The Ascent of Money


Niall Ferguson




Date Reviewed:

July 2, 2009

first heard of Niall Ferguson when reading his columns in the LA Times. A historian writing editorials? Interesting, too bad he no longer does so. Having learned of him through his editorials, I decided to read one of his books; when I saw The Ascent of Money at the library, I checked it out.

I found The Ascent of Money to be an uneven read. There are sections that are fascinating, full of interesting financial stories that I wish Ferguson had explored further. And then there are sections that I found rather boring, such as the explanation of the crash of the Long Term Capital Management hedge fund or George Soros currency speculation. In the long run, just how important are LTCM or George Soros? But the good parts are very good indeed.

I really liked the section where Ferguson described the formation of the first companies and the origin of the first stock markets. I will have to hunt down a book on the Dutch East Indies trading company, because his descriptions of that corporation make it sound like a neat subject. How did such a small nation such as the Netherlands come to dominate global commerce? I also was fascinated by the detailed story about how John Law, a renegade Scotsman, became the leader of the Bank of France in the eighteenth century and created one of the largest stock market bubbles in history with his "Mississippi Company" scheme. I had never even heard of this financial bubble and subsequent bust, but apparently it improverished the French royalty for generations afterward. Ferguson doesn't say so, but perhaps this economic collapse is what forced the French to sell the Louisiana Purchase to the United States a few year later. Ferguson compares Law's fraud to the Enron fraud recently perpetrated by Kenneth Lay, another political connected insider.

The story of the rise of the banking power of the Medici in the Renaissance, and the rise of the Rothschild banking dynasty a few hundred years later are just as interesting. Employing financial innovations, such as diversification of risk, of by using insider information, these families were able to amass wealth greater than kings. Who knew that Fibonacchi showed the Renaissance nobles how compound interest could make the bankers rich?

What sections of the book didn't I enjoy? The parts that focused on the most recent history. There are a lot of paragraphs devoted to recent housing prices, but this information was dull because it was just a rehash of the current newspapers. Also, Ferguson writes too much about insurance, and explains how only governments can insure huge calamities such as the Katarina hurricane that destroyed New Orleans. I wish there had been a better story about the fate of Argentina - in the beginning of the 19th century, Argentina and the United States were roughly equal economic powers. But Argentina followed a path of hyper inflation and economic collapse, while the United States so dominated the 20th century that historians already refer to it as The American Century. Ferguson does bring up the story of the economic path followed by Chile - how a brutal dictatorship implemented some of the ideas of the economist Milton Friedman from the University of Chicago, and apparently the result is that Chile is now a prosperous economy. The Chilean dictatorship is gone, and the Chile model is being copied by Mexico, Peru and other Latin American nations.

One thing I took away from reading this book is that financial investing is a whole lot riskier than I appreciated. Bubbles collapse, panics ensue - our current economic crisis is nothing new. This stuff has happened pretty much since the invention of banks. Maybe stuffing money in the mattress isn't such a bad idea (unless of course you live in a country with hyperinflation, or one that defaults on its debt and issues new currency!)

Ferguson covers a lot of ground in this book, he brings up a lot of subjects that would worth investigating with other books. A good writer can make any material interesting, while a bad writer can ruin a fascinating story - so I will have to be careful about which books I check out on the Dutch East Indies Company or the Rothschilds.