When waging war against the Aztec empire in the sixteenth century, Cortés and his fellow conquistadors shod their horses in gold. A strange choice, given that a horseshoe’s purpose is to protect the hoof from damage and a metal so soft and malleable as gold is unlikely to do the job as well as harder substances might. The precious metal was the very thing Cortés had come to find, and yet the constraints of wind-powered travel made transporting the stuff back to Spain so costly it was cheaper to shoe (and presumably frequently reshoe) their steeds using the metal itself, rather than sending it back home in exchange for iron.

Within a few centuries, the invention of the steam engine would radically reduce the costs of transportation, making it affordable to ferry not just luxury goods like silks and pepper that were worth their weight (or more) in gold, but relatively less valuable materials as well. Had the Spanish conquered Spain in the nineteenth century instead of the sixteenth their horses would have been properly attired, and history would have missed out on its special medieval episode of Pimp My Ride.

In the 1800s people again went to great lengths to obtain gold, with stampedes of prospectors bearing down on goldfields the world over. And yet, the role gold played then was different to the era of Cortés. Spain’s state-led campaign for gold and the chaotic flurry of individuals and companies chasing after the same material three centuries later can, however, both be understood in terms of the purpose gold served in trade.

In the time of the Spanish empire, mercantilism was the prime mover of European trade policy. In its most basic form, the idea of mercantilism was that a nation’s wealth (and therefore its power) was determined by its holdings of precious metals, particularly gold and silver. Why precious metals in particular? This was an era in which new trade routes facilitated exchange between an increasingly wide variety of societies. It was also, therefore, a time in which it was necessary to find some medium of exchange that would allow trade between countries that often had different domestic currencies, and precious metals were a preferred option.

The scarcity of precious metals and the difficulty in counterfeiting them—not to mention their aesthetic value—made them a reasonable currency for trade. If a nation needed to hire mercenaries to wage a war, for example, it helped to have reserves of precious metals on hand with which to hire them. Spain wanted power, power required gold, and so in search of gold they went, even if it pushed them so far to the ends of the earth that the gold itself wouldn’t be worth sending back for horseshoes.

By the time the gold rushes rolled around, the motivators were very much private and individual, rather than patriotic and imperial. The industrialisation and expansion of global capitalism in the nineteenth century was driven in large part by the British empire’s establishment (often by force) of an ever more integrated world economy. In this system, gold had moved from being a useful currency that nations liked to stockpile to being the formal lynch-pin of an international monetary system known as the Gold Standard.

In theory, under the Gold Standard countries would constrain their domestic money supply by linking it to their stocks of gold, though many countries used other metals such as silver as well. If a country found more gold, it could issue more money. Trade balances were settled in gold, so if as a nation you sold more things to the rest of the world than you bought from it, you’d have net inflows of gold coming in from the net exports. Your country’s money supply would expand and drive up prices, until your exports to the rest of the world were relatively less attractive for foreign consumers, returning the trade balance to equilibrium.

In the late nineteenth century financial crises pushed economies into recession. As demand for commodities fell, prices fell with them. The decline in the price of commodities relative to gold meant that gold had effectively increased in value (you could now buy much more with gold than you could before) and so individuals seeking their own private fortune were spurred to rush out and find more of the precious substance. When gold rushes uncovered new deposits, they boosted the money supply and stimulated demand, resuscitating economic growth.

But the Gold Standard only worked so long as countries were willing to believe in it. In reality, the world spent very little time on a single, stable Gold Standard—its rise was rooted in Britain’s preference for the system and ended with the Great War, which heralded the decline of the British empire. Between the two World Wars of the twentieth century, for example, no stable monetary system existed because nations were unable or unwilling to agree on the rules of the game.

In a world where currencies are now so transparently backed by nothing other than the value people perceive it to carry, the idea of linking the number on a note or coin to a shiny ingot sitting in a vault somewhere has a romantic appeal. Gold is seen as certain, concrete, reliable. But the prominent role of gold in trade is due not to some inherent quality so much as its perceived value and the ideas that shaped the political-economy of the day. In the age of the Spanish empire, power was achieved by hoarding gold. At the height of the British empire, gold’s true value was in promoting the gains from trade (and the power that came with them), which could only be obtained with some form of international monetary system. The story of gold is not one of constancy, but of reinvention—of putting old gold to new uses.


Mike Pottenger has a background in political science, economics, history and finance, with a PhD examining the international political economy of corruption and organised crime. He lectures at the University of Melbourne in the fields of political economy and statistics. Find him on Twitter @Mike_Pottenger.