Books |
The Ascent of Money: A Financial History of the World
Niall Ferguson
By
Published: Feb 09, 2009
Category:
Money
When a financial crisis occurs, our first thought is for all those — well, we start with ourselves — who have lost money. That is, people who have been impoverished by those crooks and fools in the banking system. We do not, Niall Ferguson argues, stop to consider that it’s the banking system that created prosperity in the first place, and that it’s the banking system that’s largely responsible for the relative stability we experience.
To put it simply: “Money is the root of most progress.”
It helps, therefore, to take a slightly longer view of money than the duration of a Certificate of Deposit, both to understand how life worked when money was in its infancy and to see if there are any parallels to the trouble we’re in today.
Niall Ferguson — a Professor of History at Harvard and a Senior Research Fellow at Oxford, as well as Professor at Harvard Business School — was asked to host a documentary series about money for PBS. The Ascent of Money: A Financial History of the World is the companion book. That’s the good news; it means the book is lively, opinionated, and dotted with great stories about outrageous bankers and astonishing coups. It’s also the bad news; Ferguson moves fast and doesn’t stop to explain the fine points. That’s a small complaint; I couldn’t have grasped the fine points. (Don’t feel bad if you don’t either. As Ferguson notes, “A 2008 survey revealed that two thirds of Americans did not understand how compound interest worked.”)
Ferguson’s main points are easily understood. First, poverty doesn’t come from rich bankers raping the poor; it’s what happens when there are no financial institutions. Second, booms and busts are caused less by flaws in the system that by our “emotional volatility”. Third, it’s a fool’s game to predict the future of finance — even if you know the past.
The rich anecdotal history begins with the Incas, the last great moneyless society. (The story of Spanish conquest and pillage is always an eye-opener.) Ferguson then takes us to Venice, and the real story of Shakespeare’s merchant. He reminds us that the Medicis began like the Sopranos, and that if we look at the wise men in Botticelli’s Adoration of the Magi, we see portraits of the Medicis.
Ferguson writes that “it was Nathan Rothschild as much as the Duke of Wellington who defeated Napoleon at Waterloo”, because Rothschild sold bonds and stockpiled gold for the British Army. And he sees the American Civil as less a story of battles than a function of the Confederacy as a bad credit risk — for him, the real turning point in the war was the fall of New Orleans in 1862, which made it difficult for the South to export its cotton.
All is this is prelude to the story of finance in the 20th century. Believe, if you like, that World War was caused by an assassination; Ferguson explores economic reasons. Believe, if you like, that Hitler rose to power by exploiting hatred of minorities; Ferguson looks at Germany’s debauched currency. You may think “bubbles” are recent; Ferguson charts their history. (The capsule history of Enron is a jaw-dropper.)
Ferguson once contended that the Iraq War was an excellent way for the American Empire to use its muscle to create global economic stability. He has since abandoned that position, and, here, documents how that empire swaggers and blunders. Writing about Katrina’s effect on New Orleans, he sounds like Naomi Klein. Compulsory health insurance, he tells us, isn’t a liberal scheme; Bismarck enacted it to head off the angry poor.
Where you will really lean in is Ferguson’s chronicle of the housing boom — and bubble. He starts with a history of Monopoly, a game invented by Elizabeth Perkins in 1903 “to expose the iniquity of a social system in which a small minority of landlords profited from the rents they collected from tenants.” In the Depression, an unemployed plumbing engineer changed it into a greed-is-good game. Soon it was generally believed that there’s no better investment than your home.
This is not the experience of modern man. Until the 1930s, less than 40% of Americans owned their homes. (Even now, in England, 189,000 families own 40 million of the 60 million habitable acres.) But home ownership was encouraged by the government and, later, by banks, so most American believe — or did, until very recently — that houses are a great investment. In fact, Ferguson says, between 1987 and 2007, they barely outperformed the stock market. So his chronicle of sub-prime lending — especially in Detroit and Memphis — will make your blood boil. And you may, for the first time, grasp how a bad mortgage in Detroit can travel around the world.
Where are we now? Overwrought. We thought economic trouble would come from fringe economies; the problem was a rotten core. Globalization isn’t new, and in 1914, the last time around, it ended with “the most destructive war the world has ever known.” (Did you know that the British Empire in Asia really solidified its power in a dispute with China over…. smuggled opium? Balzac may have been right: “Behind every fortune lies a crime.”)
But the really spooky stuff is at the end, when Ferguson considers contemporary China, America’s new banker. We are bound together, he writes, as “Chimerica.” Which looked good — once. “For a time it seemed like a marriage made in heaven,” Ferguson writes. “The East Chimericans did the saving. The West Chimericans did the spending.” Chimerica was the ultimate reason why, in 2006, an American could get a 100 percent mortgage with no income, no job or assets.
That’s over. And now our friendly banker growls. Historically, Ferguson notes, this ends in war. Impossible? “One important lesson of history is that major wars can arise even when globalization is very far advanced and the hegemonic position of an English-speaking empire seems fairly secure. A second important lesson is that the longer the world goes without a major conflict, the harder one becomes to image. A third and final lesson….”
No. I’m not doing a cheat sheet for everything in the book.
At the end, Ferguson asks: “Are we on the brink of a ‘great dying’ in the financial world, one of those mass extinctions of species that have occurred periodically, like the end-Cambrian extinction that killed off 90 percent of Earth’s species, or the Cretaceous-Tertiary catastrophe that wiped out the dinosaurs?” If you don’t know economic history, you can’t begin to consider that question — or even to understand why Ferguson asks it. Don’t be like our representatives and our media. Get smart.
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To visit Niall Ferguson’s web site, click here.
