he defeat of the Lydians by the Persians greatly
accelerated the transformation of gold from a means of adornment
into a central role as money. Despite their remarkable innovations
in coinage, the Lydians thought that it was their gold, not their
money, that mattered. When Solon came to visit, Croesus did not
say, "Look how much money I have!" He showed Solon his "treasure."
Nor did he use his handsome golden stater coins to compensate the
oracles whose services he so voraciously consumed. He sent them
gifts of magnificent objects crafted from gold. Nevertheless, the
services the oracles offered in return, such as rights of first
consultation without a fee and front-row seats at the Pythian
games, would normally be forthcoming today only in response to a
monetary accommodation.
That viewpoint was soon to come about. Croesps's ingeniously designed monetary system would lead to a profoundsocial profoundsocial profoundsocial transformation, although he was totally unaware of the genie that he was letting out of the bottle. The radiant purity, malleability, and density that made gold so appropriate for objects of worship-including its general uselessness for anything other than adornment-were precisely the attributes that made it such an extraordinarily convenient material for coins.
The result was the development of a curious kind of feedback in the role of gold in society. Gold would never have attained its position as supreme monarch of monetary systems without its unique physical attributes, yet the demand for gold became so insatiable over time because it was used as money. The demand for gold to embellish religious objects and our own bodies has a limit somewhere; the demand for gold as money is infinite. This has caused all kinds of havoc throughout history, as men were provoked to risk the wildest deeds in search of new sources of gold or to plunder the supplies that belonged to others.
In a sense, the transformation of gold into money democratized it. Thanks to coinage, the ownership and use of gold after Lydia was no longer a royal prerogative. It was now literally in the hands of common citizens, even if only the most wealthy, who could touch and feel it, hoard it in their homes, buy things with it, and pay their debts with iteven as they continued to put their gold through their ears and noses and to wrap it around their necks, wrists, and fingers. Before long, they would be paying their taxes with it. The notions of power and wealth thus blended into one.
The Greeks provide a moving example of the merging of gold as adornment and gold as money. In accord with the tradition that gold imparts godliness to inanimate objects, Phidias clothed his great statue of Athena in the Parthenon in a cloak of gold, even though gold was much rarer than silver in Greece. This cloak was, in effect, the official treasure of the city-state of Athens, in full display for all to see, unlike the U.S. gold stock buried in Fort Knox-that is, until the wars with Sparta, when the Athenians had to peel the golden treasure from their goddess and convert it into money to finance their military operations.'
Although Greek coinage was primarily silver, the use of Lydian-style gold coins proliferated elsewhere and ultimately provided the model for the coinage system that would function throughout the entire Roman Empire. Long before Rome, however, Cyrus (558-529 Bc), the victor over Croesus at Sardis, and his successor, Darius (521-485 Bc), had promptly adopted Croesus's international system of coinage and put it into operation throughout the great Persian Empire. Darius also outdid Croesus and his staters: instead of a local logo, Darius stamped his own likeness on his coins and labeled them darics. But then a monarch who calls himself the King of Kings would be likely to do something like that.
Darius's money-and his likeness-spread far and wide. His coinage has been found from the Baltic to Africa and throughout central Asia. In addition to using their gold to mint coins that financed trade across such a wide span of lands, the Persian government was also the first in history to collect taxes in coin rather than in kind.' The world has never been the same. In fact, the kinds of money that governments have been willing to accept in payment of taxes throughout history have been a primary influence on what forms of money become most acceptable to society at large. We shall see instances in which even debased money with minimal purchasing power has enjoyed some broad acceptability when governments have permitted their citizens to use it to discharge their tax liabilities.
The Persians emulated the Lydian system of coinage with great success, but they also knew how to use gold as a manifestation of power. For example, after Alexander the Great had finally smashed the Persian Empire by defeating the King of Kings at Issus in 331 BC, he entered Darius's huge field tent and examined the golden chariot, the golden throne, and the golden bathtub, all elaborate objects of great beautyand these were only Darius's traveling equipment. "So this is what it meant to be a king," observed Alexander.3
Impressed as he may have been by Darius's golden bathtub, Alexander was already fully familiar with the use of gold as money as well as for adornment. Some time after 360 Bc, Alexander's father, Philip II of Macedon, had opened up rich sources of gold and silver in Macedonia and Thrace-northward in the Balkans toward modern Bulgaria-and was soon minting both metals into coins in sufficient number to meet all his current needs and to finance his plans for future military conquests.4
Establishing substantial monetary wealth was just one of this brilliant man's achievements in the course of transforming the backwater countryside of Macedonia into the greatest power of his age. If Philip were alive today, he would be in constant demand as an expert consultant on both the economics and the politics of developing nations. He had an innate sense of priorities, of how to set his ideas in motion in the most effective and efficient manner, and of how to deploy power to maximum advantage.
When Philip ascended the throne of Macedon in 359 BC at the age of 23, his mountainous kingdom consisted of a small population of mixed tribes, who were poorly fed and occupied their time primarily by making war against one another. By the time Philip was through, he had established Macedonia as a great power and himself as the dominant personality in all of Greece, even though many Athenians considered him a provincial upstart.
Philip also made full preparation for his succession, hiring Aristotle from Athens to tutor his son Alexander from the ages of thirteen to sixteen, the equivalent of sending the young teenager to Harvard as an undergraduate and Cambridge or Oxford for graduate work. When Philip was assassinated in 336 BC, after a reign of 23 years, Alexander reminded his people that "My father took you as nomads and paupers, wearing sheepskins, pasturing a few sheep on the mountains ... he made you inhabitants of cities and brought good order, law, and customs into your lives."
Philip set the value of his gold coins at ten times the value of his silver coins, a convenient piece of arithmetic that differed from the unwieldy Persian ratio of 13%2:1; his choice also probably reflects the relative increase in gold supplies from newly discovered mines. He decorated his highest-value coins on one side with a chariot to celebrate his victory in the chariot race at the Olympic games of 356 BC, and with a head of Zeus on the other side; many wondered whether that head was Zeus's or really Philip's.
Philip's keen financial instinct led him to produce more coins than he needed for current transactions and army pay. He hoarded the balance as a reserve to finance the wide-ranging military campaigns against the Persians that were on the drawing boards at the time of his assassination.
After Philip was killed and Alexander inherited the throne from his father, he kept all of Philip's Macedonian mints busy pouring out coinage, in addition to the output of mints in Greece, Asia Minor, Syria, Egypt, and Mesopotamia. Supplying gold and silver to feed the mints was no problem. In addition to Philip's hoard and the current output of the Macedonian and Thracian mines, Alexander captured huge amounts of treasure during the course of his victorious campaigns to the east. Alexander followed his father's policy of making gold the prime monetary standard, and, being a man of action and splitter of Gordian knots, he stayed with the 10:1 relationship, adjusting the supplies of each metal from his substantial reserves in order to make the simple ratio function without difficulty throughout his immense empire.
Although Alexander had so much gold available to him that he could afford to be prolific in minting coins, the demand for coins ran high. Alexander wanted to be certain that his men would find his coinage acceptable, no matter where they were serving. The troops under his command were primarily mercenaries, and he paid them well to discourage them from looting. He paid many of their civilian debts, gave wedding presents of money to some troops, and distributed separation bonuses when they went home. In his vision of himself as a bearer of Greek civilization rather than as a conqueror, Alexander also brought along with him scientists, engineers, and explorers, and these people had to be paid as well. In addition, he expanded his civilian rule over conquered territories by establishing more than seventy new towns in a great arc from Egypt to India; this, too, created an additional demand for acceptable money. Finally, his vision included prosperous trade among the many areas of his diversified empire, an objective that needed a common currency. Alexander was convinced that trade would promise higher living standards for all.
Alexander and Philip both understood the propaganda and public relations value of gold coinage. Whereas Philip's philippeioi had the head of Zeus stamped upon them, Alexander stepped down a notch. He used Hercules, a god ranking below Zeus but symbolizing the greatest physical strength; like Philip's Zeus, the portrait of Hercules stamped on the coins bore a striking resemblance to Alexander himself Alexander did not change the name of the gold coins established by his father: they remained philippeioi. His followers, however, kept Alexander's designs but changed the name of the coins from philippeioi to alexanders!
Alexander's coinage system prevailed for over 150 years, from India in the east to most of the Greek and Egyptian areas to the west, until the Roman general Quinctius Flaminius defeated Philip V at Cynocophalae in 197 Bc and brought closure to the Macedonian hegemony. Flamimus had learned his monetary lessons well: his first step to commemorate his victory was to transform some of Philip's tribute into new gold coins bearing his portrait-the first time a living person had appeared on Roman coins.
The Romans had been using metallic money for a long time. During the fourth century BC, they were in the habit of keeping their treasure in the temple of Jupiter. This choice was made for the purpose of security, but it was also an interesting blend of temporal wealth and heavenly religion. In 390 BC, so the legend runs, the cackling of the geese that lived around the temple alerted the Romans to a surprise attack by the Gauls, who were invading Italy at that point. The Romans were so grateful for this notice of impending danger that they constructed a shrine to their goddess of warning, whose name was Moneta; moneta in turn became the derivation of "money" and of "mint."'
That was not all in the way of money that we have inherited from the Romans. The Romans also gave us the monetary denomination of pound-libra-which is why the pound sterling is identified by the symbol £. In addition, the Latin word denarius came to stand for penny and was conventionally abbreviated as d in English usage. Finally, the term solidus, which meant that a coin was pure gold or silver, was worth one-twentieth of a pound of silver and was equivalent to twelve denari. English money was built up from these ratios. A pound was equal to twenty shillings and a shilling was equal to twelve pence-a system that lasted from Norman times until the 1980s, when Britain finally yielded and adopted the decimal denominations long in use everywhere else.*
Although the Romans may have started using the word moneta in 390 BC, their gold stock at that moment was small. The Elder Pliny mentions an amount in the Roman treasury that contained less than half the gold that Phidias had lavished fifty years earlier on his statue of Athena in the Parthenon and only one-seventh as much as Croesus had delivered to the oracle at Delphi 150 years earlier. Even as the Romans opened up additional gold supplies by extending their territories, and even when their victory over Carthage in the Punic Wars brought them control over the massive reserves of gold in the Spanish mountainsides, they still perceived gold as a reserve but not as something spendable.6
The Roman need for gold grew rapidly after about 150 BC as the empire expanded at an accelerated pace, which meant rising military requirements at the same time. Gibbon's The History of the Decline and Fall of the Roman Empire reports, "The golden eagle which glittered in front of the legion, was the object of their fondest devotion; nor was it esteemed less impious, than it was ignominious, to abandon that sacred ensign in the hour of danger."7 Later, he tells us, "The Emperor Domitian [who ruled from 81 to 96] raised the annual stipend of the legionaries to twelve pieces of gold, which, in his time, was equal to about ten of our guineas. "I Ten guineas in Gibbon's time was the equivalent of about $53, or roughly $2500 in 1999 purchasing power-but there was far less to buy in Roman times and a soldier received shelter, food, and medical care in addition to compensation. Hence, $2500 was a generous annual stipend.
Indeed, the Romans used coinage-money to a far greater extent than any of their predecessors in history. Thousands of soldiers throughout the empire had to be paid, and some Roman generals even minted their own gold coins to distribute to their troops. Furthermore, bread and circuses did not come for free, but promoting domestic tranquility among the Roman politii was essential if emperors hoped to remain in power. The doles were distributed in cash on occasion, but even the more frequent payments in kind, the alimenta, or bread rations, were largely imported from outside Italy and had to be paid for with coinage.
These recurrent and growing needs for coins were accompanied by an increasing demand for replacement coinage as many coins simply disappeared, some worn beyond usefulness as coins, some in shipwrecks, and some due to plunder by barbarians. A significant amount of gold went to the East in exchange for spices from India and silks that took a circuitous route but that originated in China; once the metal arrived in India, it stayed there and did not return to the channels of trade.9 At the same time, the highest-quality ore was being depleted, so the level of mining activity had to expand even more rapidly than the need for metal to mint.
There seemed to be no limits to the demand for gold. After Caesar conquered Gaul, the Romans imported over one hundred thousand slaves from that territory to work the mines in Italy, to say nothing of the slaves they employed to work away their short lives as miners within Gaul itself. We have already seen how the Romans used slaves to exploit the mineral riches of Spain, at a level of cruelty and disdain for the environment that readily matched the appalling record of the Egyptians.
Wealthy Romans showed off to one another by generously lavishing gold on their bodies, their women, and their homes, but they measured their wealth by their accumulations of gold coins. In the Roman Republic, and the empire that followed, golden money was essential to grease the way to political power. Unlike all the monarchies that had ruled nations since the beginning of time, in Rome it was how much gold you had, rather than who your father was, that defined how much say you had in the affairs of state. How much you had to say, in turn, defined how much bribery and other loot came your way from others in similar pursuit of power and riches.
For example, when Julius Caesar returned from service in Spain as quaestor (provincial official for financial affairs), he had harvested sufficient Spanish gold to buy him attention as a leader, but not enough to take him as far as he had hoped to go. He therefore combined his interests with two other ambitious Roman citizens, one a fabulously rich man named Crassus and the other a military commander named Pompey.
Crassus had begun accumulating his fortune by organizing a fire brigade that put out fires only if paid in advance. In those cases where the owner failed to pay and the building was destroyed by fire, Crassus would buy up the burned-down ruin at a fraction of its worth as a standing structure. He acquired a large number of tenements in this fashion, restored them, and let them out at fancy rents."' In addition, Crassus lent money at interest and acquired ownership of silver mines, agricultural estates, and slaves in great numbers. He even educated his slaves to become readers, stewards, and cooks." The huge income that accrued to Crassus from all this wealth enabled him to bribe officials so that he could buy up additional confiscated estates at depressed prices.
Although Pompey ended up with his head cut off, in all likelihood as a result of a contract on him taken out by Caesar, Crassus was destined for an even more horrible end. Crassus was eager to show that he was more than a moneybags and that, like Pompey and Caesar, he could successfully command troops in battle. Accordingly, he provoked a war with the Parthians in Mesopotamia and set off on his campaign with 44,000 troops under his command, foot soldiers for the most part. At the battle of Carrhae in 53 BC, the Parthians attacked the Romans with ten thousand horse archers and a corps of one thousand Arabian camels, making quick work of the job at hand. Crassus attempted to negotiate a surrender, but the Parthians set upon his troops with such ferocity that only ten thousand of the original forty thousand managed to escape. For Crassus, the Parthians reserved a special fate that expressed their disdain for the money-mad Roman civilization that he represented. They finished him off by pouring molten gold down his throat.t2
Up to this point in our story, the supply of gold has been taken for granted or the opening up of new supplies more or less kept pace as the demand for gold expanded. The Jews escaping from slavery, the Egyptians, the Lydians, the Persians, and Philip and Alexander all appear to have had enough gold to do with it whatever struck their fancy, from crafting objects of worship and beautification to coining elegant coins as means of exchange and stores of wealth. From today's perspective, we can see that they were in the happy position of owning an indefatigable printing press bestowed upon them by nature, whose output, because it happened to be shiny, dense, and malleable into beautiful things, was accepted without question everywhere.
Now everything changes. With an empire that reached from the Mediterranean to the Black Sea, and from the border of Scotland to the southernmost areas of Egypt, the Romans found that their supply of gold for coinage constantly fell short of their needs despite mining output of at least five tons a year. 'I Quite aside from governmental expenditures that had to be financed, the emperors spent money on themselves with a degree of abandon that their citizens could only envy. Yet nature sets the ceiling on the supply of gold and silver: you cannot create metal out of nothing. The alchemists in later times were to learn that lesson over and over again.
A society that uses metal for money will always be constrained by the supply of that metal. The random location of mineral deposits makes countries such as Lydia rich as a matter of good luck and other countries greedy for gold as a consequence of bad luck. History teaches us that natural advantages are not an automatic formula for success, but having a head start endowed by nature never did anybody any harm.
When a nation's supply of metal is insufficient to meet the needs for coinage, and, in many instances, even when coins are no longer the only acceptable form of money and paper substitutes are in use, there are three ways out. One is to live with an insufficient supply of money, so the demand for goods at current prices chronically falls short of the supply of goods offered for sale, and downward pressures on the price level persist over extended periods of time. This painful process has often occurred as a default solution, with dire political and social consequences. The Great Depression of the 1930s is the most vivid but by no means the only example of this policy that we shall encounter in later pages. A second method of overcoming a shortage of monetary metals is to import gold from other areas, either by plunder or by trade. These solutions have motivated both great adventures and complex economic policies, not always with happy outcomes. The third method is the simplest but is unlikely to be successful over the long run, namely, to use the same amount of metal to produce a greater supply of coins.
That solution is known as debasing the currency, which used to mean literally reducing the metallic base from which coins are minted, or mixing base metal with the precious metal, while leaving the face value unchanged. Over the years, debasement has come to mean any irresponsible, or at least ill-advised, effort to create new money out of nothing-a process at which governments have become increasingly ingenious with the passage of time. All three of these approaches will occupy our attention in the pages that follow.
The monetary innovation of debasement has a long history. For example, Dionysius of Syracuse (405-367 Be) had borrowed heavily from his citizens and was hard put to figure out how he could pay them back. He ordered all coins in the city brought to him, under penalty of death. He restamped the coins so that each one-drachma coin now read two drachmas. After that, paying off his debts was easy.14 Dionysius's methods were drastic, but the essence of the process-like many things Greek-was classic in its execution.
The Roman emperors learned to make debasement a routine procedure. One might argue that the Romans had no choice, given the dynamics of their society and their empire. Even though they succeeded in developing abundant supplies of gold throughout their empire-and, in fact, expanded their empire in some directions primarily to acquire new sources of gold-their financial requirements and their insatiable demand for adornment in gold grew so rapidly that they simply never had enough gold to satisfy their needs. Most important, they never acquired a sufficient sense of rectitude to choose between government spending and the good things in life.
The Romans set an example for debasement that later rulers throughout history have followed in many different formats, but on a scale that few have matched. The usual method of debasement was to mint coins with an unchanged face value but smaller in size and with a reduced metallic content, thereby stretching the available supply of metal to produce a larger number of coins. Debasement worked best when people were fooled into thinking that nothing untoward had occurred with newly issued coins, but you can't fool all of the people all of the time. Debasement on many occasions did lead people to melt down the old coins and bring the unadorned metal to the mint; they would walk away with more coins of a given face value than those that had been melted down. It was the state that benefited from the increased inflow of precious metals that this process brought about. In view of the primitive nature of tax systems in those days, the debasement process was an important source of governmental revenue.
Nero was the first emperor to take the route to debasement-a development that should come as no surprise. Nevertheless, Nero was a piker at the task, despite his mindless pursuit of luxury. The heavy spending by his successors on personal goodies and the maintenance of the armies and bureaucrats over the wide stretches of the empire strained government finance to the limits. As paper money and bank credit had not yet been invented, debasement was the only available method to create enough purchasing power to satisfy the constantly expanding needs.
By the time that Gallienus became emperor in AD 260, silver coins had 60 percent less metal than they had when Augustus became emperor. Gallienus then threw discretion to the winds. He ruled for only eight years, but he managed to cut the silver content of the coins down to a mere 4 percent. The outcome was inevitable: wild price inflation. One expert has estimated that prices increased at the negligible pace of 0.4 percent a year over the 250 years between the reign of Augustus and when Gallienus was emperor; but during the 34 years after Gallienus began his machinations with the coinage and Diocletian became emperor, prices rose over 9 percent a year-which means that in AD 304 prices were twenty times higher than in AD 260.15 Roman money was now not just a financial wreck; it was a physical wreck as well. The copper coins had so little metal content and had become so thin and frail that their imprint could be placed on only one side.
Although the small-denomination Roman coins had become essentially worthless, the gold coins had fared better. The Romans did reduce the gold content and size of the coins over time so that more coins could be produced with a given amount of gold, but they resisted the temptation to mix the gold with alloys, the technique that destroyed the ability of Roman copper coins, and even some silver coins, to function as anything more than curiosities.
After Diocletian came to power in AD 284, he spent some twenty years trying to reform the currency and, under a bewildering variety of price and output regulations, to bring inflation under control. Diocletian was also wary of how gold could lead a nation into trouble. According to Gibbon, in AD 296 Diocletian caused a diligent inquiry to be made "for all the ancient books which treated of the admirable art of making gold and silver [i.e., alchemy], and without pity committed them to the flames; apprehensive, as we are assured, lest the opulence of the Egyptians should inspire [the Romans] with confidence to rebel against the empire. "*'6 What with everything, Diocletian was exhausted by the burdens of being emperor. In 305, he retired voluntarily and set himself up in a lovely palace on the Dalmatian coast, where he lived more or less happily for the rest of his life.
Diocletian's successor was Constantine, who reigned from 306 to 337 and who immediately set out to improve the acceptability and respectability of the Byzantine currency by issuing a new gold coin called the gold solidus, which later became known as the bezant. When Constantine issued the first bezants, they weighed 4.55 grams-heavier than any other gold coin in existence-and were 98 percent pure. At $300 per ounce of gold, the bezant in today's money would be equal to $42.66, but the purchasing power of gold in Constantine's time was much greater than it is today. Clearly, this was a coin with high current value. The bezant continued in production, with unchanging weight and purity, for about seven hundred years, long after Rome had fallen to the barbarians. The gold bezant thereby deserves a place in the Guinness Book of Records, as no other coin in all of history can match its longevity."
The supply of gold for minting was not a problem for Constantine. His conquests eastward brought massive inflows of tribute. Building in part on what he had learned about government fiscal policy from Diocletian, Constantine also levied new taxes payable only in gold or silver and employed the proceeds to feed his mints for transformation into the new coinages.
But the richest source of gold came about as a result of Constantine's conversion to Christianity, which he established as the state religion in 313. Inspired by his vision of a shining cross and the words "In hoc signo vinces" ("In this sign, I shall conquer"), Constantine proceeded to strip all the pagan temples throughout the empire of the gold and other treasures they had accumulated over hundreds of years." Some of this gold resided almost permanently on top of his head: he wore his bejeweled golden crown at all times.'`' About twelve hundred years after Constantine, in another religious revolution, Henry VIII of Englanda famous debaser of the coinage-solved part of his fiscal problems by pillaging the Catholic churches and monasteries in the name of suppressing the "pagan" faith. Henry copied Constantine in other ways as well: he enjoyed showing off his power by covering his person with a gold crown, gold chains, and gold sewn into his garments.
And so the story comes full circle. Gold as religious adornment and gold as money converge once again. Unlike the more ambiguous relation between the two in the time of Croesus, however, money now emerges as the clear winner not only over gold as adornment but over gold itself. The possession of gold from this point forward is no longer a matter of right, privilege, or hierarchical position in society. It is earned or it is plundered or discovered anew in the rivers and mountains. Whatever the source, an increase in the stock of gold provokes high excitement, because that gold is an instant path to money-and to power.