The Power of Gold: The History of an Obsession
448
The Power of Gold: The History of an Obsession
448eBook
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Overview
—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.
Product Details
| ISBN-13: | 9781118282694 |
|---|---|
| Publisher: | Wiley |
| Publication date: | 03/12/2012 |
| Sold by: | JOHN WILEY & SONS |
| Format: | eBook |
| Pages: | 448 |
| File size: | 1 MB |
About the Author
The late Peter L. Bernstein was President of Peter L. Bernstein, Inc., an economic consulting firm for institutional investors he founded in 1973, after many years of managing billions of dollars in individual and institutional portfolios. Bernstein was also the author of ten books on economics and finance, including the bestselling Capital Ideas, Capital Ideas Evolving, and Against the Gods: The Remarkable Story of Risk. His writing combines the zest of a historian with the meticulous analytical powers of an economist.
Read an Excerpt
THE POWER OF GOLD
THE HISTORY OF OBSESSION
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?"
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." 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 Perseus 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. 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." 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." 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. 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.
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." 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.
Table of Contents
Foreword ixAcknowledgments xiii
PROLOGUE: The Supreme Possession 1
A METAL FOR ALL SEASONS
1. Get Gold at All Hazards 9
2. Midas’s Wish and the Creatures of Pure Chance 18
3. Darius’s Bathtub and the Cackling of the Geese 38
4. The Symbol and the Faith 52
5. Gold, Salt, and the Blessed Town 66
6. The Legacy of Eoba, Babba, and Udd 74
7. The Great Chain Reaction 85
8. The Disintegrating Age and the Kings’ Ransoms 96
9. The Sacred Thirst 114
THE PATH TO TRIUMPH
10. The Fatal Poison and Private Money 135
11. The Asian Necropolis and Hien Tsung’s Inadvertent Innovation 158
12. The Great Recoinage and the Last of the Magicians 175
13. The True Doctrine and the Great Evil 198
14. The New Mistress and the Cursed Discovery 219
15. The Badge of Honor 239
16. The Most Stupendous Conspiracy and the Endless Chain 260
THE DESCENT FROM GLORY
17. The Norman Conquest 283
18. The End of the Epoch 306
19. The Transcending Value 328
20. World War Eight and the Thirty Ounces of Gold 346
EPILOGUE: The Supreme Possession? 367
Notes 373
Bibliography 397
Index 409
What People are Saying About This
This book is a noble treatment of the most noble of elements. The Power of Gold is a brilliant and unexpected tale of three thousand years of a metal as virtual reality.
—(Steve Jones author, Darwin's Ghost: The Origin of Species Updated)
Hats off! We are in the presence of a master . . . to read with such delight in its manner as to pass too quickly over the subtlety of its understanding and the astonishing width and depth of Bernstein's knowledge.
—(Roger G. Kennedy Director Emeritus, National Museum of American History)
If all the gold ever mined in the history of the world were collected in one place, it would weigh about 125,000 tons. That's not a whole lot, when you consider that people have been mining gold as long as there has been civilization (there are more than 400 references to gold in the Bible). Gold is not very plentiful (it costs a small fortune just to mine the stuff), it's incredibly heavy (a cubic foot weighs half a ton), and it's so soft that you can't do anything practical with it. How, then, did it get to be so darn popular? That's the question Bernstein addresses in this utterly fascinating book. Its not a history of gold itself-there are histories of banking for that, he tells us-but a chronicle of the power and the mystique of gold. What is it about human beings that makes us turn a useless, hard-to- come-by metal into the object of desire, into some- thing we wear, into a symbol of power and wealth? Is it our ability to make gold do anything we want that makes us do anything we can to get it? Never has there been a more enlightening, instructive, and entertaining look at the power of this most precious of metals.
"Bernstein...gives us a multifaceted depiction of the powerful pull gold has...his grasp on things financial...is firm, and he's admirably adept at explaining them."
—New York Times Book Review
. . . a fascinating story . . . wittily written, and full of original insights . . . Peter Bernstein has once more written a brilliant book, both highly instructive and entertaining.
—(Pierre Keller former senior partner, Lombard Odier & Cie, Geneva)
Admirably written . . . a wonderfully interesting view—not alone of gold but of the greater economic history. Like other of his work, it is assured of a wide readership.
—(John Kenneth Galbraith Professor of Economics Emeritus, Harvard University)
The story of gold-in all its splendor and mythology, its fascination for individuals and nations alike. . . . Peter Bernstein is up to the challenge. His spritely exposition is a fine read even as it makes us think and reflect.
—(Paul A. Volcker, Former Chairman of the Federal Reserve)
Interviews
Exclusive Author Essay
Gold: The Passionate Journey
by Peter L. Bernstein
Ask somebody today how they feel about gold, and the response is likely to be a yawn. In 1996, when a friend suggested that I should write a book about gold, I also reacted with a yawn. Why, I asked myself, should I spend my efforts on an asset so obsolete that even the Swiss National Bank and the Bank of England want to liquidate their holdings of it? But then I recalled it was not always thus, even in our own time. Quite the contrary.
When the gold panic climaxed in January 1980 at $850 an ounce, gold was so triumphant that the value of all the monetary gold in the world exceeded the value of all the stocks listed on the New York Stock Exchange. During the 15 years or so of economic darkness that led up to that crazy moment, politicians and central bankers appeared helpless before the onslaught of worldwide inflation, spurring more and more people to act on the old proverb, "We have gold because we cannot trust governments." Indeed, gold is unique as the only stateless money, for it is issued by no government. The cynical gold bugs were shouting that gold was the sole hedge against inflation, the gnomes of Zurich were relentlessly attacking the dollar, and President de Gaulle of France was exploiting gold -- "gold that never changes...that is eternally and universally accepted," as he put it -- to bring the United States of America to its knees before him.
That was my vivid memory about gold, and it was enough to convince me that this was a project worth pursuing. History as dramatic as this always contains valuable lessons for the present. As I pursued my research into the more distant past, however, I discovered that the story of gold was far bigger than the awful events of the recent past. Throughout history, people have become intoxicated, obsessed, haunted, humbled, and exalted over these gleaming but basically useless pieces of metal.
When the Greek poet Pindar in the 5th century B.C. 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. From Egyptian pharaohs with depraved tastes to the luxury-mad survivors of the Black Death, from the Chinese inventor of paper money to the pirates on the Spanish Main, and most especially the hard-nosed believers in the international gold standard like the inscrutable Montagu Norman of the Bank of England, gold was the supreme possession.
The history of gold is in fact the history of the world as seen through the prism of this strange stuff. Over some 5,000 years, gold has motivated entire societies, torn economies to shreds, and determined the fate of governments. Gold has stirred the passion for power and glory, for beauty and security, and even for immortality. It has been an icon for greed and an emblem for rectitude, as well as a vehicle for vanity and a badge of power that shaped the destiny of humanity through the ages. No other object has commanded so much veneration over so long a period of time. Even Jehovah, according to the Book of Genesis, instructed Moses to build a tabernacle of "pure gold" in his honor.
Something that powerful deserves a lot more than a yawn.
I began The Power of Gold with an anecdote recounted by the famous Victorian art critic, John Ruskin, who tells of a man who boarded a ship carrying his entire wealth in a large bag of gold coins. When a terrible storm comes up and the order goes out to abandon ship, this man grabs his gold, jumps overboard, and promptly sinks to the bottom of the ocean. Ruskin asks, "Had he the gold, or had the gold him?" The gold had the greedy fools who paid $850 for it in January 1980, all right, but that was just one example. The big theme that runs through this history is that gold, in almost every case, shows how not to lead your personal life and how not to manage a nation's financial affairs.
Along the way to that conclusion, we meet a wide variety of colorful, admirable, hateful, pathetic, and appealing characters, all driven by the passion for gold. Early in the story, we meet Midas, whose life was a lot more interesting than the familiar fable would have it, as well as Croesus, who was in reality as rich as the Croesus of legend but not as lucky with his golden wealth as he wanted to believe. The Roman speculator Crassus was murdered by having molten gold poured down his throat, and that is just one of the bloody episodes in this history. We encounter Byzantine emperors with absolute power but obsessed by hoarding gold, as well as humble miners with no choice but to exhaust their lives by extracting it from the earth. Radical innovations in the art of transportation -- including the camel -- carried the gold from far lands into Europe. Indeed, the great explorations of the 15th century, from Africa to Asia to the New World, were primarily inspired by the unquenchable thirst for gold. Francisco Pizarro, the conqueror of the Incas of Peru, exhibited a cruelty as extraordinary as his courage and leadership, but Spain failed in spectacular fashion to capitalize on the fabulous golden wealth that Pizarro and the other conquistadores shed so much Indian blood to acquire in America. Charlemagne and Charles de Gaulle both tried to make their mark in history by accumulating gold, although Charlemagne at least launched the beautiful art of illustrated manuscripts in Europe. Richard I (the Lionhearted) was ransomed from captivity in 1192 with the largest pile of gold ever accumulated up to that moment, but the other Richard in our story -- Richard Nixon -- was the man who had the courage in 1971 to cut the umbilical cord linking the U.S. dollar to the gold standard. Asian monarchs and Arab potentates shaped their policies in relation to their stocks of gold, while Isaac Newton and Winston Churchill both tried their best to understand it and place a value upon it. The great English economist David Ricardo revered gold; the equally great English economist John Maynard Keynes considered it a barbarous relic. The Forty-niners set an example of impatient greed that was later emulated by the speculators who pushed gold to $850 an ounce in 1980. The managers of the gold standard in the 1920s and 1930s led the world into a series of disasters that read like a horror movie you watch incredulously even though you know the finale. Can you believe that doubling interest rates and slashing government spending amid a sea of bank failures and astronomical levels of unemployment was the standard method for conducting monetary and fiscal policy in those days?
In the end, the story is a morality tale. I was motivated to look into this matter at the vary beginning by the recollection of how much I hated those goldbugs of the 1960s and 1970s -- including General de Gaulle. Their obsession with gold was the rejection of everything good that organized society stands for and is capable of accomplishing. The Golden Calf that Moses found his people worshipping was the cause of the greatest temper tantrum in history, and rightly so. Anything that favors hoarding over sharing degrades morality and concern for others. The pursuit of eternity will not be satisfied by gold, or by anything else we choose to replace gold -- and that includes the stock market. Gold (or its proxies) as an end in itself is meaningless. Hoarding does not create wealth. Gold makes sense only as a means to an end: to beautify, to adorn, to exchange for what we want and need.