The Power of Gold: The History of an Obsession

by Peter L. Bernstein

  Genoa had long considered Frederick II and the Sicilians their archenemies. The Genoese nursed dreams of attaching Sicily to their own domains and had been intermittently at war with Frederick ever since 1238. Genoa derived immediate and significant benefits from the election of Pope Innocent IV in 1241, Frederick's defeat in 1248, and his death in 1250. In particular, Innocent showered privileges on his hometown and proceeded to claim the Kingdom of Sicily for the Holy See.

  Genoa compensated for lack of military power with aggressive economic policies. By 1250, the Genoese were enjoying a prosperous tex tile industry and widespread construction of new buildings. Genoa's huge shipyards produced most of the eighteen hundred ships that sailed for Saint Louis's crusade in 1248 under the command of Genoese admirals. Commercial enterprises of all kinds were making their appearance, and bankers and merchants from the major city-states of northern Italy were there to do business. Lopez states, "The very technique of credit operations, which had constantly progressed during the last hundred years, displayed at this period a maturity not to be surpassed for many years to come."" The Genoese had lent large suns to both Saint Louis and Innocent IV and had been bankers to just about every important crusader. And then there was the opportunity opening up in the Holy Land for new gold coins as the Christian princes finally yielded to Innocent's insistence that they reform their coinage.

  Meanwhile, increasing supplies of gold were becoming available to the Genoese. New gold mines opened up in Bohemia, but the primary source was the African gold that flowed mainly toward Genoa as a result of the favorable balance of trade that the Italians maintained with North Africa. Genoese records suggest that trade with the Levant was also turning favorable, bringing Islamic and Byzantine coins to the Italian shores for remelting into Genovese coins. Indeed, even China was complaining at that time of a loss of gold through foreign trade. Finally, a period of sustained prosperity probably led to the dehoarding of gold as well. We know that the Italians were supplying the English Treasury with gold in the middle of the thirteenth century.12

  As Englishmen in their time knew well and as Americans have learned in the years since World War II, good money adds its luster to the world's image of a nation. A high-value gold coin, sustained in purity, was an ideal vehicle for Genoa to extend the reach of its economic prestige. In 1252, two years after the death of Frederick in Sicily, when the price of gold in Europe happened to be unusually low compared with the price of silver, Genoa began to issue a 24-carat gold coin called the genovino (or genoin). Oddly enough, their sour relationship led the Genoese to take the Sicilian coinage system as their model. They adopted the weight systems of the tan and then stepped up the quality of the coin from Frederick's by minting it in 24-carat gold. Both features would enhance the acceptability of the Genoese money in the Sicily that the Genoans so avidly coveted.

  These coins weighed about 3.5 grams, a full gram less than Constantine's original bezants, but the 24-carat purity was a big attraction. A 3.5-gram solid gold coin would be the equivalent of about $33 of 1999 purchasing power, but the purchasing power of gold in terms of goods and services was many times greater in the Middle Ages than it is today. The high contemporary value of these coins had more than economic significance: their high value reflected prestige and glory upon their issuers. This aura was further enhanced because such coins were not meant for the use of hoi polloi; they circulated among the upper classes and most active merchants.13

  We can develop a sense of the nature of the genoin by comparing it to a $2.50 gold coin in my possession (the coin is stamped '12V' rather than "$2.50"), about the size of a dime and minted in 1865. My coin is equal to 12 percent of an ounce, or nearly the same weight as the thirteenth-century gold genoins. This little piece of arithmetic reveals three important facts. First, genoins were about the size of a contemporary ten-cent coin in the United States. Second, as a dollar in 1865 bought about seventeen times as much as a dollar buys today, $2.50 when it was minted in 1865 bought as much as $42.50 would buy today. Third, and perhaps most interesting, the tradition of the 3.5-gram coin persisted for more than six hundred years.

  The chief motive of the Genoese in issuing the genoin was commercial, but they also understood that economic power and political power mutually enhance each other. Indeed, within ten years of the introduction of their golden currency, Genoese power had persuaded the Latin rulers of Constantinople that the proprietary trading privileges held by the Venetians should be transferred to Genoa. The Genoese then used their base in Constantinople to extend their trade and influence into northern Persia, the Crimea, and the farthest shores of the Black and Caspian Seas. Soon they were venturing into the upper Nile and exploring the Sudan and the Niger River basin.

  The needs of commerce explain why the first steps toward minting gold coins in the Middle Ages took place in such cities as Genoa and Florence that were centers of economic and financial activity instead of in the capitals of the nation-states, such as London or Paris or even Rome. Lopez asserts that the events of 1252

  touched off one of the greatest chain reactions in monetary history. ... The return to gold did more than provide symbols and tokens: it relieved the strain which economic growth was placing on a chronically inadequate currency.... It was the most spectacular token of the economic gains accumulated by the Catholic world during the preceding two or three centuries, and a tangible symbol of the initial superiority of the West over the East-for the Islamic world and Byzantium, which minted gold when Europe was content with silver, now debased their gold or ceased to strike it.14

  Lopez was accurate in using the metaphor of a chain reaction to describe what happened with the use of gold as money following the innovation of the genoin. Only a few months after Genoa had acted, the Florentines issued their fiorino d'oro, or florin, so called because it had a fleur-de-lys on one side. Perugia and Milan followed with gold coinages shortly afterward, and Lucca around 1273. In 1284, the Venetian ducat appeared, the most famous and successful of all the gold coins born in the course of the thirteenth century. When Shylock hears that his runaway daughter Jessica has "in one night spent fourscore ducats," he cries, "Thou stick'st a dagger in me! I shall never see my gold again! Fourscore ducats at a sitting! Fourscore ducats!"15 The ducat served as a standard of value throughout Europe and maintained its gold content until the Venetian Republic fell to Napoleon in 1797.16 All these coins weighed 3.5 grams and were 24-carat gold.

  The issuance of new gold coins was by no means limited to Italy. Both Alfonso X in Castile and Henry III in England issued gold coins in 1257, and Saint Louis joined in at just about the same moment. Sad to relate, Henry of England's gold penny was set at an inappropriate value relative to silver and ended up a total failure. Henry began with his coin equal to twenty pence in silver, later raised to 24 pence, but the same quantity of goods that the gold could buy could be purchased more cheaply just by paying with silver. Within three months, complaints rose within the City that no one wanted to exchange the new coins for silver. Merchants had no use for them, and poor people would never spend that much in a single transaction, or perhaps in a year of transactions. No trace of these coins has been found since about 1280.

  Nevertheless, the English merchants complained that they had to use foreign gold coins in their international transactions at values in terms of sterling that were unfavorable to them. In 1343, King Edward III tried issuing an English gold florin whose face value was above the market value for the gold it contained, but this, too, met with resistance everywhere, including among many of England's best customers abroad. When the Florentines refused to accept these coins, they used the quaint excuse that the coins lacked an image of Saint John the Baptist. These difficulties led Edward to issue a new gold coin the following year with a more appropriate weight, called the noble, whose sides celebrated Edward's great victories in the Hundred Years' War against the French: Crecy on land and Sluys at sea. The noble also had a checkered career in its early years, but in time it became
the basic gold coin of England until well into the seventeenth century."

  This laggard performance by the English in large part reflected their slow pace of economic and financial development compared to developments on the Continent. In dramatic contrast to its role in the world in the nineteenth and twentieth centuries, thirteenth-century London was far less cosmopolitan than Paris or Augsburg or the Italian city-states. With a population of about fifty thousand and the only city in England except York with more than ten thousand inhabitants, London was about half the size of Paris, Florence, Venice, and Genoa and no larger than Bruges, Bologna, or Palermo." The English, still feudal and rural, had not yet been consumed by the hard-headed, businessoriented calculations that led to the genoin, the florin, and the ducat, in large part because the typical English transaction was far smaller than transactions on the Continent. Even as late as the middle of the fifteenth century, aliens still controlled about 40 percent of English overseas trade; Florentine bankers financed the wars of Henry's son Edward I and bought the wool crop from Edward III. According to one authority, the Italian merchants "achieved a financial despotism which London has never had, for during a considerable period [these merchants] seem to have been able to fix quite arbitrarily their own exchange rates."" The arrival of the "nation of shopkeepers" still lay in the future.

  Silver's convenience for small-scale transactions and relatively plentiful supplies preserved its role as the primary monetary metal for another five hundred years, but silver would never again be the sole form of precious-metal coinage in Europe. Nevertheless, the tangled interaction between the two metals escalated with the passage of time and became the source of endless disputes and complications. The tangle would by no means be limited to the two metals. As we shall see, once bank deposits and paper money in their various manifestations came into use as convenient substitutes for coins, the appropriate relationship between these powerful innovations and the precious metals became so controversial that it has never been settled even up to this very moment.

  The expansion of commerce and finance caused a growing emphasis on money, but more than the give-and-take of supply and demand was at work. Money is a natural source of fascination. Money's arithmetic involves complexities of fractions and ratios, its ownership conveys power, and it is the key to the doors of foreign nations. The risk of losing it is simultaneously exciting and terrifying, and the power it conveys is irresistible. The development of commerce and banking in the Middle Ages nurtured all these interests and compulsions.

  Just over the horizon, a ghastly interruption to this process was about to descend over Europe, a sequence of events so awful that for a moment money would almost cease to matter. Yet nothing with a likeness to beatitude can be suppressed for long. The glint of gold would soon shine through the terrors.

  he fourteenth century stands unmatched in history for its unrelenting sequence of famine, pestilence, social chaos, and warfare. It was a terrible contrast to the progress and achievements of the twelfth and thirteenth centuries in Europe. Barbara Tuchman, who wrote an entire book on the horrors of the fourteenth century, described it as "a violent, tormented, bewildered, suffering and disintegrating age, a time, as many thought, of Satan triumphant."' The twentieth century has witnessed its own grotesque terrors, but at least there was peace among the major powers in Europe from 1900 to 1914, from 1918 to 1939, and again after 1945. The fourteenth century enjoyed no such relief.

  How could the glow of gold possibly shine through the gloom of such an age? We shall find that gold gleamed on occasion too brightly during the fourteenth century. Gold even saved lives that might otherwise have been lost. This was not a time when innovations in coinage or other financial instruments made comparable progress to what had been achieved in the preceding two hundred years, but gold did not sink back into the shadows. And then, when the horrors of the fourteenth century finally gave way in the fifteenth century to substantial progress in living standards and economic development, the available supply of gold appeared to be far below the expanding demand for it, setting great movements under way to seek for new sources of gold in other parts of the world.

  The summer of 1314 was uncommonly cold and wet in Europe. Crops rotted, harvests were late, and alarmed authorities placed price controls on farm products and firewood. All these were routine disasters that had happened many times before.

  The awful weather of 1314, however, was just the beginning of a succession of catastrophes. Bad crops seldom happen two years in a row, but the weather in 1315 was even worse than during the previous year. Heavy and incessant rains caused flooding that smashed dikes. Rising rivers destroyed villages. Violent storms crashed onto the coasts. The tragedy stretched from Scotland to Italy and from the Pyrenees to the homes of the Slavs. Food prices rose over fivefold and starvation was widespread. Even that was not the end. The weather wreaked havoc once again in 1316, causing the worst famine in European history. People ate cats, rats, insects, and animal droppings, and then, lacking anything better, dug up the corpses in the burying grounds. Epidemics and violent crime were widespread. Bloody and public self-flagellation was common. Scapegoats Jews, lepers, noblemen-were murdered without hesitation.*

  The Great Famine, as it came to be known, was only the introductory chapter to this appalling story. In 1347, the Genoese were defending their Crimean colony of Kaffa (known as Feodosia in modern times) against a besieging Tartar army that had recently swept in from the Far East and across the great expanses of Russia. The siege was not going well for the Tartars, so they decided to use a unique projectile to catapult over the walls and into the center of Kaffa: dead bodies of their own men who had just died from a particularly vicious form of the plague. Stricken with terror-and soon sickened-the Genoese abandoned Kaffa, fleeing in their galleys through the Black Sea and the Aegean toward Italy. When one of the Genoese ships arrived at Palermo in Sicily, its fleas and rats and dying humans launched what has come to be known as the Black Death.2

  This frightful affliction spread like wildfire throughout Europe over the next two years. Population estimates are fragmentary and unreliable, but it is likely that the Black Death killed about a third of the people from India to Iceland, at least twenty million deaths. The population of Europe would not regain the levels of 1300 until the middle of the sixteenth century .3

  Men, and an even higher proportion of women, died so fast that there was no time or inclination for last rites, nor was proper burial an option. In some big cities, the death rate exceeded 50 percent and was highest in the close quarters of monasteries. The plague had no respect for status: it took the king of Castile; the queen of Aragon and her daughter; the son of the emperor of Byzantium; the queen of France, as well as her daughter; the queen of Navarre; the wife of the Dauphin; Petrarch's beloved Laura; the Sienese painters Ambrogio and Pietro Lorenzetti; Andrea Pisano of Florence; the great historian Giovanni Villain (who died in the middle of a sentence: "in the midst of pestilence there came an end"); the second daughter of King Edward III of England; the archbishop of Canterbury, his appointed successor, and the successor's appointed successor.4 If all this were not bad enough, in 1348 just as the Black Death was gathering momentum-a calamitous earthquake spread havoc and destruction from Naples to Venice, with aftershocks that smashed buildings and killed humans as far away as Germany and Greece.

  Nature was by no means the only force to deliver violence and death in the fourteenth ceptury. Brutal political disruptions became endemic.

  In 1303, the pope was taken prisoner by a Roman mob and died shortly afterward under mysterious circumstances; one historian refers to his dying "of humiliation."5 His successor was murdered. The next in line, a Frenchman by the name of Clement V, took the prudent step of removing the papacy to the papal enclave in his native land at Avignon in 1305, where the popes lived in high style for the next 73 years. Petrarch complained that even the papal horses were "dressed in gold, fed on gold, and soon to be shod in gold if God does not stop this slavi
sh luxury."' What was the source of all that gold? It was from the bunching of bequests from the wealthy who had died from the Black Death. It was at this time that the king of France, Philip IV, prohibited any exportation of gold from France. One writer suggested that this ruling, rather than fear of physical violence, was the real motivation for the pope to move to Avignon. He argued that the papacy would have faced bankruptcy if it had remained in Rome and that it transferred itself to France in order to sustain its ample revenues from French sources.'

  In 1327, Edward II of England, an avowed homosexual, was slaughtered with a hot iron poker shoved up his rectum. Louis X of France, known as Louis the Quarrelsome, was deposed in 1316 after only two years on the throne. In 1332, even the melancholy Danes dissolved into anarchy. In the Holy Roman Empire, Guelfs went to war against Ghibbelines. In 1338, the Hundred Years' War between England and France broke out, piling organized state-sponsored killings on top of widespread mayhem on a private level. Workers' uprisings in Italy broke out in 1346-1347. Shortly afterward, Rome was thrown into chaos by Cola di Rienzi's brutal uprising motivated by the dream of restoring the Roman republic of Cicero. In 1358, the Jacquerie produced a violent peasant revolt in France against war taxes, the burden of paying huge ransoms for captured royalty, and the pillage perpetrated by wandering mercenary veterans of the wars. In 1379, a year after insurrection in Florence, the weavers and merchants of Ghent mounted their own insurgency, going so far as to try to divert the river Lys and leading the contemporary historian Froissart to ask, "What shall they say that readeth this or heareth it read, but that it was the work of the Devil?"8 In 1381, following a succession of new poll taxes, the English got their version of a fierce uprising by the peasants, led by Watt Tyler. Seventeen years later, Henry Bolingbroke deposed his cousin, King Richard II.