๐ Part I — The Birth of Financial Civilization (1960–2000)
Chapter 1: The Keynesian Revolution and “The Age of the State”
◆ Prologue
After the Lehman Shock, the world broke a taboo.
Central banks began carrying the burden of national fiscal policy, supporting asset markets, and supplying unlimited money as the life‑support system of the economy.
Its name was Quantitative Easing (QE).
But QE was not a “policy.”
It was Pandora’s box—opened by a civilization attempting to exceed its own limits.
The moment the box was opened, the world quietly changed.
Stock prices surged, real estate inflated, interest rates vanished, and fiscal deficits exploded.
And nations began to misunderstand their own power.
“We can become great again.”
“We should lead the world.”
“We will not yield to other nations.”
Such words once again filled the global political arena.
Bubbles change the psychology of nations.
History has proven this again and again.
But this transformation was unlike past bubbles—
deeper, quieter, and far more dangerous.
◆ Keynes and Friedman Began Fighting Again—From Their Graves in the 21st Century
To understand this transformation, we must look at the ghosts of two giants who dominated the 20th century:
- Keynes: The state creates demand; the state guides the economy.
- Friedman: Money is order; the central bank controls inflation.
Originally, the two stood in opposition.
But in the 21st century, something strange happened.
Keynes and Friedman fused in their graves and returned as a monster.
- Fiscal deficits ballooned
- Central banks kept buying government bonds
- Interest rates disappeared
- QE never stopped
- Bubbles expanded
- States grew more assertive
- The world moved toward fragmentation
Keynesian fiscal expansion and Friedman’s monetary doctrine did not restrain each other—
they amplified each other.
The result was a creature no 20th‑century theorist could have imagined:
the runaway fusion of fiscal and monetary power.
◆ What Flew Out of Pandora’s Box
What flew out of the QE box was not hope.
- Surging stock prices
- Real estate bubbles
- Exploding fiscal deficits
- Currency‑devaluation races
- The return of inflation
- Commodity bubbles
- Geopolitical tension
- The revival of great‑power nationalism
These are not separate phenomena.
They are a single civilizational chain reaction.
And the theory that best explains this chain reaction is Cochrane’s Fiscal Theory of the Price Level (FTPL).
FTPL tells us:
“Inflation is a problem of confidence in the sustainability of fiscal policy.”
In other words,
the moment fiscal deficits become uncontrollable,
civilization screams in the form of inflation.
The global inflation of 2021–2023 was precisely that scream.
◆ The Revival of Great‑Power Nationalism Was the Inevitable Result of Financial Civilization
QE gave nations an illusion of strength.
When stock prices rise, real estate rises, and the currency weakens,
nations feel stronger.
But this is merely the illusory strength created by financial civilization—
what Friedman called money illusion.
- The United States pursued assertive diplomacy backed by rising equities
- China projected outward confidence backed by its real‑estate bubble
- Russia expanded military action backed by its resource boom
- Japan enjoyed a “cosmetic prosperity” backed by yen depreciation and stock gains
Thus, bubble civilization reawakened great‑power nationalism.
◆ Purpose of This Book
This book depicts the 40 years from 1985 to 2026 as
“the birth and collapse of financial civilization.”
It asks:
- Why do bubbles repeat?
- Why has great‑power nationalism returned?
- Why does the world once again fear inflation and war?
- Why did fiscal and monetary policy run out of control?
- Why do the ghosts of Keynes and Friedman dominate the 21st century?
This is an attempt to reinterpret these questions as
civilizational history, intellectual history, and the history of human psychology.
And finally, it proposes a new civilizational model:
Small Nationism.
【Chapter 1】
The Keynesian Revolution and “The Age of the State”
— The Birth of the Bretton Woods Civilization (1960s)
The world of the 1960s, in retrospect, was astonishingly orderly.
High growth, full employment, stable prices, and unwavering trust in the state.
Behind this stood a massive civilizational apparatus:
The Bretton Woods System.
Designed in 1944 by Keynes and White,
this international monetary order was not merely a fixed‑exchange‑rate regime.
It was the psychological architecture of postwar civilization.
1. The International Order of the Keynesian Civilization
— The Age When “The State Led the World
Having lived through war and depression, Keynes offered civilization a new narrative:
“The state can create demand and sustain prosperity.”
The Bretton Woods system institutionalized this narrative.
- Exchange rates were fixed
- Capital flows were controlled
- The dollar was backed by gold
- The state became the central actor guiding the economy
Under this order, the world of the 1960s was stable and prosperous,
filled with the civilizational confidence that
“the state can control the economy.”
Keynesianism was not merely policy.
It was the spiritual structure of postwar civilization.
2. The “Omnipotent State” and the Shadow of Great‑Power Nationalism
The idea that the state guides the economy naturally aligns with the idea that
the state guides the world.
- The United States acted as “leader of the free world”
- Europe built welfare states
- Japan pursued high‑growth industrialization as a national project
Keynesianism was the quiet foundation of postwar great‑power nationalism.
But beneath this prosperity, civilization was quietly nurturing its next crisis.
3. Structural Changes Beneath Prosperity
— The Limits of Bretton Woods
Beneath the stability of the 1960s, forces were already undermining Bretton Woods:
- U.S. fiscal deficits and gold outflows
- Rapid rise of European and Japanese competitiveness
- Early signs of capital‑flow liberalization
- Accumulating inflationary pressure
The order Keynes designed rested on the premise that
“the state can manage the world.”
Civilization was losing the ability to sustain that premise.
4. The End of the Keynesian Civilization
— Stagflation as Civilizational Failure
In the 1970s, the oil shocks and stagflation struck the world:
- Inflation
- Unemployment
- Stagnation
- Expanding fiscal deficits
Phenomena Keynesianism had never anticipated occurred simultaneously.
Civilization realized, for the first time,
that its optimism had been misplaced.
The event that sealed the end of the Keynesian civilization was
the Nixon Shock of 1971.
5. The Nixon Shock
— The Collapse of the Keynesian Civilization and the Birth of the Friedman Civilization
In 1971, the United States suspended dollar‑gold convertibility,
and the Bretton Woods system collapsed.
This was not merely a change in monetary regime.
It was the death of the Keynesian civilization
and the birth of the Friedman civilization.
The era in which “the state manages the world” ended,
and the world moved toward an era in which
“the market moves the world.”
6. Bridge to the Next Chapter
In Chapter 2, we examine the rise of Friedman’s monetarism and the civilizational significance of floating exchange rates.
There, we will see how the idea
“money is the foundation of civilizational order”
reshaped the world.
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