Gold Read online

  At this, the Dominican friar Vicente de Valverde emerged from Pizarro’s place of concealment and approached the Inca with a prayer book in his hand. He invited Atahualpa to come inside to meet the governor, as the Spaniards styled Pizarro. The Inca refused, and demanded the return of everything the Spaniards had stolen since entering his realm. Valverde launched into a formal oration known as the Requirement: a proclamation that the Spanish royal government insisted the invaders read out before killing could begin. The priest held out his book and said through his interpreter that it contained the faith he had been sent to bring to the Inca and his people. Atahualpa examined the book, admiring it as an object. Then he hurled it away indignantly, “his face a deep crimson.” The friar ran off shouting and weeping. In their memoirs, the Spaniards gave different versions of what the priest had yelled, but whatever his words, they were the signal that Pizarro had been waiting for. The hidden cannon fired into the packed ranks of the Inca’s followers and the cavalry burst from concealment.

  The Spanish had polished their armor and hung rattles on their chargers for maximum terror. The horses were terrifying anyway, beasts far larger than any in the Andes, snorting and whinnying as their riders rode them into the packed retainers and mowed the lightly armed men down with Spanish steel. The horsemen went through Atahualpa’s soldiers like a column of tanks. Pizarro urged his horse into the thick of the fray and reached the Inca’s litter, seizing Atahualpa by the arm and trying to drag him off. The Inca’s high position, elevated on the shoulders of his retainers, saved him. Pizarro’s lieutenants hacked the arms off some the litter-bearers, who still supported Atahualpa’s platform on their shoulders. Finally, in the blood-spattered melee, the Spaniards toppled the litter and the Inca fell into the mass. His retainers would not leave him. Every one of them, all men of high rank, died in the slaughter.

  As Pizarro was capturing the Inca the massacre proceeded. Packed into a confined space with narrow gates, the native soldiers had no way to escape. Some thousands threw themselves against a wall and broke it down and fled into the plain. The horsemen rode them down, lancing them as they ran and searching for any who wore the Inca’s livery. Even after nightfall, according to Spanish accounts, Pizarro’s men were spearing Indians. The cavalry thundered on the dark plain, riders and horses like centaurs plastered in blood. To the Peruvians they seemed unkillable. They returned to the square only when Pizarro ordered the trumpeter to sound the recall.

  Some Spanish writers claimed that 6,000 Peruvians were butchered in that single bloodbath. “Atahualpa’s nephew wrote that the Spaniards killed Indians like a slaughterer felling cattle,” Hemming said. “The sheer rate of killing was appalling, even if one allows that many Indians died from trampling or suffocation, or that the estimates of dead were exaggerated. Each Spaniard massacred an average of fourteen or fifteen defenceless natives [a total of 3,000] during those terrible two hours.”

  As his people were falling in bloody heaps the Inca was marched under guard to the temple on the square. Pizarro ordered clothes to replace Atahualpa’s ripped garments, torn in the struggle. Pizarro treated his prisoner with respect. The Inca asked if they were going to kill him, and Pizarro said no—Christians did their killing in the heat of battle, but not in cold blood. They asked their captive how a veteran campaigner could have fallen into so obvious a trap. It emerged that Atahualpa had received bad intelligence about the Spaniards’ fighting qualities. He had not imagined that they posed a threat to him, a victorious king with 80,000 men. He had meant to capture them, kill a few, and castrate the rest. All he wanted were the horses.

  WITH THE INCA IN SPANISH hands, so was his empire. Pizarro had allowed Atahualpa to send news that he was alive. A divine person even in captivity, the Inca remained in command of his army and people. This authority empowered Atahualpa to conduct the negotiations for his own release, and he set about it. The Spaniards, he perceived, had an appetite for gold. He could not have fully understood it, because the Incas had no money. They valued gold for the way it could be worked. It had its place in the adornment of nobles and in sacred rites, but even in those functions gold was not the top material. Jade and some kinds of feathers outranked it. Yet gold was what the white soldiers wanted. The Inca decided he would offer them all they could possibly want, believing that would make them go away.

  In Cajamarca today you can see the room that Atahualpa offered to fill with gold in exchange for his freedom. It measures seventeen feet by twenty-two feet. The Inca offered to pack it with gold in two months to the height of his raised arm. Pizarro accepted. A notary recorded the details of the bargain. The Inca’s couriers fanned out into his domain and a stream of objects flowed back along the royal roads to Cajamarca. There were cups and vases and delicate statuettes of llamas, gold birds, and trees and a device like a fountain spewing gold. The amount of gold available staggered the Spaniards. A solid-gold sacrificial altar in Cuzco weighed at least half a ton. A golden fountain weighed more than 700 pounds. In a sanctuary, Spanish soldiers found an old woman in a gold mask fanning flies from the remains of dead Incas. The rulers’ treasure lay there for the taking.

  The wonders dazzled the Spaniards. They described little gardens made of gold, in which every clod of earth and cob of corn was solid gold. There were gold chalices set with emeralds. Andean goldsmiths had been making objects for a thousand years, since about 500 BC. Some of the articles collected dated from even earlier, and showed Chinese and Vietnamese influence, suggesting that Asian voyagers might have reached Peru a millennium before the Spaniards. Pizarro kept a few of these objects to dazzle the Spanish court. They melted all the rest. In a single month they retrieved the equivalent of 1,326,539 gold pesos, or about $340 million in today’s money. The booty weighed five tons, not including the 190-pound solid-gold throne. Just that one month’s bullion harvest equaled a full year’s output of European gold. It would never buy the Inca’s liberty.

  In Atahualpa, Pizarro had the tap to drain Peru of gold. The Inca’s person was sacred. Even in his prison room, he was surrounded and served only by his wives and sisters. They fed him from their hands. The Inca wore clothing softer than anything his captors had ever seen. He had a cloak made from the skins of vampire bats. When the Inca spat, a woman caught the saliva in her hands. Everything he touched—rushes he walked on and the skeletons of birds he ate—was packed into leather chests and later burnt, the ashes flung to the wind to prevent anyone from touching what the Inca had touched. When great lords visited him, they kissed his feet and hands. The Inca did not look at them. Because of the Inca’s divinity, his orders to bring gold to Cajamarca were obeyed; it did not matter that he was a prisoner.

  The captive Inca ruled through his generals. Of the army at Cajamarca, about 75,000 were still encamped above the town. Another 35,000 troops under Atahualpa’s commander in chief stood between Cajamarca and Cuzco. The general who had captured Cuzco from the Inca’s brother had a further 30,000 troops to garrison the capital. Against such numbers the asymmetric advantages of hard steel and horses would not have saved the Spaniards had the Peruvians attacked en masse. They did not attack because the Inca told them not to. That is why a small party of horsemen under Pizarro’s brother could ride from Cajamarca to Cuzco, strip 700 four-and-a-half-pound gold plates from the sun temple, and return to Cajamarca without harm.

  On April 14, 1533, long-awaited Spanish reinforcements reached Cajamarca from the coast, to the jubilation of the garrison. Pizarro had been waiting for the 150 soldiers. Their arrival almost doubled the occupying force. It seems absurd to speak of 300 men “occupying” a mountain empire 3,000 miles long, where vigorous officers commanded more than 100,000 troops. Yet the Spaniards controlled the god-king, and he controlled the men.

  Atahualpa grew fearful when he learned of the arrival of reinforcements, for he took it to mean that the Spanish planned to stay. The ransom of gold would not suffice to make them go away, as he had believed. He clutched at the straw that they would honor t
heir bargain and set him free.

  The treasure was pouring into Cajamarca. Pizarro had nine forges melting about 600 pounds of gold a day into ingots. They stamped the newly smelted gold with the Spanish royal mark and added it to the growing hoard. If gold had retained any of its sacred status, the Spaniards extinguished it at Cajamarca. The artistic output of a thousand years vanished into the furnaces. It must be one of the most potent images in history—the transformation of a culture into cash. On one day alone, a train of 235 llamas wound into Cajamarca laden with gold and silver. Each Spaniard was entitled to a share agreed upon and stipulated, and clerks recorded every ounce. In the end, a foot soldier would get about forty-five pounds of gold and twice that weight in silver; a horseman, double those amounts. Francisco Pizarro had about 630 pounds of gold and half a ton of silver coming to him, plus Atahualpa’s throne as a bonus. The king was entitled to a fifth of everything—the royal quinto. Spanish court officials were on hand to see that he got it. Everything was entered in a ledger. To the scratch of pens the Inca’s patrimony went into the furnace and a river of gold flowed off to Europe. It bought the Inca nothing.

  On June 12, Hernando Pizarro, the older of the governor’s two brothers, left Cajamarca, and Atahualpa wept. The Inca perceived the departure as the loss of a protector. Hernando had assured the ruler that he would not let him be killed, and Atahualpa had believed in his sincerity. Now that protector was gone, and the Inca’s fate approached.

  Pizarro heard that the Inca general Ruminavi had raised an army of 200,000 and was hurrying south from Quito to attack the Spaniards and restore the Inca. It is possible that Atahualpa had, as Pizarro suspected, ordered his general to rescue him. John Hemming thought it could not be proved one way or the other. In Cajamarca the mood of the Spaniards was near panic. A strong faction clamored for the execution of the Inca for “treason.” Pizarro is said to have wept at Atahualpa’s pleas to be spared. In the end there was no trial, only a meeting of Pizarro’s council. They decided on death by fire, and as night gathered on July 26, soldiers led the Inca into the square and tied him to a stake while trumpets blew. A priest explained to Atahualpa that he could escape burning by converting to Christianity. To the Inca, death by fire was shameful, and he agreed to become a Christian. The priest baptized him Francisco, after Pizarro. Then they strangled him.

  Pizarro was vilified for the murder, then redeemed, then denounced again. His band broke up in quarrels about sharing the loot. Few got back to Spain. Some died in fights among themselves; some gambled away their money. Hernando Pizarro returned to Spain in 1540, where his enemies had him thrown into prison. He stayed there twenty years and came out a broken man. Francisco, the great conquistador, was stabbed to death in 1541 by malcontents in Lima, as he sat at his table eating supper. The gold transformed the finances of the West.

  3

  THE MASTER OF MEN

  In truth, the gold standard is already a barbarous relic.

  —John Maynard Keynes

  SPANISH GALLEONS PLOWED ACROSS THE sea for home in tremendous treasure fleets. Sixty ships strung out for miles on the blue ocean tacked and plunged as they picked their way through the reefs of the Florida Strait, the channel that connects the Gulf of Mexico to the Atlantic. The warm waters could brew hurricanes. “The sun disappeared and the wind increased in velocity coming from the east and east northeast. The seas became very giant in size,” a mariner wrote of a storm that wrecked a fleet. They had more than weather to worry about.

  French and English privateers—privately owned warships sanctioned by their governments—attacked the treasure ships. In 1523 the French corsair Jean Fleury seized three caravels loaded with Aztec gold and jewels and exotic animals, off the coast of Portugal. The English sea dog Francis Drake spread dismay along the Spanish sea routes from the Caribbean to the shores of Spain. Such raiders helped to execute their countries’ foreign policies: containing Spanish power by reducing the wealth that helped Spain pay for European war. The French considered it so vital to raid the Spanish fleets that not even peace with Spain in 1559 could stop them. The parties drew a line through the Canary Islands and agreed that no action west of the line would break the European armistice. There would be “no peace beyond the line.”

  Even so the great fleets brought a stunning treasure over the sea and up the river to Seville. In 1564 alone, 154 ships reached the port. The tide of bullion almost beggars belief. In a hundred years Europe’s gold supply increased by five times. Money washed into the continent. Spain struggled to master this bonanza, and so did Europe. International trade expanded, and the story of gold in human affairs became the story of how to manage the commerce between countries. Whether the famous solution to this challenge—a system called the gold standard—bent gold to our will or bent us to gold’s, is the subject of this chapter: a subject that even now, with the gold standard dead in a ditch for more than forty years, still excites rancor.

  WHEN THE SPOILS FROM MEXICO and Peru came spilling into the country, Spain was not well equipped to handle the jackpot. There was no native professional class to manage money. Spain had driven out its mercantile class in 1492, with a royal edict expelling Jews and Muslims. The merchants and bankers who replaced them were foreigners, Italians and Dutch, who favored business connections with their own countries. Much of the fresh wealth was funneled through Spain to other destinations. “Gold and silver merely acquired their international status in Spain,” one study said, “without being in any way connected with the Spanish economy.”

  With the inflow of gold, the continental economy expanded. As commerce grew, so did the international trade fairs where much business was transacted. There was now more money. Scores of gold coins circulated in Europe, all of different value. To handle the exchange, bankers and moneychangers came to the fairs. A merchant could exchange his own money for the money that his counterparty wanted. It was a cumbersome and dangerous system, with sacks of coins carted here and there through Europe. The solution to this unwieldiness was paper money.

  Merchants increased the use of bills of exchange, a system that prefigured modern checking. Like checks, the bills were contracts to pay, and bankers would redeem them in cash for a fee. Traders attending fairs did not have to bring money, but could issue paper promises. In the late 1600s this system expanded and got easier to use when London’s goldsmith bankers (goldsmiths who had branched into foreign exchange) began to accept each other’s paper bills as part of a competition for customers. The use of paper spread from private commerce to public finance when countries issued paper money backed by gold or silver. The circulation of gold coins decreased until the actual exchange of metal marked only the largest transactions, such as clearing trade imbalances between countries. Finally gold’s place in international affairs settled into the system called the gold standard.

  The gold standard operated by binding countries to a strict agreement: the national currency supply had to match the amount of gold bullion in reserve at a stipulated ratio. If you were a foreigner accepting the banknotes of a gold-standard country, you did so knowing that you could redeem the notes for gold. The store of gold determined exactly how much money a country could have in circulation. It could not print more notes unless it had more gold. Generally, gold-standard fans approve of this, and gold-standard opponents don’t. The strict operation of the gold standard sent regular waves of misery through the world, as the vagaries of trade would drain a gold supply and lacerate an economy. The great historian of the gold standard, Barry Eichengreen, believes that the system caused the Great Depression, by preventing the government from stimulating the economy with cash. Nevertheless, a pro-gold sentiment has returned in some quarters.

  The president of the World Bank, Robert Zoellick, sent the bullion price spiking in November 2010 with remarks suggesting gold might resume some monetary role. Some central banks have started stocking up on gold after years of selling. On the American right, advocates hark back to an imagined simpler and more uprigh
t time. But if the gold standard was simple, it was the simplicity of a war club. Some of the most ruthless passages in history have been set off by a good swing of the gold standard. What’s more, even those who agreed that paper money needed the ballast of a metal to control it did not always agree on what that metal should be. Silver was a much more common money than gold, and many countries backed their paper with both.

  WHEN SPANISH GOLD WAS SWELLING the European money supply, a silver penny had been circulating in Britain for eight hundred years. The British pound originated as one pound’s weight of silver pennies, or 240 of them. Similar silver coins—or even the British coins—circulated in Europe. There was a demand for silver money, and Spain, with an abundant supply, fed the demand from deposits in Bolivia and Mexico. In the sixteenth century such silver coins as the so-called Spanish dollar oiled the wheels of international trade. (With a face value of eight reales, these were the famous “pieces of eight.”) In 1785 the United States adopted a dollar as its currency and based it on the Spanish coin. Congress set a silver standard in a 1792 law that spelled out how much silver the mint had to put in every dollar, half dollar, quarter, and “disme”—the old spelling of dime. But the act defined the values of gold coins too, such as the ten-dollar eagle, and specified the amount of gold each coin must contain. Defining the value of currency in terms of two metals put the United States on what is called a bimetallic system.

  The challenge of bimetallism is obvious—how to fix a ratio between the two metals. Say the silver price suddenly went viral and eclipsed gold: the metal value of a silver coin could in theory overtake that of a gold coin of higher denomination. The Treasury addressed this problem by fixing the values of the metals. In the United States, the mint price of gold—what the mint would pay for it—was fixed at $19.3939 an ounce, and for silver $1.2929, a ratio of 15:1. The problem with fixing a ratio is that events can unfix it.