The Ascent of Money

“The charm of history and its enigmatic lesson consist in the fact that from age to age, nothing changes and yet everything is completely different.” – Aldous Huxley

Niall Ferguson’s ‘The Ascent of Money’ tracks the evolution of money from theGTY_bernie_madoff_cf_160125_12x5_1600 (1) erstwhile Babylonian tablets to the exotic financial instruments of modern day. It’s a tale of human frailties central to the ascension and the decline of money over the ages.

Ferguson takes the reader through annals of history and deciphers the embryonic role of money in the Roman society. Simultaneously, he also offers crisp explanations of key financial concepts such as Cash reserves, Money supply, Credit creation, fractional reserve banking, Gold standard (whom Keynes dismissed as a barbarous relic), etc.

The evolution of the bond market, in the words of Ferguson, was a radical move in the evolution of finance. The ability to fund a war through a market for Government debt apparently gave rise to bonds or more specifically, war bonds.

While many nations favored War bonds, the irresistible temptation to depend on them led economies such as Italy and France into a financial quagmire. However, this did not in any way deter bonds from turning into a thumping proposition worldwide. The booming 18th century market in England was central to the ascension of bonds.

Behind each great historical phenomenon, there lies a financial secret.” – Niall Ferguson

The same boom also witnessed a certain Nathan Rothschild play an instrumental a role in Napoleon’s defeat in the battle of Waterloo.

It was Rothschild, who sold bonds in different countries and stockpiled Gold for the British army that ultimately resulted in Napoleon’s rout. Peppered with such historical facts, ‘The Ascent of Money’ segues from one topic into next with mathematical neatness, stoking up the reader’s interest in anticipation of seemingly uncovered historical facts.

The three factors always central to the creation of market bubbles as explained by Ferguson are: a) Information Asymmetry, b) Cross-border flow of capital and c) easy credit creation. He illustrates the ills of stock market via the story of John Law, the creator of the first ever market bubble.

Ferguson traces the history of financial institutions such as Fannie Mae and Freddie Mac and their progressive role in increasing the number of households wanting to own properties. He does an incredible job of explaining well beyond clichés the linkages between the Great depression and recent financial crisis. He calls into question the role of credit-rating agencies which abetted the 2008 crisis by obfuscating the toxic nature of various exotic instruments such as CDOs and Credit default swaps.

Author aptly remarks on the long-existing paradox of capitalism in America,“The world’s most successful capitalist economy seems to be built upon foundations of easy economic failure.” Evidently, each US citizen has an unalienable right to declare themselves bankrupt and seek a legal recourse to reorganization/liquidation of debt.

Author captures the momentum shift that is taking place from America as the central hub of Finance to a hypothetical China-America entity often called Chimerica. However, the content fails to do justice to what could have been an interesting subject. Seemingly, Ferguson has scraped together a motley collection of prevailing topics and composed the final chapter of the book.

In my view, the book could have been better off sans the hotchpotch of the final chapter. You have everything from the rising Chinese capitalism to George Soros to tidbits of behavioral finance. That said, one can safely skip the final chapter at the expense of losing out on some general and easily available information.

I’ll conclude that Niall Ferguson’s ‘The Ascent of Money’ despite some obvious shortcomings towards the end, unwraps several of the lesser-known financial facts of the world. It’s an engaging read, the one that makes you more enlightened and insightful.


 

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