In the second book of Aristotle’s Nicomachean Ethics we are confronted with a list of virtues and vices. In that table we read about andreia (courage), sophrosune (temperance), eleutheriotes (liberality), megaloprepeia (magnificence), megalopsuchia (magnanimity), praotes (patience), aletheia (truthfulness), dioratikotis (foresight), philia (friendliness), philotimia (servanthood ambition), paideia (wholistic liberal education), krisin (judgement with foresight), aidos (modesty) and nemesis (righteous indignation), among others.

A leader who aspires to lead a nation that will shape the lives of millions in the endeavor called “world order”, needs to exhibit most – if not all – of these virtues otherwise misery, injustice, and death will follow.

In our commentary a month ago we introduced this series, which concludes today. In Part III, we elaborated on the malcontent efforts by China to turn the balance of power, and we suggested that China needs to be penalized for its atrocious behavior related to the spread of Covid-19 and offered policy suggestions of how its goal of changing the balance of power to its favor and subjugating the rest of the nations to its image can be averted for the sake of an equilibrium that resembles a coin whose head is liberty and its tail prosperity.

The financial crisis of 2008-’09 inaugurated an effort to reformulate the balance of power. The current Covid-19 crisis could propel the world order into a paradigm shift that could transform – not necessarily for the better – every aspect of our personal, family, corporate, national and international lives. Historically speaking, whenever these kind of crises take place, the world is turned upside down, a new world order is institutionalized and a paradigm shift materializes. The following schematic presents the evolution of the balance of power over the course of the last four centuries (i.e. during the modern era) and the commentary discusses the forces that led to the shifting of the balance of power in each period.

The Pre-Westphalian World Order

• During the Roman imperial rule, there was a unified system of laws, rules, norms, and defense-related issues that advanced the empire’s interests.
• Following the Roman empire’s fall around 476 A.D, a system of dual power prevailed: the royal power of kings and princes which was characterized by fragmentation, and the sacred authority of the church.
• Charlemagne attempted to unify the European order when he was crowned Emperor of the Holy Roman Empire on Christmas Day 800 A.D. However, his efforts failed, mainly because the fragmentation among princes did not allow the level of cohesiveness enjoyed by the Roman Empire. Voltaire famously said of that the Holy Roman Empire was “neither Holy, nor Roman, nor an Empire.” At the same time, China had its Emperor and Islam its Caliph.
• The concept of world order truly surfaced with Hapsburg’s Charles V in the 16^th century (1500-1558), since his reign included a large part of Europe and the Americas (territorial expansion and expeditions were a trademark). However, continuous wars (including the infamous 30-year religious war), the cheapening of the currency (via devaluations), and debts, forced Charles V to abdicate the throne to his son Philip. Since then, the European order is marked by fragmentation, identity crisis, and divisions.  
• The Thirty-year war between Catholics and Protestants not only was devastating but also signified a paradigm shift. When the dilemma between dogmatic unity and strategic advantage was presented, most of the powers of the day chose strategic advantage. The brains behind the paradigm shift was the French Cardinal Richelieu who ended up becoming the power behind the throne. Richelieu’s statesmanship executed a statecraft – purely Machiavellian – that successfully established a world order to France’s liking and comparative advantage. Richelieu’s concept that the state is a permanent entity existing on its own right, fundamentally changed the landscape. Richelieu planned and executed a strategy of weakening the imperial power of the Hapsburgs, by supporting the Protestant coalition! For Richelieu, European fragmentation was a must. The fundamental threat to France’s dominance was not metaphysical but rather a stronger opposing power. From the time that Richelieu put his statecraft policy into action and for 250 years (until Bismarck unified Germany), France followed Richelieu’s dogma of keeping central Europe segmented. As long as this statecraft concept dominated the European order, France’s power was preeminent in the continent.

The Post-Westphalian Treaty World Order

• Following the paradigm shift planned by France and the state craftsmanship executed by Richelieu, the Treaty of Westphalia in 1648, established a new world order. The sovereignty and equality of states – irrespectively of their power or their domestic political and religious system – was instituted and interference was prohibited. The sovereignty of the states (free to select their own structures, religious dogma, and free from foreign intervention) was established, while at the same time the rights of minorities were affirmed. Authority no longer seated with the Church as the ultimate source of legitimacy. The weakening of the Holy Roman Empire was a fact, and multipolarity was achieved where the balance of power became the ultimate game based on an institutionalized set of rules. 
• Louis XIV sought to become a hegemon by applying Richelieu’s statecraft and concept of governance. The wars financed through debt, led to currency devaluation, so naturally the rise of Britain was perceived as a threat (Thucydides’s trap), which led to more wars and debts.
• The rise of Britain as the world power by early eighteenth century (mainly by imitating a territorial expansion via their naval power but also by advancing innovations through the industrial revolution), marked that century. Britain was at war for 30 years between 1688 and 1756. During that period, it experienced what is known as the “Financial Revolution” where paper money and credit instruments crowned transactions and the central bank of England was established in 1694 (imitating the mysterious Bank of Amsterdam that was established in 1609). The establishment of the Bank of England served the purpose of financing wars, and hence wars started becoming the engine of finance. The world is introduced to modern financiers (Medina, Furnese, etc.), who rely on three things: Supplying the war machine; an extensive international network; and fake news where the spread of fake news and rumors allowed the major players to buy low and sell high.
• British statecraft policy followed the Richelieu dogma of fragmentation, where the major power became the arbiter of the balance of power and hence a “guarantor” of the world order. British diplomacy – whenever its needs called for – sided with the weak against the stronger, and thus allowed Britain to exclude competition from its hegemony. Equilibrium was achieved through division. (It should be noted here that President Eisenhower applied exactly the same tactic in 1956, siding with Egypt in the Suez Canal crisis, against Britain and France and thus flipping the balance of power in favor of the US as the preeminent western power).    
• While Britain’s power was rising, the forces of Enlightenment were advancing reason, science, inquiry, and discoveries. Philosophers like Montesquieu and Kant advanced concepts of social order that could become applicable to statecraft, such as a voluntary federation of republics through which transparency and non-hostility could advance prosperity for their citizens and an international order characterized by rules. However, the social evolution taking place also bread resentments due to prevailing injustices. Unaddressed resentments feed revolutions. The wider the spirit of revolution is the greater the changes that are required, and the broader the perception that grievances remain unaddressed, the greater the chances are for a sweeping revolution that will turn over an established order and its authority. Welcome to the American and French revolutions. Domestic revolutions (like the French Revolution of 1789) when succeed become crusades and visions of establishing a new world order. The French Revolution followed by the years of Terror, sought to advance a  new European dispensation, similar to the one that Islam advanced a century earlier, and the Russian Revolution pursued for the establishment of a  proletariat order and communism around the world. All of the above, but mainly the French zealots and myopia of merging domestic and foreign policy – while ignoring the Westphalian principles of world order – led the world to disarray.
• Out of the mess described above, a “savior” emerged: Napoleon was perceived as the “Great Man”, refusing to legitimize any other power but himself, taking the crown from the Pope’s hands and crowning himself Emperor! Welcome to the era where the leader defines the revolution rather than principles and rules guiding statecraft and the way forward. Napoleon saw himself as the epitome of Enlightenment, the cornerstone of progress, the guarantor of world order, and the capstone of all aspirations for European unity. He sought after the latter via wars and military expeditions. The scale of devastation and bloodshed resembled the Thirty Years War. By 1810 he had successfully redrawn the geopolitical order in Europe. However, two obstacles seem to remain in his crusade: England and Russia. Overreaching (especially with his military campaign against Russia in 1812) led to his downfall. His refusal to compromise after his decisive defeat at the Battle of Nations in Leipzig in 1813, became the cornerstone of Waterloo.
• Meanwhile, as the Westphalian world order was disintegrating, two rising powers were ascending: Prussia and Russia. The Westphalian Treaty had limited Prussia to the northeast corner of today’s Germany, until Frederick II ascended to the throne. Frederick believed in benevolent despotism legitimized by effectiveness not ideology, and territorial expansion. In Russia Czar Alexander started envisioning how the land of the Rus will become the bridge of civilizations and trade routes.  However, Russia (to this day) envisioned any balancing acts of equilibrium as threats and any restraints on its power as prescription for catastrophe. The motto became expansion of the state in any direction. Russia aspirations and expeditions ranged from Scandinavia, to Baltic Sea, Eastern Europe, the Balkans and even the Pacific. It expanded each year by about 60,000 square miles between 1552 and 1917. The Czar became the despot whose word was divine, and the methods used were pure Mongol and Tartar. The eras of Peter the Great as well as of Catherine the Great were marked by major achievements, however insecurity regarding national identity always was evident in their pursuits. When Russians burned down four-fifths of Moscow to deny Napoleon his pursuit and his troops’ substance, Napoleon should have foreseen Cossacks drinking champagne in Paris. The paradigm had shifted, and the balance of power along with it. The Napoleonic wars and Napoleon’s downfall led to the Congress of Vienna in 1815 (started in late 1814).

World Order after the Vienna Congress  

• At the Congress of Vienna, the balance of power had clearly shifted in favor of Britain and Russia. Czar Alexander was present and was bringing with him his religious zealot, changing convictions, and his perception of representing the divine will for humanity. His agenda included a “Holly Alliance” of brotherhood for peace and justice, probably a precursor to the secular Wilsonian world order about a century later. The Czar marched into Paris and ended the Napoleonic wars. Now in Vienna the Westphalian equilibrium of sovereign states was in jeopardy. The stakes were high. A new world order was needed that would welcome Russia but not its messianic aspirations.   
• The world order that emerged from Vienna became the prescription of subsequent Agreements and paradigm shifts in the sense that the major powers did not marginalize the perpetrator (France) but rather embraced that nation (same thing happened after WWII with Germany and Japan). The Congress of Vienna established a world order that balanced power through an Alliance made up of Britain, Austria, Russia, and Prussia which was also a major beneficiary.
• The period following the Congress of Vienna brought prosperity and peace. The world order formulated in Vienna sought also to restrain challenges to the equilibrium through countervailing coalitions. Prussia gained significant territories as a countervailing force on the border of France. The remaining German states were consolidated into a confederation. In that sense German power was restrained and hence the goal of keeping German power divided was accomplished too.   
• Britain became the balancer of power in the emerging world order. Thinkers and leaders such as Bagehot (editor of The Economist magazine) and Peel (who served twice as prime Minister), applied a statecraft policy based on classical liberalism (free trades, open markets, minimal gov’t intervention, fiscal discipline, hard assets and sound money), and set the foundation for the golden age of Britain. Britain played its role of balancer successfully and in a way that none of the other powers could count on its support against the others.  
• However, the rise of nationalism, the revolutions of 1848, and the Crimean War became pivotal events that underwrote another paradigm shift. At the same time, Prussia became the repository of German hopes of unification. The combination of all of these events resulted in the breakup of the conservative mini alliance among Russia, Austria and Prussia (the latter two did not support Russia in the Crimean War). As Austria was isolated, France and Britain (the winners of the Crimean War) came closer and Bismarck endeavored on the path of German unification. Bismarck represented the worldview that the world order depends on power. On the opposite spectrum stood Austria’s Metternich who represented the cosmopolitanism of the Enlightenment contrasted with Bismarck’s nationalism. For Metternich, the search for truth and the power of reason grounded on the reality of human nature were the fundamental ingredients that the balancer needed for the world order. By the time Bismarck unified Germany in 1871, the concept of the world order had experienced a paradigm shift where order was purely a matter of power. Darwinian principles of the survival of the fittest started running deep into the German DNA: “The only healthy basis of policy for a great power…is egotism and not romanticism…gratitude and confidence will not bring a single man into the field on our side; only fear will do that…”, Bismarck proclaimed as a good student of the Machiavellian and not of the Aristotelian ethics. Britain’s Prime Minister Benjamin Disraeli, openly proclaimed that Germany’s unification was the pivotal event that would destroy the world order. Both the Westphalian and the Vienna Treaties were founded on the concept of a divided Europe, aiming to limit the powers of a hegemon via competing pressures. And while Bismarck was a class statesman who practiced the scientific art of statecraft like few, his forced resignation left Germany with someone (Kaiser Wilhelm II) who had neither the gifts nor the charisma of sustaining a web of counterbalancing commitments that are needed to sustain a world order.
• The paradigm shift explained above was also underwritten by two British moves which eventually will become the causes and cornerstones for World War I: First, Britain started cheating the global monetary system by circulating more sterling than its gold reserves. By the time WWI erupted Britain was controlling the reserve currency and consequently the global trade by having only 4% of global gold reserves. Second, in 1904 Britain abandoned its role of balancer and joined the Entente Cordiale of France and Russia, when it saw that Germany was joining forces with the Ottomans, undermining French and Russian authority in Morocco and Bosnia while pursuing naval power. The assassination of the Austrian Crown Prince in Bosnia in June 1914 was just the trigger for the Great War.

The Paris Treaty (1919)

• The axis of Germany and the Ottomans was decisively defeated once the US as the rising power entered the scenery of war. Following the Civil War, the US had experienced rapid growth averaging 7.3%, especially after the US adopted the principle of sound money and industrialism. The election of Woodrow Wilson propelled the establishment of a central bank that was destined to become the most important global institution to this day.
• The Paris Agreement failed to adopt policies that would embrace Germany in a way that would also curtail its power. Global order was in limbo as leadership was absent and a sound world reserve currency was nowhere to be found. Britain attempted to re-introduce the sterling as the global reserve currency, and despite the vital support by the US (which lowered interest rates fueling a debt appetite that fed a bubble whose burst led to the Great Depression) was not able to do so simply because it lacked the collateral (gold) to back it up.
• The failures of the Paris Agreement to establish a world order, left the world in flux and at the mercy of nationalistic fervors inspired by Darwinian and Machiavellian ethics. As the paradigm was looking for a sponsor during times of economic depression, World War II erupted as a consequence of a paradigm shift that failed to produce a world order.

From Bretton Woods (1944) to Camp David (1971)

• By summer 1944 it was obvious that the axis of Germany and Japan was losing the war. The Allies convened at Bretton Woods, where a world order led by the US was established based on three major pillars: First, the dollar became the international reserve currency. Given that by that point the US was controlling about 70% of global gold reserves mainly stored at Fort Knox in Kentucky, all currencies were indirectly linked to the gold via the greenback which had a stable exchange rate relative to the precious metal. Second, liberal trade will be governed by rules (GATT and subsequently WTO). Third, multinational institutions (IMF, World Bank) will support growth and financial stability. Welcome to the era of peace and prosperity where the paradigm shifted and brought with it a liberal and enlightened era of prosperity.     
• However, wars (Korean, Vietnam) have a nasty habit of tempting the preeminent power with the reserve currency to exceed its limits via cheating the standards. Monetization of the debts propelled by those wars, led to the abandonment of the Bretton Woods Agreement during a meeting at the presidential retreat at Camp David, on Friday August 13^th, 1971 (President Nixon announced on Sunday August 15^th the delinking of the dollar from gold).
• That paradigm shift introduced the era of fiat money. The schematic in the beginning of this commentary/essay outlined the series of crises introduced by that paradigm shift, which in the last 20+ years has led to the era of moral hazard trading and central banks bailouts.

The current Covid-19 crisis is certainly not the outcome of the 1971 Camp David decision. However, it is inflicting such structural damage to the global economy that is capable of producing a paradigm shift which could be taken advantage of by malcontent powers in order to produce a world order in their image. Vigilance and authority are needed inspired by the moral powers of Aristotelian ethics.