The High Noon of Empire

It was a cold day in New Haven, Connecticut, in the winter of 1899. That year, an arctic blast created record-making blizzards and snowfall. Ice flows in the Mississippi would run all the way to the Gulf of Mexico. (An event, by the way, recorded only one other time — Feb. 13, 1784).

Nonetheless, a packed house gathered in the old College Street Hall, where William Graham Sumner took the stage. The respected 59-year-old American intellectual delivered a talk titled “The Conquest of the United States by Spain.”

It was a provocative title. America had “won” the Spanish-American War in 1898. It had taken possession of Spain’s old colonial territories — Puerto Rico, the Philippines, and Guam.

But Sumner was not talking about the physical war. He spoke about the realm of ideas. “Expansionism and imperialism,” Sumner warned, “are nothing but the old philosophies of national prosperity, which have brought Spain to where she is now.” America, Sumner maintained, had adopted the imperial ideas of its vanquished foe. And it was America that would wind up no different than Spain, which was, in Sumner’s words, “a poor, decrepit, bankrupt old state.” Those with a nose for empire often mark America’s as beginning with the victory in 1898.

I thought of Sumner when I heard Kevin Phillips speak at a recent event held in Washington, D.C. Like Sumner, Phillips is one of those eggs who study empires as biologists study the California condor or the spotted owl. He is the author of an impressive study of the implications of American empire. The title is American Theocracy: The Peril and Politics of Radical Religion, Oil, and Borrowed Money in the 21st Century.

Phillips draws from the experience of empires past, including — as Sumner did — the Spanish empire. He also draws insights from the Dutch, British, Hapsburg, and Roman empires. His book has many threads that show how America is well along the familiar life cycle of empires. But I want to focus on just tw the rise of finance and America’s oil dependency.

Empires get hooked on certain fuel sources like dope addicts. The Dutch were masters of wind and water. But their commercial dominance faltered with the rise of coal. Coal fed the British Empire. But it eventually gave way to the oil-powered might of the United States. Phillips maintains that the inevitable transition to a post-oil global economy — whether it is based on natural gas, hydrogen, greater nuclear reliance, renewable energy, or whatever — “could see the United States displaced by a new leading economic power, probably an Asian one.” The history of modern empires is one in which transitions to new fuel sources are just not successful.

Instead, the fading empire fights it out. Not surprising that natural resources fueled many conflicts in earlier centuries. North American fisheries. Baltic timber. East Indian spices. Caribbean sugar and salt. The gold and silver of the New World. The powers of empire hinged on the command of valuable natural resources such as these.

Today, that hinge is oil. America’s oil infrastructure is old, past its zenith. Meanwhile, the car culture drinks gasoline in rivers with no sign of slowing down. Cars and trucks burn two out of three barrels of oil in the U.S. Of the 530 million cars in the world, more than 200 million are in the U.S. All of this has led to America’s consuming 25% of the world’s energy while holding only 5% of the resource.

There was a time when those numbers went the other way. For most of America’s rise to power in the 20th century, it produced far more oil than it consumed. As late as 1964, the U.S. found 48 billion barrels of oil and used only 23 billion. Ever since, it’s been getting tighter. By 1988, it was dead even. By 2005, America used 5 times more than it found.

As a result of this great surge in demand, oil has been the magic pixie dust that created many an American fortune. In 1948, half of the 16 richest companies in America were oil companies. As late as 1982, half of the 30 richest Americans counted oil as the initial source of their wealth.

Now America’s oil dependence is the Achilles’ heel of its international dominance. Phillips quotes Michael Klare, a theorist on the resumption of global resource wars. Klare writes that oil is no longer just a commodity but a national security matter. The U.S. military has become a “global oil-protecting service.”

People will say it is not so important to own the resource as it is to have the ability to pay for it. That is true. And that brings us the second mark of empire: the rise of finance at the expense of making things. Empires past all had their manufacturing capabilities hollowed out. In place of that stood the business of financing things, of pushing paper, of printing money.

Spanish observers in the 17th century wrote smugly about how London made fine fabrics, Holland chambrays, Florence cloth, and India linens. But it was Spain that enjoyed these things, because Spain had money. The Dutch and British held a similar conceit. The British economist William Stanley Jevons wrote with assurance: “The plains of North America and Russia are our cornfields, Chicago and Odessa are our granaries, Canada and the Baltic our timber forests, Australia our sheep farms…” and on and on. The whole world worked for Britain, which paid in sterling.

But this prosperity has a sort of soap bubble fragility to it. It depends on debt and easy credit. The empires of the past became bankrupt because of their spendthrift ways and financial ineptitude.

In the U.S., Phillips writes, “It’s finally happened: Moving money around has surpassed making things as a share of U.S. gross domestic product.” Historically, this has been a mark of late-stage degeneration. Massive budget shortfalls and a rising national debt point to the seemingly irreversible fiscal decline of the government. Debt loads on consumers at or near record highs speak to the precarious foundation of American families.

Then there is the rise of complex financial instruments, which no one seems to know anything about. Take collateralized debt obligations, or CDOs. They are complex investments that allow investors to buy pools of credit risk. They came out of nowhere in 1997 to total more than $1 trillion in 2001 and over $3 trillion by 2003. Today, CDOs probably top $8 trillion in notional value. And what is a CDO? A big mound of paper no one really knows the worth of. Recent market events, though, suggest the CDOs are not worth much.

It is the high noon of empire. That is the phrase I keep thinking of. Sumner saw its dawn. Phillips foretells its dusk. Investing well while all this mess is going on is more important than ever. In this, the old advice is still the best: Own things and sell paper. Oil, natural gas, water rights, land, timber — the tangible assets, and all the supporting cast, that built the fortunes of old, will also build the fortunes of the future.

Chris Mayer

August 31, 2007