So finally I yield to popular demand and temporarily desist from reviewing fantasy, and instead review a book which is not “some bloody sword-fighting tosh”, as a friend most succinctly put it. A quick glance around my room and I picked Niall Ferguson’s well-researched and mighty interesting (for a popular history) The Ascent of Money, which was also a BBC television documentary. Those of you who watched Jacob Bronowski’s The Ascent of Man television series, based on the eponymous book, will realize that no creative nerves were strained here. While the title is pretty much self-explanatory, The Ascent of Money: A Financial History of the World is a generalized overview of the financial history of the world, aimed very much at the lowest common denominator, i.e. people who know next to nothing about financial history and the deliberate cycle of booms, crashes, and recessions that have been plaguing (most of) humanity for quite a while now, but realize it might not be a bad idea to find out.
Niall Ferguson was at the 2010 Jaipur Literary Festival, plugging this very book. He’s an excellent demagogue, which is only to be expected from a Harvard professor, or an Oxford research fellow, or a senior fellow at Stanford. All three of which he is, of course. He was…eruditely oleaginous. Ferguson claimed to have been one the first people to predict the sub-prime mortgage crisis, indeed, there’s an entire afterword in the book describing just that. Still, his information was most intriguing, there’s no denying that. At the time, if you recall, the sub-prime crisis was reaching its climax before fading into history to be replaced by the western world’s current financial predicament: credit ratings, debt ceilings, and credit defaults. One of the many reasons I like living in India. Because we’re so free of corruption.
I’ll freely admit that recent economic history isn’t exactly my forte. I’ve studied it in other historical contexts, and read a fair few Paul Krugman newspaper articles, but I’ve never delved into it as an academic entity in and of itself. That’s what made The Ascent of Money so fascinating for me. Sure, it’s not as detailed as an academic text would be, and its information is now a bit dated, but it does provide a well-presented overview of our (bad pun alert)financial times. Ferguson’s canvas is broad; Ancient Babylon’s clay trade tablets, the Medici banking system, the Mississippi stock bubble, the first stock exchanges, Nathan Rothschild’s brilliant coup after Waterloo, the collapse of Enron, the sub-prime crash and the amazing delusions of financiers in 2007; he charts a riveting path describing how credit and debt systems evolved and are essential to human civilization. Not to mention the many crooks, deviants, and downright scumbags who took advantage of them. George W. Bush and Alan Greesnspan, for example, who pushed collateralized debt obligations and wide support for adjustable rate and subprime mortgages. Way to go, boyos!
Not all of them became as big as the Rothschild family, though. Some might say that by the standards of some of today’s stock market swindlers (no, I didn’t say Goldman Sachs, you thought it) they were relatively small fry. But some of the ones detailed in The Ascent of Money deserve their place in the criminal hall-of-fame. That’s kind of what makes the last part of the book the most interesting, it’s the most current. The chapter entitled ‘Safe As Houses’ details the intricacies of the sub-prime scam. And yes, it was a scam. Bundling together toxic mortgages and selling them to the highest bidder under the guise of privatizing the housing market isn’t exactly what Keynes and the others meant by free-market economics. Then there’s the Enron scam as well. Read the book for the details, but I have to say that when compared to the more elegantly devious stock bubble scams of the past, our modern-day wall-street privateers come across as overlatively greedy and grasping, which is why they were caught. It’s the old story, I guess, you can never tell when you have enough, when to stop, and when to cut your losses and run. Before, as in the case of a few stockbrokers during the 1929 Depression, you have to throw yourself out of a 37th floor window. Or on the mercy of law enforcement agencies. It’s somewhat disheartening. All the style seems to have gone out of crime.
So have I whetted your appetite enough? Feel like getting the book? Not yet? Then would you like to know how a penniless Scotsman became the richest man in France and played a pivotal, if unpremeditated, role in ensuring English supremacy in the eighteenth century race for global domination? Well, either buy the book or click on read more to find out. Some of the history detailed in the book is more than a little intriguing. Perturbing, even. But definitely quite interesting.
So, the story I found particularly engrossing was that of a certain John Law, the Scotsman who helped precipitate, and in fact accelerate, what history has come to call the French Revolution. Ever heard of the Louisiana stock bubble? This was perhaps the first and in some way the greatest of the artificial stock bubble schemes. These involve deliberately inflating the cost of a stock by whatever means are at hand, usually duplicitous, and then watching it collapse and decamping with the money. These means usually involved deceit and moral turpitude on a scale that would make Attila the Hun blush. Here’s a good overview, because even if you don’t read the book the story’s well worth knowing. But what the hell, I want to tell it anyway.
Law was a financial adviser to the creme of French royalty. He had the ear and trust of the Duke of Orleans, the second most powerful man after the King. Law was, or must have been, a charismatic and convincing rouge to pull off perhaps the greatest attempted confidence trick in history. Although to be fair to him, it didn’t start out that way. Paper money was just coming into vogue, and France’s finances were in something of a shambles following the excesses of the rule of Louis the XIV, possibly the greatest and certainly the most extravagant member of the Bourbon dynasty. Yes, you could argue that the tourist gains of the Palace of Versailles may have offset that by now, but at the time not too many people saw it that way. So Law convinced the French Government to open a bank that would issue paper money, arguing that this would increase liquidity circulation and increase commerce. He wasn’t wrong here, the idea of bearer-value-bonds, the basis of modern currency, was becoming extremely popular in the major trading nations (England, The Netherlands, and to a lesser extent Portugal) and Law was genuinely trying to convert the French economy’s huge public debt into tax-gathering equity. But despite his obvious intelligence, and his realization that enlightened despotism was the best system under which to implement his schemes, he did make a grave mistake in confusing the English and French psyches. The rural French attitude towards anything as seemingly far-fetched as little pieces of paper worth quite a bit more than their weight in gold or silver was one of deep suspicion. Quite justifiably too, as things turned out.
Law then formed the Mississippi Company, which has gone down in the annals of history as the major player in perhaps the first stock market bubble in history. It was setup to allow people to buy shares in property in Louisiana, which at the time was still a French colony, and reap great profits as the land was colonized. Paris went crazy for it, as no less an observer than Voltaire himself commented. But despite the establishment of the city of New Orleans (a direct sop to the ego of Law’s greatest patron) the colonies never took off, and were in fact unmitigated disasters. Impending doom looming, Law issued more and more shares and came up with wild schemes like pension plans to draw in the more privileged classes. That sounds nice, but without funds to back it up, it’s a pretty hollow claim. You can guess what happened next, we’ve been living through much the same thing over the past few years. Ka-bloeey! It’s a great story. The fact that it’s real makes it that much more piquant. Eventually, Louisiana was sold for a pittance, allowing the British to exact some revenge for losing the American War of Independence. It’s interesting how this piece of financial history played such a pivotal role in the struggle for global dominance between the French and the English in the 18th century.
Some of the other chapters are just as interesting. Chapter IV: The Return of Risk is a fascinating tale of the birth and development of insurance. In Chapter VI: From Empire to Chimerica, Ferguson details how the Chinese fondness for saving against the American penchant for credit has altered the way capital flows in this world, from West to East to East to West. There’s a lot more I’d love to say in this context, but it’s strictly speaking not relevant to the review. I’ll put it into the comments, that sure beats footnoting.
The only real criticism you can level at The Ascent of Money is its brevity. Well, that, and if you don’t believe in evolution, perhaps a few others. The book clearly has an evolutionary theme. To Ferguson, finance is a dynamic entity that evolves through a process of natural selection. The impact of the environment on the sequence of creation, selection, and destruction has its own concomitance as a financial metaphor in an eschatological as well as a creationist sense. To finish with a quote from the book:
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.
Amen to that, eh? The financial world is in such a good place right now.
From Bangalore but based primarily in New Delhi, India, Samir has variously been and continues to be a professional musician, a pub quiz host, a political campaign aide, and a student of the guitar, as well as history and international relations. He is currently Research Director for the Global Security Centre in India. He is also a freelance editor and research consultant, having worked for the Ministry of Overseas Indian Affairs, the Public Health Foundation of India, and a McKinsey-IBM KPO, as well as Random House and Oxford University Press. He can be contacted at firstname.lastname@example.org