War and Gold: A Five-Hundred-Year History of Empires, Adventures, and Debt

429 Pages·2014·3.36 MB·English

by  Kwasi Kwarteng

WAR AND GOLD
BY THE SAME AUTHOR
Ghosts of Empire

Copyright © 2014 by Kwasi Kwarteng.
First published in Great Britain in 2014 by Bloomsbury Publishing.
Published in the United States in 2014 by PublicAffairs™, a Member of the Perseus Books Group All rights
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Typeset by Hewer Text UK Ltd, Edinburgh.
Library of Congress Control Number: 2013952850
ISBN 978–1-61039–196–2 (EB)
First Edition
10 9 8 7 6 5 4 3 2 1
Contents Introduction
PART I
Gold: The Establishment of Order, c.1500–1914
1 Sweat of the Sun
2 Rival Nations – England and France
3 Revolutions
4 Pillars of Order
5 Great Republic
6 London 1914
PART II
War: The Consequences of Armageddon, 1914–1945
7 Guns and Shells
8 Victors and Vanquished
9 World Crisis
10 Bretton Woods
PART III
Peace: The New Dollar Order, 1945–1973
11 Pax Americana
12 Weary Titans
13 Japan Incorporated
14 Imperial Retreat
PART IV
Paper: The End of Gold, 1973–
15 The Impact of Oil
16 Thatcher and Reagan
17 The Creation of the Euro
18 The Rise of China
19 Delusions of Debt
20 Crises and ‘Bailouts’
Epilogue
Conclusion
Appendix: Value of Gold Stock to World GDP
Notes
Bibliography
Acknowledgements
Index
Photo insert between pages 170–171
Introduction
The financial crisis of 2008 spawned an enormous amount of literature, in
journalism and in books. Many of these works dealt with the fine details of the
conferences, the highly dramatic meetings which took place surrounding the fall
of Lehman’s, that weekend in September 2008, when global finance itself
seemed to be on the verge of the abyss. Many treatments of the crisis have
described the aggressive culture of the banks themselves. They have depicted the
fabulous wealth of the hedge-fund owners who made, or lost, millions as a result
of the credit bubble and bust. Other writers have concentrated on the high level
of government indebtedness which existed after the crisis began, as governments
poured billions into supporting the financial system. Some observers have even
questioned the nature of paper money and credit itself, suggesting that the
adoption of paper money led inevitably to the collapse of 2008.
This book adopts a longer view of the events surrounding the financial crisis
and its consequences. The financial crisis naturally elicited many reflections on
the nature of money and credit, on the nature of the banking system, and even on
the future of capitalism. To anybody interested in a wider context, the events of
2008 also prompted some consideration of how such a fragile system had
developed. It was partly motivated by a desire to understand this background
that I began research for this book. War and Gold attempts to tell a narrative
story about the history of money from the time of the Spanish conquistadors and
their discovery of the New World.
Of course, anyone so bold as to attempt a history of money needs to decide
where to start. Accounts of money and currencies have sometimes started with
the Old Testament, with the Greeks; some have even found the origins of money
in prehistoric times. This book is less ambitious. The starting point of the
Spanish conquistadors was chosen mainly because I share the view of John
Maynard Keynes when he wrote that ‘the modern age opened . . . with the
accumulation of capital which began in the sixteenth century’. This, according to
Keynes’s assessment, was a result of the stimulus provided by the ‘treasure of
gold and silver which Spain brought from the New World into the Old’.1 This
influx of gold and silver which led to higher prices is consequently the subject of
the first chapter of this book.
The Spanish conquest of parts of the New World is often cited as the most
extreme example of the West’s colonial expansion. The ruthless single-
mindedness with which the Spanish sought gold and silver led to tragic scenes of
devastation, both social and physical, in Central and Southern America. From
the point of view of the historian of finance, the scene is more prosaic. Inca gold
and silver were used to support the spending of the Habsburg monarchs of Spain.
It was in this respect that the conquistadors’ efforts were both significant for the
history of money and paradoxical, since the Spanish monarchy, despite the
wealth it had acquired in the New World, was almost always indebted and often
was compelled to declare bankruptcy.
It is a premise of this book that government finance, the need to accumulate
treasure, whether by conquest, by borrowing or by taxation, provides a powerful
impetus behind developments in society. This idea was expressed by the great
Austrian economist Joseph Schumpeter in his article ‘The Crisis of the Tax
State’, published in 1919.2 More specifically, this book argues that the needs of
government spending, in particular relating to war finance, are responsible for
the development of what is often thought of as a narrow and specialist field, that
of monetary history. Currency arrangements – the gold standard, which tied the
value of a currency to a fixed amount of gold, Bretton Woods, the Smithsonian
Agreement of 1971 – have been brokered in the aftermath, or have collapsed
under the pressure, of war. It is fiscal policy – the character of a government’s
spending and taxation – that provides the context for monetary policy. Fiscal
policies clearly have an additional significance in times of war, but in the
modern welfare state government spending plays just as central a role in the
lives of most citizens. This fact establishes what may be termed the ‘primacy of
fiscal policy’ and is a reason why much of the political debate in Western
democracies is centred on the nature of public spending: how much should be
spent? How much should the government borrow? What should the government
spend this money on? What tax levels are best suited to maximizing government
income?
By contrast, monetary debates, regarding levels of interest rates and, even