The Power of Gold: The History of an Obsession Read online

  Most of the reliable history about this area of Asia Minor, as opposed to blends of fact and fiction, comes down to us from Herodotus, the Greek historian who lived around 500 BC. Herodotus's Histories comprised the first extended narrative in prose in Western civilization and set a tough act for later historians to follow. He emerges from these accounts as consistently perceptive, wise, and entertaining, with a sharp eye for gossip as well as the foibles of the characters whose chronicles he chose to record.

  Herodotus's history begins in about 700 BC in Lydia, an area to the northwest of Phrygia; Lydia occupied most of the center of Asia Minor from the Aegean Sea inland approximately two hundred miles.' Sardis, the capital city, had the good fortune of sitting on great supplies of alluvial gold, most of which streamed down from the mountains into the Pactolus River-thanks presumably to Midas. Lydia also mined a metal called electrum, often referred to as "white gold," which was about twothirds gold and one-third silver. The word derives from the ancient Greek word H) icicop (elector), which means "he who shines" (the Greek word for sun is Helio, as in heliotrope) and is the root from which we derive the modern word electric. With all that wealth bestowed upon them, the Lydians frequently engaged in wild orgiastic dances in honor of Cybele, the goddess of the mountains and guardian of ores and metals.'

  According to Herodotus, the kings of Lydia traced their ancestry from Hercules and had ruled for 22 generations, or 550 years, at which time their king was named Candaules. Candaules was madly in love with his beautiful wife. He was also a show-off. One day he hid with his favorite bodyguard Gyges to give Gyges the opportunity of observing the lady undress and display her lovely body. Unknown to the two men, the queen noticed what had happened. She called Gyges to her the next day and told him that either the man who had planned this violation must die or the man who had illegally seen her nakedness must perish. She let Gyges choose between making the event legal by killing his king and then marrying her and leading the kingdom, or being killed immediately by her instead. That choice is what is known today as a no-brainer.s And so began the dynasty known by the tongue-twisting title of Mermnadae.

  Although the Lydians were outraged at the murder of their king, Gyges persuaded them to wait to hear what the oracle at Delphi had to say on the matter. The oracle declared in favor of Gyges, perhaps not coincidentally because of the generous gifts of gold and silver that he subsequently lavished upon her, including six golden bowls that weighed about eighteen hundred pounds (over $6 million at today's prices). Nevertheless, the oracle also predicted that Gyges's dynasty would perish in the fifth generation, when Candaules's descendants would finally claim their revenge on the Mermnadae. Gyges and the Lydians took little notice of her prophecy-at that moment.

  The first three descendants of Gyges-Ardys, Sadyattes, and Alyattes-ruled for a total of 118 years, of which 57 were accounted for by Alyattes alone.* These three kings of Lydia spent most of their time making war on their southern and western neighbors in an effort to extend their domain to all of western Asia Minor out to the Ionian coast of the Aegean, although Ardys (660-637 BC), like Midas, had his hands full holding off the invading Cimmerians. Unlike most empire-builders through history, however, the Mermnadae refrained for the most part from destroying the homes and holy places of the defeated peoples, who were also left to enjoy loyal autonomy. The Lydian kings simply wanted monetary tribute and assured supplies of food and other materials, reasoning that they would be better off with a peaceful empire than one filled with people eager to take revenge against them.

  Croesus, son of Alyattes and the great-great grandson of Gyges, ascended the throne in 568 Bc at the age of 35.9 This Croesus was the man who most people wished they were as rich as, which was a good thing, but he was also the fifth generation of the Mermnadae, which was an unfortunate thing. Regardless of the double-talk usually offered by the oracle at Delphi, the prediction the oracle gave to Gyges about the fifth generation being the last would turn out to be correct. Nevertheless, during his reign, Croesus completed most of the conquests that his predecessors had begun. He succeeded in occupying nearly all of western Turkey, including Phrygia, and even made an alliance with the Spartans on the Peleponnesus."'

  Herodotus tells some entertaining stories about Croesus. The most revealing involved a visit by Solon, who had just written a code of laws for the Athenians, who promised to obey them for ten years. Solon took those ten years off to go sightseeing. When he arrived at Sardis, Croesus was impatient to show him the treasury with its immense wealth in gold. Then he turned to Solon, asking whether Solon had so far seen anybody, in all his far-flung travels, whom he considered to be "more fortunate than all men." Solon mentioned a great war hero of Athens and a couple of prizewinning athletes and their devoted mother. Dumbfounded, Croesus exclaimed, "As far as you are concerned, our prosperity amounts to nothing, and you do not even consider us on a par with private citizens!"

  Solon agreed. "When you ask me about human affairs," he replied, you ask someone who knows how jealous and provocative god is.... My dear Croesus, humans are the creatures of pure chance." He admitted that rich men can gratify their desires and have the resources to absorb misfortune, but he then pointed out that the lucky man does not have to concern himself with misfortune: "He suffers no bodily harm, he doesn't get sick ... he has good children, and he is handsome.""

  Herodotus tells us that the Lydians "are the first people we know of to mint and use gold coins and silver coins, and they were the first retail tradesmen."12 Sardis had a marketplace with a cluster of small shops offering a wide variety of goods ranging from meat and grain to jewelry and musical instruments. Herodotus had a word for this: i(Wt11Xot (kapeloi), which translated literally means "merchant" or "seller"; in Greek slang, it means "man with a big hat" and could be read in more modern terms as "huckster."* The Lydians were so busy converting almost everything into salable merchandise that, as Herodotus reports, "Except for prostituting their female children, the Lydians observe the same customs as the Greeks." 3 As the women accumulated coinage, however, they created their own dowries and as a result had unusual freedom in choosing their husbands.

  These Lydian innovations in the development of money and trade were no coincidence. In addition to its location on the banks of the Pactolus, streaming with alluvial gold, the Lydian capital of Sardis sat astride the great east-west highway that linked the Aegean Sea to the Euphrates and more distant Asia, a span of nearly seventeen hundred miles.14 Trade and commercial activities were a natural development, and they brought with them the need for weights and measures and, most important of all, money in a convenient form for doing business. Money, in turn, created a demand for goldsmiths, money changers, and ultimately bankers. Sardis grew into a major urban center filled with wealthy families living in the highest luxury.

  One ingenious Lydian innovation was the use of a local black stone, similar to jasper, for testing the purity of the lumps of gold received in payment for commercial transactions. This stone came to be known as the touchstone, because goldsmiths rubbed gold objects against it and then compared the mark against a set of 24 needles containing varying proportions of gold and silver, gold and copper, and all three metals. The 24th needle was pure gold, just as 24 carats measure pure gold.* All of this contributed to the development of a well-functioning coinage system, but we cannot appreciate what the Lydians accomplished and what Croesus in particular achieved without a brief step backward about 150'.years.

  At the beginning of the seventh century BC, Lydian money consisted of bean-shaped lumps of electrum, called dumps. These dumps were too heavy for easy exchanges, as they had no uniformity in size or weight and bore no stamp to indicate their value.15

  Gyges, the first of the Mermnadae, made a revolutionary reform in Lydia when he suppressed private issuance of metallic money (primarily electrum) and established a state monopoly over the issuance of dumps. The official monopoly of the state over the creation of money has persisted throughout history. Article
I, Section 8 of the Constitution of the United States, for example, declares that "The Congress shall have power to coin money, regulate the value thereof, and of foreign coin." These concepts dominated the control of money supplies-note the U.S. reference to "coin"-as long as money was hard, but they began to diminish in importance as we progressed to modern times.i6 The development of negotiable credit instruments during the late Middle Ages and the increasing use of commercial bank liabilities as moneythe modern checking account-bypassed the state's monopoly over the creation of money and diluted the importance of gold as a means of payment for daily transactions. The role assigned to gold gradually changed into a kind of governor of the monetary system, a backing that was intended to set linuts on the issuance of all other forms of money.

  When Ardys succeeded Gyges on the throne in 660 BC, he too was interested in creating a more efficient monetary system. He began stamping the electruin ingots with marks to guarantee their weight and value, providing different ingots for different folks: Lydia had one set, the Babylonian towns to the east had a different set, and the Ionian coast towns to the west still another." In time, however, the dumps became more uniform in size, and less than fifty years passed before the lumps and dumps became recognizable coins: round, uniform, and clearly stamped. A lion's head-the logo for the dynasty launched by Gyges-appeared on every one of them. The innovation spread rapidly in a western direction toward Greece, where coinage soon became an integral part of a system of rapidly developing trade all around the Mediterranean basin. If the Lydians were the first people to invent and use coins, the Greeks were the first to make coinage an art form; for the Greeks, beauty was an aim in designing money as much as it was in virtually everything else they touched.

  The story is probably only a rough approximation of what actually happened, for nothing that took place that long ago is ever beyond controversy. Some modern experts had believed that full-fledged Lydian coinage originated before 700 BC, perhaps fifty years earlier than that, even though Herodotus had set 687 BC as his estimate of the date. But in 1951, a group of archeologists working in the great Ionian city of Ephesus came upon a huge hoard of Lydian money buried under the ruins of the temple of Artemis, which had been built about 600 BC. Over three thousand items came into view, including unstamped dumps, stamped dumps, and a mass of coins with the lion's head struck upon them, in addition to a substantial pile of jewelry and statuettes fashioned of gold and silver. Careful examination confirmed that the first true coins dated from around 635 BC, which in turn confirmed that Herodotus was right in the first place and should not have been doubted.', This dating would place the beginning of coinage around the end of the reign of Ardys, the son of Gyges, or at the beginning of the reign of his son, Sadyattes.

  Croesus played the climactic role in this process. Although we shall see that he turned out to be a disaster as a military strategist, thereby fulfilling the oracle's prophecy about the fifth member of the Mermnadae, he was a master innovator when it came to monetary affairs and in his appreciation of the economic and political power packed into the precious metals. He was not kidding with Solon: he was convinced that money and happiness were inseparable.

  Croesus's father Alyattes had been the first of the line to issue gold coins, which developed into a lucrative source of exports for Lydia and paid for much of their imports; the Lydian standard of living thereby enjoyed the advantages of trading something useless for something useful. Recognizing the value of these gold coins to his country's prosperity, Croesus called in all the outstanding electrum coins, melted them down, and minted new coins in the new style of pure silver and gold. In 1964, modern archeologists succeeded in uncovering the fire-resistant pots where Croesus's men extracted the impurities from the gold and silver from electrum by heating the metals with a mixture of lead and salt-a method that has not been found in excavations elsewhere.19

  The coins of Croesus were stamped on one side with the foreparts of a lion and a bull, the arms of the city of Sardis. The opposite side had oblong and square punch marks, or depressions-the technical numismatic expression is that the coins were "incused"-to show their value. Most important, Croesus made the denominations and weights of his new coins conform as closely as possible to the weights and denominations of the old currency. The basic denomination, already familiar to everyone in that area of the world, was called the stater, which was subdivided into smaller denominations of thirds, sixths, and twelfths. The coins were minted with great care in order to maintain the uniformity of their size and weight.20 As a result, they were immediately acceptable throughout his kingdom. The division of the staters into twelfths carried forward to the development of the troy ounce, composed of 24 carats of pure gold, and reappears again in the English shilling, whichuntil the relatively recent conversion into the decimal system-consisted of twelve pennies.

  In the process of putting his reform into action, Croesus had launched the bimetallic currency system that would prevail in most countries over most of subsequent history. The silver coins were needed to serve as the denominations that were too small for the use of gold; most of the gold was used to finance foreign trade. Like the Egyptians, Croesus set the ratio, of gold to silver at 10:1 as a matter of convenience, although he made no legal ruling to that effect.2' This bimetallic system had its useful features, but, as we have seen, monetary systems based on two metals were seldom stable, because changing supplies of the two metals over time caused their relative values to fluctuate.

  Nevertheless, when his reform was complete, Croesus had established the first imperial currency in the history of the world. His beautiful coins of gold and silver were immediately accepted-indeed, demanded-throughout Asia Minor and were circulated in Greece on the western side of the Aegean as well. This universally accepted currency played a critically important role in adding to the entire area's prosperity and economic development: it stimulated trade both within the Lydian Empire and with the nations to the east, west, and south, which in turn encouraged the free interchange of people and ideas .21 Croesus's accomplishment was equivalent to the establishment of the euro in western Europe in our time. If that revolutionary step of creating a common currency for communities that had always had their own money can succeed, the euro will have achieved precisely what Croesus had consummated: increased trade within Europe and with the rest of the world, with populations more mobile, and enjoying a robust rate of economic growth.

  By the time he was done, Croesus had created a great innovation that has reverberated through history up to our own era. It was not just the establishment of a rational, systematic, and widely acceptable form of money, a step that was momentous in its own right. There were many other materials that he could have used as a base for his monetary system-copper, shells, or beads, for example. The focus on gold and silver, however, transformed those metals into the ultimate standards of wealth and money. In time, these attributes would prove to be more valuable than the reverence accorded them as objects of religious worship or as articles of beauty.

  Fifteen years into his reign, Croesus began to worry about the growing power of the Persians, whose king Cyrus had already led his troops into the eastern parts of Asia Minor along the shores of the Black Sea. Croesus was well aware of Cyrus's expectation to gain great economic power as well as valuable territory by subduing the Lydians.

  Croesus decided that he should take the offensive and cut down the Persian power before it became invincible. Under similar circumstances, most leaders throughout history have sat down with their generals and other advisors and mapped out a strategy to confront the approaching enemy. Not Croesus. Rational and ingenious when it came to money and gold, Croesus worked out his military strategy by consulting oracles; he sent messengers to the oracle in Delphi, to six other Greek oracles, and even to one in Libya. He tested the forecasting accuracy of the oracles by instructing each messenger to count one hundred days from their departure, visit the oracle, and ask the oracle what Croesus was doing on that day. He then
chose something to do that he was convinced no one would be able to guess: he chopped up a turtle and a lamb and boiled them together in a bronze pot.

  When all the messengers had returned with the responses of the various oracles, he was astonished that one of them had actually guessed right: the oracle in Delphi. Croesus had always been partial to that oracle, because it had legitimized the reign of his great-great grandfather Gyges. The Delphic oracle prophesied that Croesus would be eating "strong-shelled tortoise seething in bronze with the flesh of lambs."23

  Croesus lost no time in plying the oracle with gifts, including 117 ingots of pure gold, each weighing 150 pounds, to say nothing of a lion of pure gold that weighed six hundred pounds, plus a golden vat of 522 pounds that could hold five thousand gallons for mixing wine and water. He also ordered all Lydians to make a sacrifice for the oracle. The oracle, in return, conducted business with Croesus in thoroughly modern fashion. Croesus received "rights of first consultation without a fee, front-row seats at Pythian games and festivals, and the right, in perpetuity, for any Lydian who so desired to become a citizen of Delphi."24 That is a literal quote from Herodotus.

  The oracle also advised Croesus that if he made war on Cyrus, he would "destroy a great empire." Happy and confident, Croesus took off to do battle with the Persians, even though they outnumbered his forces. The first engagement was a fierce one but ended in a standoff. Croesus figured he had better withdraw to Sardis and wait until he could gather his allies before attacking Cyrus a second time. Cyrus, aware of Croesus's intentions, hurried toward Sardis, forcing Croesus to face him on the great plain that lies before the city. When Cyrus saw that Croesus had placed his powerful cavalry in the front ranks, he transferred his own horsemen to the camels usually employed in carrying food and equipment. Horses are afraid of camels and cannot stand the sight or the smell of them. The Lydian cavalry was thrown into confusion by the camel charge and the whole Lydian army had to retreat into the city, where they suffered a siege that lasted fourteen days before the Persians finally broke through and claimed victory. The Delphic oracle had got it right again: a mighty empire had been destroyed, but it was the empire of Croesus that fell, not the empire of the Persians.