War and Gold

Starred review from January 13, 2014
The title’s implications aside, this is really a history of money—thoroughly satisfying and remarkably accessible. Aiming to explain today’s international financial turmoil, British historian and Conservative MP Kwarteng (Ghosts of Empire: Britain’s Legacies in the Modern World) begins with Spain’s conquest of America and its resultant bonanza of gold and silver. This bullion allowed governments to pay for wars and bolstered the European nation-state, yet it also fostered inflation, deficits, and a vast expansion of paper money—the three sins of classical economics. Centuries of financial bedlam paused during the Victorian era of gold-based stable currency and balanced budgets, but two ruinous world wars resurrected deficits and unprecedented government spending. The 1944 Bretton Woods Agreement revived gold-based discipline, but its end in 1971 led to an explosion of credit, easy money, financial chicanery, the rise of Japan and the European Union(, the spectacular transformation of China, and the continued, if shaky, domination of a pugnacious, free-spending America and its dollar. While John Kenneth Galbraith’s 1975 Money: Whence it Came, Where It Went remains the subject’s touchstone, Kwarteng superbly brings that volume up to date in explaining the almost unexplainable. Agent: Georgina Capel, Capel & Land Ltd. (U.K.)

May 1, 2014
In Ghosts of Empire: Britain's Legacies in the Modern World (2012), conservative Parliament member Kwarteng delivered an impressive chronicle of the long-term effects of British colonial rule. This book, about the economics of war and the use and abuse of the gold standard, is a bit less readable, but still informative, for those not well-versed in economic theory.The author easily explains Robert Peel's theory of balanced budget and sound currency and follows up with Keynes' theory of borrowing and stimulating the economy. With the advent of 20th-century economics, the picture became more convoluted. The theory that war is the greatest influence on fiscal policy was illustrated beginning with the 17th century and the Habsburg's perpetual need to fund their imperialism. While vast, the amount of gold and silver coming from their New World holdings was still not enough, so they had to borrow. Gold is the real story here, as Kwarteng traces the gold supply and who has held it, as well as the development of central banks as the lender of last resort. Funding for wars usually came from increased taxes and customs duties, but borrowing was inevitably the major source of capital. Usually, it came down to the country holding the biggest gold reserves. The British dropped the gold standard with the beginning of World War I in 1914, and gold was pegged to the U.S. dollar at the 1944 Bretton Woods conference. That made the dollar convertible to gold, a dangerous situation that forced President Richard Nixon to close the "gold window" in 1971.Should we return to the gold standard? Has oil taken the place of gold on the world economic stage? Who will be the next big power? Kwarteng does not provide all the answers, but he does give a solid overview of the possibilities.

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April 1, 2014
Several centuries ago, a Spanish chronicler referred to his countrymen's lust for gold as a disease of the mind and soul. As this fascinating survey reveals, this lust to accumulate gold and silver that began with the conquest of the Americas has proved to be both a blessing and a curse. The plundering of the wealth of several indigenous civilizations made the Spanish Empire the greatest power in Europe. Yet it eventually led to the demise of Spanish power, as incessant warfare to defend its colonial possessions and trade routes bankrupted the treasury. Furthermore, the insertion of massive amounts of gold and silver into the European economy fueled rampant inflation. On the other hand, the use of gold as a standard to gauge the value of paper money was a vital source of economic stability, and some economists still mourn the abandonment of that standard. This is an easily digestible melding of history and economics that helps explain both the past and present sources of wealth and national conflicts.(Reprinted with permission of Booklist, copyright 2014, American Library Association.)