It is a little known geopolitical reality that most exploration and trade throughout human history has been motivated by the desire to seek out and acquire luxury goods. In the ancient world, the Roman Empire was famous for its extensive trade routes to the east. These trade routes, including the legendary Silk Road, extended thousands of miles, finally terminating in Central Asia, India and perhaps even China. Precious gemstones, spices, silk and incense were just a few of the luxuries that flowed through this complex, ancient trade network. These exotic luxury goods were so coveted by the wealthy Roman elite of the day that many Roman writers commented disapprovingly on the massive drain of the Empire's gold and silver from these eastern trade routes.
Another example of this phenomenon can be found over a thousand years later during the Age of Discovery, when European explorers first discovered and then colonized the Americas. In 1492 Christopher Columbus set sail from Spain looking for the East Indies, a near mythical location rich with valuable spices like pepper, cinnamon, cloves and nutmeg. These spices were in high demand in Europe and commanded huge sums of money, guaranteeing great wealth to whoever could supply them. Columbus' discovery that the New World lay between Europe and the Spice Islands was a rather unwelcome development.
Accident or not, it didn't take long for the Spaniards to start exploring these new lands. Sure, the Spanish conquistadors may have first marched into the unforgiving jungles of South and Central America for god and glory. But they stayed for the gold, silver and emeralds they found which were exported back to Spain in massive quantities. Over time, other luxuries came to be staple exports from the Colonial Americas as well - exotic timber for fine cabinetmaking, sugar for sweets, cocoa for the new European craze of chocolate and rum for wild parties. This luxury driven trade helped create the modern, interconnected world that is now familiar to us.
The Victorian Colonial Age was also largely driven by the persistent demand for luxury goods and luxury raw materials from an increasingly affluent middle class. Ivory from British Africa was used to craft the billiard balls found in every well-to-do Victorian home. British South Africa supplied coveted diamonds for royalty, movie stars and commoners alike. British Burma became the chief global source of high quality rubies and sapphires from the 19th century until World War II. And the Americans didn't force open feudal Japan in the mid 19th century because they wanted to be jerks, but because they desperately wanted to trade with the secluded island nation. They wanted access to Japan's acclaimed silks, lacquerware, porcelain and metalworking - all fine luxury items.
Even today the never ending chase for luxury goods forges and propels international relations. China is renowned as a manufacturing center for many of our modern-day electronic luxuries - iPhones, iPads and MacBook Airs for example. Understandably this means free-trade with China is a must for today's wealthy developed nations. The situation in Germany is similar. Some of the world's finest luxury cars are assembled and exported from Germany, making it another global trading powerhouse.
While the definition of what constitutes a luxury item has evolved over time, their centrality to international trade and even the flow of history is immutable - a fact that holds important lessons for investors today. As long as people have disposable income, they will always seek out luxury goods to fulfill their desires. In ancient times those luxuries were silks, spices and incense, while today we have new luxuries like portable electronics. But some of the old standbys are still very much in demand - precious metals, gemstones and exotic woods - and these are all materials that are extensively used in investment grade art and antiques. The savvy investor will take note.
