he coming of the year 1000 was cause for great celebrations throughout the Christian world, and not just because of the arrival of the millennium. For some five hundred years, barbarians beyond the eastern and the northern borders of the old Roman Empire had repeatedly carried out violent raids on a helpless local population. In time, however, raiding lost its novelty and the former barbarians transformed themselves from outside predators into part of the scene. Like the industrious Lombards of northern Italy, they settled down, married, and raised families. Warfare of one kind or another within Europe continued through the ages, but at least the terrifying toll of the barbarian invasions ultimately came to an end. The Normans who invaded England in 1066 were far more civilized than their rough ancestors, the Norsemen, who had earlier descended into France from Scandinavia.

These developments set the scene for major advances in the uses of gold, especially in the promotion of trade, commerce, and finance. In the process, gold would become the preeminent tool in the management of economic power. Gold's strategic role became so dominant over time that the struggle to obtain adequate sources of it would motivate monarchs and nations to great deeds and tragic treachery in the years ahead.

The proliferation of great cathedrals built throughout Europe during the first three hundred years after the celebration of 1000 is dramatic evidence of how life was brightening up in Europe. Between 1100 and 1200 alone, France built more than eighty cathedrals, including Notre Dame and Chartres, to say nothing of five hundred abbeys and ten thousand parish churches. Durham, Canterbury, and Ely rose in England; Spain built Burgos, Toledo, and Santiago de Compostela; in Italy and Sicily, cathedrals were completed in Venice, Florence, Siena, and Palermo. The universities of Paris, Oxford, Bologna, and Salerno were founded. Some of literature's most famous works appeared, including The Cid, the Nibenlungenlied, the Chansons de Geste, and the legend of King Arthur. And great kings governed-men such as Henry II in England, Frederick Barbarossa in the Holy Roman Empire, and Philip Augustus in France.' The most popular role models were knights skilled in the arts of chivalry, and Saint Louis, who was known for his passionate religious and moral leadership.

The increase in population was the most important development. It was not just that fewer people were being killed. In a more peaceful environment, larger numbers of babies were born and survived. In Paris, for example, the population expanded from a little town clustered on the Ile Saint Louis in 1100 into a full-fledged city of some fifty thousand people by 1215.2 Higher rates of population growth do not have to mean falling standards of living. In the twelfth century, larger populations made greater specialization possible, permitted more people to spend time in study, the arts, and research, and stimulated all the networking benefits that cities with a diversified population create.'

The optimism and vitality of this period culminated in the Crusades, the great adventure of the Middle Ages. From 1095 to around 1450, waves of Europeans-often women as well as men, and, in one instance, children-walked or sailed to Constantinople and to Asia Minor, professing to regain the Holy Land for Christendom. These expeditions were on occasion a powerful positive expression of faith, but more often they were an escape from the tedium of small-town or rural existence, inspired by dreams of glory and even more vivid dreams of riches and treasures to be captured and carried back home.

During the 1300s, massacring infidels became a much less compelling objective as trade, commerce, and the interchange of intellectual ideas with the Arabs flourished, along with a flood of medical, scientific, mathematical, and philosophical innovations-including the windmill and the compass-provided by the Arabs. In addition, Arab shipping and transportation routes opened up access to the silks and damasks, spices and lemons, and finely woven tapestries of the countries to the east. Princes and churchmen whose predecessors had been content with bare walls and floors covered with filthy rushes now insisted on having palaces with gilded vaults, with such furnishings as curtains, cushions, embroideries, and floors covered with oriental carpets.4 Not everything learned from the Arabs had been developed by the Arabs themselves, but the Arabs had accumulated and put to good use a substantial pool of knowledge from the Indians and the Chinese. It was this set of influences that provoked Marco Polo to take off in 1271 on his famous quest in that direction.

The Crusades imposed massive financial requirements on an unsophisticated financial structure. Quite aside from the costs of supplies and equipment, soldiers had to be fed, clothed, housed, and paid in coin acceptable in the occupied territories, where gold was the basis of all the currencies and where the armies consisted less of men motivated by religious zeal and knightly chivalry and more of adventurers and mercenaries. In addition, ransoms payable in gold were often demanded for captured prisoners. Ships that traveled full of soldiers and supplies in an eastward direction were willing to take on freight at very low rates for the trip back to Europe, rather than traveling empty, and this pattern encouraged large-scale importations of the attractive merchandise of Arabia, which in turn required payments, most often in gold.

Much of the gold used by the crusaders came from the Holy Land itself, which relieved the need to import gold from Europe. Professor Andrew Watson, in a 1967 paper for the Economic History Society, lists a wide variety of local sources, such as "subsidies paid by the Emperor of Constantinople to the Franks; tribute exacted from Arab potentates who bought off the Christians ... booty, such as the twenty golden lamps weighing 20,000 mithgals, removed by Tancred from the temple of Jerusalem ... taxes raised in conquered areas where the basis of the currency had long been gold." Watson asserts that these sums were "truly enormous, though they were often quickly spent." In 1191, for example, the Teinplars bought the island of Cyprus for one hundred thousand golden bezants and then sold it at the same price to Guy de Lusignan. Raymond of Tripoli was ransomed at a cost of 150,000 bezants and the entire army of Saint Louis was redeemed from captivity for the sum of eight hundred thousand dinars.'

The Christian governments in the Levant were striking gold coins as early as 1124, using captured dies so that the money looked just like the local coinage, including the usual Arabic inscriptions praising Mohammed. The Christians continued to produce such coins for another 125 years, although in time a growing proportion of the coins was counterfeit, usually base metal such as copper plated with gold.

In 1250, Pope Innocent IV, scandalized less by the counterfeiting than by Christian mints issuing coins that honored the enemy, finally took action by excommunicating all those involved.6 Such drastic action was essential, because the Christian princes, more businesslike than spiritually inclined, had insisted on continuing to issue coins that had ready acceptance by the Muslims. In response to the pope's demands, the princes took the modest step of stamping Christian sayings while retaining the Arabic script.

Innocent appears to have been an appropriate name for this pope. One can only wonder why the Vatican was so slow on the uptake-or whether it had chosen to look the other way. Indeed, the identical sequence of events had occurred in Spain during the eleventh and twelfth centuries, and, in both gold and silver, throughout Europe.'

Innocent's effort was insufficient to satisfy Saint Louis, who was in the Holy Land on a crusade and added his authority to the pope's. An entire new coin appeared, the Agnus Dei (Lamb of God), which reflected both Louis's religious humility and his French pride: Christus vincit, Christus regnat, Christus imperat (Christ conquers, Christ reigns, Christ commands), the ritual acclamation of the French kings.'

We now move westward across the Mediterranean to the Kingdom of Sicily, which was ruled from 1211 to 1250 by the Holy Roman Emperor Frederick II, grandson of the great Frederick Barbarossa and one of the towering figures of the Middle Ages. Frederick was an enthusiastic producer of gold coins that he employed to project his economic power.

Frederick was born in Sicily in 1194, the same year his father had been crowned king of Sicily. Although a hypochondriac,9 Frederick was a valiant crusader, established an expert bureaucracy, opened Sicily to free trade, surrounded himself with the greatest intellectuals of the age, levied heavy taxes on the clergy and prohibited them from holding civil office, built handsome castles throughout Sicily, and founded a university at Palermo to train public servants-the first European university with a royal charter. Not incidentally, he also left his mark on the gold currency of his time.

Frederick did an extraordinary amount of traveling and was almost constantly at war with the papacy. He launched the Sixth Crusade in 1227, returned to Sicily to do battle with Pope Gregory IX-who excommunicated him-and then went once more to the Holy Land, where he reclaimed Jerusalem for the Christian forces. Jerusalem fell to Muslim mercenaries later on, and despite another two hundred years of crusading, was never again in Christian hands until the British General Allenby captured it in 1917. After declaring himself king of Jerusalem, Frederick traveled back to Sicily to defend his lands against another papal attack and survived a second excommunication (as a heretic, rake, and anti-Christ).

When, to Frederick's relief, Gregory gave up the ghost in 1241, the new pope was Sinobaldo Fiesco, who adopted the title of Innocent IV. This was the Innocent (innocent?) who had so belatedly prohibited the Christians in the Holy Land from issuing coins with Arab inscriptions praising Mohammed. Frederick had expected this pope to be a friend, but that may have been innocent on his part, because Fiesco came from Genoa, Sicily's mortal enemy and determined competitor for economic dominance. Frederick and Innocent were soon involved in a vicious war with each other that included an assassination attempt on Frederick and the capture of his son, who spent the last 23 years of his life in prison. Frederick suffered a final defeat at Parma in 1248 and died suddenly two years later. Frederick's son-in-law was reduced to pawning the Sicilian throne to some enterprising Genoese businessmen in return for gold.

At the time of Frederick's death, Sicily was operating with two concurrent gold standards. One was the tan', which had Arabic roots and had been in use since the ninth century. Although the tan'had gone through some debasement over the years, from the early twelfth century onward it was stabilized at 16%3 carats of gold. This was better than the purity of the Byzantine solidus at that time and established it as one of the most stable in Europe. The coins were stamped out in a variety of sizes and tended to circulate on the basis of their weight rather than their face value. The tan' enjoyed such wide circulation that it became a kind of unit of account by which many items were priced.

Frederick II considered the tari unimpressive and too irregular for the homeland of a Holy Roman Emperor of his exalted status. After a military victory against the Tunisians in 1231, he was assured of a substantial annual tribute in both gold coin and gold dust from the West African gold sources. Now Frederick's imperial mints began to strike a new gold coin called the augustalis. Robert Sabatino Lopez describes the augustalis, with its classical eagle imprinted on one side and the emperor's laureate head on the other, as "a startling advertising medium" and a dramatic contrast to the formless tari.i° The augustalis was minted in 20%2 carats and weighed 5.28 grams, which gave it greater value than the Arab dinar. This impressive coin soon eclipsed the taxi and was in strong demand throughout western Europe and the Near East.

Genoa had long considered Frederick II and the Sicilians their archenemies. The Genoese nursed dreams of attaching Sicily to their own domains and had been intermittently at war with Frederick ever since 1238. Genoa derived immediate and significant benefits from the election of Pope Innocent IV in 1241, Frederick's defeat in 1248, and his death in 1250. In particular, Innocent showered privileges on his hometown and proceeded to claim the Kingdom of Sicily for the Holy See.

Genoa compensated for lack of military power with aggressive economic policies. By 1250, the Genoese were enjoying a prosperous tex tile industry and widespread construction of new buildings. Genoa's huge shipyards produced most of the eighteen hundred ships that sailed for Saint Louis's crusade in 1248 under the command of Genoese admirals. Commercial enterprises of all kinds were making their appearance, and bankers and merchants from the major city-states of northern Italy were there to do business. Lopez states, "The very technique of credit operations, which had constantly progressed during the last hundred years, displayed at this period a maturity not to be surpassed for many years to come."" The Genoese had lent large suns to both Saint Louis and Innocent IV and had been bankers to just about every important crusader. And then there was the opportunity opening up in the Holy Land for new gold coins as the Christian princes finally yielded to Innocent's insistence that they reform their coinage.

Meanwhile, increasing supplies of gold were becoming available to the Genoese. New gold mines opened up in Bohemia, but the primary source was the African gold that flowed mainly toward Genoa as a result of the favorable balance of trade that the Italians maintained with North Africa. Genoese records suggest that trade with the Levant was also turning favorable, bringing Islamic and Byzantine coins to the Italian shores for remelting into Genovese coins. Indeed, even China was complaining at that time of a loss of gold through foreign trade. Finally, a period of sustained prosperity probably led to the dehoarding of gold as well. We know that the Italians were supplying the English Treasury with gold in the middle of the thirteenth century.12

As Englishmen in their time knew well and as Americans have learned in the years since World War II, good money adds its luster to the world's image of a nation. A high-value gold coin, sustained in purity, was an ideal vehicle for Genoa to extend the reach of its economic prestige. In 1252, two years after the death of Frederick in Sicily, when the price of gold in Europe happened to be unusually low compared with the price of silver, Genoa began to issue a 24-carat gold coin called the genovino (or genoin). Oddly enough, their sour relationship led the Genoese to take the Sicilian coinage system as their model. They adopted the weight systems of the tan and then stepped up the quality of the coin from Frederick's by minting it in 24-carat gold. Both features would enhance the acceptability of the Genoese money in the Sicily that the Genoans so avidly coveted.

These coins weighed about 3.5 grams, a full gram less than Constantine's original bezants, but the 24-carat purity was a big attraction. A 3.5-gram solid gold coin would be the equivalent of about $33 of 1999 purchasing power, but the purchasing power of gold in terms of goods and services was many times greater in the Middle Ages than it is today. The high contemporary value of these coins had more than economic significance: their high value reflected prestige and glory upon their issuers. This aura was further enhanced because such coins were not meant for the use of hoi polloi; they circulated among the upper classes and most active merchants.13

We can develop a sense of the nature of the genoin by comparing it to a $2.50 gold coin in my possession (the coin is stamped '12V' rather than "$2.50"), about the size of a dime and minted in 1865. My coin is equal to 12 percent of an ounce, or nearly the same weight as the thirteenth-century gold genoins. This little piece of arithmetic reveals three important facts. First, genoins were about the size of a contemporary ten-cent coin in the United States. Second, as a dollar in 1865 bought about seventeen times as much as a dollar buys today, $2.50 when it was minted in 1865 bought as much as $42.50 would buy today. Third, and perhaps most interesting, the tradition of the 3.5-gram coin persisted for more than six hundred years.

The chief motive of the Genoese in issuing the genoin was commercial, but they also understood that economic power and political power mutually enhance each other. Indeed, within ten years of the introduction of their golden currency, Genoese power had persuaded the Latin rulers of Constantinople that the proprietary trading privileges held by the Venetians should be transferred to Genoa. The Genoese then used their base in Constantinople to extend their trade and influence into northern Persia, the Crimea, and the farthest shores of the Black and Caspian Seas. Soon they were venturing into the upper Nile and exploring the Sudan and the Niger River basin.

The needs of commerce explain why the first steps toward minting gold coins in the Middle Ages took place in such cities as Genoa and Florence that were centers of economic and financial activity instead of in the capitals of the nation-states, such as London or Paris or even Rome. Lopez asserts that the events of 1252

touched off one of the greatest chain reactions in monetary history. ... The return to gold did more than provide symbols and tokens: it relieved the strain which economic growth was placing on a chronically inadequate currency.... It was the most spectacular token of the economic gains accumulated by the Catholic world during the preceding two or three centuries, and a tangible symbol of the initial superiority of the West over the East-for the Islamic world and Byzantium, which minted gold when Europe was content with silver, now debased their gold or ceased to strike it.14

Lopez was accurate in using the metaphor of a chain reaction to describe what happened with the use of gold as money following the innovation of the genoin. Only a few months after Genoa had acted, the Florentines issued their fiorino d'oro, or florin, so called because it had a fleur-de-lys on one side. Perugia and Milan followed with gold coinages shortly afterward, and Lucca around 1273. In 1284, the Venetian ducat appeared, the most famous and successful of all the gold coins born in the course of the thirteenth century. When Shylock hears that his runaway daughter Jessica has "in one night spent fourscore ducats," he cries, "Thou stick'st a dagger in me! I shall never see my gold again! Fourscore ducats at a sitting! Fourscore ducats!"15 The ducat served as a standard of value throughout Europe and maintained its gold content until the Venetian Republic fell to Napoleon in 1797.16 All these coins weighed 3.5 grams and were 24-carat gold.

The issuance of new gold coins was by no means limited to Italy. Both Alfonso X in Castile and Henry III in England issued gold coins in 1257, and Saint Louis joined in at just about the same moment. Sad to relate, Henry of England's gold penny was set at an inappropriate value relative to silver and ended up a total failure. Henry began with his coin equal to twenty pence in silver, later raised to 24 pence, but the same quantity of goods that the gold could buy could be purchased more cheaply just by paying with silver. Within three months, complaints rose within the City that no one wanted to exchange the new coins for silver. Merchants had no use for them, and poor people would never spend that much in a single transaction, or perhaps in a year of transactions. No trace of these coins has been found since about 1280.

Nevertheless, the English merchants complained that they had to use foreign gold coins in their international transactions at values in terms of sterling that were unfavorable to them. In 1343, King Edward III tried issuing an English gold florin whose face value was above the market value for the gold it contained, but this, too, met with resistance everywhere, including among many of England's best customers abroad. When the Florentines refused to accept these coins, they used the quaint excuse that the coins lacked an image of Saint John the Baptist. These difficulties led Edward to issue a new gold coin the following year with a more appropriate weight, called the noble, whose sides celebrated Edward's great victories in the Hundred Years' War against the French: Crecy on land and Sluys at sea. The noble also had a checkered career in its early years, but in time it became the basic gold coin of England until well into the seventeenth century."

This laggard performance by the English in large part reflected their slow pace of economic and financial development compared to developments on the Continent. In dramatic contrast to its role in the world in the nineteenth and twentieth centuries, thirteenth-century London was far less cosmopolitan than Paris or Augsburg or the Italian city-states. With a population of about fifty thousand and the only city in England except York with more than ten thousand inhabitants, London was about half the size of Paris, Florence, Venice, and Genoa and no larger than Bruges, Bologna, or Palermo." The English, still feudal and rural, had not yet been consumed by the hard-headed, businessoriented calculations that led to the genoin, the florin, and the ducat, in large part because the typical English transaction was far smaller than transactions on the Continent. Even as late as the middle of the fifteenth century, aliens still controlled about 40 percent of English overseas trade; Florentine bankers financed the wars of Henry's son Edward I and bought the wool crop from Edward III. According to one authority, the Italian merchants "achieved a financial despotism which London has never had, for during a considerable period [these merchants] seem to have been able to fix quite arbitrarily their own exchange rates."" The arrival of the "nation of shopkeepers" still lay in the future.

Silver's convenience for small-scale transactions and relatively plentiful supplies preserved its role as the primary monetary metal for another five hundred years, but silver would never again be the sole form of precious-metal coinage in Europe. Nevertheless, the tangled interaction between the two metals escalated with the passage of time and became the source of endless disputes and complications. The tangle would by no means be limited to the two metals. As we shall see, once bank deposits and paper money in their various manifestations came into use as convenient substitutes for coins, the appropriate relationship between these powerful innovations and the precious metals became so controversial that it has never been settled even up to this very moment.

The expansion of commerce and finance caused a growing emphasis on money, but more than the give-and-take of supply and demand was at work. Money is a natural source of fascination. Money's arithmetic involves complexities of fractions and ratios, its ownership conveys power, and it is the key to the doors of foreign nations. The risk of losing it is simultaneously exciting and terrifying, and the power it conveys is irresistible. The development of commerce and banking in the Middle Ages nurtured all these interests and compulsions.

Just over the horizon, a ghastly interruption to this process was about to descend over Europe, a sequence of events so awful that for a moment money would almost cease to matter. Yet nothing with a likeness to beatitude can be suppressed for long. The glint of gold would soon shine through the terrors.