Digging Deep by Jade Davenport

Author:Jade Davenport
Language: eng
Format: epub
Tags: Mining industry
Publisher: Jonathan Ball Publishers

CHAPTER FOURTEEN

Toil and Trouble

As fate would have it, the discovery of gold in the heart of the Transvaal largely coincided with a shift in the global monetary system whereby an increasing number of emerging trading economies were adopting the ‘gold standard’, an economic unit of account based on a fixed weight of gold, as a means of standardising the prices of their domestic currencies. In other words, the discovery was made at a time when gold was becoming universally acknowledged as the ‘only true measure of value, the main standard of price and the dominant money form’.1

Essentially, the gold standard evolved out of the variety of commodity-backed money standards that emerged before the introduction of paper currency. While such a system owed much of its development to Britain’s adoption of a de facto gold standard in 1717, it only gained credence amongst other economies more than a century-and-a-half later. Following the industrial revolution and its emergence in the nineteenth century as the world’s leading financial and commercial power, Britain’s monetary practices became an increasingly logical and attractive alternative to silver-based money for countries seeking to trade with and borrow from the British Isles. This trend was given considerable impetus after the peace treaty was signed at the end of the Franco-Prussian War in 1871 whereby Germany used the indemnity of five billion francs to accumulate bullion and convert to a gold-backed currency. This act by Europe’s second-leading industrial power encouraged many other countries to follow suit. Thus, the late 1870s and early 1880s saw the United States, Denmark, Holland, Norway, Sweden, and the countries of the Latin Monetary Union embrace the gold standard.2

The adoption of the gold standard by so many large economies, combined with a surge in trading activity amongst them, created a sudden demand for vast amounts of gold in the closing decades of the nineteenth century. Initially, the gold had been largely sourced from the rich Californian and Australian alluvial diggings. However, owing to the intensity with which they were exploited those goldfields were all but exhausted by the late 1870s and the need to find new and substantial gold resources that could be mined at a consistent, long-term rate became paramount if the gold standard as a global economic unit of account was to be maintained. ‘With the world economy undergoing such massive expansion, and a growing number of countries adopting gold as their monetary base, the gold standard could not have accommodated the growth without a corresponding increase in the stock of gold. If these countries had been forced to compete for a static supply of gold, the international monetary system would inevitably have been subjected to serious strains.’3 Fortuitously, the Witwatersrand Goldfield was discovered just as the call for a new source was reaching a crescendo.

The discovery of the world’s most extensive gold resource and the subsequent inclusion of the new South African producers into the orbit of the London gold market ensured that the transition to an international monetary system backed by gold could occur relatively smoothly and without any serious liquidity problems.

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