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A 24-Karat Tale - Peter L. Bernstein discusses the impact of gold - Interview

CFO: Magazine for Senior Financial Executives, March, 2001 by Peter Bernstein

FINANCIAL HISTORIAN PETER BERNSTEIN EXPLAINS HOW GOLD CHANGED THE WORLD, AND WHAT IT MEANS TODAY.

A CFO INTERVIEW

PETER L. BERNSTEIN has seen many things in the course of a long and varied career, but few have been as spectacular as what he beheld one day in 1940 at the Federal Reserve Bank of New York. Five stories beneath the earth, the massive stainless-steel door to the bank's vaults was opened for the young researcher, as a treat from his boss. Within, gleaming under the electric lights, lay more than 100,000 gold bars, the overseas hoards of many countries. It was, remembers Bernstein, "an unforgettable and chilling sight."

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The ability of this precious metal to dazzle and dismay is amply documented in his new book, The Power of Gold. Alchemists tried to change base metals into gold, but as Bernstein shows, gold itself possesses a more sinister power of transmutation: to change from a blessing to a curse. This theme is the master thread of his narrative, a fascinating history of ancient kings and modern statesmen, conquistadores and speculators, a Gilded Age and a Great Depression.

Bernstein is well qualified to tell this complicated, many-stranded story.

Dubbed "America's greatest living economic journalist" by the Boston Globe, be has written seven other books on economics and finance. The best known are Capital Ideas (1992), on the development and application of modern theories of finance and investing, and Against the Gods (1996), an award-winning history of risk management.

But Bernstein is more than a journalist. For more than 20 years he was a Wall Street money manager, handling institutional and individual portfolios. Since 1973, he has been president of an economic consultancy that serves institutional investors. He was the first editor of the Journal of Portfolio Management, for which he remains a consulting editor, and he is much sought after as a lecturer and commentator.

Still, when the suggestion was made that he write about the history of gold, Bernstein balked. "I immediately rejected the idea--who cares about gold at this moment?" he explained to CEO articles editor Edward Teach during a recent interview in Bernstein's Manhattan office. But then he remembered how he felt in the 1970s about the so-called gold bugs--those investors who flocked to the metal as the ultimate hedge, driving its price to an all-time high of $850 an ounce in 1980--and he changed his mind.

"When the gold pool was abandoned in 1968 and the central banks let the price go up, it stirred up a very antigovernment sentiment--that governments, as Herbert Hoover said, are not to be trusted," recalls Bernstein. "Having grown up in the 1930s with a strong New Deal orientation, I have always felt that government is basically a force for the good. And the sense that government was something to flee from, to a stateless currency, was repugnant."

Since Bernstein felt so passionately about that, "I thought maybe gold would be worth looking into after all:' he says. Judging by the acclaim for The Power of Gold, he was right on the money. That shouldn't surprise anyone. After all, when it comes to writing financial history, Peter Bernstein has the Midas touch.

Why has gold always had such a powerful and universal attraction?

Nobody really knows. Yesterday and the day before, I received letters from two men in the mining business who are about my vintage; they're not kids. And one describes it as a curse, and the other one uses very similar kinds of words-- that once you're bitten by this bug, you can't stop. You look at gold--at your wedding ring, or your watch, or your wife's bracelet--there's something so beautiful about it. And when you see a mass of it, it's really startling. It never tarnishes, never loses its luster. It doesn't decay with time, as all other metals do. You're in touch with eternity, you're in touch with sunshine. And because of the sunshine and the eternity, if you have a lot of gold, you have power, and people have not denied that you have power.

You begin your book with a cautionary tale by John Ruskin, the Victorian Age art critic and social commentator. A man on a sinking boat straps his gold around his waist and jumps overboard, whereupon he drowns. And Ruskin asks, "Now, as he was sinking, had he the gold? Dr had the gold him?" Why did you consider this so relevant to your history?

It's much more than gold that Ruskin is really asking about, and it crystallizes the way I feel: That greed is devastating; money isn't everything; that blind drives for power can lead you into the ditch. As you go through the history of gold, in instance after instance where it was made the primary objective, it led to disaster. Whether it was the Roman Crassus, who thought because he was a rich man he could be a general, and was defeated in battle, and had molten gold poured down his throat; or Philip II of Spain, who spent the great amount of gold that came from the New World on luxury and empire building. Or, in our own era, the belief after World War I that the restoration of the 19th-century gold standard would make everything come out all right. Instead, it made a significant contribution to the Great Depression--it made it much worse.

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A 24-Karat Tale - Peter L. Bernstein discusses the impact of gold - Interview

CFO: Magazine for Senior Financial Executives, March, 2001 by Peter Bernstein

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