The Value of Gold throughout History
Besides the practical reasons for the monetary value of gold discussed above, one only has to conduct a brief survey of world history to determine that gold has always had inherent monetary value, even in times of distress and so-called “dark ages.” The first written records of gold being used in a monetary context come from ancient Egypt. During what historians call the New Kingdom (ca. 1550-1000 BC), Egypt was at its cultural, military, and economic apex, which was supported largely by its numerous gold mines. Diplomatic letters between the kings of Egypt and those of Babylon, Assyria, and the Hittites relate how the Egyptians traded gold for horses to pull their chariots, timber to build their temples and boats, and precious stones like lapis lazuli to create their magnificent works of art. In fact, gold was so plentiful in Egypt that leaders of the other kingdoms proclaimed that, “gold is like sand in your kingdom so send us more.” Although most of the great kingdoms of the Bronze Age Near East collapsed in waves of invasions that engulfed the region around the year 1200 BC, gold retained its value and continued to be used.
As the world emerged from the dark age inflicted on it by roving bands of marauders, a new political order emerged, but it was one that valued gold as much the previous system. By the sixth century BC the Persians established an empire that stretched from what is today Afghanistan to Egypt and from Turkey to Saudi Arabia. Controlling such a vast empire was no easy task, but the Persians did a fine job through a variety of methods that included: a complex system of roads, a postal service, and above all by standardizing a currency based on gold coins. The Persians knew the monetary value of gold so they used it to run the day to day operations of their empire as well as to build their great cities and monuments, until their empire was conquered by Alexander the Great in 330 BC. After the collapse of the Persian Empire the focus of power in the world moved to Europe, but gold’s monetary value continued.
Both the Greeks and the Romans used gold as a standard form of currency in both of their societies. In fact, gold was so important that it was partially responsible for the start of the Peloponnesian War (431-404 BC) between Athens and Sparta. As Athens grew in power in the middle of the fifth century BC it decided to move the treasury, which was comprised primarily of gold, from the city of Delos to Athens. After Greece was consumed by the growing Roman Empire 146 BC the value of gold continued to grow with the Romans who engraved their emperors on coins and used the metal to fund their colossal army. When the Roman Empire finally collapsed in 476 AD Europe entered the period known as the Dark Ages where civilization regressed for hundreds of years, which left the continent poor and backwards.
Despite the poverty that the Dark Ages inflicted on Europe, the monetary value of gold did not diminish; in fact, gold reestablished itself as a currency among the kings, feudal lords, popes, and bishops of medieval Europe. As the various kingdoms of Europe grew into nation-states they all searched for new sources of gold. As the gold mines of Europe were exhausted the price of gold climbed until the discovery of the Americas.
The discovery of the Americas created a new political and economic system in the world where gold played a vital role. As the Spanish conquered and explored what would become central and South America during the 1500s, they discovered vast amounts of virgin gold and silver supplies. The Spanish used these new sources of gold and silver to fund their armies and build an empire that lasted for nearly 300 years. Although gold helped propel the Spanish to never before seen heights of power, they soon found out that the immense amount of gold they introduced into the world market had the adverse effect of lowering its price. The Spanish learned that although gold has a definite monetary value, it also has its limits and is subject to devaluation like anything else. Since the Spanish introduced so much gold into the world market its price dropped and the Spanish soon learned that without its optimal value they could not hold their empire together.
The excessive introduction of gold into the world market by the Spanish never ended the monetary value of gold, it just merely lowered its price for a while and before too long gold’s value began to climb once more. Even in more recent history gold was still used as the monetary standard in most nation-states. In the United States paper currency was backed by gold until President Roosevelt signed the Gold Confiscation Act into law in 1933. Under the law citizens were only allowed to own small amounts of gold and people could no longer redeem tangible gold with paper money. Towards the end of World War II the major Western powers of the world agreed to follow what was known as the Bretton Woods system. Under this system the dollar was once again backed by gold at $35 an ounce, but such an arbitrary system was doomed to fail; in 1971 U.S. president Richard Nixon defaulted on the system, which once more meant that paper money was longer back by gold. It should not come as a surprise, and is no coincidence, that the rapid decline in the value of the Dollar has taken place in the years since Roosevelt took the U.S. off the gold standard.