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

  All of this was wonderful in its own way, as long as it lasted, but no hegemony in history has lasted forever. After Constantinople fell to the Crusaders in 1204, the bezant began to lose its purity to debasement and, as a result, its wide acceptability. Fifty years later, the rising Italian trading powers of Florence, Genoa, and Venice began issuing gold coins that gained as much repute in their own time as the bezant had enjoyed in its heyday. Indeed, by the middle of the fourteenth century, citizens of Byzantium were paying their taxes in Venetian gold ducats. Constantine IX, the unfortunate man who was reigning when Constantinople finally fell to the Turks in 1453, was the only emperor who appears never to have issued any coins at all. There is a saying that "The empire disappeared when it had spent its last sou."22

  Lopez's article on the dollar of the Middle Ages raises an interesting question about the true nature of the Byzantine society, with its singleminded focus on garish displays of gold and its vaunted bezant: "Were the advantages of a stable and valuable currency worth the sacrifices that were made to keep it stable?"" In other words, what did the Byzantines gain in the end by pushing so hard to stimulate exports of their own goods and restrain imports of foreign goods? Just more gold. Yes, the gold did give their currency value and acceptability in other nations. But what does it avail a nation to accumulate gold if the gold is never spent? King Midas could provide the answer to that question. In the end, the citizens of any nation have to eat, clothe themselves, transport themselves, and enjoy the good things in life.

  Although Lopez was looking at events of one thousand years ago, the same question has been confronted repeatedly throughout history, especially over the last two hundred years of capitalist development. In later chapters, we shall see that the issue shook Spain after the Conquistadores started shipping gold back from Mexico and Peru, and it consumed Britain at the end of the seventeenth century and again in the course of the Napoleonic Wars when the great economist David Ricardo was deeply engaged in the debate. The issue was at the heart of the controversy between Andrew Jackson and the Bank of the United States, in the valiant but losing battle of William Jennings Bryan against "crucifying American labor on a cross of gold," in the frightful struggles to restore a functioning currency system after World War I and in the course of the Great Depression, in General de Gaulle's fanatic attack on the U.S. dollar in the 1960s, and in the virtual deification of Alan Greenspan in the 1990s.

  Lopez admits that the Byzantines probably enjoyed a higher standard of living than the Europeans or the Arabs until at least around 1200, although he also suggests that the Byzantines were not necessarily winners when measured in terns of progress and growth. They appeared to have stalled at a relatively high level while other areas gained on them. Although economic progress was uneven in Western Europe and in the Arab countries, their weaker and debased currencies and their accompanying moderate inflations were generally positive influences. For example, the initial stages of the inflation of the dinar commenced while the splendor of Iraq was at a peak.24 In addition, debasement of the coinage and inflation in both Europe and the Near East led to the rapid development of money-lending and banking, especially in Italy, which greatly facilitated economic growth in both areas. Inflation frequently takes the form of a gradually rising price level rather than a runaway explosion of economic chaos.

  This process tends to uproot conservatives, make change imperative, and reward the daring. Indeed, Lopez points out, "The only Western country that resisted stubbornly and successfully the inflationary trend was England, at that period an economically retarded nation."25 The British image of themselves as the keeper of the flame in monetary integrity persisted for hundreds of years, and not always with beneficial outcomes. Financial rectitude, though much admired, has never been a sure road to prosperity. After the surge in paper money and bank deposits produced by the enormous financing requirements of the Napoleonic conflict and World War I forced Britain to suspend convertibility of sterling into gold, the obsession with "superior-quality money" drove the British back to gold at the earliest possible moment. In both cases, drastic deflations followed, with serious social disturbances.

  The decision to go back on gold in 1925, in particular, led to a sequence of decisions that smothered the economy until the policy was finally reversed six years later. The contemporary pain and suffering was bad enough, but Britain was never again able to establish the superiority of sterling that had been such a source of prosperity and pride over the centuries. In more recent times, however, when England opted out of the European Monetary Union in 1992 and left the pound free to depreciate in value, exports improved immediately and economic growth jumped ahead while England's former and more correct partners on the Continent languished in economic stagnation.

  Lopez hypothesizes that the deeper reasons for the contrasts he cites may have developed from significant differences in national structure. "England and the Byzantine empire were centralized monarchies with powerful landed aristocracies," he writes, "whereas merchants and other businessmen were at the helm in the Italian communes, and bankers and ... businessmen were influential in the ... Caliphate when inflation began." Kings associate the purity of their coinage with their own dignity, he declares; surely this was the case with the emperors reigning in Constantinople. Merchants, in contrast, have greater flexibility in the scope of their decisions, are more loosely attached to the past, and face an inescapable necessity to seek opportunity wherever it may lie.

  Lopez's explanation is appealing, but too many exceptions make it a dubious rule. An obsession with sound money has not been unique to centralized monarchies, nor have inflationary policies been limited to business-dominated societies. Henry VIII was one of the great currency debasers of all time, along with the Roman emperors, but he was also a highly successful king. One of the worst inflations in history occurred in the early 1920s, immediately after the Germans had overthrown the kaiser. But sound money was a goal that motivated the English long after Parliament had taken power away from the monarchy, sound money was a paramount consideration to Alexander Hamilton at the birth of American democracy, and sound money has been the driving force of economic policy in the German and Swiss republics since World War II.

  Whatever the reason, the Byzantine Empire, with all its power and wealth, lacked the dynamic to sustain itself in the face of Europe's vigorous recovery from the barbarian invasions. Perhaps success simply made the Byzantines less lean and mean than the Europeans, who were still finding their way back from the ruins of the Roman Empire.

  But the threats to Byzantine power did not come only from the west. We have already noted the impact on Byzantium of the Muslim Arabs who erupted in the seventh and eighth centuries and set out to conquer the planet in the name of Islam. The Arabs deserve a closer look: the entire world as it then existed, from the Atlantic to the Pacific, would feel the reverberations of this mighty effort to spread the Word and to grow rich from trade at the same time. As it had for the Byzantines, gold played a central role in the enterprise.

  he rulers of the Arab domains may have been deeply religious, but they still took the Byzantine emperors as their role models when it came to the good things in life. One has only to read A Thousand and One Nights to capture the flavor of this society. Despite Mohammed's admonition that "He who drinks from gold or silver drinks the fire of Hell," the Caliphs had an immense appetite for gold and the romantic and bizarre types of display that gold could provide.' At the wedding of the son of Harun al-Rashid, who was the protagonist of the Arabian nights, the groom's father-in-law threw gold balls around for the pleasure and possession of the wedding guests. He bestowed five thousand gold pieces on a poet and paid four hundred thousand pieces for a robe of honor for a courtier.' Golden trees and singing golden birds in the palace at Baghdad were the inspiration for Theophilus's extravagant throne in Constantinople. One king's sister left 2.7 million dinars and twelve thousand robes woven in gold thread and jewelry. Cairo in the eleventh century had thousan
ds of shops selling gold, jewelry, and luxurious textiles.'

  The Arabs had no difficulty accumulating a massive golden treasure. Their creativity at the task was impressive. They ravaged their defeated enemies, outsmarted their competitors at trade, and opened up a major source of gold that had contributed a mere trickle over the centuries before their efforts came into play.

  The piles of gold collected as the prize of warfare were enormous. The booty came from Persia, Syria, Egypt, Palestine, the great westward sweep across North Africa, Spain, and from as far away as Poitiers in France before the Arab armies were finally halted there by Charles Martel in 732. The Arab invaders of Egypt in particular amassed a huge heap of treasure from ravaging the agglomeration of gold that had lain for thousands of years in the tombs of the pharaohs. They also reopened old gold mines in Egypt, Nubia, and Ethiopia while they carried out exhaustive searches for new alluvial supplies in the mountain streams of those areas.4

  The economic consequences of these conquests were profound. It was not just the booty and the reopened mines. The Arabs soon succeeded in eating deeply into the heart of Byzantine economic power by setting themselves up as traders of extraordinary acumen and persistence. In time, they dominated the major commercial contacts that had served the Byzantines so well for so long, throughout all of the Byzantine sphere of influence, even as they built new commercial relationships all along the southern Mediterranean. The Arab ships plied the seas down the east coast of Africa and across the oceans to India and China in search of profit. They even traveled northward, through the river highways of Russia, to the Scandinavian countries, trading merchandise acquired from across the seas for furs, amber, honey, and slaves.

  Trade requires money. Money conveys power. Gold serves more purposes than conspicuous consumption. Less than fifty years after the death of Mohammed, the Arabs emulated the great rulers of the past with the debut of their own gold coinage-the dinar-issued by the Caliph Abd el-Melik at Damascus. These coins, 97 percent pure gold and minted in great quantity, gradually displaced the bezant as the major international currency, circulating throughout the Arab domains and everywhere in Christian Europe as well.

  The first dinars were imitations of the Byzantine coins, which gave them immediate acceptance: people are always hesitant to accept money that looks funny, regardless of whatever other attributes it may have. As we have seen, however, the portraits and religious figures of the bezants were replaced by quotations from the Koran.'

  The appetite of the Arabs for gold was so voracious that by the ninth century even the fruits of conquest, even the revitalization of the East African sources, and even the gains from trade were insufficient to meet their needs. There never seemed to be enough gold for the elaborate forms of luxury that the Arabs devised or to maintain the hectic pace of the mints that poured out the dinars in such volume.

  Luck was with the Arabs. As a result of their conquest and settlement of the northern coast of Africa, they made contact with a source of gold that had fed the fortunes of Carthage more than one thousand years earlier. The Arabs never actually possessed the West African gold mines, but their genius for trade did the job for them. For several hundred years, they enjoyed a virtual buyers' monopoly over the gold that lay hidden far to the south, below the farthest reaches of the Sahara, in an area of approximately six hundred square miles, with its southern border defined by the east-west coastline that stretches from the Ivory Coast to Nigeria. This area has also been known as the Gold Coast, although the wealth it gained later from exporting slaves may have exceeded the gold that thousands of camels had hauled so faithfully over the vast Sahara for so many years.

  Although the Romans and the Byzantines had both held sway on the Mediterranean coast of Africa at one time or another, their primary purpose in occupying the area was military. They hugged the coast and its seaports, ignoring the riches that lay to the south across great unmapped wastes of pure desert. The Arabs, however, meant business when they occupied North Africa. They set up trading posts such as Tunis on the sea; they also opened up centers such as Fez and Marrakesh at significant distances inland.6 Ultimately, their traders would appear in the heart of the Sahara itself.

  Sijilmesa, where the road to Morocco crossed the main north-south route to the gold country, was the place where all the caravans met. It was described by one Arab trader as "the gateway to the Sahara.... One of the greatest cities of North Africa and the most famous of the whole universe ... whither traders take goods of no value and return with their camels laden with coarse gold."' The city grew rich simply by taxing the huge volume of traffic that passed across its borders. Deeper into the interior were towns with exotic names, for example, Taghaza, Taodeni, and Gadames, and, most famous, the major commercial center of Timbuktu. Timbuktu was located well over one thousand miles south of the Straits of Gibraltar, on the banks of the Niger River, which, together with the Senegal to the east, enclosed much of the gold mining area.

  The great abundance of West African gold had been known to people around the Mediterranean for centuries. Around 500 BC, Herodotus himself provided a lively description of the territory, which subsequent visitors over the years never failed to confirm. Reaching the gold supplies across the great unmarked and and wastes of the desert involved a risky, complicated, and lengthy voyage, in which navigation by the stars was every bit as essential as for ships at sea. E. W. Bovill, the most authoritative contemporary historian of the Sahara, has observed that "Outside the polar regions there are few parts of the world less encouraging to human occupation."s Nevertheless, Herodotus provides sufficient information to tell us that active communication between the coasts and the interior Sahara existed even in his day. Ancient rock drawings reveal that the bullock was the primary means of transportation.

  The camel first appeared in the Sahara some time around AD 100, perhaps introduced by the Roman legions involved in military campaigns that demanded speed. The camels probably came from Egypt, where the Persians had brought them about five hundred years earlier. This remarkable innovation in the art of transportation-equivalent in some ways to the introduction of the automobile or even the airplane in modern times-greatly shortened the time spent moving between watering points, thereby permitting a much wider range of travel. Bullocks can come close to matching camels in their ability to do without water-a maximum of about ten days-but most camels can carry two to three times as much load as a bullock. Furthermore, the best camels can cover twice as much mileage in a day as the typical bullock, which is no minor consideration when the time needed to reach the next watering hole is the difference between life and death.' The innovation of the camel was remarkable in another sense. The introduction of the camel, according to one authority, "contradicts the most basic Western metaphor of technological progress: here the wheel-present in North Africa and the Sahara from Phoenician times-had to be `disinvented' to make possible the linking of the Sudan and the Mediterranean."10

  The impact of the camel on the potential volume of trade was revolutionary. As Bovill describes this development,

  [The introduction of the camel] marked the dawn of a new era for the northern half of the continent.... The camel gave man freedom of movement he had never known before and brought within his reach the remotest pastures. The caravan routes lost half their terrors and new roads were opened for the flow of trade and culture."

  The landscape that led to the gold fields was not the only feature of the region that people from Europe and the Near East would find strange. Herodotus cites the Carthaginians as the source for the following story. The Carthaginians described to him a place on the west coast where they would neatly arrange the merchandise they wanted to trade, return to their ships, and "raise a great smoke." At that point, the natives would come down to the shore carrying gold, would leave as much gold as they believed the Carth4ginian merchandise was worth, and then would withdraw from the scene. The Carthaginians, in turn, would come ashore and look the situation over. If they were satisfied
, they would take the gold and sail away; if not, they would return to their ships and wait patiently. The process would continue until both sides were satisfied-but they would never see each other face-to-face or exchange a word. This "dumb barter" was characteristic of how business was transacted throughout much of the gold-bearing areas. It continues to exist in some parts of Africa to this day.

  We can only speculate on why dumb barter as a method of doing business should have persisted for so long. Perhaps the natives insisted on these arrangements in order to protect themselves from traders tempted to capture them as slaves. Traders sufficiently eager to acquire what the Africans had to offer had no choice but to choose this curious arrangement.

  Around 750, ravenous at the thought of all that gold down south, the Arabs launched an expedition from Morocco to conquer the goldbearing territories. This was one occasion when matters turned out badly for the Arabs. They failed completely in their objective, suffered serious casualties, and even failed to discover where the gold was coming from. Thereafter, they obtained their gold by means of trade instead of conquest.i2

  Although the Arab and European traders in the Middle Ages occasionally offered the Africans merchandise or even the silver and copper coins that the Africans considered better money than gold, salt was the product most desperately in demand. Humans can never do without salt, but the people in the territories that produced the gold must have had an unusually intense and insatiable need for it. They were so unfortunate as to live in one of the few spots in the world where the nearest sources of salt were far distant in a land where nobody could travel faster than ten miles a day.