constantly evolving and moving circumstances forward through time, as existing circumstances interact with each other and the forces that act on them to produce new circumstances.

Evolution occurs because of logical cause/effect relationships in which existing conditions and determinants propel changes that create a new set of conditions and determinants that propel the next changes and so on, like matter and energy interacting in a perpetual-motion machine.

Because a given set of circumstances creates a limited set of possibilities, by properly identifying the circumstances and understanding the cause/effect relationships, one can improve one’s understanding of the possibilities of what will come next and how to make wise decisions.

For example, all countries now have their existing way of choosing new leaders. In the US, the president is chosen both by the voters in accordance with the democratic system laid out in the Constitution and by how people choose to operate within the system.

How well this works depends on how effective both are, which is a result of prior determinants, such as how effectively those in previous generations dealt with and modified the system.

The people now interacting with the system are different from those of previous generations, who were shaped by different circumstances, so we should expect different outcomes based on how people today are different.

Not having the historical perspective to recognize those differences is a handicap

Once we see them and understand how the perpetual-motion machine works, we can see how different systems such as communism, fascism, autocracies, democracies, and evolutionary descendants and hybrids of these, such as state capitalism in China, evolve through time.

Seeing this, we can imagine how new forms of internal orders to divide wealth and allocate government political power may evolve and affect our lives, based on how people choose to be with each other and how human nature enters into their choices.

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