The search for gold and silver played a key role in the creation of the modern world. Wars have been fought over precious metals, and territories rich in these metals have been the victims of conquest: let's take the example of the colonization of both parts of America, Australasia and South Africa.
However, it is not only about the possession of gold and silver. Rather, it was the use, movement, storage of precious metals that had a profound effect on the economic and military success of nations. The role of gold and silver was not only in shaping the face of the modern world, but also in creating the foundations of the modern financial system. It will be interesting to look back at the history of gold's influence on which countries were winners and which were losers, from events relating to the rise of modern civilization to the confrontations of the 15th century. The efficient accumulation and use of gold through credit and in the financial system has changed the economies of countries and helped them in times of conflict. Although gold is not the only guarantor of victory, it has played an important role in the great European confrontations up to the 20th century, as well as in civil wars and revolutions, especially in the American Civil War and in the revolutions in Spain and Russia.
The massive importation into Spain of precious metals mined from the New World turned the Iberian nation into a 15th-century superpower. Thanks to this wealth, the country financed its military contingent in the Netherlands, Italy and Germany, while maintaining a large fleet. However, despite the huge imports of gold and silver, these resources were practically not used for economic development within the country. The influx of precious metals increased the money supply without stimulating additional production of goods and services. The result was inflation. Much of the wealth, so to speak, "passed by" Spain. That is, precious metals served the more productive economies of England and the Netherlands, which produced goods that were subsequently exported to Spain. So much gold and silver was imported at that time that their value in Europe was at a very low level for a long period. Also, the supply of silver was greater than that of gold, so the gold-to-silver ratio, while fairly stable since ancient times, increased substantially, making gold more popular than silver. It can be argued that the consequence of such inflation was a decrease in the level of industrial development in Spain precisely because of the unreasonable use of precious metals.
As a result of these events, the Spanish Empire weakened and could not resist England and other powers in the future. The unsuccessful policy of the Spaniards led to the strengthening of her enemies. In his work entitled The Economic Opportunity of Our Grandchildren, economist John Maynard Keynes notes that the growth of British capital began immediately after Sir Francis Drake's seizure of Spanish treasures in the 1570s. Queen Elizabeth I was able to pay off existing public debt and invest an additional £40,000 from the proceeds from Drake's raids on Spanish merchant ships.
Gold played a slightly different role in the long struggle between France and Britain during the French Revolutionary and Napoleonic Wars. Britain abandoned the gold standard at the start of the war in 1797 as a result of the doubling of the public debt since the start of the French Revolutionary Wars in 1793. France, meanwhile, maintained its bimetallic standard throughout the conflict. At first glance, the country on the gold standard, that is, France, should have had an advantage over Great Britain. But, as the economists Bordeaux and White noted in a 1991 article, Britain's financially stronger position and its reputation for repaying its debts enabled it to move off the gold standard and still borrow to finance the war, though and the cost of higher inflation. France had a worse reputation, as the country was on the verge of default during the revolution, and it had to rely on taxation and maintain a bimetallic standard that limited the ability to import, purchase and lend. In such a situation, Britain had every opportunity to wage a protracted war.
Financial bigwigs, including Nathan Rothschild, helped fund Britain's national debt, which, according to historian Roger Knight, rose to £578m, more than double the country's GDP. Part of this amount was used to pay British allies on the Continent, which shows how indispensable money is in keeping the war going. Only part of the expenses was paid in gold.
The availability of gold and its efficient use proved to be a key factor in the American Civil War, ultimately determining its outcome. It can be said that this is one of the best examples of a conflict in which one side, the Union, had access to significant amounts of gold, while the other side, the Confederation, did not actually have it, which was a decisive factor in the victory of the Union. From the outset, Union representatives recognized the need to maintain control of California and its valuable gold deposits, as well as the rich gold and silver deposits in the western territories. According to a rough estimate, gold from California became the source of funding for 10% of the Union war effort. Good access to gold allowed the Union to move off the gold standard without triggering hyperinflation. According to the California Historical Society, steamboats leaving San Francisco for the U.S. East Coast carried an average of $1 million in gold coins and bullion minted by the San Francisco Mint at a frequency of two to three times a month from 1861 to 1865 This gold was used to pay for the costs of the war effort.
Under the Law on Legal Tender of 1862, the possession of gold and silver coins was prohibited, which freed the Union from the gold standard. The population hoarded gold and silver, although the Public Credit Act passed after the war contained a provision that dollars and bonds issued during the war would be redeemed in gold or silver coins over the next 10 years. The steady flow of gold from the West supported the federal dollars even though they were not legally backed by gold. General Grant said of California's role in the war effort, "I don't know what we would have done in this great emergency but for the gold being brought to us from California." However, this gold was not used directly to pay troops, but to increase cash, and most of the Union government's gold was sold to the Bank of England at US$16 an ounce.
The situation was quite the opposite for the Confederacy, whose lack of gold severely limited its military advance. According to Civil War historian Charles Flato, at the start of the war, the seven Confederate states owned only $27 million combined in gold and silver coins. The South could not compete with the North, which was financed by the leading financial institutions in Europe, so the Confederate Treasury turned to the public for help. Mark Weidenmeier, an economic historian, estimates that $15 million in gold was raised through the sale of Confederate bonds. This gold, in turn, was used to purchase military equipment. The federal mints located in the Confederate States of America went out of business entirely in 1861. With the Confederate currency almost completely devalued, fewer bonds could be traded abroad for gold, and few imported goods could be afforded by the rebel states.
Tsarist Russia had one of the largest gold reserves in the world before the First World War. These reserves were mostly used up during the war, but were not completely depleted by 1917. In 1918, during the October Revolution, the Entente countries began to help the Whites, or counter-revolutionaries, and also organized a blockade of Soviet Russia. The blockade also affected "Soviet gold", bars that the Bolsheviks seized from the State Bank of the Russian Empire. In the end, the embargo was bypassed, and most of the gold was used to pay for much-needed imports by the revolutionaries.
White also managed to take possession of some of the royal gold. We are talking about the famous "Kolchak's gold", which was related to a large part of the gold reserves of the Russian Empire, which was seized by the government of Admiral Kolchak during the Russian Civil War. In 1915, due to a German attack, gold from the State Bank of the Russian Empire was sent to Kazan, in southwestern Russia. According to the Russian Academy of Sciences, by the summer of 1918 the vault of the State Bank in Kazan contained more than half of all gold reserves in Russia. Ultimately, it ended up in the hands of the Bolsheviks. By 1921, the gold reserves of the Bolsheviks were depleted, so the military commissar of the Soviet Republic, Lev Trotsky, was given the task of seizing gold from private ownership. Imports paid for in gold were an important factor in determining the victory of the Bolsheviks, supporting the revolution in its early years.
Gold gave the Western Allies a significant advantage over Germany and the Triple Alliance in World War I. Great Britain had access to large sources of gold, which was mined in different parts of the empire, in particular in South Africa, Australia and Canada. At the same time, South Africa accounted for two-thirds of all gold production in the British Empire. In addition to securing the UK, the South African government, in cooperation with the Bank of England, effectively blocked the supply of gold to Germany. The mine owners had the right to sell gold exclusively to the British Treasury. This made it possible to pay for wartime imports of goods, mostly from the US. Cut off from the supply of gold, Germany could not afford to import all the goods needed to wage war.
At the beginning of the war, Britain did not have particularly large reserves of gold. Before the war, the banks of London advised that the Bank of England replenish its reserves. Ultimately, the war reduced the country's already small gold reserves. As during the war years in the late 1700s, Great Britain abandoned the gold standard by promulgating the Currency and Bank Notes Act in 1914. It was issued the day after Britain declared war on Germany, allowing the government to print banknotes as legal tender instead of gold Sovereigns and Half Sovereigns*. The published law effectively suspended the gold standard. Now the Bank of England could increase the money supply without restrictions. As the UK dominated the global financial scene, its main allies, France and Russia, turned to it for help in financing their military activities through loans.
Despite the great importance of the Bank of England in the system of global finance, the Bank of France and the State Bank of the Russian Empire kept much larger gold reserves. According to historian Thomas Meagher, the Bank of France accounted for one-third of the world's gold reserves.
The British government asked the public to turn in their gold Sovereigns in exchange for new treasury notes or war loans. The public responded positively to this campaign, so by mid-1915 gold Sovereigns had virtually disappeared from circulation in Britain. However, gold Sovereigns were minted by the Mint throughout the war, mainly to augment the gold holdings of the Bank of England. By 1918, the production of gold Sovereigns in Great Britain ceased, and the mints of the British Commonwealth reduced their production, while only in Ottawa the amount of minting was increased.
The British authorities demanded partial payment of loans and imports in gold. During the war, France sent £117 million in gold to Britain, while Russia sent nearly £68 million in gold. Although the supply of gold to the US from Britain was also substantial, not at all enough to pay for wartime purchases, it helped alleviate the burden of a growing trade deficit. So, France had the largest amount of gold reserves in Europe, and Britain had a reputation as a creditor country. In both cases, these advantages served the purpose of financing the war.
When Germany entered the war in 1914, its gold reserves were small compared to those of Britain and France. But Germany had one advantage: a higher rate of war bond subscriptions. This meant that her gold reserves were better preserved. At the start of the war, laws were passed to make gold unaffordable to the public. Germany has abandoned the gold standard. Therefore, Germany demanded at least partial payment in the form of gold from its main ally, Austria-Hungary. Then Germany gave a loan to the Ottoman Empire, namely almost 800 million francs. This was important to do in order to keep the Turks in the war, as the military and the suppliers of military goods generally distrusted the inflation-prone Ottoman currency. By the end of World War I, few of the imports Germany could afford were paid for in gold. Between 1919 and 1932, Germany paid 19 billion gold marks in reparations and borrowed 27 billion gold marks from banks in New York and elsewhere. These loans were eventually repaid by West Germany after World War II.
Most of the scenarios above were replicated during World War II when control of gold became important again. The decrease in Germany's gold and foreign exchange reserves limited its ability to purchase military equipment and other important imported goods on the eve of the war. By the end of the 1930s. Germany's foreign exchange reserves dwindled relentlessly. By 1939, Germany had defaulted on its external borrowing obligations, and much of its trade was based on barter and gold. Once the war began, few neutral countries were willing to accept Reich stamps as payment for important imports. Gold reserves in Germany were limited, so the Nazi regime appropriated gold reserves from occupied countries. Some European central banks managed to move gold out of their countries before the Nazis, while others were not so lucky. The Nazis appropriated Austrian gold and also demanded that the Czech National Bank give them their gold in the amount - according to official figures - 95 tons. Gold was also taken from victims of the Nazi regime. Nazi gold sold out very quickly towards the end of the war, as it did during the First World War, since almost all goods imported into Germany were paid for with the yellow metal. The Western Allies established what might be called a modified gold standard, but had access to huge gold reserves in many parts of the British Empire and the US. Japan was also spending gold rapidly, but at a slower rate than Germany, and a severe naval blockade by the Western Allies prevented the Japanese from using gold, with much of it never reaching the Japanese islands until the end of the war.
In the 20th century, at the start of the civil war of the 1930s, Spain had the fourth largest gold reserves, owned by the legitimate Popular Front government in Madrid. Despite the presence of such large reserves, the Republican government used gold inefficiently, which emphasizes the importance of not only owning, but also using it correctly. The Republicans received significant material aid from the Stalinist Soviet Union, but the aid came at a heavy cost. About 510 tons of gold from the Bank of Spain - almost three-quarters of the nation's gold reserves - were sent to the Soviet Union in the first months of the war. The remaining 193 tons were sent to Paris. This "Parisian" gold was exchanged for currency to finance the Republic's war effort.
However, with the disappearance of gold from Spain, new problems arose. The absence of physical gold in the country had a serious negative impact on the value of the national currency. In effect, the lack of gold destroyed the backing of Spanish banknotes. According to historians Santacr Soler and José Miguel, the withdrawal of gold from the reserves of the Bank of Spain was one of the main causes of the financial crisis of 1937, which led the Republicans to defeat.
Conclusion
Gold and silver are not only spoils of war, they are the means by which wars and confrontations are financed. Gold has played a central role in ancient and modern conflicts. However, the question is not only who has the most gold, but rather who uses it most wisely.