This chapter is from the book
This chapter is from the book
This chapter is from the book
Barbarous Relic
Gold—chemical symbol Au and atomic number 79—is a dense, malleable, and highly ductile lustrous metal that does not rust in air or water, making it useful in dentistry and electronics. Gold has qualities desirable in money—it is rare, durable, divisible, fungible (each unit is exactly identical and equivalent to other units of gold), easy to identify, and easily transported and possesses a high value-to-weight ratio. The gold standard was the basis of money for substantially all of human economic history.
Gold bullion is stored in ultra secure vaults, such as Fort Knox and the Bank of England. The gold is in 400 troy ounce bars—each bar weighs about 28 pounds (11 kilograms). At a price of $1,200/ounce, each bar is worth around $480,000. The bars have an assay mark recording the quantity and quality of the gold and the mint at which it was produced.
The bullion is stored in sealed lockers. At an appointed time, burly men dressed in drab gray uniforms move bars of gold from one numbered locker to another, settling purchases and sales. This movement of gold bullion over a short distance once signaled major changes in the fortunes and wealth of countries and kings.
In all human history, only about 161,000 tons of gold have been extracted, equivalent to about two Olympic standard swimming pools. Gold’s monetary role confers extraordinary riches on those who control it and was once the key to wealth and economic dominance.
In the 1890s, the issue of gold became central to the U.S. presidential campaign of William Jennings Bryan. Southern farmers in the United States borrowed from north-eastern bankers to finance their farms, equipment, and crops. The debt had to be repaid in gold. As gold prices rose and the price of farm produce fell, the farmers’ earnings fell, and their debt repayments grew, fueling resentment. The farmers wanted more money in circulation and advocated silver as well as gold currency—known as bimetallism.
At the 1896 Democratic Convention, Bryan spoke passionately: “You shall not press down upon the brow of labor this crown of thorns. You shall not crucify mankind upon a cross of gold.”9 Bryan was defeated in the 1896 and 1900 election by William McKinley and the United States adopted the gold standard in 1900.
The bimetallism debate spawned Frank Baum’s satire on the currency debate, the Wizard of Oz (actually the Wizard of Ounce—of gold). Dorothy, the Kansas farm girl, represented rural America. The Scarecrow, Tinman, and cowardly Lion represented farmers, factory workers, and Bryan respectively. Dorothy and her companions’ journey down the golden road is the 1894 Coxey march of unemployed men (named after its leader Jacob Coxey) to secure another public issue of $500 million of paper money and to obtain employment. Baum’s plot has Dorothy and her companions exposing the fraud of evil wizards and witches, representing bankers and politicians, and establishing a new monetary order based on gold and silver. Dorothy returns to Kansas City courtesy of her magic silver slippers. In the film, Dorothy’s slippers are red rather than silver, a concession to Hollywood cinematography.10
In Ian Fleming’s 1959 novel Goldfinger, James Bond, Agent 007, is sent to investigate Auric Goldfinger, the mysterious Swiss financier who is smuggling gold. Goldfinger’s plot is to boost the value of his gold through an audacious attack on the Fort Knox gold depositary. Goldfinger plans to contaminate the gold by exploding a nuclear device—a dirty bomb. Goldfinger’s own stock of uncontaminated gold would increase in value astronomically. Bond discerns the plot through dazzling mental arithmetic—Fort Knox’s $15 billion dollars of gold equated to more than 400 million ounces, which would weigh over 12,000 tons, making it difficult to carry off.
Thirst for gold fueled war and conquest. The Spanish, who followed Columbus, took approximately half a century to strip the major treasures of gold and silver accumulated by the indigenous people of South and Central America. In the process, the Spanish enslaved and virtually wiped out the native population until they literally ran out of things to loot. Today, armed groups fight for control of gold mines in the Democratic Republic of Congo to purchase weapons and finance wars. As the more easily accessible rich deposits of gold have been exhausted, mining gold in more remote, inhospitable, and fragile environments leads to irreversible damage.
Gold’s mythological power has fueled the imagination of mankind for much of its history. Financial historian Peter Bernstein wrote: “Gold has...this kind of magic. But it’s never been clear if we have gold—or gold has us.”11
In India, gold is the ultimate store of wealth that can be pawned or used as security to raise money quickly. A child’s baptism or eating of its first solid food, usually rice, requires offerings of gold. Marriage traditions require a dowry of treasure—heavy necklaces, ornate bangles, dangling earrings, jewel-encrusted rings, delicate headpieces, and saris woven with gold thread. For Indian women, gold may be the only real property they own—their only nest egg.
Although few believe in its once assumed magical properties, the attachment to gold has persisted into the twenty-first century. In Goldfinger, Colonel Smithers explained the monetary role of gold: “Gold and currencies backed by gold are the foundation of international credit.... We can only tell what the true strength of the pound is...by knowing the amount of [gold] we have behind our currency.”12 As the global financial crisis consumed the world in 2007 and 2008, individuals purchased 150 tons of gold in the form of coins. Investors poured money into special funds that bought up 1,000 tons of gold. Gold prices increased from around $800 per troy ounce in December 2007 to more than $1,400 per ounce by early 2011.
Harry “Rabbit” Angstrom, the central character in John Updike’s 1970s novels about American suburban life, spent $11,000 on the purchase of 30 gold krugerrands (a South African minted gold coin). Rabbit explained the purchase to his wife: “The beauty of gold is, it loves bad news.”13 John Maynard Keynes famously described gold as “a barbarous relic.”