The Power of Gold: The History of an Obsession

by Peter L. Bernstein

  Indeed, the Romans used coinage-money to a far greater extent than any of their predecessors in history. Thousands of soldiers throughout the empire had to be paid, and some Roman generals even minted their own gold coins to distribute to their troops. Furthermore, bread and circuses did not come for free, but promoting domestic tranquility among the Roman politii was essential if emperors hoped to remain in power. The doles were distributed in cash on occasion, but even the more frequent payments in kind, the alimenta, or bread rations, were largely imported from outside Italy and had to be paid for with coinage.

  These recurrent and growing needs for coins were accompanied by an increasing demand for replacement coinage as many coins simply disappeared, some worn beyond usefulness as coins, some in shipwrecks, and some due to plunder by barbarians. A significant amount of gold went to the East in exchange for spices from India and silks that took a circuitous route but that originated in China; once the metal arrived in India, it stayed there and did not return to the channels of trade.9 At the same time, the highest-quality ore was being depleted, so the level of mining activity had to expand even more rapidly than the need for metal to mint.

  There seemed to be no limits to the demand for gold. After Caesar conquered Gaul, the Romans imported over one hundred thousand slaves from that territory to work the mines in Italy, to say nothing of the slaves they employed to work away their short lives as miners within Gaul itself. We have already seen how the Romans used slaves to exploit the mineral riches of Spain, at a level of cruelty and disdain for the environment that readily matched the appalling record of the Egyptians.

  Wealthy Romans showed off to one another by generously lavishing gold on their bodies, their women, and their homes, but they measured their wealth by their accumulations of gold coins. In the Roman Republic, and the empire that followed, golden money was essential to grease the way to political power. Unlike all the monarchies that had ruled nations since the beginning of time, in Rome it was how much gold you had, rather than who your father was, that defined how much say you had in the affairs of state. How much you had to say, in turn, defined how much bribery and other loot came your way from others in similar pursuit of power and riches.

  For example, when Julius Caesar returned from service in Spain as quaestor (provincial official for financial affairs), he had harvested sufficient Spanish gold to buy him attention as a leader, but not enough to take him as far as he had hoped to go. He therefore combined his interests with two other ambitious Roman citizens, one a fabulously rich man named Crassus and the other a military commander named Pompey.

  Crassus had begun accumulating his fortune by organizing a fire brigade that put out fires only if paid in advance. In those cases where the owner failed to pay and the building was destroyed by fire, Crassus would buy up the burned-down ruin at a fraction of its worth as a standing structure. He acquired a large number of tenements in this fashion, restored them, and let them out at fancy rents."' In addition, Crassus lent money at interest and acquired ownership of silver mines, agricultural estates, and slaves in great numbers. He even educated his slaves to become readers, stewards, and cooks." The huge income that accrued to Crassus from all this wealth enabled him to bribe officials so that he could buy up additional confiscated estates at depressed prices.

  Although Pompey ended up with his head cut off, in all likelihood as a result of a contract on him taken out by Caesar, Crassus was destined for an even more horrible end. Crassus was eager to show that he was more than a moneybags and that, like Pompey and Caesar, he could successfully command troops in battle. Accordingly, he provoked a war with the Parthians in Mesopotamia and set off on his campaign with 44,000 troops under his command, foot soldiers for the most part. At the battle of Carrhae in 53 BC, the Parthians attacked the Romans with ten thousand horse archers and a corps of one thousand Arabian camels, making quick work of the job at hand. Crassus attempted to negotiate a surrender, but the Parthians set upon his troops with such ferocity that only ten thousand of the original forty thousand managed to escape. For Crassus, the Parthians reserved a special fate that expressed their disdain for the money-mad Roman civilization that he represented. They finished him off by pouring molten gold down his throat.t2

  Up to this point in our story, the supply of gold has been taken for granted or the opening up of new supplies more or less kept pace as the demand for gold expanded. The Jews escaping from slavery, the Egyptians, the Lydians, the Persians, and Philip and Alexander all appear to have had enough gold to do with it whatever struck their fancy, from crafting objects of worship and beautification to coining elegant coins as means of exchange and stores of wealth. From today's perspective, we can see that they were in the happy position of owning an indefatigable printing press bestowed upon them by nature, whose output, because it happened to be shiny, dense, and malleable into beautiful things, was accepted without question everywhere.

  Now everything changes. With an empire that reached from the Mediterranean to the Black Sea, and from the border of Scotland to the southernmost areas of Egypt, the Romans found that their supply of gold for coinage constantly fell short of their needs despite mining output of at least five tons a year. 'I Quite aside from governmental expenditures that had to be financed, the emperors spent money on themselves with a degree of abandon that their citizens could only envy. Yet nature sets the ceiling on the supply of gold and silver: you cannot create metal out of nothing. The alchemists in later times were to learn that lesson over and over again.

  A society that uses metal for money will always be constrained by the supply of that metal. The random location of mineral deposits makes countries such as Lydia rich as a matter of good luck and other countries greedy for gold as a consequence of bad luck. History teaches us that natural advantages are not an automatic formula for success, but having a head start endowed by nature never did anybody any harm.

  When a nation's supply of metal is insufficient to meet the needs for coinage, and, in many instances, even when coins are no longer the only acceptable form of money and paper substitutes are in use, there are three ways out. One is to live with an insufficient supply of money, so the demand for goods at current prices chronically falls short of the supply of goods offered for sale, and downward pressures on the price level persist over extended periods of time. This painful process has often occurred as a default solution, with dire political and social consequences. The Great Depression of the 1930s is the most vivid but by no means the only example of this policy that we shall encounter in later pages. A second method of overcoming a shortage of monetary metals is to import gold from other areas, either by plunder or by trade. These solutions have motivated both great adventures and complex economic policies, not always with happy outcomes. The third method is the simplest but is unlikely to be successful over the long run, namely, to use the same amount of metal to produce a greater supply of coins.

  That solution is known as debasing the currency, which used to mean literally reducing the metallic base from which coins are minted, or mixing base metal with the precious metal, while leaving the face value unchanged. Over the years, debasement has come to mean any irresponsible, or at least ill-advised, effort to create new money out of nothing-a process at which governments have become increasingly ingenious with the passage of time. All three of these approaches will occupy our attention in the pages that follow.

  The monetary innovation of debasement has a long history. For example, Dionysius of Syracuse (405-367 Be) had borrowed heavily from his citizens and was hard put to figure out how he could pay them back. He ordered all coins in the city brought to him, under penalty of death. He restamped the coins so that each one-drachma coin now read two drachmas. After that, paying off his debts was easy.14 Dionysius's methods were drastic, but the essence of the process-like many things Greek-was classic in its execution.

  The Roman emperors learned to make debasement a routine procedure. One might argue that the Romans had no choice, given the
dynamics of their society and their empire. Even though they succeeded in developing abundant supplies of gold throughout their empire-and, in fact, expanded their empire in some directions primarily to acquire new sources of gold-their financial requirements and their insatiable demand for adornment in gold grew so rapidly that they simply never had enough gold to satisfy their needs. Most important, they never acquired a sufficient sense of rectitude to choose between government spending and the good things in life.

  The Romans set an example for debasement that later rulers throughout history have followed in many different formats, but on a scale that few have matched. The usual method of debasement was to mint coins with an unchanged face value but smaller in size and with a reduced metallic content, thereby stretching the available supply of metal to produce a larger number of coins. Debasement worked best when people were fooled into thinking that nothing untoward had occurred with newly issued coins, but you can't fool all of the people all of the time. Debasement on many occasions did lead people to melt down the old coins and bring the unadorned metal to the mint; they would walk away with more coins of a given face value than those that had been melted down. It was the state that benefited from the increased inflow of precious metals that this process brought about. In view of the primitive nature of tax systems in those days, the debasement process was an important source of governmental revenue.

  Nero was the first emperor to take the route to debasement-a development that should come as no surprise. Nevertheless, Nero was a piker at the task, despite his mindless pursuit of luxury. The heavy spending by his successors on personal goodies and the maintenance of the armies and bureaucrats over the wide stretches of the empire strained government finance to the limits. As paper money and bank credit had not yet been invented, debasement was the only available method to create enough purchasing power to satisfy the constantly expanding needs.

  By the time that Gallienus became emperor in AD 260, silver coins had 60 percent less metal than they had when Augustus became emperor. Gallienus then threw discretion to the winds. He ruled for only eight years, but he managed to cut the silver content of the coins down to a mere 4 percent. The outcome was inevitable: wild price inflation. One expert has estimated that prices increased at the negligible pace of 0.4 percent a year over the 250 years between the reign of Augustus and when Gallienus was emperor; but during the 34 years after Gallienus began his machinations with the coinage and Diocletian became emperor, prices rose over 9 percent a year-which means that in AD 304 prices were twenty times higher than in AD 260.15 Roman money was now not just a financial wreck; it was a physical wreck as well. The copper coins had so little metal content and had become so thin and frail that their imprint could be placed on only one side.

  Although the small-denomination Roman coins had become essentially worthless, the gold coins had fared better. The Romans did reduce the gold content and size of the coins over time so that more coins could be produced with a given amount of gold, but they resisted the temptation to mix the gold with alloys, the technique that destroyed the ability of Roman copper coins, and even some silver coins, to function as anything more than curiosities.

  After Diocletian came to power in AD 284, he spent some twenty years trying to reform the currency and, under a bewildering variety of price and output regulations, to bring inflation under control. Diocletian was also wary of how gold could lead a nation into trouble. According to Gibbon, in AD 296 Diocletian caused a diligent inquiry to be made "for all the ancient books which treated of the admirable art of making gold and silver [i.e., alchemy], and without pity committed them to the flames; apprehensive, as we are assured, lest the opulence of the Egyptians should inspire [the Romans] with confidence to rebel against the empire. "*'6 What with everything, Diocletian was exhausted by the burdens of being emperor. In 305, he retired voluntarily and set himself up in a lovely palace on the Dalmatian coast, where he lived more or less happily for the rest of his life.

  Diocletian's successor was Constantine, who reigned from 306 to 337 and who immediately set out to improve the acceptability and respectability of the Byzantine currency by issuing a new gold coin called the gold solidus, which later became known as the bezant. When Constantine issued the first bezants, they weighed 4.55 grams-heavier than any other gold coin in existence-and were 98 percent pure. At $300 per ounce of gold, the bezant in today's money would be equal to $42.66, but the purchasing power of gold in Constantine's time was much greater than it is today. Clearly, this was a coin with high current value. The bezant continued in production, with unchanging weight and purity, for about seven hundred years, long after Rome had fallen to the barbarians. The gold bezant thereby deserves a place in the Guinness Book of Records, as no other coin in all of history can match its longevity."

  The supply of gold for minting was not a problem for Constantine. His conquests eastward brought massive inflows of tribute. Building in part on what he had learned about government fiscal policy from Diocletian, Constantine also levied new taxes payable only in gold or silver and employed the proceeds to feed his mints for transformation into the new coinages.

  But the richest source of gold came about as a result of Constantine's conversion to Christianity, which he established as the state religion in 313. Inspired by his vision of a shining cross and the words "In hoc signo vinces" ("In this sign, I shall conquer"), Constantine proceeded to strip all the pagan temples throughout the empire of the gold and other treasures they had accumulated over hundreds of years." Some of this gold resided almost permanently on top of his head: he wore his bejeweled golden crown at all times.'`' About twelve hundred years after Constantine, in another religious revolution, Henry VIII of Englanda famous debaser of the coinage-solved part of his fiscal problems by pillaging the Catholic churches and monasteries in the name of suppressing the "pagan" faith. Henry copied Constantine in other ways as well: he enjoyed showing off his power by covering his person with a gold crown, gold chains, and gold sewn into his garments.

  And so the story comes full circle. Gold as religious adornment and gold as money converge once again. Unlike the more ambiguous relation between the two in the time of Croesus, however, money now emerges as the clear winner not only over gold as adornment but over gold itself. The possession of gold from this point forward is no longer a matter of right, privilege, or hierarchical position in society. It is earned or it is plundered or discovered anew in the rivers and mountains. Whatever the source, an increase in the stock of gold provokes high excitement, because that gold is an instant path to money-and to power.

  s we move along, past the fall of the Roman Empire and toward the rise of new empires to the east, gold becomes even more important than it had been in earlier times, both as adornment and as money. Powers come and go, monetary systems wax and wane, new sources of gold open up, but the focus on gold is a constant that links one era to the next. Nothing else serves better for a nation seeking power.

  In AD 200, when the Roman Empire was about the same age as the United States of America in AD 2000, the capital of the empire was losing its control over the outer territories, but Roman coins were still in circulation everywhere. Like the U.S. dollar, Roman money had lost purchasing power and, in some areas, the deep respect it had once deserved, but it was nevertheless the only money that circulated throughout the empire.

  Then, as Rome's European dominions succumbed to the invasions and depredations of the barbarians, Rome's common currency vanished. It did not stop circulating because of any decree or agreement among the new rulers who proliferated within the borders of the old empire. Roman money dropped out of sight because money itself virtually dropped out of sight.

  There was little use for money in the terrors and ravages of the early years of the Dark Ages. Trade and travel throughout Europe fell to a trickle. Urban life disintegrated as people huddled as close as possible to food supplies; the barbarians themselves came from rural communities and the way of life in cities and towns was unfamilia
r to them. As the magnificent Roman roadways deteriorated into ruts, even bricklaying skills grew scarce. The need for money for soldiers' wages also dried up as government-supported armies were replaced by roving bands of ruffians who lived off the land.

  But coins are hard. Unlike dollars on a computer screen, they were not about to disappear into thin air. The Roman coins of gold continued to exist as though nothing had happened, although they seldom circulated as money. So where did they go?

  People hoarded the coins and other golden objects against the terrifying insecurity and loneliness of the times. Archeologists have discovered substantial amounts of buried treasure from the Dark Ages throughout Europe, even in far north Scandinavia. Sometimes as crudely as this, sometimes in more elaborate forms, hoarding gold at times of uncertainty and fear would persist throughout most of future history. There is little difference in principle between the burying of gold in the backyard during the Dark Ages and, as we shall see, the desperate effort to build and preserve gold reserves at the Bank of England in 1930 and 1931.

  Because gold is chemically inert, it survives the passage of time, the ravages of nature, the vagaries of the weather, and the machinations of humans. When Rome fell, nearly every ounce of gold ever mined or ever drawn from the mountain streams since the beginning of time was still sitting somewhere, residing in some form and designed for some use, except for what might have been lost in storms at sea.* Even that lost gold was still shining in its watery burial grounds and was available for reclamation some day. Much of the world's supply of gold had gone through many transformations over the centuries, but all of it was still around-on fingers, toes, and necks, in hoards, in coins, in palaces, in the houses of worship, and in sunken galleons under the sea. When, for example, Childeric, founder of the Merovingian dynasty in Gaul, was buried in 481, many gold objects were placed with him in his tomb, including three hundred golden bees that had decorated his robe of state.' Here and there, in fact, Roman coins, jewelry, and religious objects must have contained fragments of gold that had come down from such distant sources as the queen of Sheba's bounteous gift to Solomon, from Hatshepsut's mighty column, from Darius's golden bathtub, and perhaps even from the golden calf at the foot of Mount Sinai. Today, most gold bars, much jewelry, and countless decorative objects share the same pedigree.