By Niall Ferguson
Penguin Press, 2008
Over the years, Harvard professor Niall Ferguson has repeatedly distinguished himself with his detailed, yet riveting, analyses of financial history. His latest work, The Ascent of Money, is a fluent and rather complete history of how our complex financial system came into existence.
In these times of socioeconomic uncertainty, a clear sense of the past and of what has brought us to the present is an absolute requisite; without that awareness, there can be no sincere and concrete social debate on what the future should look like.
In examining historic financial watersheds, like the evolution of credit, the birth of the joint-stock company, and the commercialization of derivatives, it is clear that each and every step was an efficient and practical response to a social and political need. According to Ferguson, the nations that were able to innovate more quickly and more effectively were the first to gain an international competitive edge, for example, the Marine Republic of Genoa and the city-state of Florence with their establishment of the first-ever financial institutions; England in the 18th and 19th centuries, thanks to its very efficient bond market; and the United States, with its more transparent regulatory and technological financial framework (notwithstanding the current crisis, of course).
Countries that were not able to innovate, Ferguson writes, but that responded to the challenges with cumulative bad choices, quickly reached breaking points with extreme consequences. For example, Argentina, which was one of the richest countries in the world at the beginning of the 20th century, is now completely dysfunctional after years of questionable financial choices.
Today, like at other times in the past, as we witness an important financial juncture, some countries will respond efficiently and succeed, while others will fail. Let’s just hope that the United States succeeds.
By Sean D. Jasso, PhD, Practitioner Faculty of Economics
The Ascent of Money is Niall Ferguson’s seventh book among a collection of historical texts about epic world events and figures, including The House of Rothschild and The War of the World; the author is equally at home as a historian, a storyteller, and a scholar. In Ascent, Ferguson leads us on a journey through the realm of money, from the clay accounting tablets that established the financial industry 5,000 years ago in Mesopotamia to the global liquidity crisis of the present day.
Ferguson’s commentary throughout each “ascending” chapter challenges members at each level of society to shed their ignorance and adopt a more intelligent understanding of how money and finance work. The lessons he learned and imparts from his historical research should inspire any moral manager whose decisions, though, perhaps local, do impact and often shake the interdependent foundation of global financial institutions.
As a historical text, Ascent of Money makes a valuable contribution to the humanities, the study of the human condition. Ferguson makes the case that the human condition as it relates to money does not merely reflect a unit of exchange; more importantly, it reflects the “trust inscribed” between lender and borrower.
Ferguson the historian and storyteller plunges readers into the grotesque, dark side of finance, displaying the debauchery of early bankers as exemplified by Shakespeare’s Shylock in The Merchant of Venice whose collateral demand was no less than a pound of human flesh. On the lighter side, he relates the story of recent Nobel Laureate Muhammad Yunus, whose Grameen Bank has provided billions in legitimate small loans to the poorest of the poor. And of course, no story about money is complete without the colorful champions of capitalism, like Andrew Carnegie, who attained towering wealth through enterprise and spent the remainder of his life investing in future generations through philanthropic endowments to libraries, research centers, and universities.
Ferguson the scholar begins reconstructing history in the important Introduction. His thesis, which he attributes to his own discoveries in writing the book, is to break down the barriers of financial knowledge. Throughout Ascent he implies that the risk and instability that exist today could be minimized if more people simply knew where money comes from, how to gain access to it, how its institutions work, and how to make it grow.
It is highly probable that, like Ferguson, tomorrow’s manager will discover that money has caused the same problems that it must help repair. His three central discoveries are that the elimination of poverty requires sufficient financial institutions, inequality is really between the smart and the ignorant, and financial crises are hard to predict.
Ascent of Money is vital reading for anyone who relies on money to build a future, student, manager, teacher, politician everyone. What we learn is how deals have been made, destroyed, and built again over the ages through the development and incorporation (or destruction) of the following ascending institutions:
13th century: Banking and government bonds
17th century: Equity in corporations and their ensuing stock markets
18th century: Insurance funds and pension funds
19th century: Futures, options, and the first derivatives
20th century: Houses as a means of leverage
Like all of Ferguson’s books, Ascent is well organized and fully developed. Through powerful narrative and artful storytelling, the reader is compelled to embrace the urgency of Ferguson’s thesis. Breaking down the barriers of ignorance about finance both past and present will not only bring strategic insight to 21st-century money-making decisions, but more broadly, it will help to secure a life that is more prosperous and, ultimately, more meaningful.