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

by Kwasi Kwarteng

In the sixteenth century, Spanish conquistadors discovered the New World. The vast quantities of gold and silver would make their country rich, yet the new wealth, which was plunged into multiple wars, would eventually lead to the economic ruin of their empire.

Here, historian and politician Kwasi Kwarteng shows that this moment in world history has been echoed many times, from the French Revolution to both World Wars, right up to the present day, when our own financial crisis saw many of our great nations slip into financial trouble. Kwarteng reveals a pattern of war-waging, financial debt and fluctuations between paper money and the gold standard, and creates a compelling study of the powerful relationship that has shaped the world as we know it, that between war and gold.

Genres: History, Economics, Nonfiction, Politics, Finance

442 pages, Kindle Edition

First published March 25, 2014

About the author

Kwasi Alfred Addo Kwarteng is a British politician and historian. A member of the Conservative Party, he has served as a member of parliament (MP) since 2010, representing the constituency of Spelthorne in Surrey.

Reviews

[Mike · Rating 2 out of 5]

The main impact of this book is that I should buy gold and silver in anticipation of the collapse of the currency--an insurance policy that has paid off in the past. The book has good coverage of central banks and what are good and bad practices. The book gets tedious with names, dates and locations. Depressing in that we have and don't seem to be able to resist money schemers. We don't seem to have long memories. 2 StarsI wouldn't rush out to get a copy.

The author’s thesis is that the modern financial system dates from the conquest of Mexico and Peru (which was much larger than the current country of Peru). The immense increase in precious metals:

The Spanish Crown did not own, or manage, mines directly. The Habsburgs’ share of the profits from the mineral wealth of the New World took the form of a tax, the quinto real, or royal fifth. As its name implied, this was a 20 per cent royalty fee imposed on every ounce of gold and silver extracted from the New World which came into Seville, the only permissible entry port into Europe for the Spanish treasures from further west. In a period just short of 160 years, from 1503 to 1660, it has been estimated that 16,000 metric tonnes of silver arrived at Seville, enough to triple the existing silver resources of Europe, while only 185 metric tonnes of gold entered Seville from the New World during the same period, which increased Europe's gold supplies by only a fifth. Silver was the key element of the imaginary wealth of Spain.

Spain did not use its new-found wealth to build any infrastructure, or to increase its long-term productive potential. Rather, it ‘dissipated its New World-based wealth on the first global war’. New World silver was used to pay for troops to wage war successively against the French, the Turks, the German Protestant princes and the Dutch. Habsburg Spain was perpetually at war, and the resources of the New World were expended lavishly to pay for these campaigns.

Misdirection, you can see it still on any financial news network:

As with many financiers since, (Sir Henry) Furnese’s great strength lay in his wide network of contacts and the information he gathered from it. Throughout Holland, Flanders, France, and Germany, he maintained a complete and perfect train of intelligence. So great was his advantage in this respect that, in many instances, the ‘temptation to deceive was too great ... He fabricated news; he insinuated false intelligence.’ According to the same account, written in 1850, Furnese ‘was the originator of some of those plans which at a later period were managed to much effect by [Nathan] Rothschild’ in the early nineteenth century. If Furnese ‘wished to buy, his brokers were ordered to look gloomy and mysterious, hint at important news, and after a time sell’. All the eyes of the exchange would be on Furnese’s movements and prices would be lowered if he and his brokers looked in any way downhearted. At this point, Furnese ‘would reap the benefit by employing different brokers to purchase as much as possible at the reduced price’.

John Law, a Scotsman, was very interesting and had influence in Italy and France, after being invited to leave Scotland. His ideas still have influence today:

To most contemporaries, money meant gold and silver and nothing else. The Spanish had plundered the New World in their search for these precious commodities, which they regarded as the ultimate symbol of wealth. Against these principles, (John) Law advanced the novel idea that paper was ‘more qualified for the use of money, than silver’.’

The benefit of paper money, according to Law, was that it could stimulate trade. His pamphlet was published in Edinburgh because it had been written to persuade the Scottish Parliament of the potential advantage to be derived from paper credit or paper money. Scotland, in Law’s opinion, had a ‘very inconsiderable Trade, because she has but a very small part of the money’. Naturally enough, if the stock of money was increased, trade would increase with it. Law attributed the paucity of trade to the scarcity of money. In his own words, very simply put, ‘A greater Quantity [of money] employs more People than a lesser Quantity.? Another central component of Law’s thinking was that more economic activity would lead to an export surplus. This latter conclusion has not been endorsed by modern economists, but Law’s suggestion that the level of output, or ‘trade’ in his terminology, was related to the quantity of money is an idea which has been persistently espoused by later economists. Indeed, the modern advocates of ‘quantitative easing’, whereby a central bank prints more money to sustain economic activity, are the intellectual descendants of John Law.

[Keith McGowan · Rating 3 out of 5]

A nice summary of the relationship between excessive government spending (usually to finance a war) and the demand for gold (standard value often used to evaluate fiat paper money.

According to the author, governments have engaged in deficit spending for short periods of time (to finance a war) and then balance their budgets (by returning to a gold standard). Governments that tried to perpetually engage in deficit spending (Spain, France) did so at their eventual peril.

Where the book breaks down is in failing to extrapolate from past history to current events. The author only hints about the possible effects on the demand for gold that the extraordinary deficit spending modern governments are engaging in to prop up their economies. Citizens have been willing to sacrifice during times of war; will they be so willing today?

A disconcerting habit of the author was to quote Time magazine as an authoritative source. In an otherwise scholarly treatise? Time? Really?

[Colin · Rating 2 out of 5]

Kudos to whichever editor came up with this title, which greatly oversells the contents. The book is actually something of a general history of monetary policymaking (primarily that of the UK and US), loosely organized around the use and abandonment of the gold standard. Forced myself to finish it, but too dry and disjointed for me to get much out of.

[Peter Tillman · Rating 1 out of 5]

This one got good reviews, sounded like my sort of book, and I tried hard to read it. Bogged down pretty early. Not for me!

[Sajith Kumar · Rating 4 out of 5]

The trade and commerce of ancient and medieval societies were based on exchange of precious material such as cowrie shells, beads of rarely occurring minerals, shaped stones, silver and gold. Taken alone, gold is just another metal but with lesser practical use than iron. Its value was assigned by a consensus of the society which handled it that it was precious. So were cowrie shells a few centuries before. If that is the case, why not use paper with special markings and engravings as a store of value that is impossible to replicate without costly equipment? The idea is surprisingly new, probably developed only when the state’s law-enforcing arms became longer that effectively put a stop to counterfeiting on a large scale. Trade expanded enormously with the growth of credit and global economy thrived. This book is an excellent attempt to tell a narrative story about the history of money from the time of the Spanish conquistadors and their discovery of the New World – in short, the origin of the Western world as we know it today. It summarizes some of the monetary developments which have shaped government in the last 500 years. Kwasi Kwarteng is a British politician of Ghanaian parentage and holds a PhD in history. He served as the Chancellor of the Exchequer for a month when Liz Truss was the prime minister.

The discovery of vast stores of gold in the New World during the sixteenth century invigorated European economy and polity. Spain was the only kingdom ordained by the Pope to conquer the New World. It is ironic that such immense wealth did not make Spain a great nation even though gold and silver flowed like water into its coffers. Spain used it to fund their military conquests. They heavily borrowed from private bankers and were in great debt. Increase in the availability of bullion led to general price rise and merchant classes flourished by the end of that century. The constant need to pay for wars was the principal engine of modern finance. This in turn indirectly controlled the destinies of nations. The Seven Years’ War (1756-63) greatly indebted Britain. To raise money they resorted to taxation of the American colonies which was resented, fiercely resisted and finally led to the birth of the United States after a war of independence. Paper money came into general use after the two revolutions in US and France. Administrations printed money for their use at will that caused its loss of value. This was later linked to gold. The institution which issued the paper currency kept a portion of its value in the form of gold and released the bullion in exchange of paper currency at a constant pre-specified rate. This mechanism was known as the gold standard and remained in vogue till 1971 when the US opted out of the gold standard.

The period between Napoleon’s defeat at Waterloo in 1815 and the First World War in 1914 may rightly be called an era of financial prudence and discipline in which governments tried very hard to keep balanced budgets with deficit in a year counterbalanced by surplus in the following years. A currency fully convertible into gold, a central bank which controlled the note issue based on that gold and an extensive and highly developed market for credit were features of the Late Victorian Age. Towards the end of the nineteenth century, the complacency of the ruling group towards the ambitions of the ruled saw some real downward pressure. As democratic elements further strengthened, greater public spending was demanded from government. This pushed them to deficit to cover which they started borrowing money on a larger scale. World War I upset all political calculations and national budgets in Europe. The war was fought on borrowed money. More cash were printed and the currency was briefly unpegged from the gold standard. As the currency was delinked from gold, inflation soared again. The thinking changed and the practice of having balanced budgets gave way to deficit financing. The wartime restrictions undermined Britain’s position as the financial and industrial capital of the world. The USA stepped into British shoes. Britain’s national debt multiplied 12.5 times from 1914 to 1921. War thus inevitably put an end to the balanced rectitude of Victorian public finance.

The five decades between the end of World War I in 1918 and the fall of Bretton Woods Agreement in 1971 saw the climax of the gold standard and its inevitable demise. The Great Depression broke out in 1929 when the US Dollar was still linked to gold. Rapidly expanding export to post-War Europe accumulated a large quantity of gold in the US. Interest rates plummeted. When interest rate goes low, investors search for innovative schemes to derive more yield on their invested money. The low interests generated a credit boom coupled with visual prosperity of the American people through instalment purchases. When the credit bubble burst, the economy went into depression in 1929. After four years of low activity, the US devalued its currency by 59 per cent resetting the gold value to $35 an ounce from $20.67 set in 1792. The irony is that the 1929 depression occurred when the US was still enjoying a surplus in foreign trade while the 2008 recession happened under a trade deficit. The two world wars and the Depression transformed the ideas of a sound currency and balanced budgets into a consensus of debt and unprecedented levels of government spending often named as the Keynesian system after the writings of John Maynard Keynes. The Bretton Woods Agreement did not straightaway go back to the gold standard. Other currencies were pegged to the dollar under a somewhat static exchange rate. The dollar itself was then linked to gold. The US then bankrolled Europe and Japan for post-War reconstruction.

The book neatly summarizes the post-World War II commerce and the compulsions which made the US abandon the gold standard in 1971, perhaps for ever. The enviable position of Britain was irredeemably lost at the end of the War in 1945. Britain lay devastated and prostrate. A third of its overseas investments were liquidated and export trade ceased to function. Dollar gained ascendancy over the pound sterling and Britain became the leading debtor country in the world. Instead of then adopting pragmatic free-trade policies, Britain democratically brought in socialism that undermined the growth of the economy. At the same time, Americans imposed a well-managed form of capitalism on Germany which had surrendered. The same system with some minor modifications was also implemented in Japan. Under the canopy of American military support, Japan did not have to incur the ruinous defence expenditure of the pre-War years. Its US-made economic framework kept the Japanese Yen at an artificially low exchange rate against the dollar which boosted exports to the US and brought prosperity to the economy. When Europe and Japan recovered, American balance of trade shifted in their favour and the US became a net importer. Trade deficit made American gold to flow out of the country into the hands of foreign exporters – Germany and Japan. The US was incurring huge expenditure in the Vietnam War too. The pressure on gold mounted to such a high extreme that the US exited from the gold standard in 1971 and the Bretton Woods system collapsed.

Kwarteng makes a lucid analysis and unprejudiced commentary on the world economy that entered ‘the modern period’ with the demise of Bretton Woods, in which currencies unpegged to any gold value freely floated in exchange rates to other currencies, like any other commodity. The tight control of money supply by central banks known as monetarism came into being as the prominent philosophy by the end-1970s. It sought to control inflation and regulate government spending to the lower scales. Paper currencies not backed by any commodity standard facilitated unprecedented credit expansion. The soaring gold price from $40 an ounce in 1971 to $2700 today shows the extent to which investors were losing faith in the American currency. Paper money allowed governments to print ever greater quantities of cash and still shielded the most developed countries from the consequences of their excessive spending. Poorer countries would not be that lucky in this situation. Almost the entire book is dedicated to America and Europe and the small amount of space given over to Asian powers like China and Japan makes for interesting reading. The rise of China followed the path of mercantilism. This is a system which sought to boost exports in order to gain gold. A large population and low wages helped them achieve their objectives. The Chinese yuan was kept low in value which was stable during the Southeast Asian crisis in late-1990s even though the pressure on yuan was considerable as the other currencies were falling. The Chinese leaders, who are unaccountable to anything like a democratic electorate, planned for the long term and refused to be swayed by short-term considerations (p.292). The book was written in 2014 and contains no mention of India at all or its potential as a rising major economy at a level matching a part of China’s growth numbers.

Books on macro finance and economy has a nasty habit of being very lucid at first, dry after a point and would make the reader gasping for breath in the end. This book is delightfully different from this generic dictum. All parts of the book maintain clarity of thought and fruitfully engage the attention of the readers. It is amazing that Kwarteng packs five centuries of financial history into a solid tome that reviews each crisis faced by nations and the lessons learned from that episode are used to rewrite the future story. Even though a politician himself, Kwarteng has been very diligent in avoiding contentious postulates. The intricate ways in which the global political landscape emerged from a series of episodes such as the Vietnam War, oil embargo of 1973, the Reagan-Thatcher years, rise of China, the Southeast Asian crisis of the end-1990s and the 2008 recession are all catalogued in this book in an effective manner.

The book is highly recommended.

[Daniel Polansky]

a perfectly acceptable history of 20th century finance, breezily written, coherent to a reasonably attentive reader without much prior knowledge of economics. In and of itself an admirable, if not particularly ambitious work. Lamentably, this is not at all how the book is marketed or presents itself. The first four hundred years alluded to in the subtitle are dispensed with in about fifty pages, and it really could not be said to deal with war to any particular degree, nor finance as an aspect of war. Still, I learned some things I didn't know before hand. Were there sword fights? No, it was not that sort of book.

[Richard Saunders]

Finished the book after being distracted through the entire summer. Excellent summary of national policy, concentrating heavily on the 20th century and particularly the post-war period. Takes matters up to 2014. The good chapter on the American revolution and Civil War is something I will probably use as a reading the next history class I teach, because it gets outside the patriot stories of North and South and deals with the concept of fiscal nation-building--an interesting view. I can recommend the book for casual readers, though you'll profit from an interest in economics. I found the book fascinating reading.

[Pasi · Rating 2 out of 5]

Well written, but personally I was sad how 80% of the book is based on the events of past 100 years. When cover already refers to history of 500 years, I was hoping for more text about those first 400..

[Liam Ostermann · Rating 1 out of 5]

This is very much a politicians book written in response to the economic crisis of 2008 but if he was trying to tie together past and present he does a poor job. It is mostly a look at UK/USA economic policy - the title is misleading in all sorts of ways. It wasn't a great book when I read in 2015 and honestly I don't think anyone would have a reason to read it now (2023).

[patrick Lorelli · Rating 4 out of 5]

This book starts with the explorers and the discovery of gold and silver from the South American Indians who were killed. He later explains how silver at one time was more valuable than gold and how all of these explores really were doing were looking for riches for their country or government for their next war. It seemed that early on that is what most countries were doing was fighting or trying to take over one another. He then explains how banking got started and how some of the biggest banks of today were started over 100s of years ago based on who was going to win a war or a big battle. They would send people out to observe and then report back so the bank could such money before the rest of the population knew the outcome. The Battle of Waterloo was one example. He then goes into how taxes came about and how after gold was discovered in California, it started to replace silver as the more valuable commodity. Things really started to change for at the beginning of World War one, or better the day the Prince and his Wife were assonated. The stock exchange in London and Germany closed and the one in London stayed closed for the rest of the year. This is when the U.S. had extreme growth from 1915 to 1917 over 1 billion dollars’ worth of gold was deposited into American banks while loans that Germany had taken out were not paid back and were never going to be. He then goes into how by the beginning of the 20s credit started not just by the banks but also GM. This is just one reason for the crash there are many others. But the U.S. still by then was a big player in the world and Europe was now feeling as well. After WWII he goes into another period of growth and how we got off the gold standard and then he leads us into today with China being a big player in the World. Overall a good big lots of information some parts drag a little but not all of history kind be exciting. A good book. I got this book from net galley.

[Void lon iXaarii · Rating 4 out of 5]

A very interesting book! Great walk through the last five centuries, right up to modern times. My favorite section was the one on the French revolution and it's currency experiments, as well as insights about the old Spanish and British empire. If there's anything not so awesome (but still great) that I can say about the book is that I felt it tricked me a bit with the title, I was expecting more of a history of correlations between the state of government coffers and debts and international conflicts. I mean that was in there, and with great insights too, just that it felt more like a history of currencies and great political movements (even right up to modern times the recent depression in the US and great insights about the euro project & issues). However I'm not at all complaining, that's a fantastic "problem" to have as the subject is fascinating and treated very elegantly. Overall very interesting book for those who want to learn history while trying to understand the bigger incentive flows and reasons.

[Patrick · Rating 4 out of 5]

War and Gold tells the story of government money from the time of Cortez and Pizarro working for Spain through the current economic struggles related to world banking, mortgage backed securities and overall government debt. The author provides much factual information related to the development of currency and the varying level of successes that governments have had in balancing the printing of money with keeping its value over time. Up until the 1970's, when major currencies gave up their linkage to gold, governments would go into debt over war and use intervening years to reduce or eliminate debt. Once the gold standard was dropped, substantial printing of money and permanent government debt have resulted. Unlike many books written on money, the economy and politics, War and Gold does not preach. It provides sufficient information that one is able to understand the complexities of balancing economic growth with inflation concerns.

[!Tæmbuŝu]

KOBOBOOKS

Reviewed by The Independent (26 Apr 2014)

[Jap Hengky · Rating 4 out of 5]

Kwarteng makes sense of the main moments of global and (specifically, but not exclusively) western monetary history, from the consequences of the first world war to the boom and bust of the 1920s; from the financial consequences of the second world war to the extraordinary achievements of the Bretton Woods conference. Held in July 1944, Bretton Woods established a new world financial order, created the IMF and the precursor of the World Bank, but kept gold as the stabilising factor.

[Reza Amiri Praramadhan · Rating 4 out of 5]

Basically, it is all about whether to keep a balanced budget, or to keep on spending. also discussed are the influences of factors such as gold, war, and debt, and how these three factors are intertwined to each other. A quite informative account on this matter. As for me, I prefer the sound and balanced money.

[Jose Papo · Rating 5 out of 5]

A great book about the link of war and economics, gold, inflation, bonds and debt. Very interesting to understand how innovations in debt and finance were usually created and made available with the needs of war and warrior states.

[Justin · Rating 4 out of 5]

The first 75% of this book from the early history of gold and specie up to M. Thatcher and Ronald Reagan is very good (4.5) . Wow, after that it starts to drag. The final 100 pages took me--for--ev--er to finish.

[Sergio Nebot · Rating 4 out of 5]

Muy interesante para comprender los grandes hitos de la economía de occidente y los procesos que están sucediendo ahora. Únicamente le sobra el primer capítulo, por repetir topicazos y prejuicios de la leyenda negra española.

[John Stepek · Rating 4 out of 5]

Good readable overview of a complex topic. Kwarteng obviously has his own particular take on things but it's a decent kicking off point from which those interested in learning more can do their own further reading.

[Nick Harriss · Rating 5 out of 5]

I loved this book. It gives a wide historical sweep of monetary history, in a similar mould to "Debt - The first 5000 years" and "This Time is Different", but this is by far my favourite of the three. Entertainingly written, but never lacking in detail, I would highly recommend it.

[Tim · Rating 4 out of 5]

12 Karats!