The War and Peace Cycle

The created universe in which we live is manifestly governed by the principle of continuous revolution, commonly known as the cycle. Most are cognizant of the cyclic motions which govern prices in the realm of economics and finance, but few are aware of how cycles of even larger degrees connect those financial fluctuations to the extremely important human endeavors of war and peace. On this score, it is our contention that a definite and predictable cycle governing times of war and times of peace can be isolated and used to forecast times of significant socio-military and economic turmoil. Moreover, this "War and Peace cycle," if you will, is a direct consequence of activity within the realm of gold production and trading.

A corollary to cycle theory is that every cycle—irrespective of degree or significance—contains its own unique rhythm (cycle theorist P.Q. Wall terms this an "interior rhythm"). For instance, an average 60-year Kondratief commodity cycle typically subdivides into either 15 or 20 component Kitchin (or "business") cycles (each one of 3-4 year average duration), and each of these Kitchin cycles further subdivide into an average of nine 20-week Wall cycles (so named after its discoverer). Each set of nine 20-week Wall cycles possesses its own unique rhythm. For instance, each one of the nine Wall cycles within a given Kitchin cycle may be of the 3-month or 4-month variety, and occasionally even of the 5-month variety. Once a Wall cycle's rhythm has been established, it typically adheres to this defined time cycle until its completion (viz., if the first of the nine Wall cycles establishes itself as a 3-month type, all nine will usually be cycles of 3 months duration until the nine cycles are completed).

Now that we have explained the concept of interior rhythm, we can proceed to outlining the existence and attributes of the War and Peace cycle.

If we take as our starting point the first significant war of the last 200 year—the American Revolution of 1776—we may then proceed along the lines of following a definite rhythmic cycle of war and peace. The American Revolution was followed approximately 13 years later by the French Revolution, which was followed 23 years later by Napoleon's invasion of Russia. This was followed a further 13 years later by the "Decemberist Revolt" in Russia, which was followed 23 years later by the various revolutions in Europe. This period was followed 13 years later by the American Civil War (a.k.a., "War between the States"), which was followed 33 years later by the Spanish-American War. This was followed 16 years later by World War I and the Russian Revolution, which was followed 25 years later by World War II. This was followed 11 years later by the Korean War, which was followed 14 years later by the conflict in Vietnam, which was followed 25 years later by the Persian Gulf war (the United States' most recent military conflict of note).

This thread of military history forms the following time cycle: 13 years—23 years—13 years—23 years—13 years—33 years—16 years—25 years—11 years—14 years—25 years. This forms an average interior rhythm of 13-26-13. Under this cyclic parameter, we may reasonably expect the next significant military conflict in which the U.S. is involved between the years 2001-2004.

The question is often asked as to what effects wars have on a nation's economy and monetary unit. It is commonly (and erroneously) assumed that war serves as a stimulus to both the economy and to productivity. While this may indeed be the case over the short-term (especially if the country involved happened to be in a recession prior to the outbreak of war), it is anything but the case over the long-term. War requires a tremendous output in production, resources, money and time. War is never paid for up front; rather, it is financed with debt, which must be repaid over a period of many years, along with interest payments. This more often than not requires a nation to inflate and tax one's way out of war debts, which only weakens the economy and hurdles debtor nations into poverty (while enriching the international banking establishments which own the debt). The citizens of the debtor nation (regardless of whether they were "victorious" in battle) are the ultimate losers. War debts make up a large part of the gargantuan and ever-growing U.S. national debt.

Now that we have seen the impetus behind post-war monetary manipulation, we proceed to outline a further attribute of our War and Peace cycle, namely that besides containing an identifiable internal rhythm in terms of time, it also contains a definite internal rhythm in terms of character. The War and Peace cycle typically alternates between inflation and deflation, inflation and deflation, etc. And since the last significant war was followed by deflation (albeit of a mild variety), we may reasonably expect the next war to be accompanied or followed by inflation.

But now we come to an even more fascinating discovery in our examination of the War and Peace cycle: the role that gold plays in both determining and causing the cycle. It should be noted that gold and other natural resources are almost always a major factor in any nation's decision to engage in war (whether in an offensive or a defensive capacity). It is no coincidence that at least the last 10 major wars were fought against lands that happened to be extremely rich in natural resources. But even more significantly, gold production is a major factor behind most wars. This observation was made by the great economist Edward Beach Howell, as printed in the July, 1925 edition of the "Atlantic Monthly."

Quoting from Philip Mauro's "Things Which Soon Must Come to Past": "[Howell showed] that wars have occurred in cycles, and that the eras of great wars have been coincident with those of unusually large increments of gold, the money metal of the world. It works in this way (to take the instance of the era of wars between Japan and China, Spain and America, England and the Boers, Japan and Russia, Italy and Turkey, and Balkan States and Turkey, culminating in the first World War): A new country is opened, as the Rand in South Africa. Gold is discovered. There is the usual rush to that region. Presently there are large additions to the money metal of the world. Prices rise. Trade is stimulated. Commercial rivalry is intensified; 'and the commercial frenzy thereby produced is followed by the frenzy of war.'"

It can easily be seen how various "gold rushes" and mine discoveries preceded several of the above-mentioned wars. But perhaps more subtly, it is interesting to note the forecasting role that the price of gold has served in anticipating these periods of tumult and socio-economic activity. It is widely noted that gold is the ultimate inflationary barometer, responding to and even forecasting well in advance even the most minute manipulations to a nation's currency. How even more remarkable that gold has retained its ability to forecast economic and even military machinations today, when the metal is so terribly out of favor among the investing public.

We noted above that the next period of military conflict involving our nation should occur within the next one to four years—how interesting that in terms of price, gold bottomed late last year and has been rising with the force of trading volume behind it ever since. Is not this a reasonable warning of the storm brewing on both the military and economic horizon? Let us with all diligence give heed gold's warning and prepare accordingly.

Clif Droke is editor of the weekly Leading Indicators newsletter, covering the U.S. equities market outlook from a technical perspective as well as the general economic outlook. He is the author of the recently published book, Technical Analysis Simplified. For a free sample issue of Leading Indicators, send name and mailing address to [email protected] or mail to: Leading Indicators, 816 Easely St., #411, Silver Spring, MD 20910.