Skip to content
If you were forwarded this email and haven't yet subscribed, please subscribe here.

⏱ Today's Read: 6 Minutes

This week, we'll be exploring the rise and fall of empires and how great powers can rise and fall over time.
The article identifies three pivotal factors in the downfall of great empires: overexpansion and military overspending, complex societal issues like corruption and political instability, and economic pressures like inflation and economic competition.

Historical Context:

The ascendance of Sultans to power in regions like Spain and Morocco was nothing short of remarkable, a journey entwined with the complex fabrics of cultural, religious, and geopolitical forces. In retrospect, it was a dance of power and influence that exhibited the intricate dynamism of human civilization, reflective of a broader global trend that has persisted for centuries across continents and cultures.

Their rise to power, initially, was as inspiring as it was influential. In Spain, the Umayyad Caliphate, which later gave rise to independent Sultanates during the period of 'Taifas' (small, autonomous Muslim-ruled states), was a symbol of authority and prowess. Similarly, in Morocco, the establishment of the Idrisid dynasty marked the birth of the first Moroccan Muslim state, leading eventually to the dominance of powerful Sultanates like the Almoravids and the Almohads.

These regimes, in their prime, were architectural patrons, centers of knowledge and intellectual thought, and hubs of trade and commerce, with Granada, Cordoba, Marrakech, and Fes as shining examples. However, with time, these powers were to meet their downfall, ironically, not at the hands of external enemies, but due to internal factors, mainly military overspending, inflation, and political instability.

The Alhambra in Granada Spain. The architectural prowess is breathtaking.

First, military overspending was the first nail in the coffin. The Sultans were military powerhouses, constantly expanding their territories and defending against both internal rebellions and external threats. However, this necessitated an enormous outlay on maintaining large armies and state-of-the-art weaponry, draining the coffers of these once-flourishing empires. The financial stress from incessant military engagements eventually became unbearable, pushing the Sultanates into a cycle of indebtedness that was to be their undoing.

Second, inflation, the stealthy nemesis, was the next factor. The Sultans, akin to modern governments, resorted to debasing the currency in an attempt to alleviate their financial woes due to this unsustainable military expansion. This practice of reducing the gold or silver content of coins to create more money led to rampant inflation. The value of money plunged, prices skyrocketed, and the populace grew poorer and disenchanted. The silent yet virulent curse of inflation eroded the economic stability of these regions, fueling discontent, poverty and social unrest.

Finally, political instability, often a by-product of economic turmoil, was the final straw. Factionalism, court intrigues, and power struggles tore at the social fabric. In Spain, the disintegration of the Caliphate of Cordoba into multiple Taifas marked the beginning of political fragmentation. Similarly, in Morocco, successive dynasties were riddled with internal strife and weak rulers, hampering their ability to deal with the mounting challenges. The resultant political instability undermined the Sultans' authority, weakening their grip on power.

Just like the inflation narratives we often encounter today, these historical accounts reveal that military expansionism, fiscal imprudence and political instability are far from new phenomena. They've been instrumental in the rise and fall of empires, leaving indelible marks on human history. As we delve deeper into this fascinating tale of Sultans, we unveil striking parallels with our contemporary world, providing valuable insights into the cyclical nature of power, economy, and society.

History Rhymes:

While we're talking about the decline of empires, how did great powers become great to begin with?

This typically comes in the form of some combination of the following variables: strong geography with multiple river systems connecting the coasts, cheap labor in the form of indentured servitude or slavery, natural resources to export to the world, and strong legal and property rights structures to protect private property. This inevitably will lead to local prosperity which if then re-invested into their people, becomes a self-perpetuating cycle that reinforces and incentivizes economic prowess.

Cheap labor has also been a key component of all great powers rise. The Romans, Spanish, Americans, and now Chinese have all leveraged and relied on slavery to build their economy. This in combination with the factors listed above are critical to 'gaining share' in the world economy. As we see today, the oppression and forced labor of the Uyghur population in Western China in the present day allows Chinese exports to be more competitive than local goods in most cases. When I was in Chefchaouen, Morocco two weeks ago, the 'local' goods that vendors were selling came from boxes labeled 'Made in China.' Ignoring this key factor of production in the rise of emerging powers is an intellectually dishonest exercise that fails to see how local good become competitive on a global stage.

Power and Reserve Currency:

Once emerging powers solidify their status, they typically have what is called the reserve currency. The world's reserve currency is the foreign currency that is held in significant quantities by other governments and institutions as part of their foreign exchange reserves. It's also commonly used in international transactions and investments.

In simpler terms, imagine the world as a group of friends. Now, suppose one of these friends has a certain type of cookie that everyone likes and trusts, and so they decide to use this cookie as a sort of "universal snack". Instead of trading snacks directly with each other, they can just trade for this cookie, which everyone agrees has value. This cookie is like the world's reserve currency - it's a type of money that everyone trusts and agrees to use for trading and saving. Today, that cookie is the U.S. dollar. But over time, trust wanes as governments overextend militarily, print more money, and have internal discontent. Below, we can see over the past few centuries, how powers and reserve currencies have shifted:

Please note that there were periods of overlap between these currencies where more than one was used as a reserve currency, and the dates provided are estimates of when each currency was most dominant. On average reserve currencies more or less last for ~100 years. Sometimes a bit more, sometimes less.

As we started this article, we talked about the decline of empires. Inflation or money printing to finance a lot of wars is the beginning of the end for a lot of empires. This devaluation of the currency reduces trust across the world and leads to the rise of an emerging power and new reserve currency. While no one can predict exact timing, this plays out over multiple decades and centuries as empires rise and fall.

Key Takeaways

The rise and fall of historical Sultanates, such as those in Spain and Morocco, demonstrate a recurring pattern of military overspending, inflation through currency debasement, and political instability leading to downfall. These factors drained the coffers of these empires, caused economic instability, and incited social unrest, leading to their eventual decline.
The concept of a world reserve currency, currently the U.S. dollar, is tied to a nation's global dominance, but this dominance can wane due to overextension, excessive money printing, and internal discord. The history of reserve currencies, from the Portuguese real to the present U.S. dollar, reveals a cyclical pattern that usually lasts around a century, often ending with the rise of a new global power and a shift in reserve currency.
Please make sure to leave a comment or shoot me a text about what could be improved or what you'd like to see.
Forward this to a friend if you liked it and tell them to subscribe here.
I love economics and hope you will too- thanks for reading!