June 4, 2015 by ethelfritha


A few years ago, an old friend of my father’s died. Lynn was the sort of eccentric old bachelor who would not have been out of place in a turn-of-the-century childrens’ novel. He invented goofy toys and distributed them to the kids in his neighborhood. In his youth, he had played the piano for silent movies. He and my dad had met at Cessna, where they were both engineers. Lynn introduced my parents to each other, and when I was born he was the one who stayed with my older brother. He spent holidays with us and never forgot our birthdays. One Christmas he got me a fish named Elmer. For my eighth birthday, he gave me stock. Like, in a company. Once he gave me $500 stuffed in a brown paper bag. Honorary eccentric bachelor uncles FTW.

Lynn didn’t have any relatives in the area, so my dad was the executor of his estate. And what an estate it was. Like many people who came of age in the depression, Lynn didn’t put a lot of faith in banks. Instead, he had squirreled away piles of cash in strategic places around his house. And by “cash” I don’t just mean stacks of hundred dollar bills. One night my dad called me down to the basement, where he was going through some of Lynn’s stuff. He handed me a cloth drawstring bag, let me hold it for a minute, and then took it back. “What was that?” I asked. “Oh,” he said, “I just wanted you to see what it was like to hold a bag full of gold.”

Fun fact: gold is one of only three elements that isn’t gray or black. (The others are copper and cesium, if you’re curious.) It is malleable, light, and relatively rare. It can be made into beautiful things. Whatever its integral qualities, the fact remains that gold has been the standard of riches for countless societies and has been absolutely formative to the development of the Western world. Egyptians used it to inspire reverence and awe for their gods and pharaohs. The Hebrews–coming out of Egypt–had so much gold with them that they were able to build a large golden idol. And then came ol’ Croesus.

Croesus, with his access to the gold deposits of the river Pactolus, has the honor of being the first person in history to establish and official gold and silver currency, complete with stamped coins. From here, Bernstein traces the long and complex history of gold in the Western world, from the coins of Croesus to the Roman-run gold mines in Nubia and elsewhere; from the massive Byzantine bezants to the Arabs’ monopoly on the Gold Coast and the caravans of the Sahara; from the plundering of the Incan empire and Spain’s subsequent economic tailspin to the intricacies of the Bank of England’s gold reserves; from the gold bonanzas in the Western US and the eventual deviation from the gold standard throughout Europe in the US, all the way through the social conditions that led Lynn Martin to hoard gold pieces in the walls of his house.

This book is extremely engaging right up until the moment that it’s not. The problem is that at the beginning of the eighteenth century, currency got a LOT more complicated, and it’s all Isaac Newton’s fault. As the head of the British mint, Newton wrote a brilliant and influential treatise on the subject that, as Bernstein says, “inaugurated a tradition that will haunt future chapters of this history: economic forecasts by policymakers that turn out to be wrong.” From this moment on, the ins and outs of Europe’s economies became more and more tangled and difficult to follow.

Sir Isaac Newton has made me feel my own idiocy ever since I had to get up in front of the class demonstrate the proof of Kepler's second law.

What a jerk.

Sir Isaac Newton: still making me feel stupid seven full years after demonstrating the proof of Kepler’s second law for Mr. Berquist’s physics lab.


2 thoughts on “Benstein, Peter L. THE POWER OF GOLD: THE HISTORY OF AN OBSESSION

  1. mom2many48 says:

    Random click on your site tonight, made me smile 😊 Thank you!!

  2. Lady Sierra Buckley says:

    Coinage is a self-monitoring medium of exchange, where the only possible means of debasement is to shave the edges, or to have a coin in circulation so long that it becomes worn and lighter.

    The problem with coins is their weight. Large transactions required oxen to deliver the coins. Hence, the issuance of paper money by governments. The paper, though usually of highest quality and having elegant printing to discourage counterfeiters, had no intrinsic value.

    But the paper money (including US one dollar bills) sometimes included a statement that the bill could be exchanged at a bank for an equal value of silver. I really wish I’d tried that before the exchange inscription on the dollar bill was removed (after the US went off the gold standard in 1971). Of course, there were silver dollars then, so it would be an easy exchange to do, since I didn’t have many dollar bills back then.

    One problem with the gold standard is that all available transactions are officially backed up by gold. In the decades immediately following WWII, the US was buying cheap goods from countries all over the world, and they accumulated $Billions in US dollars. Some demanded, and got, gold in exchange. But the outstanding dollars exceeded the US gold reserves, which is why Nixon chose to take the US off the gold standard. There were other alternatives for solving the international balance of payments issue, but the decision was made against the gold standard.

    As an aside, I pose a question — if a country believes that its total economy’s value has to be backed up by gold, and the gold is valued fairly, how does the country acquire gold at a rate sufficient to support a continually growing standard of living? It seems impossible, since a government must expend resources equal to the value of the gold in order to acquire it — thus, no net gain in the government’s net store of value. Possible answer — by finding gold and other valuable resources on the cheap through colonialism. Maybe the book gave a better answer. In any case, the world ran out of colonies in the second half of the last century; and whether an effect or a coincidence, the world then went off the gold standard.

    Anyway, Mr. Martin was wise, indeed. The gold he bought for $35 an ounce is now valued at almost $1200 per ounce, a gain of 3400%, or about 8.4% per year, with no investment risk, whatsoever.

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