While in Grand Cayman over the Christmas holiday, I finished Justinian’s Flea by William Rosen–a little light historical reading. In the sixth century AD, when armies would besiege, cities could pay a ransom and avoid violence that could result in a massacre or a selling into slavery of the population. But in no case did the besiegers accept fiat currency–their preference was for gold and silver. Imagine the Emperor at Constantinople asking the invading hoards if they would accept a promissory note or nice pieces of papyrus with his picture on it? Thus, history teaches us that war helps people to sort out their values. The enemy wants what is mine, and the main thing I have besides my very life is gold and silver; otherwise, I am unable to ransom myself. It is better to relinquish precious metals than to die or to become a slave for the rest of my life.
Larry Norman wrote in his 1969 song, “I’d wish we’d all been ready”:
Children died, the days grew cold.
A piece of bread could buy a bag of gold.
I wish we’d all been ready.
It is a beautiful song marred by the flawed dispensational theology of the Rapture. Yet these lines have always haunted me. What has value in a time of war when everyone is desperately seeking merely to survive with life and limb and to protect their loved ones? Norman’s song evokes an image of a time so desperate that gold would have no value–only bread. Could this fit the mantra of some that gold has no intrinsic value? I would argue that in such a scenario it is not that gold has lost value: it’s that bread has become so scarce so as to increase in market value, and this is what actually happens in war.
Some of my African colleagues testified that during one of the many wars that Bangui experienced, the seminary community remained on campus fearing for their lives as shooting and shelling raged in the city’s streets. Some brave bread vendors dared to distribute despite the danger. But instead of asking the pre-war price of 50 CFA per mini-baguette (=$0.125US), they wanted 200 CFA. Those who were too afraid to step out into the open paid the premium or they went without. Scarcity led to higher prices. Economics 101. Even graduates of Father Guido Sarducci’s 5-minute University should be able to apprehend this basic concept.
The increased price of commodities during times of war notwithstanding, it is clear to me that history teaches us that in the most severe economic crises, gold and silver retain their value while currencies do not–particularly the debt instruments of the war’s vanquished. As a child growing up in America, I read several tales of people who had found millions of dollars only to learn that they were worthless Confederate notes. Bank notes are debt. Debt which the issuer cannot repay is worthless. Gold, however, does not suffer from such issues. So in the end, the victor walks away with the gold and the loser sits upon a pile of worthless paper. In times of war, it can be difficult to pay for supplies and soldiers with the promissory notes that we call currency. So for example, Niall Ferguson writes in his The Ascent of Money (81-85) about how the British, facing the refusal of their promissory notes, successfully received gold, thanks to the shipments arranged by the Rothchilds, and were able to win a decisive victory against the French at the Battle of Waterloo in 1815.