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Origin of specie

A historian charts the evolution of money, from ancient Mesopotamia to Wall Street

The Sub-Treasury Building (now Federal Hall National Memorial), near the New York Stock Exchange, November 1929. The Sub-Treasury Building (now Federal Hall National Memorial), near the New York Stock Exchange, November 1929. (Hulton Archive/Getty Images)
By James Grant
December 14, 2008
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THE ASCENT OF MONEY: A Financial History of the World
By Niall Ferguson
Penguin, 441 pp., illustrated, $29.95

Speaking at a conference of self-satisfied bankers in the Bahamas in November 2006, Niall Ferguson, a history professor at Harvard University, was dismissed as an alarmist for suggesting that the good times would not last indefinitely. Alas, he was vindicated, and not for the first time.

On the morning of Wednesday, Sept. 16, 1992, while working as a newspaper writer, Ferguson was browbeaten by his city editor for suggesting that Britain would be forced to withdraw from the European Exchange Rate Mechanism. That night, while he sat listening to Verdi's "The Force of Destiny" at the English National Opera, he was proved right.

Naturally enough, Ferguson puts this astuteness down to his historical perspective - a perspective, he insists, that economists tend to lack. "The average career of a Wall Street CEO is just over 25 years," he writes in "The Ascent of Money," "which means that first-hand memories at the top of the US banking system do not extend back beyond 1983 - ten years after the beginning of the last great surge in oil and gas prices. That fact alone provides powerful justification for the study of financial history."

Ferguson has produced a timely book that is indispensable, not just because of the global financial crisis, but because, being one of the greatest historians writing today, he masterfully covers his broad canvas in a way that remains lucid and accessible. Writing a "financial history of the world" titled "The Ascent of Money," an allusion to Jacob Bronowski's "The Ascent of Man" (which, like Ferguson's, accompanied a television series), might seem a little optimistic in the current climate. But, although he has clearly had to revise some of his earlier thoughts, his central assertion remains persuasive: "the ascent of money has been one of the driving forces behind human progress." In showing why this is true, the book provides many valuable lessons.

And yet Ferguson's enthusiasm to teach us the lessons for today - important though they undoubtedly are - sometimes gets in the way of a proper rendering of the past. Maybe this is partly the result of being overtaken by events, for one unavoidably gets the impression that the book was rushed. That said, Ferguson (who holds multiple academic positions besides his voluminous journalism and broadcasting) is more than capable of producing stunning work very quickly. "The War of the World," which Ferguson calls the Everest of his career and is a quite extraordinary achievement, is one such example.

Not one to shy away from grand narratives, Ferguson makes the case in this book that financial history is evolutionary - though with an aspect of "intelligent design" produced by regulators. Bronowski's book was, of course, itself an allusion to Charles Darwin's "The Descent of Man," and Ferguson says he could equally well have paid homage to that. The idea of the "survival of the fittest" leads him to conclude that, from an evolutionary perspective, it might not be desirable to have financial institutions that are "too big to fail." After all, Darwinian natural selection depends on creative destruction.

From its ancient origins in Mesopotamia to the current rise of China, the evolution of finance, Ferguson shows, has been "a roller-coaster ride of ups and downs, bubbles and bursts, manias and panics, shocks and crashes." The first step in the ascent of money was the evolution of banking. (Poverty, he explains, is more often the result of "the absence of banks, not their presence.") Next came the birth of bonds, largely as a result of war, followed by the rise of the stock market, insurance, and the "property-owning democracy." Old and familiar landmarks are reinterpreted. For instance, he interprets the Battle of Waterloo as a contest between rival financial systems, the outcome of which was decided by the Rothschild dynasty, which, Ferguson argues, also helped decide the outcome of the American Civil War.

Every step of the way, we get interesting insights for today. The most important lesson from the Great Depression, for example, is said to be that inflexible monetary policy can "turn a correction into a recession and a recession into a depression." Milton Friedman and Anna Schwartz argued that, in 1929, the Federal Reserve System was to blame for not aggressively seeking to inject liquidity into the banking system. We will find out whether they were right.

Ending with a discussion of globalization, Ferguson concentrates on what he, together with economist Moritz Schularick, called "Chimerica" - a symbiotic relationship (and rivalry) where China saves and America spends. A century ago, "the last age of globalization," writes Ferguson, saw a similar relationship between Britain and Germany. That age ended in 1914, "not with a whimper, but with a deafening bang, as the principal beneficiaries of the globalized economy embarked on the most destructive war the world had ever witnessed." Could it happen again?

Could it be that, as the balance of global power shifts from the United States to China, "Chimerica" is just a chimera? Before embracing the brave, new "post-American" world, he insists, we should reflect on whether deteriorating political relations between the United States and China could cause a similar 1914-style breakdown in globalization. As his historical analysis of the present tells him, such a scenario is not as ridiculous as it might at first seem. It can often feel as if Ferguson is just trying to provoke. But what if he's right?

James Grant is a freelance writer living in Britain.

THE ASCENT OF MONEY: A Financial History of the World By Niall Ferguson

Penguin, 441 pp., illustrated, $29.95

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