The Ascent of Money: A Financial History of the World [Paperback]

This is wholly and only narrative history. As such, it's a great read, racy, journalistic, and absorbing. But surprisingly from such an intellectual author, it is all fact, no idea, and hence disappointingly superficial. When occasional cursory concepts are included, they are underworked and contentious. In his afterword, Ferguson defines money as `the crystallised relationship between debtor and creditor' (p342). This is an inadequate definition since money is also a means of exchange and a store of value. He claims that `the ascent of money has been one of the driving forces behind human progress' (p343). We might all accept that money has aided progress, but it is surely technology applied to production and output which has delivered advanced standards of living. It is this connection to the real economy which is missing in Ferguson's book. He initially quotes Milton Friedman writing `Inflation is always and everywhere a monetary phenomenon, in the sense that it cannot occur without a more rapid increase in the quantity of money than in output' (p101) but then proceeds as though those last 3 words were insignificant, and that the financial sector is an independent entity. He sides with monetarist Kenneth Rogoff against the more Keynesian proposals to address the 1997 Asian financial crisis of Joseph Stiglitz and Paul Krugman (p314), but he offers no persuasive economic analysis for his position. The financial sector is in fact the instrument gauge of the real economy. If productivity is infinite, inflation is zero : if productivity is zero, inflation is infinite. These are extreme points, but there is a spectrum between them along which real economies work.

This is disappointing because, in order to implement remedies for the prevailing economic crisis, the world still urgently needs a better understanding of the 2007 financial crisis than the popular banker blame game which Ferguson simplistically reproduces. Bankers really do not have the extent of power attributed to them by this explanation.

The answer lies in the real economy which Ferguson ignores. In the UK from 2001 to 2007, real GDP and consumer expenditure grew by 19.5%, whilst disposable income grew by only 11.5%. It is this root problem which led to deficient aggregate demand, which was initially supplemented by credit, which then soon became unsustainable, leaving much of the world in recession and austerity. If we really want to resolve the crisis, we should be asking what led to this GDP/disposable income gap. One potential answer is that advanced technology and automation can easily cause productivity to rise faster than real wages, reducing the income element of output. The only financial instrument which can ultimately resolve this is a citizen income which is not accounted as government deficit but simply written off each year. But this would require a careful study of the history of the theory of money, and not just a history of the facts of financial crises presented by Ferguson. Money is virtual which is why it needs no gold standard. It is based on confidence and real GDP output. It does not obey the laws of thermodynamics - it can be created or destroyed. These issues are the ones requiring more thorough analysis.

Geoff Crocker
Author `A Managerial Philosophy of Technology' (Palgrave Macmillan 2012)

Niall Ferguson again here brings us a history that is informative, entertaining and sobering. Being published in the midst of a global economic meltdown, for a book such as this, is a mixed blessing, as a step too far on the bearish side may make the author look like a doommonger, whilst being even slightly bullish might look blinkered. Ferguson, though, seems to manage to pull it off, though that equally is a spot evaluation. However, though it's clear where his loyalties lie in the pro/anti capitalism debate, the balance of the narrative tends nevertheless towards the various shocks delivered to the system rather than towards the prosperity delivered, albeit still strictly speaking to a relative minority of humanity, by markets and their lubricant, money.

As it turned out, some of the ground covered was familiar territory to me, bringing together strands of other books I've read recently, including Findlay and O'Rourke's Power And Plenty, Bentley's A Book Of Numbers, Schama's The American Future and even Lonely Planet Andalucia.

But some of it was new. He gives the origins of ghetto (a geto was a casting, and the original ghetto was in Venice's foundry district); explains that a consol gets its name from "consolidated fund"; and confirms that "dollar" comes from the German "thaler", on which the Spanish based the piece of eight, the world's first truly global currency.

Ferguson is also adept at telling stories: his account of the First Opium War, for example, is probably the clearest I've come across, and in the chapter on housing there is an excellent explanation of how the development of securitisation by Salomons ultimately led to the sub-prime meltdown.

He's not always right. In a description of segregation in Detroit and the 1967 riots he describes Aretha Franklin as a Motown star, which she almost, but never quite, was. And the final chapter begins with speculation that the rest of the world has decoupled from the United States economically. Unfortunately time has not been kind to this notion, with only Brazil, it appears, unaffected so far (December 2008), oil down by over $100 a barrel from its mid-08 peak, and even China's growth looking very shaky. But if there are any signs that "His pages are hot with proof-stage tyremarks", as one newspaper review alleged, then Ferguson is not alone in his revisionism: after all, even the German finance minister got it wrong. And in mitigation, this is the man who ended a previous television series (Colossus) warning that the United States was "heading for a credit crunch".

This is not, to be sure, a technical book. Readers seeking more detail of some of the principles described should go to the likes of Brealey and Myers's Principles of Corporate Finance. However, Ferguson more than succeeds in achieving his objective of providing a foundation of financial awareness for the general reader, providing plenty of food for thought. Amongst the morsels on offer: in better days for Argentina, the other Harrods was in Buenos Aires; the birth of stock markets was in 17th Century Netherlands, a country now often reduced to two letters in "Benelux"; and he ultimately really hits the button marked Panic by reminding us of the consequences of al-Qaeda's effecting a nuclear strike, of a further Katrina-like event, or of inundation courtesy of global warming.

So, great book, and so much for the past, but what of the future? Ferguson describes himself as a "liberal fundamentalist", and certainly descriptions of him as "rightwing" look overdone. Nevertheless, there seems to be a faith implicit that capitalism can cure itself, counter to the standard Marxist analysis of a bankrupt and inevitably doomed system. So where, as Larry Elliott has asked, is the intellectually endorsed social democratic alternative? It is implicit, ironically, in the response of the US government, but the measures being taken by that and several other governments has the appearance of a huge geoeconomic experiment unsupported by any clear theory other than it is the opposite of what was done in the 1930s. What is needed is a Keynes for the noughties. I'm looking forward to reading Krugman's new work to see if that is where the gap is filled.

This is an excellent broad history of our financial system - covering the development of bond & stock markets, our obsession with property as an investment and more. What makes this a 5 star read is linking historical events to our current predicament - both as examples of how things how gone wrong before and as direct causes of the latest credit crunch. Of course given it's breadth it can only touch on many topics, but for those areas where I have read more fulsome accounts (such as Enron, LTCM) I found his summaries to be very pertinent.

The accounts of various bubbles and crashes are interesting and somewhat comforting - the finance world seems to be phoenix-like in its ability to collapse and re-generate so maybe we are not without hope, however in his description of 'Chimerica' you do wonder if we are at the beginning of a new age, the transfer of power to a new owner...too early to say perhaps?

What is less comforting are the parallels he draws with pre-WW1 complacency that there could never be a global war because countries were too interdependent financially for this to be in anyone's interests, it's a chilling thought as he describes how future historians could look back and see the root causes today, just as current historians do today for WW1.

Overall I'd say this is a great introduction to some complex topics, and even where the explanations were a bit mind-boggling (still don't get interest rate swaps!) this doesn't detract from the flow of the story. Two things would be a great addition to this book - a glossary of some of the financial terms and a selected bibliography for further reading.