Tuesday, 2 June 2009

“The Ascent of Money”, by Niall Ferguson (Penguin)


How money has made the world go round

Until the economic crisis we are currently experiencing, it appeared many that the world’s financial service gurus were the new masters of the universe. City and finance-sector bonuses were the envy of everyone else, and each year the UK and US grind out an ever-increasing number of MBAs and accountants.

In The Ascent of Money, Scottish historian Niall Ferguson gives us a history of the financial system that just broke. Starting with characters such as Pizarro and his plundering of South America for silver and gold, Ferguson discusses a number of specific issues in each of his chapters: currency, the emergence of banks, bonds (which “have power because they are the fundamental base for all markets” that determine the values of pretty much everything), risk, the housing booms and busts, and finally “Chimerica”.

One stated purpose of the book is “to offer the lay reader an introduction to finance and, in particular, to financial history.” The world financial system is based on a number of developments hailing from Europe – most frequently Italy, the Netherlands and the UK. The book does not seem to take a position as to the morality of the financial system: while the author acknowledges the immoral qualities of some who inhabit this realm, and “despite our deeply rooted prejudices against ‘filthy lucre’… money is the root of most progress.” The British and Dutch empires, the rise to power of the US, and also the contemporary rise of China could not have happened without mastery of the financial system.

The author explains, in a manner totally understandable and clear to any lay person, how the system works and what the system is capable of: “money does not literally make the world go round. But it does make staggering quantities of people, goods and services go around the world.” Jargon is explained clearly and quickly, and the author’s style is fluid and quick.

Ferguson shows us how nothing in business and economics is new: Bubbles always burst, sooner or later; Greed will inevitably morph into fear when these bubbles and their foundations start to look shaky. The globalisation of finance and war is nothing new, either – the most successful mercenary (condottiere) operating in the mid-14th Century Italy was in fact an Essex boy, Sir John Hawkwood, while the war was financed through government debt.

Ferguson is good at using a varied selection of examples from around the world – both macro and micro – to illustrate his arguments and history. Be it the Glasgow housing projects, the Napoleonic and World Wars, or the Italian city-states, the author offers a colourful, entertaining collection of case studies to help improve our understanding of the evolution of money and finance.

From the immensely powerful Medici family in Italy (in 1385, Giovanni di Bicci de’ Medici would be reminiscent of Michael Corleone in The Godfather Part 3, as he tried to make the family legitimate), to the stock market bubble that caused the French Revolution (the architect of which, John Law, was also a convicted murderer), and also the exceptionally successful and obscenely wealthy Rothschilds family, Ferguson tells us the story of booms and busts like never before.

The most interesting chapter for me, though, was the aforementioned “From Empire to Chimerica”. Starting with the West’s forays into Asia and in particular the British Empire’s (“history’s most successful narco-state”) role in the Opium Wars, and then the slow shift into the interconnectedness of China and America and what this means for the world; how the Chinese propensity to save has allowed American profligacy to continue (the US borrowed $800 billion in 2007). Ferguson describes this change as “one of the most astonishing shifts there has ever been in the global balance of financial power”:

“The globalisation of finance has… blurred the old distinction between developed and emerging markets, turning China into America’s banker – the Communist creditor to the capitalist debtor, a change of epochal significance.”

“It has never been more necessary to understand the ascent of money than it is today.” With this book, Ferguson has provided an accessible, highly readable and even gripping account of the history of money.

By the Same Author: Virtual History (1998), The House of Rothschild Pt.1 (1999) & Pt.2 (2000), The Cash Nexus (2002), Empire (2004), Colossus (2005), The Pity of War (2006), War of the World (2007)

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