Economic Super Power Politics
Note = This essay provides a brief and non-linear overview of significant events, relying on existing data. It is not a definitive analysis and might lack exhaustive details. For a thorough understanding, readers are encouraged to refer to more comprehensive sources on the topic.
Synopsis
- Introduction
- British East India Company
- Bank of England
- Constitutional Convention
- Panic of 1907 and its Aftermath
- Federal Reserve Bank
- Evolution of the U.S. Dollar
- Great Depression
- The U.S. Dollar vs Chinese Yuan
- Politicalism
- Dutch to England to the U.S.
- Space Research
- Technology
- Conclusion
- Tit-Bits
- Reference
Introduction
William T.R.Fox coined the term 'Super Power' in his 1944 book, 'The Super Powers - The U.S., Britain, and the Soviet Union – Their Responsibility for Peace.' A Super Power is a descriptor for a country with immense global influence, possessing significant economic, military, and geopolitical power which play a crucial role in shaping international affairs and exerting a substantial impact on world events. It is important to note that 'America,' 'United States,' and 'U.S.' are often used interchangeably in this essay.
British East India Company
Portuguese explorer Vasco Da Gama's arrival in Calicut in 1498 paved the way for the sea route trading from Europe to the East regions. Upon the arrival of the British East India Company in India, the Portuguese already had trading agreements with the Mughals and supremacy over the sea route. Therefore, the British East India Company commenced trading goods but waited for three years to establish permanent factories in India. The company established the Machilipatnam (Andhra Pradesh) factory in 1611 and the Surat (Gujarat) factory in 1612 by defeating the Portuguese in the 1612 Battle of Swally. In 1628, the Portuguese returned to India as the Portuguese East India Company but couldn’t withstand the strong forces of the British East India Company and ceased its operations in 1633.
In 1602, the Dutch East India Company was founded by Dutch trading companies to trade with the Mughals. Some Amsterdam traders disapproved of the monopoly system of the Dutch East India Company and formed the Dutch West India Company in 1621. The Dutch played a crucial role in pioneering Modern Capitalism, including aspects of cronyism and authoritarianism, through Foreign Direct Investment (FDI) facilities. The Amsterdam Stock Exchange (now Euronext Amsterdam) was established by the Dutch East India Company in 1602, turning out to be the world's first documented Initial Public Offering (IPO). The Amsterdam Stock Exchange was the first company to start trading with "Securities" like "Bonds, Mutual Funds, Stocks." Before "Securities," markets were trading with "Commodities."
Foreign companies, including Austrian, Danish, French, and Swedish East India Companies, reached India with the intention of trading, but they couldn’t have the profound impact that the British East India Company did.
In the 1750s, the British East India Company started intervening in Indian politics using the 'Divide and Rule' methodology due to conflicts among Indian rulers and religious leaders. Robert Clive, representing the British East India Company, defeated the Nawab of Bengal in the 1757 Battle of Plassey, marking the official commencement of British East India Company's rule in India from 1757. The company's rule was transferred to the British Crown after the 1857 Indian Rebellion against the British East India Company, formally ending the Mughal's rule and Company rule. In 1858, British Raj started ruling India.
Bank of England
Due to continuous wars with neighbouring countries, England's government faced a severe financial crisis. In response, the government borrowed money from private money lenders to pursue its political ambitions. Private money lenders seized this opportunity to lobby the English government and established the Bank of England in 1694.
From the 18th century, the Bank of England started providing loans for public utility schemes and government-secured loans through various taxation systems. The Bank of England was nationalised in 1946, gaining independence from the government in carrying out its responsibilities. It is important to note that the modern banking system is based on the guidelines set by the Bank of England.
Constitutional Convention
At the 1787 Constitutional Convention, several delegates, including Jefferson and Madison, raised concerns about the potential dangers of private banks. They cited examples like the Bank of England, which exerted significant control over the British economy and was embroiled in controversies. These delegates advocated for a strong federal government with the power to issue currency and regulate commerce. They hoped this would prevent private banks from gaining undue influence over the financial system. Hamilton and Willing did indeed represent a faction that favored limited federal power over monetary policy. They argued for a system where private banks would play a key role.
Interestingly, no public or private bank was directly formed as a result of the US Constitutional Convention in 1787. The primary focus of the convention was to address the weaknesses of the Articles of Confederation, the first constitution of the US, and to create a stronger federal government. While the Constitution did grant certain financial powers to the federal government, such as the ability to coin money and regulate commerce, it did not explicitly establish a national bank.
Panic of 1907 and its Aftermath
The Bank Panic of 1907, while not the first financial crisis of the 20th century, stands as a significant one that intensified a pre-existing recession into a severe contraction. Its impact wasn't solely responsible for the establishment of the Federal Reserve Bank in 1913, but the Panic did accelerate calls for financial system reform, contributing to the broader movement towards a central bank. In response to the crisis, the U.S. government passed the Aldrich-Vreeland Act in 1908 to bolster bank liquidity. Senator Nelson Aldrich, chaired the National Monetary Commission established under this Act to study both domestic and European banking systems. Their investigation highlighted the role of the pound sterling in international trade. However, attributing global commodity pricing solely to terms of trade and the pound's dominance is an oversimplification. Nonetheless, the Commission's work provided valuable insights that ultimately informed the development of the Federal Reserve System.
Nelson Aldrich, John D. Rockefeller, J.P. Morgan, Andrew Carnegie, and Cornelius Vanderbilt stood as titans of American industry and finance during the late 19th and early 20th centuries, each leaving an indelible mark on the nation's economic landscape. Nelson Aldrich played a crucial role in the reform of the U.S. tax and banking systems, while John D. Rockefeller exerted influence through strategic lobbying efforts in those areas. J.P. Morgan, known for acquiring various business empires, wielded significant control over diverse industries. Andrew Carnegie made a lasting impact in the steel business, and Cornelius Vanderbilt left his mark on railroads and shipping. During a pivotal period in history, these influential figures collectively shaped the trajectory of U.S. economic development.
In November 1910, Senator Nelson Aldrich, a prominent advocate for central banking reform who chaired the National Monetary Commission, orchestrated a clandestine meeting on Jekyll Island. Gathering a select group of influential figures, Aldrich brought together representatives from some of the most powerful financial institutions of the time. The attendees included notable figures such as J.P. Morgan, who advocated for the Federal Reserve, Benjamin Strong, a key architect shaping Federal Reserve operations, Paul Warburg, credited with drafting the Aldrich Plan, and John D. Rockefeller, providing crucial political support for the establishment of the Federal Reserve. This secret meeting, held in the utmost secrecy, laid the groundwork for key discussions that eventually contributed to the establishment of the Federal Reserve System, a complex, multi-faceted outcome arising from years of political and economic considerations. The debate surrounding the formation of the Federal Reserve was indeed contentious, involving various powerful figures and diverse viewpoints.
Federal Reserve Bank
Federal Reserve Bank proposal, submitted by the National Monetary Commission in January 1911, culminated in the Federal Reserve Act passed by Congress in December 1913. President Woodrow Wilson signed the Act into law, thereby establishing the Federal Reserve Bank. The U.S. government appoints and oversees the Federal Reserve, but its independence ensures ultimate control rests with neither government nor private banks. Prior to its establishment, currency in the United States existed in the form of 'national bank notes,' issued by private banks and the U.S. Treasury Department. In 1914, the Federal Reserve began issuing its own standardised banknotes, replacing the earlier notes with the newly introduced 'Federal Reserve Notes.' The U.S. Mint produces coins, while the Bureau of Engraving and Printing produces paper currency.
Evolution of the U.S. Dollar
World War I (1914-1918) proved a financial boon for the United States. By supplying the Allies with arms and food, United States amassed vast gold reserves, ascending to the world's top creditor nation. This newfound economic might, coupled with relative political stability, fostered global trust, making the dollar a natural anchor for other currencies.
The dollar's primacy was cemented by the 1944 Bretton Woods Agreement. It established a fixed exchange rate system where major currencies were tied to the value of the U.S. dollar. In turn, the U.S. dollar was linked to gold, meaning it could be exchanged for a fixed amount of gold. This system aimed to provide stability and predictability in international trade and finance by establishing clear relationships between currencies and gold. But the dollar's advantages extended beyond gold. Unlike cumbersome physical reserves, dollars were readily available and easily traded, simplifying transactions. Linking to the dollar also spared countries from the hefty expenses of gold storage and security.
In 1971, Nixon severed the dollar's gold link, granting the U.S. control over monetary policy, protecting gold reserves, and bolstering the dollar's global standing. This, along with pre-existing momentum and the dollar's wide acceptance, cemented its role as the world's primary reserve currency, fostering the U.S. economic boom and relative political stability. The Federal Reserve Bank now plays a crucial role in maintaining this position. It steers the U.S. monetary policy, safeguarding the dollar's value and stability. Its influence extends beyond borders, impacting global financial markets and trends. In essence, the Federal Reserve stands as the engine driving the dollar's enduring dominance.
Great Depression
The Great Depression, triggered by the 1929 stock market crash, crippled the 20th century, causing economic devastation from 1929 to the late 1930s. This challenging era, coupled with World War II (1939-1945), severely restricted global economic freedom. The enduring impact of these turbulent decades helped shape economic freedom. In response to this impact, several institutions emerged to stabilise the world economy, prevent future crises, address global health, tackle climate change, enhance the quality of academics, and manage the effects of globalization.
However, despite claiming to assist low-income countries, these organizations face accusations of covertly channeling investments from U.S. and EU corporations into these nations, fueling suspicions of a concealed agenda.
# World Bank: Supports poverty reduction through loans for development projects and welfare programs.
# UN: Maintains international peace and security through conflict resolution, peacekeeping missions, and human rights protection.
# UNESCO: Promotes education, science, and culture worldwide, fostering understanding and diversity.
# IMF: Encourages international monetary collaboration by providing financial aid and promoting stable exchange rates.
# GATT: Previously promoted international trade by reducing tariffs and quotas, later replaced by WTO.
# WHO: Works to achieve the highest possible level of health for all, focusing on global health equity and access.
# WEF: Engages leaders from business, politics, and academia to discuss critical global issues like climate change and inequality.
# EU: A 27-nation economic and political union with a common currency (Euro) and free movement of goods and people.
# WTO: Regulates international trade, settling disputes and promoting fair trade practices, succeeding GATT.
The U.S. Dollar VS Chinese Yuan
China's aspiration to challenge the supremacy of the U.S. dollar in international business is widely acknowledged, evident in its Terms of Trade (TOT) pricing strategy. Despite this ambition, dethroning the dollar remains a monumental task, as highlighted by SWIFT data. The reputable financial transaction tracker reports the U.S. dollar's share at 48.03% in 2023, while the Chinese yuan's share is 3.47% in the same year. These figures underscore the significant gap between the two currencies.
It's crucial to note that although currencies like India's Rupee are utilised in regional trade, their global footprint pales in comparison to major players like the USD (U.S.), EUR (Eurozone), GBP (UK) and CNY (China). Therefore, they are typically excluded from such data comparisons.
Politicalism
The most potent weapon for any country is power. Recorded history provides evidence of conflicts between nations vying for power. Power can manifest in democratic or autocratic forms, with its means often rooted in the prevailing economic system.
The expansion of commercial trade routes worldwide gave rise to Globalism, the offspring of modern capitalism. Ancient Globalism involved direct sales and immediate deliveries with minimal taxes, whereas modern Globalism relies on indirect sales, delayed deliveries, and higher taxes. Business and political leaders hinge on transparent or hidden taxes tied to product sales, with tax revenues influencing interest rates, loans, deposits, and the political system.
The Paris Commune was a social group that replaced the government of the French Republic through revolution. It governed Paris for two months, from March 18, 1871, to May 28, 1871. Later, the French Army defeated the group, and the monarchy was restored. The Paris Commune had a significant influence on Karl Marx, contributing to the development of the world-renowned ideology of Communism. Communism originated in Germany, and the Soviet Union (today's Russia) became the first communist country after the Russian Revolution, which took place from March 8, 1917, to June 16, 1923, ending the Russian Monarchy through the Bolsheviks, founded by Vladimir Lenin based on Marxism-Leninism.
Charles Fourier coined the term Socialism, which stands between Capitalism and Communism. After gaining independence, India adopted Socialism as its guiding ideology. Unfortunately, in the present situation, India is undergoing a transformation from Socialism to Capitalism by monopolising companies and privatising government sectors.
Dutch to England to the U.S.
# The Dutch (Netherlands) ruled through trade, economy, science, art, and the military from 1575 to 1675. The Dutch-based Amsterdam Stock Exchange (1602) led to the development of the modern stock market.
# The United Kingdom (U.K.) exercised rule through colonialism-based capitalism up to World War II. The England-based Bank of England (1694) led to the development of the modern banking system.
# The United States (U.S.) has been ruling through globalism-based capitalism from 1945 to the present. Currently, 59% of foreign bank reserves are denominated in U.S. dollars, and 40% of global debts are denominated in U.S. dollars, with 60% in public debt and 40% in private debt.
Space Research
Russian space exploration has a rich history that has significantly contributed to humanity's understanding of outer space. Key missions include Sputnik 1 (the first artificial satellite), Sputnik 2 (carried the first living creature, Laika, into space), Luna 3 (captured the first photographs of the far side of the Moon), Vostok 1 (carried Yuri Gagarin as the first human in space), Vostok 6 (Valentina Tereshkova became the first woman in space), Voskhod 2 (featured the first spacewalk by Alexei Leonov), Luna 9 (achieved the first successful soft landing on the Moon), Venera 7 (successfully landed on Venus and transmitting data), Salyut 1 (as the first space station), and Mars 3 (achieved the first successful landing on Mars).
During the Cold War era, Communist Russia (the Soviet Union) led in military, technological, and space research and development until the early 1960s, with the space race being a significant aspect of Super Power competition. NASA (National Aeronautics and Space Administration), established on July 29, 1958, aimed to accelerate U.S. space exploration. On July 20, 1969, Neil Armstrong became the first person to set foot on the Moon as part of the Apollo 11 mission, which was supervised by NASA. Since the late 1960s, after NASA's formation, the global space endeavour shifted into capitalist and globalist United States. In his book 'Puyalile Oru Thoni,' author Singaram asserts the truth that 'A nation that holds dominion over both the sky and the sea can thrive'.
Technology
It is widely accepted that Globalism operates in a centralised model, whereas Blockchain Technology operates in a decentralised one. Weighty subjects such as Artificial Intelligence, Machine Learning, Deep Learning, Big Data, Blockchain Technology, and Cryptocurrency have emerged as recent opportunities to challenge Capitalism and potentially pave the way for Communism. However, due to issues such as a lack of trust, unclear subject definitions, scalability concerns, and regulatory hurdles, exacerbated by threats from traditional banking institutions, these promising sectors remain disorganised.
Conclusion
The U.S. status as a Super Power transcends economic might, encompassing military, cultural, and technological influence. Predicting future economic dominance is treacherous, but China's potential GDP lead by 2050 demands consideration of social models beyond just globalism's potential for privatization or communism's potential for technological equality.
Countries following strict religious practices will ultimately distance themselves from technology, while countries open to innovations will likely rule the world. Imagining the future necessitates exploring a spectrum of models that integrate sustainability, ethical AI, and equitable resource access. This exploration may potentially craft something entirely new to navigate the uncertain tapestry of world order. Remember, this is a collaborative journey, not a pre-written script.
Reference
Federal Reserve Bank's Working System
United States History
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