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Chapter Summaries: The Ascent of Money - Essay Example

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This essay presents the summary of two chapters ("Blowing Bubbles" and "Return of Risk") from the book "The Ascent of Money: A Financial History of the World" written by professor Ferguson. The paper talks about the insurance as the best measure to cushion ourselves from future financial risks…
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Chapter Summaries al Affiliation) Chapter 3 Summary Chapter 3 ‘Blowing Bubbles’ focuses on the joint-stock company. Professor Ferguson retrieves the history of the joint-stock company to Europe and pre-modern Asia but relates it to the most significant Dutch invention of all times, Dutch VOC. Fergusson asserts that the rise of royally-chartered companies increased stock exchanges and public debt in Europe that relate to the speculative bubbles by John Law (Ferguson, 2008). He compares stock markets with the bond market and establishes that the latter derives fewer returns compared to stock markets. Nevertheless, Fergusson reckons that stock markets are vulnerable to negative market forces like the boom-and-bust cycles that lower their predictability. Fergusson quotes the contribution of a Scottish Financier, John Law, who created the first market bubble, the Mississippi Bubble (Ferguson, 2008). Indeed, John’s contribution is very fundamental in finance and market cycles since he rose to become Minister of Finance and central bank head in France. Law managed to create the Mississippi Bubble by monopolizing all economic activities in the area. Moreover, John Law controlled the printing of money which generated an increase in share prices subject to the immense purchasing power enjoyed by the private bank. The monopoly created by John Law also increased inflation rates leading to the explosion of the bubble. The explosion crushed the French economy. Nevertheless, Fergusson attributes the presence of the financial bubble to the immense monetary policy in France (Ferguson, 2008). However, it is worth noting that a stable monetary policy may not have the absolute capacity to control share prices. Ideally, uncertain future expectations and current market forces influence the share prices to a great extent. As such, Fergusson asserts that we must consider how to safeguard ourselves against financial risks in the future since the future is unpredictable (Ferguson, 2008).
Chapter 4 Summary
Chapter 4 ‘Return of Risk’ presents insurance as the best measure to cushion ourselves from future financial risks. Fergusson reckons the significance of insurance in this case and wonders why the free market is not offering insurance policies against such risks (Ferguson, 2008). In addressing this financial issue, Fergusson retrieves the history of modern insurance. He succeeds in manifesting the need for insurance policies by quoting various disasters like the Hurricane Katrina. Fergusson discusses two ways of insuring ourselves against future risks. He asserts that individuals can insure themselves. On the other hand, the society can organize itself into the welfare state to safeguard itself against future risks. The Scottish ministers analyzed risks to establish a social welfare state that provided social security nets against unpredictable financial risks. In the 1940s, the welfare state had immense significance in insuring the society against risks. However, in the 1970s, the welfare state led to economic stagnation via the rising costs and improved life expectancy (Ferguson, 2008). Fergusson advocates for individual responsibility by claiming that individual responsibility applies to all nations while the welfare state is only applicable to specific nations. Moreover, he argues that welfare state depends on the working class and does not accommodate the aging population. Indeed, the aging might not be working and hence cannot contribute to the welfare state. As such, they cannot benefit from this precautionary measure. Seemingly, the welfare state limits its capability. Subject to these limitations, Ferguson advocates for the disassembling of this insurance mechanism. Fergusson appreciates the modern financial developments that seek to protect the society against future risks.
Reference
Ferguson, N. (2008). The Ascent of Money: A Financial History of the World. New York: The Penguin Press. Read More
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