…the way bullion was used, moved, stored and shifted had profound effects on long-term economic or military success. Indeed, the role of gold and silver in wars not only in influenced the shape of the world today, but laid the foundations for the modern financial system.

Though not a guarantor of victory, gold played an important function in the great European rivalries and struggles up to and throughout the 20th century, as well as in civil wars and revolutions, notably the American Civil War, and the Spanish and Russian Revolutions.

Below we bring some of our favourite examples from Steel’s article.

How Spain showed you can mismanage too much gold

Spain’s conquering of the New World brought the country immense wealth thanks to the ‘massive influx’ of precious metals. Spain became a super power  after the 15th Century, funnelling much of the wealth into military endeavours and troops.

However, as Steel explains the new found wealth was not utilised enough in the domestic economy:

The influx of bullion effectively buoyed the money supply without stimulating additional production of goods and services. The result: domestic in ation. Most of it ended up simply ‘passing through’ Spain. That is to say the bullion headed into the more productive economies of England or the Netherlands, where goods were produced and sold to Spain. So much bullion was imported that it devalued those precious metals already in the European economy for decades afterward.

Steel hypothesises that this had both a domestic and external effect. It hindered the domestic development of Spain and externally, weakened the Spanish Empire’s position in future conflicts with other powers. Thus, ironically, Spain’s vast bullion wealth strengthened her enemies. This was down to serious financial mismanagement on the part of the Spanish Crown and government.

In Economic Possibilities for our Grandchildren, economist John Maynard Keynes dates the development of Britain’s capital account directly to the capture of Spanish treasure by Sir Francis Drake in the 1570s. Queen Elizabeth I was able to pay off the existing national debt and invest an additional £40,000 with the crown’s share of the proceeds from Drake’s raids of
Spanish commerce.

One could perhaps draw parallels with the Spanish Empire’s financial downfall and the countries today that choose to channel so much of their wealth into a global military presence. Their efforts to take military action in continents far from their own whilst their domestic economies suffer are an echo back to the misdirected efforts of the Spanish Empire.

The American Civil War: the best example of gold’s power

Steel believes the American Civil War ‘may be one of the best examples of a conflict where one side, the Union, had access to considerable gold, while the other, the Confederacy, was effectively starved of bullion.’

Gold was key to financing the Union’s victory and helped them maintain a strong position throughout the war. This was mainly thanks to their access to California’s gold (thought to have financed 10% of the Union’s war effort), financing from the West and purchase of the gold by the Bank of England.

During both World Wars the British had an excellent network and source of supply for their bullion requirements.

During the First World War this was largely thanks to the British Empire, namely South Africa’s mining output and the Empire’s reputation as a country that pays her debts.

Conclusion: Use gold wisely

Steel brings his study of seven major conflicts to a conclusion that is as relevant today as it has been throughout history: