So, after numerous suggestions, I sat down and read Ray Dalio’s book on the Principles of The Changing World Order. It’s not good folks. It’s got some interesting economic arguments, but the history it attempts to present is often just wrong. Let me start by saying I have been impressed and intimidated by Ray Dalio for decades. Back around the turn of the century I trained as a stock broker, and one of the reasons I decided not to take up the career was my certainty that I would never be able to compete with folks like Dalio, who founded Bridgewater Associates, which is often described as the world’s largest hedge fund. There are thousands of people who get big market moves right once. People make movies about them, even if they never get anything right again, because timing the market right once is an impressive thing to do. But there is a much smaller class of people who consistently beat the market year after year, decade after decade, and Ray Dalio is one of them. The guy is a genius. Which is why I found his book on World Order so frustrating. There are some interesting aspects, but on balance I think its a mess. Ray Dallio may be a financial genius, but when it comes to history and global order, his models just fail. They don’t describe what has happened or what is to come.

My understanding of what makes Ray Dalio great is that he’s a systematizer. He essentially built a pile of algorithms for the trading of financial assets. If x happens then the price of an asset is likely to do y. Through innovative management practices, and deeper research into historical price data than anybody else was willing to do, Dalio built an organization that consistently did a better job predicting the prices of financial securities than anybody else.

And this is, I think, is the fundamental problem with this book. Ray Dalio figured out a system for predicting financial securities and it made him impossibly wealthy. He assumes there’s a system for predicting global order too. But there isn’t. Because the global order has a concrete reality in ways that financial securities simply do not.

Stocks, bonds, futures, the most complex financial derivatives we can imagine…These are all made up things. They are human inventions, cooked up to model the real world, but they are not the real world. A global order, made up of human societies is also invented to a degree, but it has an irreducible weight and complexity that you simply can’t boil down to numbers. Actually, that’s kind of what financial securities are in the aggregate. They are an attempt to model reality. But every security, no matter how complex, boils down to a simple metric, a number, that goes up or down, and that you can attempt to predict. Global Order will never boil down to mere numbers like a stock or a bond.

Let’s do a metaphor here. The world order is the National Basketball Association. It’s the personalities, talents, recruiting strategies, financial pictures, training regimens and interpersonal interactions of every player coach and manager in the league. Financial securities are the points scored in a single week of games. It’s useful data, but it isn’t going to tell you which team is going to be sold or go bankrupt this year. Hell a single week’s worth of data won’t even tell you who will win the national championship. There are simply too many factors involved. You aren’t going to boil global order down to simple quantifiable mechanics. But Ray Dalio is a finance guy, so he tries to do it.

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Now I am not one of those people who will tell you that the country’s finances aren’t important. They are. The monstrous US debt matters a lot, or it will as soon as we have a rival with finances that aren’t even more nightmarish than our own. But we don’t live in that world yet, and we still have time to fix the problem. Dalio suggests that we are in the final throes of what he calls the big cycle of money, credit, debt, and economic activity. That’s very possible, but the more of his book I read, the less that seemed to mean.

Dalio suggests that these big debt cycles last about 75 years, and that our cycle must be nearing its end. Crucially while Dalio claims that the cycle is timeless and universal, he allows that every country’s cycle is different. Dalio states that our current big debt cycle began with the establishment of the Bretton Woods dollar gold standard in the late 1940s. In his model, the devaluation of currency is a clear sign of catastrophic decline. But the current US big debt cycle experiences a massive currency devaluation with Nixon back in 1971. Over 50 years ago. So the fall of the Soviet Union, the entire period of Unchallenged US hyper power, the internet, cell phones, the go-go 80s and 90s, ongoing US military supremacy from Libya to Taiwan to Ukraine. That’s all US decline. I mean sure, I guess I can buy that my entire life, with all of the outsized US successes failures is just post gold standard decadence before the fall, I can be pessimistic sometimes too. But a model where the decline phase can be twice as long as the good bits, is essentially useless for prediction.

What this debt cycle theory is, is gussied up old school Wall Street prejudice. It’s gold buggery. The idea that money is worthless unless it’s based on a metal. Dalio isn’t a fanatic, he’s careful to point out that paper money can be useful before it’s dangerous, but the book’s central theory is just a fancier version of the guys trying to sell you gold coins in between Tucker Carlson segments on Fox News. Again. I am not saying that Ray Dalio or the Bitcoin bros are necessarily wrong about the eventual dangers of currency inflation or devaluation. Just that they have been wrong about it for 50 years. Dalio’s book has gotten a ton of love on TikTok among crypto fans who have made goldbug or sound money theories central to their ideology over the past 18 months or so. Dalio and the crypto bros are very right to point out that post Covid money printing by the Federal Reserve is an unnerving experiment. But it’s not a new experiment. It’s been running for almost a decade now, and we are all still here.

Every crisis still causes a flight to the dollar over any alternative. It ain’t fair, and might not make much sense, but it’s what is happening and has been happening for half a century. Dalio’s central debt crisis model might be “timeless and universal” as he constantly describes it, but it isn’t particularly useful, because it tells us nothing about timing.

So I find the financial aspects of this book deeply unpersuasive, but if that were my only my problem, my advice would be to ignore this rando on YouTube, and go with what one of history’s most successful investors says. But the problems with the book go much deeper than that. For one thing, this book on global order doesn’t appear to have a definition of what global order is, or where it started. I will tell you both of these things. Right now.

World Order started in the 1760s, and it was started by the British Empire. There have been tons of impressive empires in world history. But before the British in the 1760s there was no global order. What global order is, is a world system where everybody is compelled to follow the same set of basic rules, if they want to participate economically, or even survive as nation states. Global order might be possible without one country in charge calling all the shots, but we haven’t seen it on this planet yet. The Romans, the Persians, the Mongols, the Hapsburgs and some Chinese dynasties were very impressive, but they never controlled the whole world or even knew what most of it looked like. There have only been two real world empires in human history, the British Empire, and the US empire. Comparing them to each other makes sense. Comparing them to anybody else is nonsense.

This book is suffused with a maddening imprecision. Ray Dalio aspires to be a philosopher, and he really wants his cycles to apply everywhere, to everyone, at every level. Everything is timeless and universal, timeless and universal. “History shows that when an individual, organization country or empire spends more than what they earn, misery and turbulence are ahead.”
“Well if I ran my finances the way the federal government does, I would be in prison for fraud!” We are taught to mock sentiments like this when they come from conservative talk radio. We should mock them when they come from billionaire investors too.

It may not be philosphically satisfying to point this out, but the truth is that, my bank account is a very different thing from the US central bank. And the ability of a Roman Centurion or a Dutch Pirate to stab a peasant outside of a border fort is very different from a London or New York banker being able to destroy the central bank of any country in the world over the course of a long lunch. The ability to destroy a country over lunch is what global order is and it’s a very new development in human history. Ray Dalio’s book refuses to reckon with any of this, and the book massively distorts history to pretend that anything it describes is timeless and universal.

I want to reproduce this page here, because I am not entirely certain what he’s saying, you can pause it to read it yourself, but my sense is he’s saying that ancient Rome and Greece fell because their central banks didn’t manage their interest rates well. Central Banks are not timeless and universal. In almost all countries they are less than a century and a half old. And in the few countries where they are older than that, they are completely different institutions from what they were before the 20th century.

Dalio claims in his introduction to be writing in common sense language, so he can reach a lot of people. But the writing often didn’t make any sense at all. Eras, countries, and personal anecdotes are all jumbled together with absurdly grand claims for timelessness and universality that are never backed up. The very definitions of words seemed to be up in the air in ways that weren’t at all helpful. There is a reason people use precise, careful language to describe important things. This book isn’t simple and straightforward with its language, it’s careless.

Amazingly if you make it to pages 388 to 391 of the book, the authors admit that their big timeless universal cycle models are useless. Their deep research into 1000 years worth of Chinese empires doesn’t fit into any of their models, because global reserve currencies didn’t exist until we had a global order, and inflation wasn’t a factor in China until the 20th century.

Despite what’s advertised in the promotional video and material though, deep Chinese history, and most European empires don’t feature much in the book.The history of the Dutch Empire does feature prominently, however, and its almost entirely wrong.

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Dalio has big cycle model, based I believe on the British Empire and nothing else, that he wants to cram the Dutch empire into. To do this, he systematically distorts Dutch history. The Dutch were very impressive. They did have global reach, and they absolutely did come up with many of the financial innovations the British Empire used to create the first global system. But to the great empires of Asia, the Dutch were barely an annoyance, if they were noticed at all. The British invaded and destroyed both China and India in the 1800s. The Dutch had to beg for the right to buy things from those empires at the height of their power in the 1600s. The Dutch did not participate in, let alone lead a modern global order.

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There was no dominant period of peace and prosperity for the Dutch Empire. To make his models work, Dalio pretends that the Dutch Golden Age lasted almost 150 years longer than it actually did. In a bit of bad editing, this graph of Dutch power on page 267 includes the 1672 “Year of Disaster” for the Dutch, even though it never comes up in the text. Dalio’s models are all about finance so he ludicrously claims that the Dutch were a bigger power than the British through most of the 1700s, until a bank default in the 1780s took them out. Well as a New Yorker rather than a New Amsterdamer, I am here to tell you that that is simply not true. The British took New York and a whole lot more from the Dutch in the 1660s not the 1760s.

For the first half of the 1600s the tiny Dutch Republic really did punch far above it’s weight class. They used stolen wealth from Asia to exert real power in Europe. But it was war that allowed them to do this, not peace. The French, Spanish, British and Germans were too busy tearing each other apart to focus on the Dutch. The end of the thirty years war in 1648 wasn’t the beginning of the Dutch Golden Age, the way Dalio claims. It was the end. After 1648 The British and French now focused on ripping away all of the wealth, innovations and territory the Dutch had created. In 1672, the Year of Disaster, an English, French and German coalition completely overran the country. The loss was so bad that a Dutch mob killed and partially ate the politicians responsible.

I think what’s confused Dalio’s researchers here is that Wikipedia lists most of the many wars of the second half of the 1600s as Dutch victories. They were victories. The Dutch even managed to come back from the year of disaster in 1672, and kick everyone off their territory. But these were victories like Vietnam’s victory in 1975. Yes, the Dutch won by surviving. That didn’t mean they were still a great power. Vietnam didn’t jump from victory in Saigon to having a seat on the UN security council.

By the end of the 1600s, after being repeatedly ripped to shreds, the Dutch figured out a strategy. They gave England a King, and made themselves useful in the British rivalry with France for most of the next century. It was only under the wing of British protection that the Dutch Republic was allowed to peacefully stagnate. It was the catastrophic decision to turn on their British patrons in the fourth Anglo-Dutch war, a century after the first three, that resulted in the debt default and annexation by France that Ray Dalio seems to see as the first indications of decline. This Dutch move in the 1780s would be roughly analogous to the British declaring war on the United States today. That wouldn’t go well.

This distortion of Dutch history also highlights a fundamental problem with Ray Dalio’s focus on financial issues. The Dutch Guilder remained an important currency for a full century after the destruction of Dutch power. On page 320, Dalio comes right out and says that it took 20 years for the British to lose reserve currency status after losing power to the US. I would argue it was more like 50 years actually, because I date the end of the British Global System to the Spring of 1917, when the US saved Britain from debt default by joining World War One, but Ray Dalio is probably closer to historical consensus in using 1945 as the date.
Regardless, Ray Dalio concedes, in his book, intentionally or not, that financial doom is a lagging indicator of imperial decline, not a leading one. Financial ruin comes after the geopolitical catastrophe, not before. So the true, unacknowledged message of this book, for all those goldbugs and bitcoiners hoping for the cataclysmic fall of the dollar, is that we probably have to do world war III before that happens.

I don’t consider myself an expert on the Dutch empire, but I do consider myself an expert on the British empire, and I have to say that Dalio’s coverage of it is… pretty OK actually.

The world that Ray Dalio inhabits, is the world that the British Empire built. Since the end of the seven years war in 1764, we have had a global order where banking and finance are vastly more powerful than any gun boat. As I said before there have only been two world system empires, the United Kingdom and the United States, and more people should do the work of comparing them. I found the statistics and financial history assembled in Ray Dalio’s 40 page chapter on the British Empire to be very useful, and I will probably revisit it in the future, unlike the rest of this book. The big cycle model that Dalio talks about, also happens to work for the British Empire, I suspect because it’s the example that the model was drawn from.

Don’t get me wrong, the book has tons of glaring errors on the British as well. Like on page 163 where he describes the peaceful and prosperous foreign policy of British Prime Minister William Gladstone. Gladstone is a nicer figure than more bloodthirsty Victorians like Disraeli, or Lord Salisbury or Lord Palmerston. But he was still the guy who launched Europe’s scramble to conquer Africa, one of history’s greatest crimes. Oh, and he’s also the guy who was in charge when the British and French burnt down the Chinese Empire’s Summer Palace, one of the most grievous blows in China’s century of humiliation. On the next page Dalio talks about how much 1960s US president Kennedy loved peace despite that whole closest the world has ever come to nuclear annihilation thing.

So I am not saying Dalio’s coverage of the British Empire is great, just that it’s better than anything else in the book. Dalio talks about his study of global order being an iterative process, and I would like to suggest diving in on the British example in the next iteration. There are no timeless and universal cycles. History has provided a useful sample size of only two global empires, the US and the British. Ray Dalio should focus his vast resources on studying them.

And if Ray Dalio, or you, want a good place to start on that
, my book, Avoiding the British Empire, which compares the US and British world systems much more seriously, is a good option.