ray dalio on the habsburgs -- 10/4/22

Today's selection -- from Principles for Dealing with the Changing World Order: Why Nations Succeed and Fail by Ray Dalio. One of the greatest European ruling dynasties was that of the Habsburgs (1440 to 1740 CE). What brought its decline? Here is the summary of author and renowned investor Ray Dalio:
"The decline of the Habsburgs happened in many of the classic ways. There were revolutions against the elites who held wealth and power by those without them, challenging the existing order. For example ... new religious ideas surfaced in the form of the Reformation, a revolution against the Roman Catholic Church, which was perceived as decadent and ex­ploitative. At the time, the Catholic Church and the Holy Roman Empire were a rich and powerful political force that was integral to the existing order. The revolution started when a collection of reli­gious opposition groups known generally as Protestantism chal­lenged the system. Martin Luther published his Ninety-Five Theses in 1517, challenging the papal interpretation of the Bible and papal power in general. When Luther refused to recant, he was declared a heretic and excommunicated. His ideas nonetheless took hold in large parts of Europe, thanks to the political support of key nobles, as well as Europe's new printing press technology.

Growth of the Habsburg monarchy in central Europe

"This came at an economically difficult time, when conflicts were intensifying, leading to instability and terrible civil wars, eventu­ally culminating in the brutal Thirty Years' War in the mid-1600s. Its biggest negative impact was on the Holy Roman Empire and the Habsburgs. Charles V failed to prevent the revolutionary impacts of the Refor­mation and with it the damage to the existing order. He was forced to sign the Peace of Augsburg in 1555, which weakened the Holy Roman Empire and the Habsburg dynasty. He abdicated and divided his hold­ings in two: the Holy Roman Empire, which he passed to his brother Ferdinand, and most of the rest of the Habsburg Empire -- most impor­tantly Spain, but also the Netherlands, Belgium, significant portions of Italy, and Spanish colonies abroad -- which he passed on to his son Philip II From that point forward, the decline followed the classic script:

  • The empire was overextended militarily. Not only did Spain face a lengthy revolt against its unpopular rule in the Nether­lands, it also fought with the Ottoman Empire, various Italian states, the French, and the British. These wars were costly and chipped away at the Habsburg family dynasty even before the Thirty Years' War.
  • Terrible national finances caused the classic toxic mix of in­creased taxation, money printing, and rising debt. Philip II defaulted on debts four times during his reign.
  • The lower and middle classes suffered from rising food prices, which were increasing at an unprecedented rate from the Spanish Price Revolution.
  • Internal conflict grew, for all the previously mentioned reasons.
  • Leadership deteriorated. Philip II and his son Philip III preferred lavish living to governing and ultimately used money printing to cover the large deficits, which led to high inflation and economic pain. Those around them behaved similarly.

"The events of the 1500s were not the end of the Habsburg Empire, nor even to its claim to control the Netherlands -- that wouldn't hap­pen until the end of the Thirty Years' War in 1648. But they did create the conditions that allowed the Dutch to rise."

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Ray Dalio


Principles for Dealing with the Changing World Order: Why Nations Succeed and Fail


Avid Reader Press


Copyright 2021 by Ray Dalio


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