Review: The ascent of money.

The Ascent of Money: a financial history of the world
Niall Ferguson

You might remember Ferguson as the author of such titles as Empire: how Britain made the modern world and Colossus (subtitled ‘the price of America’s empire’ in the US edition and ‘the rise and fall of the American empire’ in the UK edition).

In The ascent of money, Ferguson lays out a chronological history from the Babylonians’ clay tablets recording loans, through the invention of coinage, then paper money, government bonds, the joint-stock company, insurance and finally, the hedge fund.

Whilst all this sounds rather dry, Ferguson manages to recount the world’s financial history in an engaging, clear manner. The relationship between the bond market and general interest rates, for example, is much clearer to me now, as is the way that hedge funds operate. Whilst there is an increasing amount of jargon as the book progresses, it is still relatively easy to understand what Ferguson is saying when he tries to explain the incredible complexities of “mortgage backed securities” and how they managed to take down a great deal of the financial system recently.

Ferguson is clearly a fan of modern finance and what it has enabled humans, through governments and join-stock companies, to achieve, but he is no market fundamentalist. Ferguson repeatedly points to the shortcomings of our various financial tools, including stock and bond market bubbles, hyper-inflation and excessive leveraging. All of these arise from the simple fact that “Homo economicus” is a figment of classical economists’ imaginations and it is in fact Homo Sapiens that participates in and runs our economies and financial systems.

In later chapters Ferguson points to recent work in economic theory that looks at its evolutionary nature – treating economies as ‘ecosystems’. A much deeper investigation into this fascinating and fairly new field of economic research was published by Eric D. Beinhocker in his 2006 book The origin of wealth: evolution, complexity and the radical remaking of economics.

The thing that makes The Ascent of Money so interesting for me, though, is that Ferguson shows how something as seemingly mundane as finance can have unexpected repercussions upon broader political and social history. Amongst other things, Ferguson posits that the French Revolution and resulting Napoleonic wars, the First and Second World Wars, the demise of the Spain and her empire, the rise of the Netherlands and the Britain and their empires, the collapse of South American into dictatorships and the decline of China in the eighteenth and nineteenth centuries can all be traced to financial systems and decisions.

The Ascent of money, whilst focussed mostly on the Anglosphere, provides a broad sweep of history through the prism of finance. After reading it you will be better able to understand just exactly how the ‘credit crunch’ became the ‘global financial crisis’ and what it all might mean in the future.

Reviewed by Hugh