Niall Ferguson follows the money to tell the human story behind the evolution of finance, from its origins in ancient Mesopotamia to the latest upheavals. To Christians, love of it is the root of all evil. To generals, it's the sinews of war. To revolutionaries, it's the chains of labor. But historian Ferguson shows that finance is in fact the foundation of human progress. What's more, he reveals financial history as the essential backstory behind all history. Through Ferguson's expert lens, for example, the civilization of the Renaissance looks very different: a boom in the market for art and architecture made possible when Italian bankers adopted Arabic mathematics. The rise of the Dutch republic is reinterpreted as the triumph of the world's first modern bond market over insolvent Habsburg absolutism. Yet the central lesson of financial history is that, sooner or later, every bubble bursts.--From publisher description.
The absence of under-the-counter financial markets and their influence on, their substantial part of, the global economy seems like a significant blind spot. There are occasional asides to the Mafia, narco states, and the like, and of course when Ponzi schemes come to light they are acknowledged. But that's it. As such, it's sort of like this: if The Ascent of Money were a study of a city, it would only take stock (so to speak) of the goings on within buildings and institutions, and not of street life. In other words, it's not a full picture. It's like a Chamber of Commerce picture. (One other seeming blind spot: if I'm not mistaken, the author seems to have a disinclination toward companies that are not publicly traded.)
Also: I cannot recall reading a non-fiction book recently with less of a thesis. There is no overarching theme, no consciously enacted perspective, just the steady march of economic history proceeding like a fleshed-out timeline. I'd say most fiction I read has more of a thesis, more of a sense of perspective on the world, than this book does.
To be clear, there is a concluding section in which the correlations between biological evolution and monetary-system change is compared. But in effect what has happened is that after dropping occasional references to such a metaphor throughout the book, he then tries to tie it all together. In other words, the equation to produce this book was: write a history of (largely western) economics at a (largely) macro level, and then add a final chapter proposing a model, supported only by parenthetical references in the majority of the book. A comparison is not a thesis, especially when the comparison feels added on. Furthermore, the evolution metaphor is seriously sloppy. For a widely traveled professor at Harvard, he has created a loose-at-best metaphor with a floating subject that changes according to the need of his rhetoric, on a moment by moment, sentence by sentence basis: Has money ascended, like man is said to have? Has the nature of business? Has the market? If, as the author states, complex technological innovations haven't actually supplanted earlier modes like barter and loan sharks, then how can the comparison to mankind be made? Are we humans surrounded by our own competing ancestors? And if in fact this is about an ecological comparison, and not a one-on-one to mankind, then why not just say so? Because comparisons to man allow for the idea of the free market having a rational hive-mind sentience? Because The Ascent of Man sounds like a better logline than The Ecology of Money? It's altogether unclear. If after this much effort a book's thesis cannot be plainly stated, then it does not have one. What it has is a paper wrapper.
And as a side note, I may be mistaken, but the book seems to clarify when an economist is left-leaning but not when right-leaning. And the fact that George Soros and several other figures in finance are Jewish is pointed out, but no other religion is listed with any particular frequency when other major figures are mentioned.
One final thing: There is an anecdote about the film Mary Poppins early in the book that I highly recommend reading. I can't do it justice, but in brief: the author was invited to speak at a business event, and since the tone of his talk was somewhat negative about the economic short term and midterm, several of the attendees (all successful business-people) complained afterword, essentially taking issue with the presence of a non-businessperson, especially one deemed not enough of an optimistic booster). One of these complaints stated that they should have ditched him and just shown the movie Mary Poppins. The author then takes the opportunity to point out the extent to which Mary Poppins' plot rests on the instability of British banks.
I'd say he does a decent job in the first few chapters just in introducing various financial ideas. It begins by talking about the start of banking systems. He points out how Spain's extraction of gold from Peru was a mixed blessing, because, even if it the money supply is gold, the expansion of the money supply still devalues the currency. And, because they were rolling in gold, Spain got left behind in other developments.
What will probably stick with me is the story about the Dutch East India company, the first, or one of the first, stock corporations, and how it spread the risk, and produced a decent return for a long time.
He goes on to do a pretty good job of explaining why bond prices can fluctuate depending on risk, and what hedge funds are. I have to admit, that, by that time, I was anxious for the book to end. There was so much going on at the end, as it got into more recent events, that I was overwhelmed. This is probably because I am not really very interested in the financial markets in themselves.
What I am interested in (and had some hope in the early chapters that Ferguson might address) is how you can have an economic system with some of the benefits of a modified capitalism - which I see as the fluency of money as a means of exchange, and being able for some at least to accumulate some capital to do some creative things - and yet not be locked into the boom/bust cycle. In other words the boom/bust cycle could be described as having to consume for the economy to be healthy - by healthy I mean providing a livlihood to the great mass of people, and providing a means for them to develop themselves (as opposed to making a killing). Not only do we have to consume, so the economy won't contract, but even that is not enough to ensure that there aren't huge groups of people unable to live adequately while others have more wealth than they could ever use.
We're told the health of the economy is affected by the health of the automobile industry, yet I want people to buy fewer cars. We should have fewer cars, and better ways of getting around. We need an economic system that allows for less consumption for some, and more for those whose basic needs are not being met now. I want to read books by people who are beginning to puzzle out what that system is.
While this book wasn't that, it did give some pretty clear explanations of some basic financial institutions and some of their history. It's worth a read, but don't feel bad if you abandon it somewhere in the middle.
The main problem with the book is that it doesn't have a thesis. It's a bunch of evidence that doesn't really go anywhere. The lack of evidence means that there is no real analysis of the evidence - there is no need to push down to the real nuts and bolts details. So the whole thing is a kind of broad brush survey without any solid substance.
The latest book by Harvard professor and popular commentator Niall Ferguson is a historical look at the rise of finance. Ever wonder how the stock market came to be? Exactly how and why did the evolution of credit lead to the rise of civilizations? Could all the world's conflicts be explained by economics? These are the historical questions Ferguson poses and attempts to answer in "The Ascent of Money."
Ferguson's primary purpose for the book is by using economic history to help explain the complexities of modern financial institutions. Why, might you ask is this important? Because the average person knows little to nothing about such simple financial facts such as the interest rate charged by their credit card. Never before, in this globalized, highly coupled world that we live in today, has financial knowledge and a fundamental understanding of financial institutions been more important than it is today. Everyone is affected by world markets, interest rates, and inflation one way or another.
While I think Ferguson does an admirable job in explaining such complex subjects such as mortgage-backed securities or credit-default swaps, I still think that anyone who does not have a Econ 101 or Fin 101 will still have problems following these inherently difficult to understand topics. Ferguson's writing, thank goodness, does not contain the snobbery that sometimes comes across when he appears as a commentator.
As for the historical content, I think Ferguson is a little selective in some of the topics he chooses. As one would expect, Lord Rothschild is used throughout the book as an example to explain the rise of debt worldwide. There are detailed accounts of the rise and fall of Argentina, the American Civil War, the French Revolution, and much more.
Regarding Ferguson's philosophy. He appears to be a pragmatic neoliberal. He is a proponent of free-trade, but for example he writes that "of all the lessons to have emerged from this collective effort... inept or inflexible monetary policy in the wake of a sharp decline in asset prices can turn a correction into a recession and a recession into a depression." (p. 163). Ferguson takes exception with the Keynesians like Stiglitz and Krugman but while at the same time exploring the relative benefits of Milton Friedman's Chicago School "Washington Consensus". He describes Chile's economy as the shining star in Latin America following Pinochet while passing judgment over the massive human costs. And finally, he places the primary blame on Alan Greenspan for his "loose" monetary policy for the current crisis we find ourselves in.
Some reviewers have critiqued the book for its lack of historical breadth, and to some extent I would agree. However, the book is already 350+ pages, and more historical examples would dilute Ferguson's arguments. As ambitious as it is to try to explain such a complicated subject, Ferguson is mostly on the mark. I highly recommend this book for anyone who wants to know more about the history of finance.
Reading it you really get the feeling that we humans are often too eager to repeat the mistakes of history, as it draws parallels between todays financial crisis and those of days gone.
A good read indeed.
1) Financial innovation and misdeeds are never far apart. For example, punitive interest rates charged by loan sharks, and those providing much-needed, and very successful, mirco-credit loans. Another example: the separation of ownership and control was a major factor in allowing corporate growth, but is also a major contributor to a lack of accountability and the excesses we’ve seen by some corporate managers. And one more: the ills of excess leverage and inappropriate pressure to borrow, coupled with the indisputable social and economic benefits of owner occupied housing.
2) Poverty is not a function of rapaciousness but is a function of access to financial markets. .If you are interested in this topic and haven’t read Hernando De Soto’s Mystery of Capital, I recommend it.
3) Markets work. This from an author who is an historian, not an economist. Mr. Ferguson down plays, I think, the value of regulation. For the counter-argument, I recommend The Return of Depression Economics by Paul Krugman.
I would like that author tried to incorporate Veblen thoughts more into this work although he is citing Veblen in this book. Veblen theories of conspicuous consumption would increase quality of explanations in chapters about houses and Chinamerica.
What is wrong with that sentence?
I gripe at Microsoft Word when it highlights my intentional use of the passive voice, but the sentence quoted above exemplifies the reasons that writers who value accuracy and clear thinking regard the passive with caution. Why did forced labour have to be introduced? Well, because sane people will not work themselves to death for the benefit of strangers. That much is obvious. But the "had to be" elides the question of "according to whom?" The author seems to regard it as inevitable that a mountain of silver ore be mined. The option of leaving it alone is never mentioned. The same sense of inevitability seems to surround most of the financial innovations explained by the author. The idea that societies could be run in a different fashion is never mentioned. Nor is the notion that the triumph of Western economics owed more to the successful exploitation of fossil fuels than to the excellency of our banking and investment systems. The entire book is a justification for the current system of credit, speculation, investment, etc.
The financial history is probably accurate, yet the explanations never seem to really help the reader understand what is going on. How can billions of dollars of value disappear overnight? How can people who preside over that failure continue to collect huge salaries while others lose their jobs, homes, and pensions. One does not need to be a Marxist to suspect that the explanations aim more to convince than to clarify.
Highly recommended. You will not be disappointed.
Ferguson writes in a down to earth style and seems to enjoy the smashing of shibolleths. Property the best bet? The figures don't back it up. Third world the cause of most financial problems? Generally its the UK and Europe that have caused most trouble. Financial modeling as the key to smooth flawless market predictions? Never underestimate the human capacity for delusion and stupidity.