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14 of 17 people found the following review helpful
3.0 out of 5 stars Pure narrative with no analytic, 13 Jan 2013
This review is from: 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)
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