The name of Croesus, the fabulously wealthy king of Lydia, in what is now western Turkey, lives on in the phrase ‘as rich as Croesus’ largely because of the Greek writer Herodotus. Writing his Histories 100 years after Croesus’ death, Herodotus detailed the king’s opulence in order to demonstrate the platitude that money does not buy happiness. The historian recounts the Lydians’ stupendous gifts to the oracle at Delphi, such as a lion of solid gold weighing ten talents (more than 227 kg/500 lb), but also describes a meeting in which Croesus asks the Athenian philosopher Solon who the happiest mortal is. Solon names an obscure dead Athenian, shocking the wealthy king, who expected to hear his own name mentioned. Solon explains that no mortal can be truly happy before his death because something awful might befall him. And in fact, as Herodotus hastens to tell his reader, that is exactly what happened to Croesus: he first lost his son and heir in a hunting accident, and then saw his empire destroyed by the Persians. Herodotus was not the first writer among the Greeks to disparage their wealthy neighbours. In the seventh century BCE Archilochus wrote of one of Croesus’ ancestors, King Gyges, that ‘These golden matters of Gyges and his treasuries are no concern of mine . . . Such things have no fascination for my eyes.’1
This may have been sour grapes. Gold was scarce in most of the Greek city-states, but running through Lydia was the River Pactolus, where the legendary King Midas had supposedly washed away his curse and left gold so plentiful that you could pick it up on the banks. Lydia received tribute from several Ionian Greek city-states and had recently conquered others. And Croesus’ defeat at the hands of Cyrus of Persia in 546 BCE brought the Persian Empire to Greece’s front door – meaning that Lydia’s legendary wealth failed not only to save it from defeat, but to buffer Greece from their mutual foes. But for our purposes, Croesus is the man who first created the bimetallic system of gold and silver coins, an honour that even Herodotus is willing to give him.
Nikolaus Knüpfer, Solon Before Croesus, c. 1650–52, oil on panel.
These were not the first coins – even his predecessors in Lydia had issued coins minted from electrum (a naturally occurring alloy of gold and silver, to which they added silver until it reached a consistent ratio), and the Zhou Dynasty in China had been producing bronze imitations of cowrie shells since around 900 BCE (although whether these count as ‘coins’ is a matter of debate). And they were certainly not the first use of gold in commerce, a practice that dates from at least twenty centuries earlier. But tantalizing evidence from the Harvard-Cornell Sardis Expedition – an ongoing excavation of Croesus’ capital city – strongly suggests that the doomed king was indeed the first ruler in history to issue gold and silver coins of standard weights and values. The proof comes not from the ruins of the treasury or the mint, but from several workshops where smiths processed grains and dust of gold, separating the yellow metal from the quartz, silver and copper that naturally occur with it. Goldworkers under Croesus were the first to be able to produce pure gold and silver coins, because they were the first to be able to separate the metals.2
It’s important to remember, though, that gold coins are not the beginning or end of the concept of money. In fact, they represent only the merest blip in the history of human civilization and trade. Elementary economics tells us that money – whatever form it might take – serves as a medium of exchange and a standard unit to express prices and debt. Before there was gold coinage, there were other media of exchange, and anything of mutually recognizable value could be used. Cows and grain, which had inherent value as chief sources of food, were popular in early civilizations. But objects used as the basis for currency need not have an inherent material value: the most widespread currency in history was the cowrie shell, which unlike a cow has no obvious practical use. (And, of course, modern coins are worth far more than the metal they’re made from.) Finally, a material can be a means of measuring value without being used as part of actual exchange: in mid-second-millennium BCE Egypt, if one party wanted to trade cattle and another party wanted to trade grain, they would determine how much each commodity was worth in silver or copper to ensure a fair exchange, without ever exchanging silver or copper. In the Iliad the Greek warrior Diomedes and the Lycian warrior Glaukos meet on the battlefield, discover that their grandfathers had been good friends and agree to exchange armour instead of trying to kill each other. But Zeus ‘stole away the wits of Glaukos who exchanged with Diomedes . . . armor of gold for bronze, for nine oxen’s worth the worth of a hundred’.3 (Although perhaps Glaukos got the better of the deal, as gold armour would be too heavy to wear into battle.) This was not a practice that disappeared once coins came on the scene, either – in the early twelfth-century CE Welsh tale Culhwch and Olwen, the anonymous author mentions a well-dressed youth as having ‘precious gold of the value of three hundred kine [cattle] upon his shoes, and upon his stirrups, from his knee to the tip of his toe’, suggesting a similar method of value storage and exchange.4
What kind of economic innovation did coins represent? Like cowrie shells, they are more readily portable than cows. Coins make a metal, such as gold, easier to use in trade because their standardized shape and weight indicate a set numerical value. Before coins existed, gold could be used for trade, but the receiver would have to weigh the gold to know how much value it had, and might have to know how to test it for its precious metal content. By creating a standard shape (for Croesus, a lumpy figure-of-eight stamped with the image of a lion) with standard markings, a government issuing a coin states that a hunk of metal of this size, shape and marking is worth a particular amount. There is still an element of trust involved: by accepting the coin, you are accepting the promise of the government that issued it.
It makes sense, therefore, that issuing coinage is firmly tied to state-building. We can see a good illustration of this in another example from the ancient Mediterranean. Amid the chaos that erupted after Alexander the Great’s death in 323 BCE, one of his generals, Ptolemy, was determined to consolidate his control of Egypt both militarily and governmentally. Key to the latter was his decision to introduce coinage to Egypt, a land whose history was awash in gold objects and lore but which had never had its own currency. By creating one, Ptolemy was able to achieve a new form of political integration of the Nile valley with his court at Alexandria as its symbolic centre. Ptolemy shored up his claim to rulership of Egypt by putting his predecessor Alexander’s face on the coins. This, too, was a revolutionary step – some previous coins had borne the faces of human individuals, but those coins were not meant for regular circulation. This indicated that daily economic transactions occurred under the aegis of a government symbolically linked to the famous emperor. When Ptolemy had himself proclaimed king in 306 BCE, he issued the first coins to bear the image of a living ruler – himself, of course.5
Coins only work as money if you use them, and Ptolemy made sure his would circulate by banning the use of foreign currency in Egypt. By law any foreign coins brought into Egypt had to be exchanged for Ptolemy’s coins and melted down to make new coins. Before this, and elsewhere in the world, it was customary for coins to be used anywhere they might reach through trade networks; the coins were valued not so much for what was stamped on them as for the amount of metal they contained. Ptolemy’s decree served the state-building function we mentioned earlier, as well as a financial function: Ptolemy’s coins had less gold in them than the competition, so Egypt made a small profit each time a purer foreign coin was traded in for an Egyptian coin. This practice results in a phenomenon known as Gresham’s Law – ‘bad money drives out good’ – wherein people circulate currency that is devalued by addition of base metals and keep the purer stuff under their mattresses. It was named for a sixteenth-century English financier, but it might as well have been named for the Greek playwright Aristophanes, whose The Frogs pre-dates Ptolemy by only 100 years:
Gold coin of Croesus, Lydia, 6th century BCE.
I’ll tell you what I think about the way
This city treats her soundest men today:
By a coincidence more sad than funny,
It’s very like the way we treat our money.
The noble silver drachma, which of old
We were so proud of, and the one of gold,
Coins that rang true (clean-stamped and worth their weight)
Throughout the world have ceased to circulate.
Instead the purses of Athenian shoppers
Are full of phoney silver-plated coppers.6
Rome, which was to be the next major power in the Mediterranean, adopted much of its culture from Greece, but came late to coinage, around 300 BCE. Typically using bronze or silver, the republic issued gold coins only in times of crisis, such as during the Second Punic War late in the third century BCE. It wasn’t until the reign of Julius Caesar that Rome, having become an Empire, began to mint gold coins. Caesar embraced the practice with gusto – by the middle of the second century CE, more than 60 per cent of Rome’s coins were gold.
Gold coin, Kingdom of Egypt, bearing Ptolemy I’s image, 277–276 BCE. |
Gold coin showing the head of Constantine I, and on the reverse a star above two interlaced wreaths, 326 CE.
Every golden age must come to an end, and by the third century CE, the Roman monetary system collapsed, for reasons that are still the subject of debate. It was partly because of an almost complete failure of silver and gold mines, inflationary measures and the debasement of coins, which by the time of Claudius Gothicus (emperor from 268 to 270 CE) contained little precious metal. When Constantine became emperor in 312, he replaced the debased aureus with the solidus, which would remain the standard of Byzantine and European currency for 1,000 years. Its legacy remains with us today in several forms, notably the French word solde, which can variously mean salary, debt or sale, and the English word soldier, which traces its lineage back to this Roman coin used to pay mercenaries.7
Elsewhere in the world, China presents us with an interesting case of a fabulously wealthy empire that did not use gold as the centrepiece of its economic system. China certainly possessed a great deal of gold – the first-century BCE Records of the Grand Historian of Sima Qian informs us that by 123 BCE Emperor Wu had distributed more than 42,500 kg (1.5 million ounces) of gold to his victorious soldiers, practically emptying the royal treasury.8 The historian Ban Gu reports in the Book of Former Han that in 23 CE, the treasury under usurping emperor Wang Mang contained approximately 141,750 kg (5 million ounces) of gold. (For comparison, the Spanish imported around 6 million ounces of gold from the Americas between 1503 and 1660.)9
Wang Mang is of particular interest here primarily because he broke hundreds of years of Chinese monetary tradition by issuing gold coins (or at least attempting to). Early in Chinese history, individual states had produced their own currency, which ranged from imitation cowries made from bronze to knife- or axe-shaped proto-coins. Only the Chu state had produced gold coin-like objects – gold cowrie shells and small gold plates stamped with the name of the city where they were minted. When Qin Shi Huang unified China in 221 BCE, he abolished all of these local currencies in favor of ‘cash’, bronze ring-shaped coins with a square central hole whose name probably came from the Tamil word for coined money, kāsu.
Wang Mang had been a treasury minister under the last of the Han emperors, and as minister he decided to do what Ptolemy was doing thousands of miles away in Egypt – he required that all the gold in China be turned in at the palace and exchanged for bronze coins. Once he seized power, he took over the treasury and demonetized those bronze coins, leaving people with about 1 per cent of what their gold had been worth. He then issued nearly 30 different denominations of coin, one of which was a gold-inlaid knife-shaped coin, and tried to make everyone in the vast Chinese empire use them in place of the ‘cash’ coins. It was an abject failure: the array of denominations and shapes confused everyone, and this unfamiliarity made it easy for counterfeiters to produce fakes. He stubbornly stuck to his scheme, decreeing that anyone who opposed the new system ‘should be thrown out to the four frontiers’ to fight evil spirits, but he finally rescinded his plan when the financial system threatened to collapse.10
The failure of Wang Mang’s gold-coin scheme does not mean that the Chinese did not place a great deal of value on gold. Wealthy landowners and nobles possessed it and used it for large exchanges, like the 12,100 kg (426,000 ounces) of gold that featured prominently in the dowry of Wang Mang’s future empress.11 The seventh-century author Yan Shigu recounts that ‘anciently gold was counted in terms of its weight in catties and taels, it came in regular shapes laid down by official regulations, like the present gold ingots with luck-bringing inscriptions.’12 Gold served as a measure of sheer wealth, but in the form of ingots that were weighed and stamped with their value, not as coins that could be used for purchases. For example, the royal tomb of Lui Kuan from around 87 BCE contained twenty large gold ingots, each of which was worth as much as a common labourer would earn in five and a half years.13
China also used gold in foreign trade. Early in the Han period, China sent eunuch interpreters who served the palace out in boats to ports in Southeast Asian countries, trading gold and silk for ‘bright pearls, opaque glass, rare stones and strange things’.14 In fact, so much gold left the country in trade with its neighbours that in 713 CE China banned the export of gold and iron to foreigners. Over the next several centuries, regulations about who could possess and use gold proliferated. By 1340 a Muslim commentator was shocked that it was impossible to purchase anything in Chinese markets with a gold coin – China had long required the use of paper currency, so prospective buyers had to trade in their gold for banknotes. In addition to stopping the outflow of gold from the empire, this requirement ensured the inflow of gold to the treasury.15
Before the nineteenth century, silver, not gold, was the closest thing to a worldwide standard currency. But the metal, not the denomination, was the real measure of value. A silver coin from one country was usable in another because of the silver in it, and silver coins travelled the globe. For example, the most common currency used for trade in East Asia in the eighteenth century was not Chinese cash coins but the Mexican silver peso.
Gold-inlaid knife coin of the Han Dynasty official Wang Mang, c. 7 CE.
This is not to say that there weren’t important gold coins before the dawn of the gold standard. During the Middle Ages European city-states began minting their own coins in an exercise of the state-building we discussed above. In 1252 Florence began minting the florin, which quickly became the standard gold coin of Europe. The first French gold coin, the écu, followed quickly in 1266, and Venice used the florin as the model for its gold ducat in 1284. Although the Spanish silver dollar (the eight-real coin, the ‘pieces of eight’ popular in pirate stories) was by far the most common denomination in Spain’s globe-spanning empire, Spain also issued the gold escudo (worth twice as much as the dollar) for almost 300 years, and the pistole or double escudo was popular in world trade.
Over the course of the nineteenth century, most countries in the world adopted the gold standard – a commitment to fix their domestic currencies in terms of specific amounts of gold. By state decree, one franc equalled x ounces of gold, one dollar equalled y ounces of gold, and so on. Different countries went with the gold standard for different reasons. Great Britain did it because it had more or less done so already in the early eighteenth century, when Isaac Newton, as master of the Royal Mint, established policies that effectively drove silver out of circulation. Japan, quickly becoming a world power after defeating China in the first Sino–Japanese War of 1894–5, looked to gold for commercial and military growth: switching to a gold standard would depreciate the yen, likely encouraging exports and increasing foreign investment in industry; and the switch made it easier for Japan to borrow international money to fund a war chest in case of conflict with Russia (which came less than a decade later). That impending war helped push Russia to adopt the gold standard, as both nations had colonial designs on Korea and Manchuria and both believed that the gold standard would make it easier to bankroll military and industrial growth.16
The theory was that everything would balance worldwide – gold would flow out of a country that imported more than it exported, causing prices in that country to fall, which would make it easier for manufacturers and merchants to sell that country’s goods abroad, which would mean more gold would flow in. As the economic historian Steven Bryan put it, ‘English theory imagined a world in which central banks and state treasuries sat idly by and watched gold flow freely in and out of the country – inflating or deflating prices, filling central bank vaults, or being pulled out in financial panics.’17
But as with most things, the theory and practice were quite different. The subtleties of this worldwide economic balancing were often lost on the everyday citizens who experienced its effects. When a bad wheat harvest that caused financial ruin and depression in one country was offset by a financial bonanza in a country that had a good wheat harvest, economists might see worldwide equilibrium, but this didn’t exactly reassure the ruined wheat farmers. Central banks were supposed to let the standard work through ‘automatic forces’ that would mysteriously fix everything in the long run. Of course, banks meddled by raising or lowering interest rates to soften the blows of events like our bad wheat harvest, or raising interest rates sky-high to prevent overseas borrowers from taking gold out of the country, as the Bank of England did during a worldwide financial crisis in 1873.
It was by no means an uncontroversial move for a country to switch to the gold standard. The United States effectively switched in 1873 when the Coinage Act demonetized silver, but debate raged. Populist pundits decried the ‘Crime of ’73’, arguing that a return to bimetallism would increase the money supply and bring prosperity, especially after the Panic of 1893 sent the U.S. economy into a deep depression. In 1896 William Jennings Bryan rode the issue to the first of three nominations for the Democratic Party’s presidential ticket, thundering ‘you shall not crucify mankind upon a cross of gold’ at the Democratic National convention Address. He lost the election to William McKinley, who signed the Gold Standard Act in 1900, making the de facto situation official.
Eight-escudo gold coin, mint of Pamplona, 1652.
For the most part the system worked as long as everyone agreed to play by the same rules. But the First World War changed everything. After the assassination of Archduke Ferdinand in the summer of 1914, European countries experienced a series of banking panics. In Britain, whose economy and gold reserves were the de facto backbone of the gold standard – due to being the centre of world finance at the time – fears that the nation would become involved in the conflagration led to a stock exchange crash. The authorities reacted quickly with a series of costly measures that staved off disaster, including using some of their small gold reserve to pay creditors and issuing banknotes that could no longer be exchanged for gold. The cheap banknotes issued to keep money circulating caught on with the public, and more gold came into the treasury’s war chest, making it easier to make vital military purchases overseas. This emergency unofficially but effectively ended Britain’s 700 years of internal circulation of gold specie and the short-lived gold standard.
Internationally, warring countries abandoned the gold standard as they printed more money to finance their own war efforts. Even if countries had wanted to stick with gold, the practical obstacles of mines and U-boats prevented the system from working because it became impossible to safely transport gold overseas. Inflation was rampant, governments collapsed and debts piled up. After the fighting stopped in 1918, there was a halting attempt to return to the gold standard, but it was doomed to failure. The economic historian Glyn Davies says that Britain’s plan to restore the gold standard through drastic deflation seemed ‘calculated to . . . crucify the economy on an outdated cross of gold’, echoing Bryan’s famous speech.18 Prices fell and British unemployment hit 18 per cent by the end of 1921. But Britain kept up its rush back to gold, despite economist John Maynard Keynes’s prophetic warning in 1925 that ‘the British Public will submit their necks to the golden yoke – as a prelude, perhaps, to throwing it off forever at not a distant date.’19
The world finally threw off that yoke with the Great Depression, which some economists believe was exacerbated by the gold standard because it prevented governments from issuing more banknotes to stimulate the economy. The manner in which the United States abandoned it brings us back to the central role that money plays in governmental power, and vice versa. Taking a page from the books of Ptolemy I and Emperor Wang Mang, in April 1933 President Franklin Delano Roosevelt issued Executive Order 6102, which prohibited private citizens from possessing gold except in small amounts, such as jewellery or historical coin collections. Citizens had to turn their gold in at the Federal Reserve in exchange for $20.67 an ounce (28.4 grams); the following year Congress passed the Gold Reserve Act, which set the price of gold at $35 an ounce, resulting in a $2.8 billion windfall for the government.20 Roosevelt’s order came as a shock to many, including the U.S. Mint, which produced nearly half a million $20 gold double eagles in 1933. These coins never circulated, and except for two coins given to the Smithsonian for posterity, the entire run was melted down in 1937 – or was it?
Louis Dalrymple, ‘The Survival of the Fittest’, Puck, 14 March 1900. The ‘gold standard’ gladiator triumphs over the ‘silver standard’.
After the Second World War, world leaders desperate to avoid a return to the chaos of the interwar years established the Bretton Woods system, which created something like a gold standard, more accurately called a gold exchange standard. Member states of the International Monetary Fund agreed to peg the value of their currency against the U.S. dollar, and the United States agreed to set the value of its dollar at $35 per ounce of gold. Thus only the U.S. dollar was directly tied to gold. An increase in world trade and the expansion of the U.S. economy led to a familiar situation – there were more dollars in circulation by 1959 than there was gold to back them up, a situation that became so dire by 1971 that U.S. President Richard Nixon unilaterally ended the Bretton Woods gold exchange system.21
Although a 2012 survey by the University of Chicago’s Initiative on Global Markets produced zero economists who recommended a return to the gold standard, the debate has raged on and will likely continue. Ron Paul, a former U.S. Representative and candidate for the 2012 Republican presidential nomination, represents a fringe of the far right in the United States but convinced the Republican Party to commit to exploring a return to the golden past.
Franklin Delano Roosevelt, Executive Order 6102, 1933.
In a literary footnote to the debate over the gold standard, the high school history teacher Henry Littlefield suggested in 1964 that the beloved children’s book author L. Frank Baum had embedded a parable of the gold standard in The Wonderful Wizard of Oz, with the yellow brick road playing the role of gold. It was an appealing proposition, but was most likely untrue, based as it was on a mistaken idea of where Baum stood on the issues of the day. Still, it remains in the popular imagination, serving as a useful thought exercise in economics classes, and a copy of the book, as of 2015, was included in the Citi-sponsored Money Gallery at the British Museum.22
And then there were those double eagles. As it turns out, not all of them were melted down after all. The aftermath of Roosevelt’s executive order is a case whose twists, turns and international intrigue rival the most outlandish thrillers on the bestseller lists. A mild-mannered cashier named George McCann stole at least twenty of the doomed coins, replacing them with other double eagles from earlier years, so the books balanced. The theft wasn’t discovered until 1944, when one of the coins was listed for auction. Frank Wilson, who had spearheaded the investigation that put Al Capone behind bars and had broken the Lindbergh Baby kidnapping case, was brought in to investigate. Over the next eight years, Wilson’s investigation turned up eight more purloined double eagles, each of which the Secret Service seized as stolen property – except one.
That one had made it into the collection of King Farouk of Egypt, who refused diplomatic entreaties to give up the coin. When he was deposed in 1952 the coin appeared briefly for sale, but disappeared again when it became clear that the Secret Service intended to confiscate it. Decades later it surfaced again with a British coin dealer named Stephen Fenton, who brought it to the U.S. to sell – but the buyer was an undercover Secret Service agent. Fenton sued to recover the coin, and after years in litigation, he and the U.S. government agreed to auction it and split the proceeds. It sold in 2002 for more than $7.5 million – plus $20 to reimburse the U.S. Mint for Gordon McCann’s theft.23
That would seem to be the end of the story, but in 2001 the heirs of Israel Switt, to whom McCann had sold or given the stolen coins back in the 1930s, discovered ten more 1933 double eagles in a forgotten safety deposit box. They sent them to the Philadelphia mint to be authenticated, and the government seized them as stolen property. The family sued, but lost in federal court. As of this writing, no other 1933 gold double eagles have surfaced, but who knows what the future holds.24
