Money: History Repeats Itself

Niall Ferguson’s The Ascent of Money was published by Allen Lane. A Harvard historian shows the star economists how economics work or worked.

With uncanny timing Ferguson’s book comes on the market. What normally would have been disregarded as a historian’s hobby book on economics has become a highly interesting and disturbing analysis of the financial markets. The book gives an over-view of 4000 years development of our current financial system. Or maybe the financial system we had until last month.

The American way of travelling might not be to everybody’s taste; to see Europe in five days incomprehensible to Europeans. But the book spooks the reader through millennia only slowing down in 13th century Italy where Ferguson puts the beginning of the modern money and lending system. This, as many other claims he makes, is debatable, but I think not really the main point of the book.

Rather, the book wants the reader to understand the historical way money took in a general way, and highlights many interesting facts many don’t know. It gives the reader an idea of the beginning of money and debt and the evolution of bonds, pensions, and future trading.

He cites the example of the first bonds issued in England to finance the war against Napoleon, which was partly a reason England did win in the end, with a lot of help from all its friends. Bonds were a cheap way of raising money, which France at that time didn’t have. The same held true for the Great War of 1914.

Ferguson makes a good point for his theory that understanding history is crucial to being a financial wizard. Only by knowing the bubbles of old and by analysing their crashes are leaders able to cope with imminent or actual crisis. A CEO on Wall Street has a career span of 25 years, meaning there are only a few who remember 1987.

A hedge fund ran aground in 1998 after being hit by Russian default. A 3.6 billion loss ensued. The founder, a Noel Prize winning economic expert, had based his findings on data as far back as 1993. Five years, ridiculous five years, and he calls himself an expert. Had he even bothered about it, 1917 could have taught him that Russian default is possible, feasible, and probable.

Ferguson believes, too, in the relevance of history to contain any crisis that may arise. He is probably right about that, because whenever there were signs of crisis in the past century, government and bankers could remember 1929 and the errors of judgment made at that time. With this knowledge, none of these crises got stuck on us, as they were expertly defused in time.

This gives small hopes for the present crisis though, as political leaders worldwide are a bunch of illiterate self servers. Politicians are exclusively recruited from lazy and workshy failures, because otherwise they would be gainfully employed.

I do not agree with many things in Ferguson’s book, but the general view he gives the reader is a true one. And to get a crash course on financial development into one book is no mean feat.