Niall Ferguson’s The Ascent of Money was published by Allen Lane. A Harvard historian shows the star economists how economics work today and how they worked in the past. His conclusions from comparing the two are at the same time obvious and disturbing.
Niall Ferguson’s book would normally have been disregarded as a historian’s incompetent views on how he thinks economics work; in view of the complete and utter incompetence shown by so called economists and politicians, the book has become a highly interesting and disturbing analysis of the financial markets. The book gives an overview of 4000 years’ development of our current financial system. Or maybe the financial system we had until recently and which showed itself inadequate and failing.
The American way of travelling might not be to everybody’s taste; to see Europe in five days is incomprehensible to Europeans. But the book spooks the reader through 3,500 years and only starts slowing down in 13th century Italy where Ferguson places the beginning of the modern money and lending system. This, as many other claims he makes, is debatable, but I think not really the main point of the book.
Rather, the book wants the reader to understand the historical way in which money developed and evolved in a general way and it highlights many interesting facts many don’t know. It gives the reader an idea of the beginning of money and debt and the evolution of bonds, pensions, and futures trading.
Ferguson cites the example of the first bonds issued in England to finance the war against Napoleon, which was partly a reason England did win that war in the end, despite incompetent leadership and with a lot of help from all its friends. Bonds were a cheap way of raising money, which France at that time didn’t have. The same way of getting cheap money held true for the Great War of 1914.
Niall Ferguson makes a good point for his theory that understanding history is crucial to being a financial wizard. Only by knowing the bubbles of old and by analyzing their crashes are leaders able to cope with imminent or actual crises. A CEO on Wall Street has a career span of 25 years, meaning there are only a few dinosaurs who remember 1987 and no one ever remembers 1929 except from hearsay.
As an example, the author relates the following story: A hedge fund ran aground in 1998 after being hit by Russian default. 3.6 billion pounds in losses ensued. The founder, a Nobel Prize winning economic expert, had based his findings on data as far back as 1993. Five years, ridiculous five years, was all he was able to look at and he calls himself an expert. Had he even bothered about it, 1917 could have taught him that Russian default is possible, feasible, and probable at just about any time.
Ferguson believes, too, in the relevance of history to contain and manage any crisis that may arise. He is probably right about that, because whenever there were signs of crisis in the past century, government and bankers could remember 1929 and the errors of judgment made at that time; they managed accordingly to sidestep the more blatant blunders. With this knowledge, none of these crises got stuck on us, as they were expertly defused in time.
No such luck this time round. Politicians and self-acclaimed economical experts are currently immersing themselves in disastrous decisions copying 1929 wherever possible and feasible. This gives small hopes for the present crisis though, as political leaders worldwide are a bunch of illiterate self servers. Politicians are exclusively recruited from lazy and workshy failures, because otherwise they would be gainfully employed in the private sector economy.
I do not agree with many conclusions Ferguson draws in his book, but the general view he gives the reader is a true one. And to get a crash course on financial development into one book is no mean feat, either. It’s definitely worthwhile reading.