Peter l. Bernstein's history of the metal's expansive grip falls
short in many areas, but makes a case for old-economy basics
Brands are hard to forge and easy to tarnish. Yet in the search for
bigger markets or greater profits, it is all too tempting to debase
a winning formula.
What is true for companies also holds for individuals. Take Peter
L. Bernstein, author of "The Power of Gold: The History of An Obsession."
Bernstein, a money manager and consultant as well as an author, is best
known for his widely-acclaimed "Against the Gods: The Remarkable Story
of Risk. While "The Power of Gold" is likely to become another popular
success, Bernstein's latest offering falls short of his previous work.
"The Power of Gold," which traces the metal's history, has its strong
points. The writing is lively, and Bernstein is able to extract crucial
lessons. He takes a monetarist's viewpoint, showing how the physical
amount of gold and silver in circulation affected prices, economic growth,
and behavior. He also coins interesting observations, the most important
originating with Disraeli, that the success of the gold standard resulted
from, rather than created, stability and prosperity.
One problem is the text's uncertain focus. Bernstein's earlier book,
"Against the Gods," traced the development of the mathematics and the
market mechanisms involved in the measurement and management of risk.
The succession of discoveries and innovations undergirds the narrative.
By contrast, in "The Power of Gold," Bernstein has only a couple of
central themes, namely, the tension between gold's role as ornament
versus its use as money, and the impact of its use as a currency, and
they do not provide him with a sufficiently strong framework. He too
often is tempted to include anecdotes, such as the myths of Midas and
Jason and the Argonauts, and tales of stupendous ransoms paid in gold,
for their entertainment value rather than their fit. Mind you, digressions
provide welcome leavening to otherwise leaden topics. But here one is
left with too many questions about the choices made.
A more serious problem, however, is that Bernstein often gets his
facts wrong. Minor errors will inevitably appear in a lengthy work,
but their frequency here is disconcerting. Bernstein asserts that Christians
have "several thousand saints to pray to" (most Protestants
would take exception); that "Lydia mined a metal called electrum,
often referred to as 'white gold,'" (electrum and white gold are
alloys and do not occur in nature); and claims that hoarding cattle
in Africa has produced serious ecological degradation (wars, emergence
of national boarders that restricted migration, and overdigging of wells
are bigger culprits).
The inaccuracies result from reliance on too few sources for portions
of the story, leading Bernstein to unwittingly repeat their errors and
biases. A low point occurs when he dismisses the Byzantine Empire as
a "decadent, corrupt, conspiratorial, cruel bunch of people."
when his only historical (as opposed to gold-related) source is the
Encyclopedia Britannica Online. The prejudice against Byzantium originated
with Edward Gibbon's "Decline and Fall of the Roman Empire;" historians
like John Julian Norwich have shown it to be minsinformed.
Bernstein also presents interpretations that are at best debatable.
He seems to feel the need to burnish the importance of his subject,
and too often attributes major developments solely to gold's effect.
He argues that "if the surge in the purchasing power of gold had
occurred during a less innovative era, there would have been no one
like Henry the Navigator, Columbus, or Magellan." He ignores the
desire of rulers that had just exiled the Arabs to break free of their
hold on the Mediterranean, and the lucrative spice trade. He attributes
the Great Depression to attempts to maintain the gold standard. In fact,
academics still debate what caused the Depression. While recent papers
have paid more attention to the gold standard, the stock market crash,
which created uncertainty in incomes that led to a sharp drop in consumer
spending, is still a leading suspect.
And Bernstein completely misses the point when he derides Charles
de Gaulle for his failed effort to revive the gold standard. "Had
the citizens of France and the rest of Europe been the same kind of
free-spenders as the Americans, the sequence of events would have been
entirely different." America can run massive current account deficits
because the dollar is the reserve currency and it can finance deficits
without incurring exchange rate risk. De Gaulle was promoting gold as
an alternative to the dollar precisely to end this unfair advantage.
Despite its flaws, "The Power of Gold" presents a compelling case
for monetary orthodoxy, which stands in sharp contrast to a New Economy
cut free of its monetary moorings. Macroeconomists and the Federal Reserve
have abandoned the use of money supply as an tool, since the myriad
forms of near-money arguably make its measurement a futile task. It
seems puzzling that Greenspan has researched the behavior of stock prices
extensively, even though the equity markets fall outside the Fed's purview,
but had not made a similarly intensive study of money supply, which
has proven to be a linchpin of prosperity.
Establishing a successful brand forestalls criticism, which will doubtless
enable "The Power of Gold" to win more acclaim than it would otherwise
warrant. Only history will tell if the cult of Greenspan has created
a similar protective shield.