Monday, February 23, 2009

The Ascent of Money, by Niall Ferguson

Niall Ferguson writes very appealing and engaging histories on war, empire and finance. The last book I read of his was about the American Empire called Colossus. It took an avowedly pro-American Empire stance, if such a thing is really possible. In the acknowledgments to that book Ferguson stated that he didn’t write as a ‘carping critic’, but rather as a well wisher who ‘wants America to succeed in its imperial undertakings’. I presume one would call this the Hobbesian view of global politics. We need a superpower to keep everything in order, otherwise the world will descend into chaos.

Sometimes I’m tempted to think that Niall Ferguson is just a smarty pants, a sort of intellectual kid who likes to put his toy trains on a collision course, watching them smash up just for the sheer thrill of it. While Fergurson weaves some fascinating prose, and obviously has a brilliant and capacious mind that can readily grasp and interpret a broad range of history, in the end he can come across as being a bit fatuous.

Some of his intellectual toys are really just that, toys. Like at the end of the book where he likens the evolution of finance – from gold, to banking, to today’s more complex financial ‘instruments’ – to Charles Darwin’s theory of evolution. The bursting of bubbles and capitalism’s ‘creative destruction’, says Ferguson, are just another form of the survival of the fittest, a way of breeding new financial species. This may be a fun intellectual game, but can anyone take it seriously? Hardly.

Look at what’s happening today in the major economies. We are not letting the weak bankrupted banks and businesses and industries hit the wall, so that new and better financial species can be given birth. Government is intervening, whether this be for better or worse.

Niall Ferguson seems to want to say that finance belongs to nature, whereas it more properly belong to the realm of politics and culture.

There are contradictions in the book too. At the beginning he again wants to defend the evolution of finance as giving us a civilised society that has reduced the need for conflict, but then his book is a history of war, slavery, and financial devastation. His book shows that finance has created enormous instability. He even goes so far as to say that the last couple of decades could be in fact a ‘super-bubble’ that is yet to burst (heaven help us!).

Alas, what’s the alternative? The ideology of communism was a complete disaster. Capitalism has given us all the wonderful benefits of our civilisation, yet it has a tendency to frequently go too far, and hence needs to be pulled back in, or have its bubble burst. The system of debt and credit has proved to be a marvellous spur to productivity and innovation. The creditor gets money for doing nothing, while the person taking on the debt can repay his interest and make a profit on top of that. Everyone’s happy.

But inbuilt into capitalism is a lot of magic thinking. How many current affairs shows have we seen where suckers were taken for a ride by some unscrupulous scammer offering not-to-be-believed investment deals. Money doesn’t grow on trees, but our capitalist system gives the wink to the idea that this is so.

Enough of me. Niall Ferguson is spot on when he says we really need to learn more about financial history. He certainly convinced me in this wonderfully readable account of the various facets of what he calls, in a somewhat trippy manner, ‘planet finance’. (See what I mean about Ferguson? His Wildean wit makes you wonder if he takes his own arguments seriously?)

However, you wonder if people are really interested in learning about complex financial instruments and the historical process that brought banks and currencies and bonds into being. All of my superannuation statements get put away in the top drawer unread. It’s more fun to believe that money might grow on trees.

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