Contemplating the title of this book, my first thought was that it was by a person of the political left, maybe not the Pope, but an anti-capitalist and moralizer on the all-around evil of the financial system.
"No," said the person who recommended it to me; "He's center right."
So, then I saw the title as deriving from the bad-boy mentality of the author, thumbing his nose at such views. The author has his own intended reference--to The Ascent of Man
, a TV series by Jacob Bronowski that impacted him in his youth. But the first two chapter titles, "Dreams of Avarice" and "Of Human Bondage," did nothing to change my impression.
Also, this book is based on a television series, which is, in fact, what I originally set out to watch. And in the series, the author is strutting around, looking very much like a "master of the universe" wannabe (or, to use the old Salomon Brothers' self-descriptor that he quotes, a "Big Swinging Dick").
His presentation notwithstanding, Ferguson isn't an economist or financier but a historian and professor. Yet the teaching wasn't getting across. I must have been looking around online; that's when I discovered there is a book.
From that first chapter, about the origin of finance, I learned that the root of "credit" is in "credo
," the Latin for "I believe," and that when Shylock calls Antonio "a good man," he means, not his virtue, but his creditworthiness. And that--the conjoining of goodness with creditworthiness--echoed subsequently in the institutionalized racism of red-lining in the 1940s, whereby African-Americans were deemed "uncreditworthy" (in Chapter Six), and, again, near the end of the book, where the author uses a dollar amount to express what a person would have been "worth," had he pursued a certain investment strategy.
The author also touchs on the legal fictions required to avoid running afoul of usury laws against the earning of interest--laws that remained in effect in England until 1833. Examples are the repaying a loan with the inclusion of a percentage of the gains, or the purchase of streams of annuity (if I remember correctly, the latter being one of Voltaire's methods.) ...And there's the Medici's rise via finance from small-time hoodlums to popes, royalty, and arts patrons. "Bank" is from "banci
," Italian for "benches," on which the earliest bankers ("banchieri
") sat behind their tables. ...And how precious metals do not define what money is. In fact, the importing of mountains of silver into Europe by the conquistadors changed what had been thought to be "the" worth of products: so much silver poured into the economy that there was inflation.
And he talked somewhere about how loans "create" money. You put your money in a bank. So you have that much money. And the bank lends it to someone else. Now that person has that amount of money, too. Presto--more capital! Or, more properly speaking, the depositor and the borrower can each take that money and build or make something. Although the borrower's position is balanced by debt, still, each has the use of the money.
In the afterword, the author defines money as "the crystallized relationship between debtor and creditor"--but isn't that only because he's focusing on finance? It seems to me it would be more basic to say it's the crystallized relationship between buyer and seller. (My husband is gloomily shaking his head while saying he doesn't know enough to comment, so I've probably gotten onto shaky ground.)
My favorite chapters were Chapter Four, "The Return of Risk," and Five, "Safe as Houses." In the former, I wondered why, at the beginning, he was making statements I expect to hear from the political left, such as that financial difficulties are more likely at present due to climate change and "American foreign policy blunders," and quoting Naomi Klein. He talked about risk, using as an illustrative case the uninsurability of parts of New Orleans post-Katrina. He also looked at the problem of inflation in the '70s in a one-sided way, it seemed, positing Milton Friedman as the savior and "socialism" as the enemy. At the end of that chapter, he said the answer to the problem of risk lies in futures, options, and hedge funds, albeit an answer available only to those with money. And that was his answer to his rhetorical leftist references to risk at the beginning of the chapter.
For the rest, there are--houses. Chapter Five begins with the story of Monopoly (the game): invented by a radical who wanted to preach against the uses of money, but turned into a glorification of same by a later developer. The game became so ubiquitous that it was used in WWII to smuggle real cash to spies behind enemy lines.
Ferguson makes clear that, although the owning of homes benefits capitalist democracies, the expression "safe as houses" applies to the lender, not the buyer. The lender can reclaim the property should the borrower default, since you can't pick up your house and abscond with it. What the purchaser must have is an income. Then, and only then, is he home safe.
And, back to the '40s and before, that was when, in the words of a friend of mine, FDR "saved capitalism." In 1932, in the midst of the Depression, Ford Company goons fired on 5000 demonstrating unemployed workers, killing five, and before long 60,000 workers were singing "The Internationale" at the funeral. The New Deal became answer to such unrest--as did the creation of affordable long-term mortgages and federal deposit insurance.
The chapter ends with safe as--not houses--but "housewives," and the merits of microfinance. Women stay home, use, not squander, the money, and pay it back. (Elsewhere I've read of the similar merits of educating women.) But even in microfinance exorbitant interest rates have arisen, supposedly as the only way to make money on a multiplicity of tiny loans.
Although "Safe as Houses" presents the risk to capitalism, the author never puts together in a coherent way that classic liberalism, in the sense of absolutely free markets, sans any sort of planning or mitigation of the travails of "the masses," would lead to just the sort of uprising he describes as having happened back during the Great Depression.
The last chapter, "Chimerica," deals with the Great Recession of 2007 and the relationship between the U.S. and China. They save, they lend us lots of money; awash in all that money, "subprime" loans were made to people with no jobs, no assets, and no prospects--for which he fingers "W." (Take that, you conservative accusers!) Apparently no one knew that defaults on subprime mortgages would shake the international economy and affect people half a world away.
The author talks about the era of globalization that preceded WWI, characterized by imperialism and gunboat diplomacy, of which one low point must be the forced creation of an opium market in China for the merchandise produced in India under British auspices. In light of that, our present status as the drug market for the "developing world" doesn't seem so wrong. Turn and turn about is only fair.
Ferguson quotes some of the financial elite of the Victorian era--that prior era of globalization--as saying war would be a disaster, but most of them were saying it couldn't
happen; the world was just too interconnected. Of course, he's comparing that to our own globalized times. Then, Britain was paired with Germany as the U.S. is with China now. (But his picture neglects to touch on the pervasive belief that Europe needed war to cleanse or purify itself, that I've picked up from other sources.)
Markets have short memories. Workers in the financial sphere have careers of around 25 years. English-speaking westerners feel so secure. They are lacking in imagination, and they are complacent. The author closes with a review of economic thinkers such as Nassim Nicholas Taleb (Fooled by Randomness
and The Black Swan
) and Daniel Kahneman. He's looking here at the hard-wired irrationality that calls into question all
economic forecasting--without the benefit of hindsight, that is.
Niall Ferguson's TV series as it was shown in England is available on YouTube. There was also a four-session NPR showing but we were lucky to end up with the six sessions that matched up with the six chapters. The book goes into more detail--sometimes confusing, as when terms are defined on the show but not in the book. The book tends to contain jargon not readily understandable to the uninitiated--sometimes unintentional but sometimes, just maybe, intended to mystify. For example he says countries with financial intermediation do better than those with other systems such as feudalism or central planning. The latter is a code expression for communism. Is the former a code for capitalism?
The book suffers from the severing of finance and commerce, as they are intertwined and interrelated, and as commerce, as well as finance, started off being in a bad light.
This book purports to be, per the subtitle, a "financial history of the world," but, if so, only in the sense of the special events and highlights that illustrate the rise, in historical succession, of banks, government bonds, markets for securities, the stock market, insurance and pensions, derivatives, and, finally, the political encouragement of home ownership.
It is a history in the sense of a 1926 book I had from my mother and uncle as a child in the '50s--"The First Days of Man"
--that had chapters with such titles as "How Mother Nature Made the Earth Ready for Man," "The Fish that Got Stuck in the Mud," and "The Ape that Walked Like a Man." One can fit some more pieces into the puzzle, but won't find a comprehensive picture that provides massive new insights.
Taking Niall Ferguson at his own word, here's his view of money:
(F)ar from being 'a monster that must be put back in its place,' as the German president recently complained, financial markets are like the mirror of mankind, revealing every hour of ever working day the way we value ourselves and the resources of the world around us.The Ascent of Money
It is not the fault of the market if it reflects our blemishes as clearly as our beauty.
was published in 2008, a year into the "Great Recession."
Postscript: Are there no other paintings of the exchange of money? This book uses on its cover the very same one that is on the cover of The Mind and the Market
.Update for October 13:
I noticed this article reprinted in my local paper that seems to reflect the author's concept of "goodness" as "creditworthiness:" http://digital.olivesoftware.com/Oliv...