Book Review: The Ascent of Money

By Niall Fergusson

You might not think of it very often, but the financial system that permeates our very lives is a product of thousands of years of innovation that has today reached staggering complexity. No society on earth, even North Korea, has found it expedient to dispense with money. Renowned Scottish historian Niall Fergusson has undertaken the ambitious task of trying to explain in a reasonably straightforward fashion what it´s all about, and at the same time indulge in the favorite national pastime of occasionally bashing the French. While this may not strictly be a page turner (even though I read it pretty much from cover to cover, but that´s why I run this blog), it is nevertheless very interesting and thought provoking.

To explain to the reader what money truly is, Fergusson takes us back to fifteenth-century, and the swashbuckling Spaniard Francisco Pizarro. A conquistador who went to the new world to conquer for Spain, for God and in order to get filthy rich. In the last of three military expeditions to Peru in 1534, he bested the Peruvian emperor Atahualpa in a pitched battle. Pizarro had only a force of one hundred and eighty men and twenty horses, against him stood the multitudes of one of the most populous states in South America. Quite how he managed to win with such ease with a force that size of what you normally leave behind to guard the baggage train is an astonishing feat. If you thought Leonidas and his brave three hundred were outnumbered, think again. The defeated emperor duly promised to pay him off by filling his throne room once with gold and twice with silver. This mighty hoard was the beginning of Spain´s rise to become a world superpower, yet the abundant mineral wealth they went on to accumulate (read strip mine with slave labor) proved to be a curse as well as a blessing. The concept of money and wealth, Fergusson will no doubt tell you while pouring himself a Scotch and gazing out the window at a misty Scottish hillside, is not the same as metal coins. All things similar, an influx of precious metal will lead to inflation as well as hubris. While Spain grew complacent and relied almost entirely on their supply of silver from the new world, their enemies, the protestant Dutch, were busy setting up the world´s first stock exchange. The Spanish Empire were soon left hopelessly behind in terms of financial development, and their power soon started to wane. A silver coin is only worth as much as someone else is willing to pay for it. Money is not metal dug up from the earth, it is trust. How else could it be that people labor hard and only see the sweat of their brow as a number on a digital screen? Yet this system of ”virtual” money will let you hand over your make believe currency in exchange for a cup of coffee and the latest issue of The Economist, with no questions asked. This is because it is all about trust, not a sliver of precious metal with the head of some Spanish monarch stamped on its side.    

Having established the nature of money and why we can´t do without it, Fergusson tells the story of financial innovation in Italy during the renaissance, a bond market for government debt to finance large armies of mercenaries. This rip-roaring read continues with the birth of the first stock market in Amsterdam and the tale of the Rothschild family turning the tides against Napoleon. The pages are all jam-packed with financial history of great significance, as well as the occasional nugget of dry wit. To recount everything would, quite literally, take all day, but a great deal of it centers around that most apocalyptic and headline grabbing of all matters concerning money, financial crises.

This is one of the two occasions in the book where Fergusson is immensely proud of being a Scotsman and gleefully engages in some good old French-bashing. Besides being the cradle of the modern insurance industry, Scotland also brought the dandy come rouge come swindler John Law into the world. Brilliant but immensely flawed and unscrupulous, Law fled London after he had killed another man in a duel fought over the affections of a fair young lady. Lawson soon ended up in Amsterdam, without the lady, and quickly became involved in the stock market. After becoming the contemporary equivalent of a city banker with red suspenders, he moved to France. At this point he somehow convinced Louis XV and his regent that he should be made Controller General of finances and start the first French national bank, the Banque Genéralé. Law´s scheme consisted of selling shares in a sprawling company that enjoyed a monopoly on France´s colonial trade and printing money to stimulate the domestic economy. At first, everything was rosy and everyone involved made a tidy sum. However, the lofty expectations for the colonies in the new world bore little resemblance to reality and the scheme soon came crashing down. This crippled France´s economy, not to mention Law´s career. Ferguson makes the case that this economic collapse was one of the causes behind the French revolution. Moving on from the Mississippi Bubble, he covers more recent crises such as the Great Depression, the Savings and loan crisis of the 1980s and the Great Recession (the 2008 crisis covered exhaustively in Stress Test, review available on your favorite blog). As far as the most recent crisis is concerned, Ferguson´s account is naturally a bit limited since the book was written when it was still raging, and I would be so bold as to say I enjoyed reading the less contemporary bit a lot more, since he seems to lose the plot ever so slightly when he covers the more recent times. After Ferguson writes about Milton Friedman he seems to assume that the bespectacled libertarian´s views are some sort of universal truth and fully embraces supply-side austerity. When talking about the financial cries of 1929 and 2008, Ferguson gives all sorts of long-winded explanations yet opts to not mention the New Deal and the importance of regulating financial markets effectively. The remedies he suggests instead seems vague and far-fetched.  

The chapter about Chile and the fall of Salvador Allende is on the verge of being factually incorrect, since he paints Allende as the only villain without even mentioning that it was the Nixon administration that secretly toppled him. Ferguson seems to have overlooked the fact that the financial crisis in Chile that proved fateful to Allende was the product of the least loved US President of all time wanting to destabilize Chile politically and economically. Nixon is on the record of saying he wanted to “smash that son of a bitch Allende”.

Despite my criticisms The Ascent of Money is an interesting and enjoyable read. Ferguson ties it up neatly at the end when he suggest that the financial system is not something that is inherently evil, but mere a reflection of those that created it. Like a reflection of ourselves, where all the flaws and quirks of mankind are there to see if only we care to look. If you want more of Niall Fergusson, may I also suggest his thoroughly enjoyable “Civilization: The Six Killer Apps of Western Power”.