Famous English writer Aldous Huxley once said,"The charm of history and its enigmatic lesson consist in the fact that from age to age, nothing changes and yet everything is completely different." These words of Huxley quite fittingly apply to the world of finance, too. In a way, our brains, when it comes to the subject of money, quite possibly, still react in the same manner as they did hundred of years ago. 'The Ascent of Money' apart from unearthing the history of riches acknowledges the role of such human frailities that proved to be pivotal to the ascension of money over the years. Close on the heels of the Niall Ferguson's book release in India came a TV series on 'National Geographic' by the same name. Author had undoubtedly worked out a neat marketing plan to hit the bull's eye and the bull's eye he did hit.

 

 In addition to being the author of 'The Ascent of Money', Niall Ferguson is also known for his previous bestselling books 'Colossus' and 'Empire'. In 'The Ascent of Money', he starts off with finance in the days of erstwhile Inca civilization and keeps going till the 2008 credit crisis. This book is an enlightening trip which illuminates somewhat obscure and lesser-known yet significant underlying events. These were the events that scaffolded the financial structures of the most successful erstwhile powers. As Ferguson himself says in the foreword to the book," Behind each great historical phenomenon there lies a financial secret."

 

Ferguson kicks off with the chapter aptly titled 'Dreams of Avarice'. He sheds light on the role of money in the Roman society, on the undoing of Hapsburg empire; he also hurtles through the accounts of Shylock and Venice, Florence and Medicis. Much to the delight of readers, Ferguson offers crisp explanations of some of the key concepts of finance such as Cash reserves, Money supply, Credit creation, fractional reserve banking, Gold standard (whom Keynes dismissed as a barbarous relic), etc. He ends the chapter with an interesting account of long-existing dichotomy in the US economy. America has provided each of its citizens with the unalienable right to declare themselves bankrupt and seek a legal recourse to reorganization/liquidation of debt. Ferguson himself mentions,” The world's most successful capitalist economy seems to built on a foundation of easy economic failure."

 

Ferguson then moves on to the 'birth of Bond market' which he considers the second revolution in the ascent of money. He delves into the history of bond market and quotes the ancient Greek philosopher Heraclitus,"War is the father of all things." Ferguson attributes war to be the father of the bond market. The ability to fund a war through market for Government debt apparently gave rise to bonds, specifically, war bonds. Both Italy and France succumbed to the temptation of raising money through war bonds, and consequently, spiraled into defaults as looming debts became overwhelming. Author also sheds light on the booming bond market in 18th century London which had become attractive to foreign investors due to its liquid bonds called Consols. He then goes into an enlightening account of the famous banker Nathan Rothschild. Author digs up interesting pieces of information about Rothschild family to which many would be oblivious. For example, Ferguson says that Nathan Rothschild was as much responsible for the Napoleon's defeat in the Waterloo as was the Duke of Wellington since he was the one who sold bonds through the nexus of his brothers in different countries and stockpiled Gold for the British army. The first three chapters make the storytelling skills of Niall Ferguson more than amply clear. He segues from one account into another with mathematical neatness, stoking up the reader's interest in anticipation of seemingly uncovered historical facts.

 

After covering credit creation and bond market, Ferguson logically switches to more flamboyant topic of stock markets. Chapter is titled 'Blowing Bubbles'. Ferguson explains that following three factors are always central to the creation of bubbles - a) Information Asymmetry, b) Cross-border flow of capital and c) easy credit creation (read sub-prime). Just like the previous chapters, 'blowing bubbles' has also got a fair share of discussion on some of the relevant concepts of stock markets which lend to the ascent of money. Apparently, what Rothschilds were to bond market, John Law was to the stock market. John Law could be obnoxiously branded as someone who gave the world its first stock market bubble. Historical account of John Law as told by Niall Ferguson is an engaging one. After the French revolution, the French monarchy saddled with huge debts made John Law the in charge of public finance.

 

Next chapter titled 'The return of risk' takes a swath of issues ranging from the role of public and private insurers in the aftermath of Hurricane Katrina to Japan's welfare system and Milton Friedman's mentorship of Latin American finance ministers. Fifth chapter 'Safe as houses' is somewhat singularly framed and focuses on property as investments. Ferguson traces the history of financial institutions such as Fannie Mae, Freddie Mac which were instrumental to the increasing number of households owning or wanting to own properties. He does an incredible job of explaining well beyond clichés the linkages between the Great depression and recent financial crisis. He calls into question the role of credit-rating agencies which abetted the crisis by obfuscating the toxic nature of various exotic instruments such as CDOs and Credit default swaps.

 

Last chapter of the book is titled 'From Empire to Chimerica' which basically signifies the momentum shift that is taking place from America as the central hub of Finance to the joint China-America entity often called Chimerica. As interesting as the title sounds, the content doesn't do any justice to it. Ferguson has taken a motley collection of topics from prevailing times and patched them together in the last chapter of the book. This book would have been better off sans the hotchpotch in the final chapter. You have everything from account of rising Chinese capitalism to account of human epitome of capitalism George Soros to some tidbits on Behavioral finance. Having said that, one can safely skip the final chapter at the expense of losing out on some general and easily available information.

 

Finally, Niall Ferguson's 'The Ascent of Money' is a wonderful read. This book successfully unwraps several of the lesser-known historical facts of our financial world. Despite the let-down towards the end of the book, the rest of the book makes for a bold and original attempt to highlight the history of what, some say, makes the world go round.