What is the relationship between money, power, and the collapse of society? This blog post presents the ideas of Ray Dalio, billionaire investor and author of “Principles for Dealing with the Changing World Order: Why Nations Succeed and Fail.”
Dalio explores his ideas about a Big Cycle and international relations, highlighting the interplay of how money and power influences the rise and fall of societies and shapes global politics. According to Dalio, debt creation, money printing, internal political conflicts, and great power struggles precipitate societal collapse.
- Democracy and Economic Inequality
- Neoliberalism and Democracy
- Power Inequality: Trends in Europe
- Democratic Backsliding: Definition and Measurement
- Effects of Political Inequality on Society
About Ray Dalio
Ray Dalio was born in 1949 and is an American billionaire investor and hedge fund manager. He founded Bridgewater Associates in 1975, which has become the world’s largest hedge fund.
Dalio has written four books. The first, “How the Economic Machine Works; A Template for Understanding What is Happening Now” (2007), explored the workings of the economy, emphasizing the distinction between credit and money, and the consequences of large-scale money printing. His second book, “Principles: Life & Work” (2017), was a New York Times bestseller and detailed the development of the company culture at Bridgewater Associates, based on principles and candid feedback. Dalio’s third book, “Principles for Navigating Big Debt Crises” (2018), outlines six stages of large debt crises, analyzes 48 historical examples, and categorizes them into deflationary and inflationary crises, providing lessons to be learned from each.
His fourth book, “Principles for Dealing with the Changing World Order: Why Nations Succeed and Fail,” deals with the intersection of power, money, and societal collapse.
Dalio on money and power
In the book, Dalio argues that, throughout history, money and power are interdependent and influence each other. He discusses the symbiotic relationship between individuals or entities with wealth and those holding political power. Historically, this dynamic can be observed among royal families, the nobility, and the church that, in one way, support each other, and in another way, vye for money and power within their ranks.
This dynamic has changed over time, particularly as society and technology have evolved. The Industrial Revolution, for example, was a turning point as it introduced machines and new forms of production. As people moved from agricultural work to industrial jobs, the struggle for power shifted as well. This transformation in the power mix led to a change in focus from royal families, nobles, and religious institutions to those who possessed productive assets that generated wealth.
Despite these shifts, the symbiotic relationship between money and political power persists. Those with wealth seek control over political entities, particularly around assets that are considered most valuable or productive. Political power is typically centered around nation-states, which emerged as a significant locus of power in the world.
Within each country, there are various levels of power that interact and coordinate to determine how the country is governed. These levels include central, provincial or state, and municipal power structures. The distribution and coordination of power among these levels play a crucial role in shaping a nation’s political landscape and overall governance.
In summary, the relationship between money and power has been symbiotic and influential throughout history. Although the specific dynamics have evolved over time, the interaction between wealth and political power remains. Understanding this connection and its historical roots can provide valuable insights into the forces that shape our world, and may help guide our efforts to create a more equitable and just society. By examining the past, we can better understand the present and work toward a future where power is distributed more fairly and opportunities for prosperity are available to all.
Why societies collapse: The Big Cycle and Changing World Order
According to Dalio, the “Big Cycle” governs the rise and fall of empires, shaping currencies, markets, and global politics. It comprises three key cycles: the long-term debt and capital market cycle, the internal order and disorder cycle, and the external order and disorder cycle. These cycles involve both internal governance systems and world order, often determined by the outcome of wars. The dominant world power nation during peaceful and prosperous periods, like the Industrial Revolution or the post-WWII era, leads global development.
Dalio uses eight metrics to measure an empire’s power: education, inventiveness and technology development, competitiveness in global markets, economic output, share of world trade, military strength, the power of their financial center for capital markets, and the strength of their currency as a reserve currency. He then assesses a country’s strength over time and whether they are rising or declining.
Dalio’s cycle of empire
- The typical cycle of an empire’s rise and decline begins after a major conflict, such as a war, which establishes the leading power and the new world order.
- This leads to a period of peace and prosperity, during which people become more optimistic and borrow money, contributing to a financial bubble.
- As the empire’s share of trade grows and its currency becomes a reserve currency, more borrowing occurs.
- This prosperity, however, distributes wealth unevenly, leading to a growing wealth gap between the rich and the poor.
- Eventually, the financial bubble bursts, prompting the printing of money and increased internal conflict between the rich and the poor.
- This may lead to a revolution or civil war to redistribute wealth.
- As the empire grapples with internal conflict, its power wanes compared to external rising powers.
- When a new rising power becomes strong enough to challenge the dominant power experiencing domestic breakdowns, external conflicts, typically wars, arise.
- The outcome of these internal and external wars determines new winners and losers, who then establish a new world order, restarting the cycle.
By examining these sequences across countries, we can identify the pattern of cause-effect relationships driving the rise and decline of empires. Better education often leads to innovation and technology development, and subsequently, the establishment of a reserve currency. These forces decline in a similar order, reinforcing each other’s downturns, highlighting the cyclical nature of the rise and fall of empires.
Recent developments according to Ray Dalio
Recently, writes Dalio, there have been three major developments that have changed power dynamics. First, debt creation and money printing resulted in inflation acceleration and market changes. Second, internal political conflicts intensified, causing social divisions and affecting governance. Third, great power conflicts emerged, such as the war with Russia and growing tensions with China, highlighting the struggle for global power. These factors have increased the risk of internal civil war and international conflicts. According to Dalio, recognizing the patterns and turning points in the Big Cycle and the Changing World Order is a way to comprehend current events, historical trends, and the factors that drive global change.