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Prefacexiworld in exchange for well-engineered cars, machinery, textiles andevery imaginable product. It was the greatest confidence game theworld had ever seen. Americans bought the imports with more dollardebt, creating an edifice of dollar debt on which the entire world wasdependent. This special hegemony also allowed the United States tobecome the world’s largest debtor, to run endless trade imbalances,to inflate its currency beyond imagination, to create a buildup ofprivate and public debt unprecedented in world history. So long asother nations depended on American markets for their trade, and onAmerican military protection for their national security, the gameappeared endless. Japan’s role as ‘lender of last resort’ to the U.S.was supplemented at the turn of the century by China. Hundreds ofbillions of dollars in Japanese, Chinese and other foreign purchasesof U.S. Treasury debt, U.S. real estate debt, and other assets, proppedup the American economy long after it made any economic sense.The power of the dollar and the power of the U.S. military hadbeen uniquely intertwined with one commodity, the basis of theworld economic growth engine, since before the First World War.That commodity was petroleum, and in its service British, American,German, French, Italian, and other nations called their soldiers towar. As Henry Kissinger once expressed this importance: ‘controlenergy and you control the nations.’ Oil played a decisive role in thecollapse of the Soviet Union. Oil defined American foreign policy inmuch of the world during the cold war. And oil defines Americanmilitary actions since the end of the cold war as never before. Thehow and why of that process define our theme here.In 1919 Mackinder termed the winning of a British Mandate overPalestine the most important geopolitical outcome of the First WorldWar. In the first decade of the third millennium, Palestine and Israeland Middle East geopolitics were still at the heart of world powerpolitics, even if the players in the power complex had changed.How the destiny of the American Century was tied to the destinyof this small part of the world was a question of heated debate anddiscussion. A group of ultra-conservative ideologues largely aroundthe Republican Party of George Bush were been accused of turningAmerican foreign policy into a unilateral pursuit of military empire.Some defenders boasted of being democratic imperialists. OtherRepublicans and Democrats called for a return to traditional Americanforeign policy, a hegemony in which consensus among its Allies wasessential. Both sides of this debate were misleading. Both factionsaccepted the underlying assumptions of an economic and politicalEngdahl 00 pre xi24/8/04 8:18:07 am

xiiA Century of Warpower which was no longer sustainable nor healthy for the UnitedStates nor for the rest of the world.This book seeks to shed light on some lesser known aspects ofour history, in an effort to provoke thinking beyond the moment,beyond embedded journalist impressions of reality, or major mediasound-bite versions of reality, to encourage ordinary citizens to reflecton longer-term consequences of what our governments do with ourmandate. If it leads to some critical questions being asked, its aimwill have been met.F. William EngdahlHochheim am MainJune 2004Engdahl 00 pre xii24/8/04 8:18:08 am

1The Three Pillars ofthe British EmpireTHE EMPIRE NEEDS A NEW STRATEGYNo other element has shaped the history of the past 100 years so muchas the fight to secure and control the world’s reserves of petroleum.Too little is understood of how political and economic power aroundthe raw material, petroleum, has been shaped by interests principallyunder the control of two nations—the United Kingdom and, later,the United States of America.Britain, approaching the end of the 1890s, was in all respects thepreeminent political, military and economic power in the world.British gold, under the jealous, guarding eye of the Bank of England,was the basis for the role of the pound sterling as the source spring ofworld credit, since 1815. Prussian military superiority was the actualkey to the defeat of Napoleon’s army at Waterloo. But Wellingtonand the British took the credit, and with it the lion’s share of worldgold reserves, which subsequently flowed into London. ‘As good assterling’ was the truism of that day. After a law of June 22, 1816, goldwas declared the sole measure of value in the British Empire. Britishforeign policy over the next 75 years or more would be increasinglypreoccupied with securing for British coffers—the vaults of the Bankof England—the newly mined reserves of world gold, whether fromAustralia, California or South Africa. The corollary of this mineralspolicy was a policy of ‘strategic denial’ of those same identified goldreserves to competitor nations whenever possible.After 1815, British naval superiority was unchallenged on theworld’s seas. British ships carried British steel, coal and exports ofthe Manchester textile industry. British manufactures had led theworld for decades.But behind her apparent status as the world’s pre-eminent power,Britain was rotting internally. The more the British merchanthouses extended credit for world trade, and City of London banksfunneled loan capital to build railways in Argentina, the United Statesand Russia, the more the domestic economic basis of the United1Engdahl 01 chap01 124/8/04 8:17:51 am

2A Century of WarKingdom deteriorated. Few understood how ruthlessly lawful was theconnection between the two parallel processes at the time.Since the 1814–15 Congress of Vienna, which carved up postNapoleonic Europe, with the diplomatic maneuvering of BritishForeign Minister Lord Castlereagh, the British Empire had exactedrights to dominate the seas, in return for the self-serving ‘concessions’granted to Habsburg Austria and the rest of the Continental Europeanpowers, which served to keep central Continental Europe divided,and too weak to rival British global expansion. British control of theseas, and with it control of world shipping trade, was thus to emergeafter Waterloo as one of the three pillars of a new British Empire. Themanufacturers of Continental Europe, as well as much of the rest ofthe world, were forced to respond to terms of trade set in Londonby the Lloyd’s shipping insurance and banking syndicates. WhileHer Royal Britannic Majesty’s Navy, the world’s largest in that day,policed the world’s major sea-lanes and provided cost-free ‘insurance’for British merchant shipping vessels, competitor fleets were forced toinsure their ships against piracy, catastrophe and acts of war, throughLondon’s large Lloyd’s insurance syndicate.Credit and bills of exchange out of the banks of the City of Londonwere necessary for most of the world’s shipping trade finance. Theprivate Bank of England, itself the creature of the preeminent housesof finance in London’s ‘City,’ as the financial district is called—housessuch as Barings, Hambros, Rothschilds—manipulated the world’slargest monetary gold supply, in calculated actions which couldcause a flood of English exports to be dumped mercilessly onto anycompetitor market at will. Britain’s unquestioned domination ofinternational banking was the second pillar of English Imperial powerfollowing 1815.The third pillar, more and more crucial as the century wore on, wasBritish geopolitical domination of the world’s major raw materials—cotton, metals, coffee, coal and, by the century’s end, the new ‘blackgold,’ petroleum.FREE TRADE AND THE SINEWS OF BRITISH POWERIn 1820, Britain’s parliament passed a declaration of principle whichwas to usher in a series of changes that had as one consequence theoutbreak, almost a century later, of the First World War and its tragicaftermath.Engdahl 01 chap01 224/8/04 8:17:51 am

The Three Pillars of the British Empire3Acting on the urgings of a powerful group of London shippingand banking interests centered around the Bank of England, andAlexander Baring of Baring Brothers merchant bankers, parliamentpassed a statement of principle in support of the concept advocatedseveral decades earlier by Scottish economist Adam Smith: so-called‘absolute free trade.’By 1846, this declaration of principle had become formalized ina parliamentary repeal of domestic English agriculture protection,the famous Corn Laws. The Corn Laws repeal was based on thecalculation of powerful financial and trade interests of the City ofLondon that their world dominance gave them a decisive advantage,which they should push to the hilt. If they dominated world trade,‘free trade’ could only ensure that their dominance would grow atthe expense of other less-developed trading nations.Under the hegemony of free trade, British merchant banks reapedenormous profits on the India–Turkey–China opium trade, while theBritish Foreign Ministry furthered their banking interests by publiclydemanding China open its ports to ‘free trade,’ during the BritishOpium Wars.A new weekly propaganda journal of these powerful City of Londonmerchant and finance interests, The Economist, was founded in 1843with the explicit purpose of agitating for the repeal of the CornLaws.The British Tory Party of Sir Robert Peel pushed through the fatefulCorn Laws repeal in May 1846, a turning point not only in Britishbut in world history, for the worse. Repeal opened the door for aflood of cheap products in agriculture, which created ruin among notonly British but also other nation’s farmers. The merchants simpledictum, ‘Buy cheap, sell dear,’ was raised to the level of nationaleconomic strategy. Consumption was deemed the sole purpose ofproduction.Britain’s domestic agriculture and farmers were ruined by the lossof the Corn Laws protectionism. Irish farmers were enmiserated, astheir largest export market suddenly lowered food prices drastically,as a result of the repeal of the Corn Laws. The mass starvation andemigration of Irish peasants and their families in the late 1840s—the tragic Irish Potato Famine of 1845–46 and its aftermath—wasa direct consequence of this ‘free-trade’ policy of Britain. Britain’sprior policy toward Ireland prohibited development of a strongself-sufficient manufacture, demanding it remain the economicallyEngdahl 01 chap01 324/8/04 8:17:51 am

4A Century of Warcaptive breadbasket to supply England’s needs. Now that breadbasketitself was destroyed in pursuit of the fictional free trade.After 1846, Hindu peasants from Britain’s Indian colony, withtheir dirt-poor wages, competed against British and Irish farmersfor the market of the British ‘consumer.’ Wage levels inside Britainbegan falling with the price of bread. The British Poor Laws grantedcompensation for workers earning below human subsistence wage,with income supplement payment pegged to the price of a loaf ofwheat bread. Thus, as bread prices plunged, so did living standardsin Britain.In effect, repeal of Corn Laws protectionism opened the floodgatesthroughout the British Empire to a ‘cheap labor policy.’ The onlyones to benefit, following an initial surge of cheap food prices inBritain, were the giant international London trading houses, andthe merchant banks which financed them. The class separations ofBritish society were aggravated by a growing separation of a tinynumber of very wealthy from the growing masses of very poor, as alawful consequence of ‘free trade.’1E. Peshine Smith, an American economist and fierce opponentof British free trade, writing at the time, summarized the effect ofthe British Empire’s free trade hegemony over the world economyof the 1850s:Such has been the policy which still controls the legislation ofGreat Britain. It has, in practice, regarded the nation collectivelyas a gigantic trader, with the rest of the world, possessing a greatstock of goods, not for use, but for sale, endeavoring to producethem cheaply, so that it might undersell rival shopkeepers; andlooking upon the wages paid to its own people as so much lost tothe profits of the establishment.2Peshine Smith contrasted this ‘nation as giant shopkeeper’ doctrineof the Britain of Adam Smith and company to the growing nationaleconomic thinking emerging on the Continent of Europe in the1850s, especially under the German Zollverein, and other nationaleconomic policies of Friedrich List.3Their policy will be dictated by the instincts of producers, and notthat of shopkeepers. They will look to the aggregate of production,not to the rate of profits in trade, as the test of national prosperity.Accordingly, the great Continental nations, France, Russia and theEngdahl 01 chap01 424/8/04 8:17:52 am

The Three Pillars of the British Empire5German States—united in the Zollverein or Customs Union—havepractically repudiated the idea which has so long controlled thecommercial policy of England. What England has gained by thatpolicy is thus described by one of her own learned and respectedwriters, Joseph Kay, who speaks of that nation as the one ‘wherethe aristocracy is richer and more powerful than any other countryin the world, the poor are more oppressed, more pauperized, morenumerous in comparison to the other classes, more irreligious andvery much worse educated than the poor of any other Europeannation, solely excepting uncivilized Russia and Turkey, enslavedItaly, mis-governed Portugal and revolutionized Spain.’4So a campaign began to shape ruling English ideology in 1851, usinga viciously false Malthusian argument of overpopulation, rather thanadmit the reality of a deliberate policy of forced underinvestment innew productive technologies. The name given the political doctrinewhich rationalized the brutal economic policy was British liberalism.In essence, British liberalism, as it was defined towards the end of thenineteenth century, justified development of an ever more powerfulimperial elite class, ruling on behalf of the ‘vulgar ignorant masses,’who could not be entrusted to rule on their own behalf.But the underlying purpose of the liberal elites of nineteenthcentury British government and public life was to preserve and servethe interests of an exclusive private power. In the last part of thenineteenth century, that private power was concentrated in the handsof a tiny number of bankers and institutions of the City of London.BRITAIN’S ‘INFORMAL EMPIRE’Such free-trade manipulation has been the essence of British economicstrategy for the past 150 years. Britain’s genius has been a chameleonlike ability to adapt that policy to a shifting international economicreality. But the core policy has remained—Adam Smith’s ‘absolutefree trade,’ as a weapon against sovereign national economic policyof rival powers.By the end of the nineteenth century, the British establishmentbegan an intense debate over how to maintain its global empire. Amidslogans about a new era of ‘anti-imperialism,’ beginning the last quarterof the nineteenth century, Britain embarked on a more sophisticatedand far more effective form for maintaining its dominant world role,through what came to be called ‘informal empire.’ While maintainingEngdahl 01 chap01 524/8/04 8:17:52 am

6A Century of Warcore imperial possessions in India and the Far East, British capitalflowed in prodigious amounts especially into Argentina, Brazil andthe United States, to form bonds of financial dependence in manyways more effective than formal colonial titles.The notion of special economic relationships with ‘client states,’the concept of ‘spheres of influence’ as well as that of ‘balance-ofpower diplomacy,’ all came out of this complex weave of British‘informal empire’ towards the end of the last century.Since the British defeat of Spain’s Armada in 1588, Britain had usedthe special circumstance of being an island apart from ContinentalEurope. She was saved the costs of having to raise a large standing armyto defend her interests, leaving her free to concentrate on masteryof the seas. Britain’s looting of the wealth of the vast reaches of theworld allowed her to maintain, as well, a balance of power on theContinent, creating or financing coalitions against whichever nationseemed on the verge at a given time of dominating the Europeanland mass, stretching from Russia to Spain.In the aftermath of the 1815 Congress of Vienna, in the reorganizedEurope following the defeat of Napoleon, England had perfected thecynical diplomatic strategy known as ‘balance of power.’ Never wasit admitted by Her Majesty’s Foreign Office establishment that, ason a scale, with weights added to equalize opposite sides of a center‘balance point,’ British balance-of-power diplomacy was rigorouslydefined, always, from the fulcrum or center point of London, thatis, how Britain could play off rival economic powers to her ownunique advantage.After 1815, the peculiar ‘genius’ of British foreign policy lay inher skill in shifting alliance relations, abruptly if necessary, as herperception of strategic power in Europe or globally shifted. Britishdiplomacy cultivated this cynical doctrine, which dictated thatBritain should never hold sentimental or moral relations with othernations as sovereign respected partners, but rather, should developher own ‘interests.’ British alliance strategies were dictated strictly bywhat she determined at any given period might best serve her own‘interest.’ The shift from hostile relations with France in Africa to the‘Entente Cordiale’ after the Fashoda showdown in 1898, or the shiftfrom Britain’s decades-long backing for Ottoman Turkey to blockingthe expansion of Russia, in what was known in Britain and India asthe ‘Great Game,’ were indicative of such dramatic alliance shifts.Increasingly during the last decades of the nineteenth century,British capital flowed into select capital-deficit countries such asEngdahl 01 chap01 624/8/04 8:17:52 am

The Three Pillars of the British Empire7Argentina, in order to finance, build, then run their national railand transport infrastructure, a role usually encouraged by generousconcessions from the host government. British capital also went todevelop the local countries’ steamship lines and their ports. So werethe economies of Argentina and other British ‘client states’ effectivelymade into an economic captive, with terms of trade and financedictated from the City of London by British merchant houses and tradefinance banks. These client states of Britain thereby found that theyhad surrendered control over their essential economic sovereigntyfar more completely than if British troops had occupied Buenos Airesto enforce tax collection in support of the British Empire.During the 1880s Argentina’s new railroads brought her goods,especially beef and wheat, to her ports for export. Exports doubledand her external debts, mainly to London banks, increased 700 percent. The country was a debt vassal of the British Empire, ‘imperialismon the cheap’ as one commentator dubbed it. It was manifestly notthe intent of British policy to develop strong sovereign industrialeconomies from these client-state relationships. Rather, it was tomake the minimum investment necessary to

Free trade and the sinews of British power 2 Britain’s informal empire 5 The Great Depression of 1873 8 2. The Lines are Drawn: Germany and the Geopolitics of the Great War 11 Germany’s Wirtschaftswunder 11 A Berlin bank panic 14 The necessity for ship and rail infrastructur