Glory, Greed, And All That Glitters


The History of an Obsession

By Peter L. Bernstein

John Wiley & Sons -- 432pp -- $27.95

The markets are swooning. The Middle East is in turmoil. Oil prices are soaring. It's enough to send investors fleeing for safety. Not so long ago, that flight would have led straight to the huge stockpiles of gold sitting in central banks. Only 20 years back, with inflation running at 12%, the price of an ounce of the stuff rose to $850, about triple its current value.

That frenzy now seems almost quaint. The gold fever of the 1970s and early 1980s, in fact, marked the latest and likely the final chapter in a 3,000-year saga of human creativity, unfathomable greed, and blind faith in the glowing ore. As financial writer Peter L. Bernstein explains in his sweeping book, The Power of Gold: The History of an Obsession, it's a story that began in biblical times with King Midas, then ran through the Roman era, the black plague episodes of the Middle Ages, the Spanish conquest of the Americas, the California gold rush, and the catastrophies of World War I and the Great Depression.

In contrast with our era, in which money zips around the globe as electronic blips, the pursuit of gold has caused countless miseries dazzlingly recounted by Bernstein. The metal, he writes, has been a positive force, providing civilizations with a means to attach value to goods and services. But gold has also tarnished mankind's judgment, causing far more harm than good. Historical low points range from bloody wars waged in the name of gold to the massive unemployment wrought in the early 20th century by economists' and politicians' unquestioning obedience to the gold standard.

With the same lively writing and sharp focus that distinguished his previous work, Against The Gods: The Remarkable Story of Risk, Bernstein shows how gold emerged as the manifestation of mankind's longing for power, beauty, and immortality. This is world history on a grand scale, with gold appearing as a focal point at every major juncture. God instructed Moses to build a tabernacle of gold. It was molten gold that enemies poured down the throat of the fabulously rich Roman, Crassus, to punish him for his money madness. And gold became the foundation of modern currency and international trade right up until President Richard M. Nixon, in 1971, discarded the practice of pegging the U.S. dollar to the price of gold.

Bernstein delights in unearthing obscure nuggets. Who knew, for instance, that the Romans used Spanish slave labor in newly conquered Iberian territories to mine for gold, a pattern echoed some 1,500 years later when Spain ruled Latin America? Or that the Spanish "were able to mismanage one of the greatest windfalls of all time," squandering their cache of gold on European military adventures and conspicuous consumption? Failing to invest its gold to develop a productive economy, Spain became the pauper of European empires by the 17th century.

Indeed, gold threads its way through the history of money. Bernstein revels in the details of how gold has been weighed, calibrated, and minted into beautiful coins that became the international currencies of their time: the Byzantine empire's bezant, the Venetians' ducat, and the British guinea. Such coins paid for and kept the allegiance of mercenary armies. And when wars were lost, a stockpile of gold was the best way of ensuring a king's safety. In 1359, surrendering a third of France wasn't enough to free King Jean II, who had been taken prisoner during battle with the English. The country also had to fork over shiploads of gold coins, or ecus.

Not all societies, however, placed great value on gold. In the 8th century, the Arabs conquered North Africa and established a camel trade route through the scorching Sahara to Nubia to trade salt for gold. It was a good deal for the Arabs: an ounce of gold for an ounce of salt. But it was a better deal for the Nubians, who could only acquire the life-sustaining salt via this trade. Writes Bernstein: "What must those poor diggers have thought of the funny people from the north country who swapped inestimable salt for stuff whose only role on earth was to give men pride and pleasure by letting them see its luster?"

Bernstein also sheds new light on famous historical figures. Sir Isaac Newton, for instance, one of history's great scientists, spent his later life as England's Warden of the Mint in the early 18th century. Although his fascination with monetary values resulted in a famous treatise that later helped establish Britain's gold standard, Newton's career as an economist ended in disgrace because of his faulty forecasts.

The Power of Gold's breadth is both its major strength and its chief weakness. Inevitably, it moves expeditiously through a great many periods of history. Yet the last couple of chapters are given over to a dutiful rehash of familiar topics: the establishment of the post-World War II exchange-rate system pegged to gold, the inflationary period of the 1970s and 1980s, and the gold bugs of that period.

But these are minor quibbles. Bernstein's volume is a tour de force with a satisfying conclusion: The characters in this drama prove themselves "fools for gold, chasing an illusion," he says. "Perhaps the wisest heroeswere the simple natives of Jenne and Timbuktu, who silently swapped gold for the precious salt that would keep them alive." It's a thought worth remembering in both good times and bad.

Before it's here, it's on the Bloomberg Terminal.