The Power of Gold E-Book

Peter L. Bernstein

• Herausgeber: John Wiley & Sons
• Kategorie: Fachliteratur
• Sprache: Englisch

Seitenzahl: 818

Veröffentlichungsjahr: 2012

Beschreibung

"The need for realism in reform of its monetary system is what makes Bernstein's story of the Power of Gold so timely. It is a compelling reminder that maintaining a fixed price for gold and fixed exchange rates were difficult even in a simpler financial environment....Peter Bernstein was reluctant to project the story of gold into the future. But to me his message was clear. Yes, gold will be with us, valued not only for its intrinsic qualities but as a last refuge and store of value in turbulent times. But its days as money, as a means of payment and a fixed unit of account are gone." --From the New Foreword by Paul Volcker This bestselling book reveals a record of human nature in the ubiquity of gold with a new foreword by Paul Volcker In this exciting book, the late Peter L. Bernstein tells the story of history's most coveted, celebrated, and inglorious asset: gold. From the ancient fascinations of Moses and Midas through the modern convulsions caused by the gold standard and its aftermath, gold has led many of its most eager and proud possessors to a bad end. And while the same cycle of obsession and desperation may reverberate in today's fast-moving, electronically-driven markets, the role of gold in shaping human history is the striking feature of this tumultuous tale. Such is the power of gold. Whether it is Egyptian pharaohs with depraved tastes, the luxury-mad survivors of the Black Death, the Chinese inventor of paper money, the pirates on the Spanish Main, or the hardnosed believers in the international gold standard, gold has been the supreme possession. It has been an icon for greed and an emblem of rectitude, as well as a vehicle for vanity and a badge of power that has shaped the destiny of humanity through the ages. * Discusses the beginnings of gold as something with magical, religious, and artistic qualities and follows its trail as we progress to the invention of coinage, the transformation of gold into money, and the gold standard * Other bestselling books by the late Peter Bernstein: Against the Gods, Capital Ideas, and Capital Ideas Evolving * Contemplates gold from the diverse perspectives of monarchs and moneyers, potentates and politicians, men of legendary wealth and others of more plebeian beginnings Far more than a tale of romantic myths, daring explorations, and the history of money and power struggles, The Power of Gold suggests that the true significance of this infamous element may lie in the timeless passions it continues to evoke, and what this reveals about ourselves.

Leseprobe

Contents

Foreword

Acknowledgments

Prologue

A Metal For All Seasons

Chapter 1: Get Gold at All Hazards

Chapter 2: Midas’s Wish and the Creatures of Pure Chance

Chapter 3: Darius’s Bathtub and the Cackling of the Geese

Chapter 4: The Symbol and the Faith

Chapter 5: Gold, Salt, and the Blessed Town

Chapter 6: The Legacy of Eoba, Babba, and Udd

Chapter 7: The Great Chain Reaction

Chapter 8: The Disintegrating Age and the Kings’ Ransoms

Chapter 9: The Sacred Thirst

The Path to Triumph

Chapter 10: The Fatal Poison and Private Money

Chapter 11: The Asian Necropolis and Hien Tsung’s Inadvertent Innovation

Chapter 12: The Great Recoinage and the Last of the Magicians

Chapter 13: The True Doctrine and the Great Evil

Chapter 14: The New Mistress and the Cursed Discovery

Chapter 15: The Badge of Honor

Chapter 16: The Most Stupendous Conspiracy and the Endless Chain

The Descent From Glory

Chapter 17: The Norman Conquest

Chapter 18: The End of the Epoch

Chapter 19: The Transcending Value

Chapter 20: World War Eight and the Thirty Ounces of Gold

Epilogue

Bibliography

Index

Copyright © 2000, 2012 by Peter L. Bernstein. All rights reserved.

Published by John Wiley & Sons, Inc.

Published simultaneously in Canada.

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Library of Congress Cataloging-in-Publication Data:

Bernstein, Peter L.

The power of gold : the history of an obsession / Peter L. Bernstein.

p. cm.

Includes bibliographical references and index.

ISBN 0-471-25210-7 (cloth); ISBN 978-1-118-27010-3 (paper); ISBN 978-1-118-28269-4 (ebk.); ISBN 978-1-118-28414-8 (ebk.); ISBN 978-1-118-28522-0 (ebk.)

1. Gold—Folklore. 2. Gold—History. 3. Gold—Social aspects. I. Title.

GR810.B47 2000

398′.365—dc21 00-036647

For Barbara, once again and always.

They wonder much to hear that gold, which in itself is so useless a thing, should be everywhere so much esteemed, that even men for whom it was made, and by whom it has its value, should yet be thought of less value than it is.

Sir Thomas More (1478–1535). Utopia of Jewels and Wealth

Foreword

What could be timelier than a new release of Peter Bernstein’s authoritative book The Power of Gold?

Bernstein wrote at the turn of the century—only a decade ago, but what a contrast from today in the world of business and finance. Economic growth in the economically developed world had been sustained for a decade. Reasonable price stability had been achieved. Huge gains in the world’s stock markets exceeded past experience.

Almost everywhere, central bankers were esteemed and trusted. Central bank independence came to be taken as the indispensable guarantor of stability. The mood was epitomized by the creation of a brand-new central bank to manage the European common currency, itself a key initiative toward closer European union. With its independence from the sovereign states of the “Eurozone” embodied in a solemn treaty, the new central bank reached a virtually unprecedented state, freed of direct accountability to a political government.

For decades, no central bank or government had maintained convertibility of its currencies into gold. For the most part, major currencies were “floated” in exchange markets. In one of Bernstein’s apt phrases, gold had been “emasculated.” With its enduring luster, its malleability, its resistance to wear and corrosion, it could remain useful for adornment and jewelry and to a limited exchange as a tiny component of some electronic devices. Yet it had been shorn of monetary significance. In the 1990s, central banks, the custodians of national financial resources, were tending to sell from their golden hoards acquired over the decades, even at declining prices.

All of that was a very long way from the pleading of General de Gaulle in the 1960s for the world to return to a full-blooded gold standard. Bernstein recalled his eloquence: “There can be no other criterion, no other standard, than gold—gold that never changes, that can be shipped in ingots, bars, coins, that has no nationality, and that is eternally and universally accepted as the unalterable fiduciary value par excellence.” Somehow, in his lament for the gold standard, de Gaulle neglected to note that while gold may be immutable as a metal, its price could and did change—change in the marketplace or by government decision, as he himself strongly advocated at the time.

Here we are, only a decade or so after Bernstein wrote, in the midst of demonstrable—perhaps unprecedented—volatility in the price of gold. Neither de Gaulle nor Bernstein could have envisaged the level of the gold price as I write, 50 times the value in the 1960s and 5 times the price 10 years ago. Yet before his death, Peter had seen enough of the market turmoil to confirm his parting conclusion: in the midst of economic fears and financial uncertainty, gold would be back in demand.

Peter Bernstein was an anomaly in the modern world of investment, a man with a deep understanding of finance in all of its up-to-date mathematical and theoretical manifestations but also a student of history. The story of gold is filled with the foibles and vulnerabilities of kings and presidents and indeed of all human judgments. More than that, Peter can write—write in a way that the arcane becomes understandable, that the history of gold becomes a fascinating story of the rise and fall of nations and civilizations.

Now, only a few years after Bernstein’s death, our capitalist civilization is being challenged. Most of the so-called developed world is suffering through an extended recession and high unemployment. The euro and the European Central Bank so confidently launched a decade ago are in possibly even mortal crisis. Governments and central banks seem to have lost their established bearings. Distrust is rife.

There is a yearning for solidity and stability. So, it is not entirely surprising that we hear some urging that a monetary role for gold be restored. At the very least, gold remains for some a kind of last resort, a safeguard against threats seen and unseen. If gold has lost the essential elements of money, it at least remains for some people a store of value.

That is a very long way from restoring any approximation of the classic gold standard, including the residual role of gold in the Bretton Woods system. We have been left with a continuing, elusive challenge of combining needed discipline in our monetary and fiscal affairs with a degree of flexibility in exchange rates.

The need for realism in the reform of our monetary system is what makes Bernstein’s story The Power of Gold so timely. It is a compelling reminder that maintaining a fixed price for gold and fixed exchange rates was difficult even in a simpler financial environment.

There was a time when faith in a gold standard and maintenance of the fixed parities had, in Bernstein’s words, “developed all the trappings of a full fledged religion, shared beliefs, high priests, strict codes of behavior, creed and faith.” Yet even then, the classic gold standard could be maintained for fewer than 50 years, ended by force majeure: World War I.

Persistent and valiant efforts to restore the system after that war failed when seemingly on the brink of success. By 1925, Great Britain had finally restored the gold parity for sterling that had been established more than 100 years earlier. Under the pressure of continued recession, however, sterling convertibility was ended only five years later. Bernstein reported that John Maynard Keynes, then growing in reputation and influence, was exultant: “There are few Englishmen who do not rejoice in the breaking of the gold fetters. We feel that at least we have a free hand to do what is sensible!”

The Bretton Woods system put in place after World War II was born in an effort to restore a more workable version of a fixed exchange rate regime, gold related but dollar dominated. That system was doggedly defended by a succession of governments and financial officials in the 1950s and 1960s. I was there, a participant in the effort to maintain a fixed dollar price for gold as the pivot for the monetary system.

Imaginative financial mechanisms such as the central bank gold pool and central bank currency swaps were developed to that end, ultimately including the creation of “paper gold”—the SDR (Special Drawing Rights). Increasingly intrusive actions, such as exchange and capital controls, were put in place even in the home of free markets, the United States. Yet the mystique was gone. Gold failed to induce needed discipline. The need for greater flexibility could not be denied.

The concerns about the breakdown were not entirely misplaced. The felt need for greater flexibility shortly gave way to extreme volatility. The absence of discipline was reflected in the inflationary 1980s. Exchange markets had calmed down by the time Bernstein wrote, but what was not apparent then became real after the turn of the century. Economic imbalances grew unchecked between nations and within nations. Financial excesses were untamed. The end came in 2008, with a financial and institutional collapse.

In my mind, the situation cries out for reconsidering reform of the international monetary system, just as events are forcing a rethinking of the euro, its central bank, and greater European economic integration. We do need a sense of greater financial and budgetary discipline more generally, of enforceable rules of the international monetary road, and of greater exchange rate stability, all accompanied by reinforcement of a collective commitment to price stability.

So, some will ask, isn’t there still an important role for gold?

Peter Bernstein was reluctant to project the story of gold into the future, but to me his message was clear.

Yes, gold will be with us, valued not only for its intrinsic qualities but as a last refuge and store of value in turbulent times. Yet its days as money, as a means of payment and a fixed unit of account, are gone.

To maintain a fixed price of gold as the center of a monetary system requires a strong sense of commitment, a commitment extending beyond central banks and governments to the populations at large. Can we any longer believe that our citizenry will, in fair weather and foul, support giving priority to a fixed price of gold?

If the gold standard once took on the nature of a religion, we have long since left the Garden of Eden. We can’t return. It’s not just the greater complexity of our financial markets, the new fashions in economic policies, or even the restlessness of the citizenry. It is the fact that once the golden bond has been broken, it can no longer realistically be set out as unbreakable. And once the necessary sense of commitment to gold is lost, then we need to seek other approaches.

Paul A. Volcker

January 2012

Acknowledgments

Ninety-one years ago, Lytton Strachey observed that “Every history worthy of the name is, in its own way, as personal as poetry, and its value ultimately depends upon the force and the quality of the character behind it.”* True enough, but writing history is also hard work. It involves organizing masses of facts—many of them unfamiliar—into a coherent story, developing ideas that bear some logical relationship to the facts, and communicating the results in a fashion that will interest more people than just the writer. As a result, the task cannot be a solitary one. I know whereof I speak.

The first of my acknowledgments goes to my wife, Barbara, who is also my business partner. Her contribution to this book was significant on all levels. Her many positive suggestions, her equally valuable criticisms, her diligent editing, and her unfailing inspiration were all essential to the completion of the task. It never would have happened without her.

This book was my third partnership with my editor, Peter Dougherty. Peter creates a unique intellectual adventure that is challenging, exciting, and great fun. He has once again showed me how to transform a heap of jumbled ideas into a coherent whole. His brilliant insights, his ready grasp of the subject matter, and his total commitment as friend and guide to this project are visible on every page. He is the editor that all writers wish for, and I can only hope that the future holds many more of these stimulating and rewarding opportunities to work with him.

Charles Kindleberger, my great friend and comrade-at-arms in World War II, became indefatigably engaged in this work from the very beginning. His generosity to me was boundless. He provided inestimable guidance to research sources and shared his own research materials and notes without stint. He was tireless in supplying suggestions, criticisms, and fresh viewpoints. He showered the full benefit of his extraordinary knowledge of economic and financial history upon every part of the manuscript. It was a rare privilege to have him as mentor and intellectual companion.

I was also most fortunate in having Richard Sylla’s bountiful assistance from beginning to end. Dick’s authoritative criticisms and recommendations provided many significant improvements to the book by protecting me from oversimplifications in interpretation and omissions of essential facts.

Throughout the entire process, Edward Klagsbrun’s counsel and support were essential in enabling Barbara and me to keep our eye on the ball.

Myles Thompson deserves my gratitude for his unremitting enthusiasm, editorial assistance, and important support, as well as many valuable suggestions about the content and development of the undertaking.

Three friends and colleagues were also kind enough to read the full manuscript. My two-time co-author and great friend, Robert Heilbroner, as so often in the past, gave me the benefit of his historical expertise, his deep understanding of economics, and his great talent for literary quality. Peter Brodsky led me to important clarifications in areas that suffered from undue fuzziness in the early drafts. Elliott Howard drew my attention to a long list of flaws and offered helpful comments on the subject of gold.

The team at Wiley under Jeff Brown’s confident leadership went to the limit on our behalf, with enthusiasm, skill, and gracious responsiveness to our needs. In addition to Jeff, this group included, in alphabetical order, Sylvia Coates, Mary Daniello, Peter Knapp, Livia Llewellyn, Meredith McGinnis, Joan O’Neil, Lori Sayde-Mehrtens, and Jennifer Wilkin.

Everett Sims’s conscientious editing has added polish, grace, and clarity to many rough edges. I am also grateful to Ev for proposing that I should write a book about gold. Although there were many moments when I wished I had not listened to him, I am confident that no other topic would have captured my interest as this one has.

I was fortunate to work with a group of skillful, imaginative, and indefatigable research assistants. They saved me many hours of labor and made useful contributions at the same time. Here they are, in the sequence in which they served: Michelle Lee, Susan Cohen, Steven Sherrifs, Betsy Wallen, and Linda Chang. Our business associate, Barbara Fotinatos, saw to it that the project kept moving along, not least by contributing her expert guidance in the language and habits of the Greeks.

I am pleased to express special gratitude to Andrew Freeman, who arranged for the staff of The Economist in London to permit Barbara and me to spend several hours in the privacy of their Directors’ Room reading issues of their invaluable publication from the 1920s and 1930s. As readers will note in Chapters 17 and 18, this fascinating material brought the times to life as nothing else could have.

The following people also provided significant assistance along the way and deserve my warmest thanks: Barbara Boehm, Ulla Buchner-Howard, Mike Clowes, Barclay Douglas, Hans Falkena, Rob Ferguson, Benjamin Friedman, Milton Friedman, Alan Greenspan, James Howell, Henry Hu, Steve Jones, Dwight Keating, Leora Klapper, Benjamin Levene, Richard Rogalski, Paul Samuelson, Ronald Sobel, and Gentaro Yura.

Convention dictates that the author relieves all of the above from any responsibility for errors that may remain in the manuscript. Charlie Kindleberger decries this convention, pointing out that the author, after all, depended on the authority of these individuals in preparing the work and should not be expected to check out the accuracy of their suggestions. The quality of the assistance I have received on this occasion assures me that, just for once, Charlie is mistaken. All errors that remain in the manuscript are mine. May we hope that they are few and far between.

P. L. B.

* “A New History of Rome,” Spectator 102 (January 2, 1909), pp. 20–21.

Prologue

The Supreme Possession

About one hundred years ago, John Ruskin told the story of a man who boarded a ship carrying his entire wealth in a large bag of gold coins. A terrible storm came up a few days into the voyage and the alarm went off to abandon ship. Strapping the bag around his waist, the man went up on deck, jumped overboard, and promptly sank to the bottom of the sea. Asks Ruskin: “Now, as he was sinking, had he the gold? Or had the gold him?”1

This book tells the story of how people have become intoxicated, obsessed, haunted, humbled, and exalted over pieces of metal called gold. Gold has motivated entire societies, torn economies to shreds, determined the fate of kings and emperors, inspired the most beautiful works of art, provoked horrible acts by one people against another, and driven men to endure intense hardship in the hope of finding instant wealth and annihilating uncertainty.

“Oh, most excellent gold!” observed Columbus while on his first voyage to America. “Who has gold has a treasure [that] even helps souls to paradise.”2 As gold’s unquenchable beauty shines like the sun, people have turned to it to protect themselves against the darkness ahead. Yet we shall see at every point that Ruskin’s paradox arises and challenges us anew. Whether it is Jason in search of the Golden Fleece, the Jews dancing around the golden calf, Croesus fingering his golden coins, Crassus murdered by molten gold poured down his throat, Basil Bulgaroctonus with over two hundred thousand pounds of gold, Pizarro surrounded by gold when slain by his henchmen, Sutter whose millstream launched the California gold rush, or modern leaders such as Charles de Gaulle who deluded themselves with a vision of an economy made stable, sure, and superior by the ownership of gold—they all had gold, but the gold had them all.

When Pindar in the fifth century BC described gold as “a child of Zeus, neither moth or rust devoureth it, but the mind of man is devoured by this supreme possession,” he set forth the whole story in one sentence.3 John Stuart Mill nicely paraphrased this view in 1848, when he wrote “Gold thou mayst safely touch; but if it stick/Unto thy hands, it woundeth to the quick.”4 Indeed, gold is a mass of contradictions. People believe that gold is a refuge until it is taken seriously; then it becomes a curse.

Nations have scoured the earth for gold in order to control others only to find that gold has controlled their own fate. The gold at the end of the rainbow is ultimate happiness, but the gold at the bottom of the mine emerges from hell. Gold has inspired some of humanity’s greatest achievements and provoked some of its worst crimes. When we use gold to symbolize eternity, it elevates people to greater dignity—royalty, religion, formality; when gold is regarded as life everlasting, it drives people to death.

Gold’s most mysterious incongruity is within the metal itself. It is so malleable that you can shape it in any way you wish; even the most primitive of people were able to create beautiful objects out of gold. Moreover, gold is imperishable. You can do anything you want with it and to it, but you cannot make it disappear. Iron ore, cow’s milk, sand, and even computer blips are all convertible into something so different from their original state as to be unrecognizable. This is not the case with gold. Every piece of gold reflects the same qualities. The gold in the earring, the gold applied to the halo in a fresco, the gold on the dome of the Massachusetts State House, the gold flecks on Notre Dame’s football helmets, and the gold bars hidden away in America’s official cookie jar at Fort Knox are all made of the same stuff.

Despite the complex obsessions it has created, gold is wonderfully simple in its essence. Its chemical symbol AU derives from aurora, which means “shining dawn,” but despite the glamorous suggestion of AU, gold is chemically inert. That explains why its radiance is forever. In Cairo, you will find a tooth bridge made of gold for an Egyptian 4500 years ago, its condition good enough to go into your mouth today. Gold is extraordinarily dense; a cubic foot of it weighs half a ton. In 1875, the English economist Stanley Jevons observed that the £20 million in transactions that cleared the London Bankers’ Clearing House each day would weigh about 157 tons if paid in gold coin “and would require eighty horses for conveyance.”5 The density of gold means that even very small amounts can function as money of large denominations.

Gold is almost as soft as putty. The gold on Venetian glasses was hammered down to as little as five-millionths of an inch—a process known as gilding. In an unusually creative use of gilding, King Ptolemy II of Egypt (285–246 BC) had a polar bear from his zoo lead festive processions in which the bear was preceded by a group of men carrying a gilded phallus 180 feet tall.*6 You could draw an ounce of gold into a wire fifty miles in length, or, if you prefer, you could beat that ounce into a sheet that would cover one hundred square feet.7

Unlike any other element on earth, almost all the gold ever mined is still around, much of it now in museums bedecking statues of the ancient gods and their furniture or in numismatic displays, some on the pages of illustrated manuscripts, some in gleaming bars buried in the dark cellars of central banks, a lot of it on fingers, ears, and teeth. There is a residue that rests quietly in shipwrecks at the bottom of the seas. If you piled all this gold in one solid cube, you could fit it aboard any of today’s great oil tankers;8 its total weight would amount to approximately 125,000 tons,9 an insignificant volume that the U.S. steel industry turns out in just a few hours; the industry has the capacity to turn out 120 million tons a year. The ton of steel commands $550—2¢ an ounce—but the 125,000 tons or so of gold would be worth a trillion dollars at today’s prices.*

Is that not strange? Out of steel, we can build office towers, ships, automobiles, containers, and machinery of all types; out of gold, we can build nothing. And yet it is gold that we call the precious metal. We yearn for gold and yawn at steel. When all the steel has rusted and rotted, and forever after that, your great cube of gold will still look like new. That is the kind of longevity we all dream of.

Stubborn resistance to oxidation, unusual density, and ready malleability—these simple natural attributes explain all there is to the romance of gold (even the word gold is nothing fancy: it derives from the Old English gelo, the word for “yellow”). This uncomplicated chemistry reveals that gold is so beautiful it was Jehovah’s first choice for the decoration of his tabernacle: “Thou shalt overlay it with pure gold,” He instructs Moses on Mount Sinai, “within and without shalt thou overlay it, and shalt make upon it a crown of gold round about.”10 That was just the beginning: God ordered that even the furniture, the fixtures, and all decorative items such as cherubs were also to be covered in pure gold.

God issued those orders many thousands of years ago. What is the place of gold in the modern world of abstract art, designer jeans, complex insurance strategies, computerized money, and the labyrinths of the Internet? Does gold carry any significance in an era where traditions and formality are constantly crumbling beyond recognition? In a global economy managed increasingly by central bankers and international institutions, does gold matter at all?

Only time can tell whether gold as a store of monetary value is truly dead and buried, but one thing is certain: the motivations of greed and fear, as well as the longings for power and for beauty, that drive the stories that follow are alive and well at this very moment. Consequently, the story of gold is as much the story of our own time as it is a tale out of the past. From poor King Midas who was overwhelmed by it to the Aly Khan who gave away his weight in gold every year, from the dank mines of South Africa to the antiseptic cellars at Fort Knox, from the gorgeous artworks of the Scythians to the Corichancha of the Incas, from the street markets of Bengal to the financial markets in the City of London, gold reflects the universal quest for eternal life—the ultimate certainty and escape from risk.

The key to the whole tale is the irony that even gold cannot fulfill that quest. Like Ruskin’s traveler jumping off the boat, people take the symbolism of gold too seriously. Blinded by its light, they cashier themselves for an illusion.

The following chapters proceed in roughly chronological order, but the story is neither a complete history of gold nor a systematic analysis of its role in economics and culture; detailed histories of money and banking abound. Instead, I explore those events and stories involving gold that most appealed to me because they display the desperation and ultimate frustrations that have inflamed human behavior. Beginning with the magical and religious attributes of gold, the history proceeds to the transformation of gold into money. As that transformation progresses, however, we shall never lose sight of the magical qualities of gold or the ironies of its impact on humanity.

My hope is that what I have chosen to include will illuminate and occasionally infuriate the reader about how the fascination, obsession, and aggression provoked by this strange and unique metal have shaped the destiny of humanity through the ages.

Notes

1. Ruskin, 1862, p. 86.

2. Crosby, 1997, p. 71, citing Journals and Other Documents on the Life and Voyages of Christopher Columbus, Samuel Eliot Morison, trans. New York: Heritage Press, 1963, p. 383.

3. Pindar, 1927, p. 613.

4. See Ruskin, 1982, p. 86.

5. Jevons, 1875, p. 202.

6. International Wildlife Magazine, May–June 1998.

7. Marx, 1978, pp. 8–9.

8. Green, 1993, p. 14.

9. Herrington et al., p. 28.

10. Exodus, 25, 11.

* Where in the world did the Pharaoh of Egypt obtain a bear, much less a polar bear, over two hundred years before the birth of Christ? My source cites “the contemporary Greek writer Athenaeus, who grew up in Egypt.”

* In most instances, I have calibrated weights of gold in metric tons, even though convention more frequently uses millions of ounces. It is not difficult to conceive of a few thousand tons—about as large as the numbers get—whereas millions of ounces convey little meaning.

A METAL FOR ALL SEASONS

Chapter 1

Get Gold at All Hazards

If gold were more plentiful on earth—say, as abundant as salt—it would be far less valuable and interesting, despite its unique physical attributes and beauty. Yet gold has been discovered on every continent on earth. That sounds like a contradiction, but it is not. Although gold deposits are widespread, in one form or another, no one area has yielded its gold easily. Finding and producing gold demands immense effort relative to the amount of glittering yellow metal that makes its appearance at the end of the process.

For example, in order to extract South Africa’s annual output of around five hundred tons of gold, some seventy million tons of earth must be raised and milled—an amount greater than all the material in the pyramid of Cheops.1 The South African mines are the worst, but we are all familiar with the tales of the Forty-Niners panning day after day in the waters of California and ending up with nothing but a few driblets of gold. As Will Rogers put it after returning from a visit to the Klondike, “There is a big difference between prospecting for gold and prospecting for spinach.”2

This radically distorted ratio of effort to output appears to have done little to discourage people from pursuing the worldwide search for gold—perhaps the most telling evidence of how highly prized, vital, essential, and irresistible gold has been from the earliest of times. Even in myths, as this chapter relates, the quest for gold was gluttonous.

Although gold does not mix with other metals, thin veins of it are scattered throughout the mountains where granite and quartz have filled in cracks in the earth’s crust and have been pressed together by fierce heat over millions of years. The elements have washed, blown, and scattered these deposits over the years, but gold has retained most of its purity even as it has suffered the ravages of nature’s dynamics. Much of this gold has flowed downward in mountain streams. Gold’s high density and weight tend to separate it from the other material in the waters, where it drifts to the bottom as nuggets or flows along as fine as dust.

Relative to the needs for it, gold does appear to have been more plentiful in ancient times, especially in Egypt and the Near East, than it has been since the Roman era. A little bit of gold goes a very long way when it is used only for adornment and decoration and not for coinage or hoarding: mining by the Egyptians produced only about one ton annually.3 Until the development of coinage, which put gold into the hands of the masses and greatly expanded the need for it, most of the available gold was owned by monarchs and priests. Its use was ceremonial in large part, a medium for advertising power, wealth, eminence, and proximity to the gods. Whatever was left over was used for jewelry and other forms of personal adornment.

When Moses came down from Mount Sinai to deliver the Ten Commandments to his people, he found the Jews in a delirium worshipping a golden calf. He was so enraged to see them bowing to an icon like those worshipped by the hated Egyptians that he smashed the tablets inscribed with the Word of God—the Ten Commandments—which he had just brought down from Mount Sinai. The story reveals that the Jews, even as slaves, had ample amounts of gold on their persons. It never occurred to them to use their gold to bribe themselves out of captivity in Egypt; as gold was not yet perceived as money, they would have found few takers. Until they melted their gold into the golden calf, they adorned their ears, arms, and necks with it.

The more than four hundred additional references to gold in the Bible confirm how plentiful gold was at that time. Poor Job declaims, “If I have made gold my hope, or have said to the fine gold, ‘Thou art my confidence’; If I rejoiced because . . . my hand had gotten much. . . . This also were an iniquity to be punished by the judge; for I should have denied the God that is above.”4 Abraham, the founder of the Jewish nation, is described in Genesis 13 as “rich in cattle, and in silver, and in gold.” He furnished the servant who went to fetch Rebecca with vessels of gold, including a nose ring.

When Moses climbed Mount Sinai to receive the Word from God, God gave him a lot more to do than just transmit the Ten Commandments and many associated rules and obligations. God also issued precise directions for the construction of a sanctuary where the Jews were to worship Him, together with a tabernacle to go inside the sanctuary. God began right off by specifying that “thou shalt overlay it with pure gold, within and without shalt thou overlay it, and shalt make upon it a crown of gold round about.” That is just the beginning: God even ordered that the furniture, fixtures, and all the decorative items such as cherubs were to be covered in pure gold. The instructions, as they appear in Chapters 25–28 of Exodus, persevere for some eighty paragraphs of painstakingly detailed measurements and designs.

Once settled in the Promised Land, the Jews must have accumulated masses of gold, primarily from plundering the tribes they had defeated in battle. Moses and his troops took over three hundred pounds of gold from the Midianites, “jewels of gold, ankle-chains and bracelets, signet-rings, earrings, and armlets.”5 Gold gleamed from the walls of the interior of Solomon’s great temple (located near the Wailing Wall of modern Jerusalem), which was 135 feet long, 35 feet wide, 50 feet high, and divided into three chambers. Solomon enjoyed lavishing gold on his personal possessions as well: his shields were made of gold, his ivory throne was overlaid with gold, and he sipped his wine from golden vessels.6 When the queen of Sheba came to visit Solomon, she brought him an amount of gold (coals to Newcastle?) that has been estimated at as much as three tons—worth over $20 million at today’s prices.7

The sanctuary and tabernacle that Moses built to God’s protracted specifications have disappeared, and Solomon’s massive gold-encrusted temple has been defaced. But in ad 532, after ten thousand men working for six years had used more than twelve metric tons of gold in building the church of Saint Sophia in Constantinople, the Byzantine emperor Justinian—who supervised the entire operation—could exclaim, “Solomon, I have surpassed thee!”8 Justinian was well versed in the uses of gold. He inherited 320,000 pounds of gold, used it all up, and then taxed his subjects to pay mercenary armies, to finance public works, and, most of all, to bribe his enemies to refrain from invading his domains. The process of using gold to proclaim the power of the church would be repeated in gleaming golden mosaics and decoration throughout Italy, in Spain, and even on the wildest steppes of Russia.

Neither Solomon nor Jehovah himself were the first to use gold to inspire reverence. The ancient Egyptians probably set the style for later religions, including the Jews, to emulate. The Jews, with one god, had it easy compared with the Egyptians, who had two thousand deities to worry about, many of whom bore some relation to the all-powerful Sun God. You can consume a lot of gold convincing everyone how powerful and all-knowing two thousand deities are. Christians, with only one god to worship but several thousand saints to pray to, have faced similar problems.

The use of gold in Egypt was a royal prerogative, unavailable to anyone but the pharaohs. That constraint facilitated the way that the pharaohs assumed god-like roles and authenticated their heavenly character by adorning themselves with the same substance that embellished their gods. Creating gold jewelry in Egypt was a high art, lavished upon dead monarchs as well as live ones.

An impressive demonstration of the use of gold to project power was carried out by a fascinating pharaoh who happened to be a woman, described by the Egyptologist James Henry Breasted as “the first great lady of the world.” Hatshepsut was the daughter of Thutmose I, who was the first pharaoh to be buried, about 1482 bc, in the Valley of the Tombs of the Kings at Thebes. After Hatshepsut seized power from her nephew-stepson around 1470 bc, she sat on the throne as king until her death about 1458 BC and was known by approximately eighty titles, including Son of the Sun and Golden Horus (the Egyptian god of light). Although she passed up the opportunity to add the traditional royal title of Mighty Bull, she was nevertheless depicted in most contemporary art as a man.9

Hatshepsut was an impressive woman by any standard. She managed a major increase in Egyptian trade with Palestine, Syria, and Crete, which had withered during the preceding 150 years when Egypt was occupied by Asian invaders known as the Kyksos. The explorations for gold during her reign were ceaseless, reaching farther and farther south, probably well into Zimbabwe.

Hatshepsut’s demand for gold was enormous, because she was a builder on a scale that would put Louis XIV and his Versailles to shame. She was also fond of gilding her face with a mixture of gold and silver dust. When she decided to erect a great monument for Amon Re, the chief god of Thebes, her original design included two gold pillars one hundred feet high that would be seen above the walls of the Karnak complex, which covered an area larger than the Vatican. When her chancellor prevailed on her to be a little more economical, she built the pillars of granite and covered only their peaks with gold. But even that required generous amounts. When the job was complete, she declared, “Their height pierces to heaven. . . . Their rays flood the Two Lands when the sun rises between them. . . . You who after long years shall see these monuments will say, ‘We do not know how they can have made whole mountains of gold.’ ”10

Most of the gold of biblical times and ancient Egypt—approximately four thousand years before Christ—came from the bleak and forbidding landscape of southern Egypt and Nubia; nub is the Egyptian word for gold. Nubia continued to supply gold to the Western world well into the sixteenth century. According to one authority, the output of the Nubian mines “far exceeded the quantity which was drawn from all the mines of the then known world in subsequent ages, down to the discovery of America.”11

The Egyptians had developed these mines from shallow ditches, but in time they cut complex underground shafts deep into the hills. The deeper the mines were cut, the greater the human pain that went on inside. The best description we have of the horrors experienced by the workers in these mines has been provided by Diodorus, a Greek who visited Egypt about the time that Caesar ruled Rome. The air in the shafts was fetid, constantly depleted by the tiny candles that barely illuminated the terrible darkness. The heat was intense, the earth frequently gave way, and subterranean water was a constant hazard. The fires used to crack the quartz in the rock released arsenic fumes that caused excruciating deaths among the many who inhaled them. The slaves had to work on their back or side and were literally worked to death if they were not crushed to death by falling rocks before they expired from exhaustion.12

No wonder slavery was so prevalent—and warfare so important—as military victories brought fresh supplies of slaves to work the mines. Diodorus informs us that the kings of Egypt did not limit the slave population to notorious criminals or captives taken in war, but even their “kindred and relations” as well—men, women, and children under the lash of the whip and without housing or care of any kind.13 In an ingenious arrangement, the slaves were guarded by mercenaries drawn from many different nations. As none of them spoke the language of the slaves, there was little opportunity for the slaves to corrupt or to conspire with their guards in order to effect escapes.14

The employment of human labor was the standard mining technique right up to the twentieth century, except for a process that the Romans had devised in Spain, whose gold-stuffed hills served as the backbone of the Roman economy. The Romans originally used human labor to dig as deep as 650 feet to extract the ore from the Spanish countryside, but with a new method, called hydraulicking, they used powerful jets of water to break up the rock and expose the gold-bearing earth. The water came from great holding tanks situated as much as four hundred to eight hundred feet above the site. The method, though wonderfully efficient and productive, washed away entire mountains, destroyed farmland, and silted many rivers and harbors.15

Hydraulicking was used in spotty fashion in other parts of Europe as well, but its most notable reappearance was in California in 1852, at the height of the gold rush. The Roman technique was faithfully reproduced in the Sacramento area, with water under pressure of up to thirty thousand gallons a minute smashing into the rocky hillsides and mountains. The environmental damage was awful. Forests and farmland disappeared in short order, the detritus even pouring into San Francisco Bay and leaving the landscape dotted with piles of rock and barren mountainsides. Nevertheless, hydraulicking was the primary method of gold extraction in California until 1884, when angry citizens finally had it outlawed.

Today, in the great gold mines of South Africa, the shafts reach down as far as twelve thousand feet and the temperature reaches 130º F. As one source describes it, “To produce one ounce of fine gold requires thirty-eight man-hours, 1400 gallons of water, electricity to run a large house for ten days, 282 to 565 cubic feet of air under straining pressure, and quantities of chemicals including cyanide, acids, lead, borax, and lime.” The labor force employed in the South African mines exceeds four hundred thousand men, about 90 percent of whom are black.16

King Ferdinand of Spain coined immortal words in 1511 when he declared, “Get gold, humanely if possible, but at all hazards—get gold.”17

Not all gold has to be mined. When gold is carried down by mountain streams, the prospector can wade in and sieve up the fragments of gold-bearing ore that have broken loose from the mountainside. Gold was collected long ago in this fashion in Asia Minor, where gold coinage first made its formal appearance. Some 3500 years later, the California gold rush of the nineteenth century began on the banks of the Sacramento River, when the Forty-Niners crowded into the river with their crude equipment to “pan” the gold out of the rushing waters.

They were following a practice that had come down from the ancient Greeks, who used woolly sheepskins for panning gold from the rivers—the tight curls of the sheep’s coat did an excellent job of capturing and holding the fragments of gold as the waters came rushing down the mountainsides. The mention of fleece and gold together immediately evokes Jason and the Golden Fleece, a legend that is worth a brief digression for its moral.18

Phryxus, the son of the king of Boeotia, an area in eastern Greece, had been badly treated by his stepmother, so his own mother arranged for him and his sister to escape on the back of a winged ram whose fleece was pure gold, a handsome gift that she had received from Hermes (for services undefined). The trip could hardly have been smooth, because the Golden Fleece must have weighed heavily even on a ram delivered by Hermes. Phryxus’s sister, Helle, was apparently susceptible to air sickness, and, lacking the facilities of modern aircraft, became dizzy and fell off the ram into the sea; the point where she landed was named after her as the Hellespont.

Phryxus held on. After a trip of over one thousand miles, he was finally delivered by his ram to Colchis on the far eastern side of the Black Sea. Happy to be safe and alive, he sacrificed the ram to Zeus and presented the fleece to the local king, Aeetes. Aeetes was delighted, as he had been told by an oracle that his life depended upon his possession of this fleece. Consequently, he nailed the Golden Fleece to a tree in a sacred grove and hired a huge, bloodthirsty dragon to guard it.

Meanwhile, back in northern Greece a king named Pelias decided he had better get rid of his handsome and popular nephew Jason, who was trying to assert his family’s claim to the throne. Pelias told Jason that he could have the throne if he would first perform a deed “which well becomes your youth and which I am too old to accomplish. . . . Fetch back the fleece of the golden ram. . . . When you return with your magnificent prize, you shall have the kingdom and the sceptre.”19 Pelias never dreamed that Jason would succeed and return one day with his magnificent prize; on the contrary, he fully expected Jason to perish along the way or at least in the jaws of the guardian dragon.

Jason did take the Golden Fleece, with the help of his Argonauts, but only after an extensive and prolonged series of hair-raising adventures. Even then, he would have failed had it not been for the assistance he received from Aeetes’s daughter Medea, who possessed magic powers. Medea had been hit with a dart thrown by Eros and had fallen madly in love with Jason, so she used all her wiles to catch his fancy. Jason was sufficiently tempted by her to offer to take her back to Greece with him, but on the condition that she support his efforts to take the Golden Fleece. Much as she loved him, Medea was unwilling to yield to what might well have been a seductive ruse. “O stranger,” she cried, “swear by your gods and in the presence of your friends, that you will not disgrace me when I am alone, an alien in your land.”20 Jason swore to make her his “rightful wife” as soon as they returned to Greece. As such oaths were guarantees as reliable as written contracts in our time, Medea delivered the goods by singing the dragon into drowsiness while Jason seized the Golden Fleece from the tree.

The story does not have a happy ending, because Jason was a compulsive social climber. From the outset, he was determined to become king of his homeland. He risked his own life and those of his friends in search of a sheepskin dusted with gold. He used a king’s daughter to bear children and promised to marry her. When he returned to Greece and found that he could not succeed to the throne, he fled with Medea to Corinth. There he proceeded to woo the daughter of King Creon but he told Medea what he was up to only after Creon had agreed to his betrothal to the princess. When Medea, inconsolable, recalled to him his solemn oath in Colchis, Jason justified himself by saying that their children would be better off because his newly betrothed had better social and political connections in Corinth than Medea did. The only solace he offered her was some gold and a request to friends to provide her with hospitality.

Medea fixed him. With a fine touch appropriate to the occasion, she created a gorgeous gown made of cloth of gold and drenched it in poison. She then presented it as a gift to the bride-to-be. Delighted at the sight of this beautiful garment, the poor young woman wrapped herself in the radiant fabric, twined the golden wreath into her hair, and died a horrible death. Medea then completed her act of revenge by killing her own sons and flying off in a dragon-drawn chariot she had conjured up. Jason threw himself on his sword and died on the threshold of his home.

The gold of Aeetes’s fleece had promised Jason power. That power gained him a princess who promised him a throne. But in the end, it was the gold that snuffed out both his bride and his future.

Notes

1. Chamber of Mines of South Africa and Sutherland, 1959, p. 12.

2. Bartlett, John, 1943. Familiar Quotations, 11th ed., Christopher Morley, ed. Boston: Little, Brown & Co. This line came from Will Rogers’s last dispatch to the press, sent from Fairbanks and published on August 15, 1935, the day he died in an airplane crash.

3. World Gold Council.

4. Job, 31, 24–25.

5. Sutherland, 1959, p. 57.

6. Ibid., p. 57.

7. Ibid., p. 57.

8. Marx, 1978, p. 236.

9. Encyclopedia Britannica On-Line, Egypt: History: The New Kingdom: The 18th Dynasty.

10. Marx, 1978, pp. 48–53.

11. Jacob, 1831, p. 55.

12. Ibid., pp. 50–59.

13. Marx, 1978, p. 44.

14. Jacob, 1831, p. 56.

15. Marx, 1978, p. 193.

16. Green, 1993, pp. 405–407.

17. Ibid., p. 17.

18. For the whole story, see Schwab, 1946, pp. 86–102.

19. Schwab, 1946, p. 87.

20. Ibid., p. 122.

Chapter 2

Midas’s Wish and the Creatures of Pure Chance

Though the crowns of gold that monarchs wear on state occasions must weigh heavy on their heads, no monarch has ever chosen zinc or plastic as an alternative. Rulers for centuries have also been fond of stamping their likeness on gold coins, to circulate throughout their kingdom and beyond. The tension between gold as adornment and gold as money developed early in history and has continued up to the present time. The everlasting radiance of gold, together with its scarcity, suggested such exceptional value that its route from the golden calf, the gilded phallus, and the Golden Fleece to its use as money was probably inevitable. The process works both ways: gold’s massive purchasing power adds to the lustre we see when we look at gold jewelry or the gilded dome on a state capitol.

This chapter is about the nature of money and how gold coinage came into being. We shall see that gold’s association with power and magic linked it to the wide range of monetary functions that emerge when trade and business flourish. Money serves cultures and also reflects their basic values, and that may best explain gold’s longevity as a form of money. Indeed, gold has played the most important role as money in those cultures that hold business and exchange in highest repute.

Value alone is insufficient for a substance to qualify as money. Lots of things have value that do not serve as money. In fact, the most effective forms of money have developed from objects that were otherwise quite useless, such as paper and computer blips.

In early Britain, cattle and slaves served as money. Their value was set by law—although the church, eager to discourage slavery, refused to accept slaves in payment of penances.1 Pepper was popular in medieval times. In some areas, hoarding cattle to serve as wealth instead of as a food supply is a practice that has continued into modern times; this practice has led to serious ecological degradation in parts of Africa, where the sheep and goat population shrank by over 66 million from 1955 to 1976.