Analysis The Ascent of Money by Niall Ferguson - Book Report/Review Example

Book Review - The Ascent of Money By Niall Ferguson Niall Campbell Douglas Ferguson is a British historian who specializes in economic history and finance. Professor Ferguson divides his time teaching in Oxford and Harvard and is primarily known for his books, Empire: How Britain Made the Modern World, The Ascent of Money: A Financial History of the World and Civilization: The West and the Rest, all of which have turned into best-sellers and were later included in the presentation of television series for Channel 4. Niall Fergusson loves to explore and discuss the major economies of the world. He has an amazing degree of perception and is able to point out new angles regarding any economic policy that his contemporaries mostly fail to notice. He has an equal enthusiasm for both histories and economic strategies of superpowers. This love makes him point the wrongs that the owners of large corporations make, specifically with regard to their finance management, thereby finding themselves in a fix or affecting major financial crisis. Fergusson first attracted attention to himself when he made his speculation about Great Britain in his book “The Pity of War” published more than a decade ago. According to the author, England did a major mistake when it entered into World War I, thereby losing its empire and its hold on its colonies. According to Fergusson, Britain should have taken a neutral stance towards the war and remained a major power of the world. It was this involvement in the fatal war that cost England its colonies and made it an ordinary country. Later Fergusson shifted his attention towards America whom he considers to be the prodigal heir of English empire. Fergusson thinks that America has all the potentials of becoming the strongest country of the world, but because of its wrong economic policies, it is now in a major financial crisis and struggling to get a hold on its economic system. The book “The Ascent of Money - A Financial History of the World” is his 10th undertaking and has been adapted into television documentary for PBS (UK) and Channel 4 (US). In the book, Ferguson takes us on an enjoyable and enlightening journey of the underside of major happenings of the world with regards to the power of money. As the title of the book suggests, the book is essentially about money and its adventurous journey experienced through ages. The writer tries to give us a thorough history of money, banking and credit by narrating the major events of the world and how these events got themselves recorded in the history books due to the influence of money power. Money has seen many ups and downs and holds a significant position in all the countries of the world, no matter big or small. For some people money is a necessity, while others see it as a tool for evil; however, it goes without saying that, if rightly used, money can be the source of much goodness and could give rise to many new inventions. Fergusson wants to reassert the importance of money in people’s lives through his book TheAscent of Money, which basically means the rise of money. The author takes the help of various tales to regale us with the importance of money. He shows that money was a powerful tool behind all successful endeavors. Man was able to make revolutionary progress because he had the backing of money. Money was the basic cause for rise for a number of kingdoms. However, it was also the major cause for downfall for a number of prominent countries and associations. Therefore, people should study the ascent of money and take note of the past mistakes so that these mistakes are not repeated and man can continue to use money for its productive value. Thus, Fergusson clarifies that “the ascent of money has been essential to the ascent of man.” He further adds that “behind each great historical phenomenon there lies a financial secret,” and Fergusson strives to unfold these secrets to the modern world. In the book, Fergusson presents us with a lot of examples to show how money or the lack of it was the governing force behind the occurrence of a number of international events. Ferguson starts the book with an explanation of the beginnings of debt and credit and shows us how these two faces of money government came to become an essential element for any civilization. He presents us with several examples of ancient monetary history to show that debt and credit were prevalent even in very old age. However, they had different forms and names. Next, he moves on to human bondage and presents us with the picture of the rise of bonds in the modern era and how it came to be associated with war finance. At one instance Fergusson says that “it was Nathan Rothschild, as much as the Duke of Wellington, who defeated Napoleon at Waterloo” because he went out to sell bonds and stockpiled gold for the army of Britain. So, here we see that had not Nathan Rothschild interrupted on the economical side of the battle, Napoleon would not have been defeated at the battle. The Rothschilds who were the rich and most powerful bankers present on the continent in the 19th century acquired the name of die Finanzbonaparten (the Bonapartes of finance). The secret behind the Rothschilds success was the enterprising bond market. It was these bankers that proved to be the downfall of South (in the Civil War clash), as they refused to invest in the collateralized bonds, the Confederate cotton. Due to the shortage of money, the South could not fund their war machineries and, hence, they had to face a defeat on the hands of the North. So, again money is shown to be having a dominant role in shaping up history and causing one warring party to win over other. The emergence of insurance is also narrated in an interesting manner. Professor Ferguson says that there is no surety on anything. Life and commodities could get lost at any instant of time. Hence, to safeguard their interest the market of insurance policy was launched. The insurance market encompassed everything from life to personal belongings and gave an adequate protection against catastrophic elements of life. The modern insurance saw its birth in the early years of 19th century, while it worked towards a complete welfare state in the post war Japan. Similarly, Ferguson points out that imperial Spain had managed to thrive quite profitably on the grounds of the New World, yet it failed to show the same level of prosperity, as those of Dutch and British empires, because of a backward banking system. The other two nations had developed a sophisticated banking mechanism that helped them to thrive on the accumulated currency, while Spain got left behind. Hence, here again we see that the right usage and manipulation of money caused one nation to prosper, while the other nation that did not know how to handle money in the right manner lagged behind in prosperity. Ferguson blames the downfall of France on economy. The French Monarchy was very deep in debt to John Law who was an unscrupulous Scotsman. Law took advantage of the situation and took over control of French public finances. According to Ferguson, “it was as if one man was simultaneously running all 500 of the top U.S. corporations, the U.S. Treasury and the Federal Reserve System.” This control of a country’s finances empowered Law to create subprime mortgage bubble. The collapse of this bubble “fatally set back France’s financial development, putting Frenchmen off paper money and stock markets for generations.” Hence, here we find that a bad use of money totally collapsed a country’s economy. Ferguson later states that Wilhelmine Germany was put in a corner during World War I, because it “did not have access to the international bond market.” If the Germans have had adequate funds at their disposal the war would have had a different ending. Here again we are acquainted with the power of money. Germany was a very powerful and dangerous country of its time, yet the absence of money robbed Germany out of its strength and made it a weak opponent. Thus, we see that money has played a very crucial role in several histories of the world. This brings Ferguson to his last and most important chapter in the book which he has aptly named “Chimerica”. According to Michael of New York Times, “every one of these episodes sounds like a warning shot: Will America be the next great power to fall because of unsound finance?” He wonders whether the book prophesizes the US economy, which, if not rectified, would face the same unavoidable downfall that has been witnessed by other world powers in the past. Ferguson notes that America has stretched its finances too far and is now heavily indebted to China. He states that America at present has basically become a part of double countries - America and China which he candidly names “Chimerica.” It was like both the countries shared the same economic system where one part was the funder while the other part was the spender. He argues that “in effect, the People’s Republic of China has become banker to the United States of America.” This reliability on China as a banking state was proving quite beneficial for both the parties. American consumers profited by overbuying Chinese goods and over-borrowing from China; China, on the other hand, amassed large surpluses of dollar and invested them profitably into Wall Street. This investment of money into the Wall Street gave America the power to become the lone superpower of the world. Ferguson wrote that “for a time it seemed like a marriage made in heaven,” stating that “the East Chimericans did the saving. The West Chimericans did the spending.” However, the global financial crisis made America reel under its blow, while it allotted huge amount of power on the Chinese financers. This financial crisis turned the idyllic marriage into a marriage made in hell. It appeared that “there was a catch. The more China was willing to lend to the United States, the more Americans were willing to borrow.” This flow of easy finance “was the underlying cause of the surge in bank lending, bond issuance and new derivative contracts that Planet Finance witnessed after 2000. . . . And Chimerica — or the Asian ‘savings glut,’ as Ben Bernanke called it — was the underlying reason why the U.S. mortgage market was so awash with cash in 2006 that you could get a 100 percent mortgage with no income, no job or assets.” The seemingly great financial backing had made America into a superpower, but, unfortunately, most of this money had been funded by the Chinese investors. Hence, it seems that China is the real reason behind America’s role of a superpower giant and hence, the ropes of America are basically controlled by China. China is keeping a lenient hand on America’s economy, because America is its foremost consumer and China wants to keep its goodwill. The huge revenue that China is earning due to its business with America is utilized in some measures towards serving its people. America at present needs to check its financial standing if it wants to continue to be the number one global power. It should look for a balance in its foreign policy. Ferguson notes that now there is a role reversal. In the initial period of globalization that took place before the World War I, the money used to flow from a developed country to an underdeveloped one. However, in the present scenario, the flow of money is from developing countries into the developed countries. Hence, this role reversal is giving undue advantage to the developed countries and proving to be a source of concern which should be instantly checked and rectified. Conclusion Fergusson starts his book by talking about Inca who did not give any value to gold or silver metals - the international standard for currency. Then he turns on to pre-Christian Mesopotamian clay tablets which served the purpose of credit notes in exchange for commodities. Later, he discusses the transformation seen in banchieri that was so named because it was associated with benches that saw the money changes. He also looks into the histories of moneyed families that had a great influence on the cultural and political time of Renaissance Italy and, finally, takes note of the bankers of the modern times. Fergusson talks about the emergence of bond market as a state’s necessity for money to fund the wars. He further talks about different manias that have seemingly engulfed the rich and greedy investors and made them make wrong choices regarding investments that resulted in fatal consequences. Fergusson specifically describes John Law of France whose terrible financial strategy was the major cause of the country’s economic failure in the 18th century. Fergusson uses a lot of mathematical and other means to lay out his points before his readers, but his most striking theory is revealed only towards the ending of the book. According to Fergusson, finance has evolved as a result of natural selections. He believes that time dictates the nature of finance. With the changing of time old financial theories are getting replaced by new ones. It is wrong to stick to old theories or apply them in new environments. The economic theories basically move through a process of creation, selection and, finally, destruction as the needs of the time demands. These forward movements of economic theories form the basis on which the modern economies strive. While making this significant observation, Fergusson points out two vital notes. In the first note we can evaluate that evolution is primarily dependent on both extinction and creation. Unless and until an ill-evaluated technique sees its death, there would be no scope for the emergence of a new and better technique. In the present case, we can find that financers are rushing ahead to save all the striving banks, but these financers are not realizing that they would later find themselves in the same financial crunch if they continue to adopt the stale economic policies of yesterday. Hence, to be financially strong these bankers would have to employ new resources and work accordingly. Secondly, Fergusson explores the various wonders that have been created as a process of financial evolution. The present scenario only brings to mind the “roller-coaster ride of ups and downs, bubbles and busts, manias and panics, shocks and crashes.” However, Fergusson’s vision also encompasses a more worldly vision. “From ancient Mesopotamia to present-day China…the ascent of money has been one of the driving forces behind human progress: a complex process of innovation, intermediation and integration that has been as vital as the advance of science or the spread of law in mankind’s escape from the drudgery of subsistence agriculture and the misery of the Malthusian trap.” However, some of Ferguson’s points of views are questionable. Firstly the author seems to stress that Chimerica is the root cause of America’s current financial crisis, but other economists seem to differ. Michael in his Sunday Book Review for The New York Times suggests that “a lack of oversight and regulation of the subprime mortgage market here at home had a lot to do with it as well.” Furthermore, professor summarizes that China had been a backward country between the years 1700s and 1970s because there was a shortage of monetary innovation. But, few other historians blame this backwardness on other causes as well, such as an absence of technological advancement that erupted in Europe during that period. Finally, we see Ferguson asking the question, “Are we on the brink of a ‘great dying’ in the financial world — one of those mass extinctions of species that have occurred periodically, like the end-Cambrian extinction that killed off 90 percent of Earth’s species, or the Cretaceous-Tertiary catastrophe that wiped out the dinosaurs?” This question looks totally unsuitable for a book that is supposedly describing the upward journey of an important commodity called money. Work Cited Ferguson, Niall. The Ascent of Money: A Financial History of the World. Penguin Press, 2008. Print. Michael, H. “Follow the Money”. Sunday Book Review. The New York Times. 2008. Print. Read More