What Thucydides Teaches Us About War

Thucydides USA China

Thucydides, the ancient Athenian general, famously observed that “it was the rise of Athens and the fear this instilled in Sparta that made war inevitable” in his account of The History of the Peloponnesian War in which Athens was the rising power, while Sparta was the pre-eminent hegemon.

In more recent times, American political scientist Graham Allison referred to the “Thucydides trap” in describing growing tensions between the United States and China, as did Chinese president Xi Jinping who insisted that “we all need to work together to avoid the Thucydides trap”. This raises the question, what if there are cyclical economic laws underpinning the Thucydides trap that can be observed throughout history?

My PhD thesis, titled Imperialism: How Declining Currency Hegemony Leads to War, answers this question with the following observation. Throughout history, the state that acquires the largest amount of wealth from conquered nations, or the state that produces the most physical goods through other means, can become the dominant currency hegemon, such that other countries around the world will demand its currency, however, such hegemony contains the seeds of its own decay.

The hegemon creates its own gravediggers in the form of the mercantile rivals, which are those states that develop their productive forces by producing and exporting physical goods in exchange for the hegemonic currency.

Because the hegemon's currency is the world reserve currency, it tends to become reliant on imports from other countries, which can lead to the erosion of its domestic industries and the eventual industrialisation of its future rivals.

Reformulating Thucydides for our time, we can say that the emergence of mercantile rivals and the fear it inspires in the declining hegemon create conditions that make war inevitable, a phenomenon that has repeated throughout history. To provide three major examples of this, 1) the Iberian powers of Portugal and Spain, 2) Britain, and 3) the United States, have all played the role of the declining hegemon, leading to war every time.

Iberian Hegemony (1500-1648): See Chapter 4  

The rise of the modern West was triggered by the discovery of the Americas by Spain in 1492 and the discovery of an alternate route to India by Portugal in 1498. These discoveries by the two Iberian powers could not have come at a better time given the fall of Constantinople to the Ottoman a few decades earlier in 1453 had extinguished the Eastern Roman empire. From a European perspective, this gave Islamic powers monopoly over all trade routes to India and China, which at the time were the largest economies in the world and major destinations for the world’s gold and silver.

These two Western discoveries gave Europe new sources of gold and silver. From the Americas, the Iberians powers extracted large quantities of gold and silver, however, instead of developing their own productive forces with this flood of wealth, they mainly spent the money on imports from around the world, which ultimately produced their own gravediggers by stimulating the economic development of northern Europe.

Eventually, this created the conditions for the Thirty Years War that ended in 1648. Although this war is remembered as one between Protestants and Catholics in Europe, it also led to the rising power of Protestant northern Europe defeating and subjugating the declining power of Catholic southern Europe. Aristotle, who believed northern Europeans were “somewhat deficient in intelligence and skill” and “lacking in political organisation and capacity to rule their neighbours”, would have been shocked to see how far the barbarians had come.

British Hegemony (1816-1931): See Chapters 5 & 6   

The next major leap in the rise of Europe after the conquest of the Americas was the conquest of India by Britain beginning in 1757. As Britain divided and conquered its way across the Indian subcontinent, it acquired the right to levy taxes, resulting in an outpouring of physical wealth from India that provided the cheap inputs needed to propel Britain to become the first industrial manufacturing power, which empowered Britain to issue the next major hegemonic currency, the Pound Sterling.

This incentivised Britain to keep its markets open to entice other countries to hold its currency, however, this inevitably led to the deindustrialisation of Britain, leading to another Thucydides trap, this time caused by the industrialisation of the US, Germany, France, Italy, and Japan that all developed from the 1870s onwards by producing in exchange for the Pound Sterling. Eventually, Britain found it difficult to meet its gold liabilities as those rivals began buying gold to establish gold standard currencies of their own.

Again, the rise of these industrial rivals and the fear this instilled in Britain made the two world wars inevitable. For Britain, the prospect of Germany gaining access to newly discovered oil resources in the then Ottoman province of Iraq posed an economic challenge, so it joined forces with France and Russia to cut Germany off from that oil by seizing its colonies and dismantling the Ottoman empire. Naturally, Greece attempted to seize control of western Anatolia from the Ottomans after WW1, which ended in Turkish victory.

One explanation for why the revolutionary Soviet government in Russia faced so much hostility was because it championed the ‘right of nations to self-determination’ as its foreign policy. This angered states like Britain, France, the Netherlands, and Belgium, who feared that their colonised territories might seek liberation with Soviet support. This policy also worried those states, like Germany, Italy, and Japan, that lacked the colonies needed to feed their industrial ambitions.

These would-be Axis states had industrialised from 1870 onwards by producing in exchange for Pounds Sterling, but in 1931 Britain ended the convertibility of its currency to gold. The ensuing depression compelled the Axis states to seize their own colonies by violent aggression, thereby initiating WW2.

In the words of Hitler, “what India was for England, the territories of Russia will be for us”. However, these attempts failed because the nations targeted for colonisation, primarily the Soviet Union and China, resisted and won at the cost of 47 million lives, with help from partisan resistance in Greece, Yugoslavia, and Korea.

US Hegemony (1944 onwards): See Chapters 7 & 8

Towards the end of WW2, the United States established global currency hegemony on the foundations of its own industrial dominance and took leadership of an alliance of states known as ‘the West’, including the defeated Axis powers.

The essence of the US-led Western strategy after WW2 has been to suppress the economic development of Russia and the growing postcolonial camp of nations to keep them dependent on the US Dollar.

To this end, the US embarked on a campaign of aggression, mainly the postcolonial world, however, in attempting to subdue Vietnam, the US over-issued their currency, which undermined faith in the US Dollar and forced US president Richard Nixon to end the convertibility of gold at the official rate of $35 per ounce in 1971.

New pillars were needed to support the Dollar. To that end, OPEC agreed to price its oil in Dollars in 1975, and the post-Soviet space was bled by capital fleeing to Western banks after 1991.

Meanwhile, China produced large quantities of goods in exchange for Dollars and received investment and technology from Western firms, thereby rapidly industrialising in the process to become the leading mercantile power of the current cycle.

The industrial productivity that propelled the US Dollar to its hegemonic status in the first place has been eroded by decades of deindustrialisation as shown by trade deficits since 1977.

After WW2 the US was the largest absolute net-exporter of capital, then it became a net-importer of capital from 1989 onwards, and today the US is the largest absolute net-importer of capital by way of its enormous net-external debt (p. 192).

Under these conditions, the US is incentivised to intentionally destabilise the world around them as their strategy to defend the Dollar. According to George Friedman, the founder of the US geostrategic publication StratFor, “the United States has no overriding interest in peace in Eurasia”.

As former IMF economist Eswar Prasad has pointed out, geopolitical instability increases demand for the Dollar.

This strategy appears to be reaching its limits. When Russia invaded Ukraine, the West retaliated with sanctions and asset seizures, expecting the Russian currency to collapse, but instead, this move only accelerated de-Dollarisation, especially now that China is planning to interlink the world’s central banks using CBDCs.

This acceleration is because Dollars not held in cash are ultimately liabilities of the US central bank that can be seized at will.

As the technological gap between East and West closes, demand for US Dollars will decline. US Dollar hegemony embodies all economic advantages won by the West at the expense of the rest, but those advantages are unravelling. Upon recognising that the march to war that we witness today has parallels in past lifecycles of declining currency hegemony, the question arises, can war be avoided?

Freedom is ultimately our rebellion against the inevitable.

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