Riku Sayuj's Reviews > The Ascent of Money: A Financial History of the World

The Ascent of Money by Niall Ferguson
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Imperialism: The Darwinian Justification

Ferguson contends that today’s financial world is the result of four millennia of economic evolution. It is very important to the aims of this book that this metaphor is accepted. Ferguson looks at this evolution of money into the complicated financial ecosystem of today. He explores how money mutated into new tools/organisms and acquired characteristics that allowed it to meet the needs of its users/demands of its environment better. The tools that helped men make even more money or harness their own energies more efficiently were selected for as ‘fittest’ and soon took over the monetary environment.

This happened in fits and starts:

First came the invention of money itself, which is not given much attention to, probably because it is too shrouded in the mists of time (and also because the West has no unique claim on it, at any of its stages - even the more advanced forms). Then it started mutating into its various forms, conquering and occupying various niches according to functionality.

And according to Ferguson, the civilizations who had access to these new and more efficient tools were hugely benefitted and in many cases were at a decisive advantage, down to our day.

The Evolutionary Stages

1. Banks

Money, once it allowed quantification of the value of transactions soon led naturally to delayed payments and then to the institutions of lending and borrowing. These slowly grew to become banks, clearing houses for ever larger aggregations of borrowing and lending.

2. Bonds

The rulers and the lords were the biggest customers of the banks. In time governments that figured out how to utilize the credit market best thrived and their innovations led to government bonds and securitization of streams of interest payments. This matured into full-fledged bond markets by the 13th century. The rulers had great incentive to protect and regulate this amazing new source of funding! This led those governments most dependent on these markets to institute regulated public markets so as to maintain stability and security of transaction, which was in their own best interests. Transaction and discovery costs reduced drastically and areas with such markets proved extremely useful to their rulers, who could no raise money for wars much more effectively. Battles were now to be won and lost in the bond markets.

3. Stock Markets

By the seventeenth century, corporations started aping the states, a process that was not limited to only financial matters, and started to raise equity through share markets. This could only develop first in areas with already well developed bond markets and public markets and thus gave them a further advantage — the advantage derived from the financial tools now extended from wars to trade and industry. The West was rising buoyed by its financial innovations, in Ferguson’s view.

4. Insurance

With the institutions of bonds and shares prospering, the next step was to use the market to spread risk out. insurance funds and then pension funds exploited economies of scale and the laws of averages to provide financial protection against calculable risk. The corporations now had another decisive advantage in being able to have access to protection against risk and in a world where financial risk was the biggest danger any advantage there could prove world-conquering. The accumulation of financial innovations had already tipped the balance for the West and was now on its way to helping them conquer the world.

5. Real Estate

With the rise of more innovative instruments such as futures, options and other derivatives, it was now possible to increase leverage, not only for governments and corporations, but also for individual households. With government encouragement they soon increased their leverage and used that to invest more and more in real estate. This helped the western countries to have a larger and larger propertied class helping them to transition the into property-owning democracies, which, according to Ferguson, are the most robust sort.

6. Imperialism and Globalization: The Justified Culmination

Now we come to the crux of the narrative — Economies that combined all these institutional innovations - banks, bond markets, stock markets, insurance and property-owning democracy - performed better over the long run than those that did not, because financial intermediation generally permits a more efficient allocation of resources than, say, feudalism or central planning. The financial ecosystem evolved in the West was the best suited for governance and for human civilization in general. And it is for this reason that the Western financial model tended to spread around the world, first in the guise of imperialism, then in the guise of globalization, and has been vital for all sorts of progress achieved around the world — from the advance of science, the spread of law, mankind’s escape from the drudgery of subsistence agriculture and the misery of the Malthusian trap.

Ferguson has narrated the history of money as a financial evolution and thus given it the air of inevitable complexity and of progress. This makes it seem like the adoption of the ‘evolved’ financial system first by the West and them by the Rest is but a logical and inevitable choice that is for the best of the world at large.

It is noteworthy that Ferguson makes a point of using elaborate evolutionary metaphors to project the history of financial institutions in a Darwinian light.

Why?

According to this interpretation, financial history is essentially the result of institutional mutation and natural selection: Random ‘drift’ (innovations/ mutations that are not promoted by natural selection, but just happen) and ‘flow’ (innovations/mutations that are caused when, say, American practices are adopted by Chinese banks) play a part. There can also be ‘co-evolution’, when different financial species work and adapt together (like hedge funds and their prime brokers).

But market selection is the main driver. Financial organisms are in competition with one another for finite resources. At certain times and in certain places, certain species may become dominant. But innovations by competitor species, or the emergence of altogether new species, prevent any permanent hierarchy or monoculture from emerging. Broadly speaking, the law of the survival of the fittest applies. Institutions with a ‘selfish gene’ that is good at self-replication and self-perpetuation will tend to proliferate and endure.

As we can see there are certain key themes here:

a. That the survived institutions have to accepted as ‘fittest’ under Ferguson’s interpretation, and

b. That ‘selfishness’ of institutions/genes are rewarding for the species/humanity in the long run. So we should encourage the selfish imperialism of countries/the globalization of corporations today.

These are specious themes that are present in this book with a specific agenda, trying to escape notice by being presented in pseudoscientific light. And as we have seen from our discussion of how Ferguson uses the history of finance to show us how Imperialism was a good thing for the rest of the world, we can safely slot this book as another among Ferguson’s life-long attempts to come up with innovative apologetics for Empire.
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Reading Progress

September 14, 2011 – Shelved
April 28, 2015 – Started Reading
June 1, 2015 – Shelved as: history-imperial
June 1, 2015 – Shelved as: history-of-thought
June 1, 2015 – Shelved as: history-civilizations
June 1, 2015 – Shelved as: history
June 1, 2015 – Shelved as: economics
June 1, 2015 – Shelved as: about-crisis
June 1, 2015 – Shelved as: left-vs-right
June 1, 2015 – Shelved as: pop-history
June 1, 2015 – Shelved as: pop-eco
June 1, 2015 – Finished Reading
March 1, 2020 – Shelved as: finance

Comments Showing 1-24 of 24 (24 new)

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message 1: by Jan-Maat (new)

Jan-Maat As far as I recall there was quite a bit of Islamic influence on the development of financial instruments like insurance in medieval Italy. Not to mention that finance would be pretty difficult without the zero - (thanks India!). Your review confirms my opinion that Ferguson is simply a particularly well paid snakeoil salesman.


message 2: by Nandakishore (new)

Nandakishore Varma This is simply Ayn Rand in new garb. Fine review, Riku - though I am at a loss to understand why you gave it 3 stars. :/


Riku Sayuj Jan-Maat wrote: "As far as I recall there was quite a bit of Islamic influence on the development of financial instruments like insurance in medieval Italy. Not to mention that finance would be pretty difficult wi..."

Oh yes, but I guess those would be explained away by F as quintessentially western since they were adopted in full-fledged fashion only there - the origins do not seem to matter as much.

I am going to read a couple more books of F -- because he can teach me all the tricks of the trade! :)


Riku Sayuj Nandakishore wrote: "This is simply Ayn Rand in new garb. Fine review, Riku - though I am at a loss to understand why you gave it 3 stars. :/"

Thanks, Nanda! The three stars are only because the economics/fin part of the book was useful to an extent... He is a good teacher.


message 5: by Jibran (new)

Jibran So the financial recession of the last decade was just a 'random drift' that did not follow the laws of natural selection? Interesting. Interesting also the fact that the market had to be saved from chaos by the "centrally planned" intervention of their respective states. Perhaps we can call it enforced selection, so that natural selection may work better?

I had read this book half way through in the aftermath of the recession but for some reason couldn't continue. So thanks for completing my reading with your review. Your apt conclusions fit well with Ferguson's wider view about the necessity of imperialism and its 'good effects' on the colonised peoples, as were expounded in his other books.


message 6: by Maru (new) - rated it 1 star

Maru Kun Hello - I remember giving this book one star after reading comments in it about the 1973 Chilean Coup against Allende that simply were not in accord with the historical record - but which did agree with Ferguson's neo-conservative world view. I wish I had a copy so I could dig out the passage again. I think I threw it away in disgust.

Did you see this article? Niall Ferguson: admirable historian, or imperial mischief maker?

I found Debt: The First 5,000 Years a much compelling history of finance. For example it explained that there was no archaeological or anthropological evidence for the "myth" that money gradually came into being to replace barter. Rather debt of various kinds came onto the scene well before "money". Very interesting I thought - so would really recommend it if you are interested.


Riku Sayuj Maru wrote: "Hello - I remember giving this book one star after reading comments in it about the 1973 Chilean Coup against Allende that simply were not in accord with the historical record - but which did agree..."

Yes I too found Debt to be a much better history, though it has its own flaws. :) I had postponed reviewing it and now it is in the re-read to review pile I guess. I do tend to agree more with Graeber's view of economic evolution.

About Allende, Ferguson blames it all on a flawed economic experiment:

The coup epitomized a world-wide crisis of the post-war welfare state and posed a stark choice between rival economic systems. With output collapsing and inflation rampant, Chile’s system of universal benefits and state pensions was essentially bankrupt. For Allende, the answer had been full blown Marxism, a complete Soviet-style takeover of every aspect of economic life. The generals and their supporters knew they were against that. But what were they actually for, since the status quo was clearly unsustainable? Enter Milton Friedman. Amid his lectures and seminars, he spent three quarters of an hour with the new president General Pinochet and later wrote him an assessment of the Chilean economic situation, urging him to reduce the government deficit that he had identified as the main cause of the country’s sky-high inflation, then running at an annual rate of 900 per cent. A month after Friedman’s visit, the Chilean junta announced that inflation would be stopped ‘at any cost’. The regime cut government spending by 27 per cent and set fire to bundles of banknotes. But Friedman was offering more than his patent monetarist shock therapy. In a letter to Pinochet written after his return to Chicago, he argued that ‘this problem’ of inflation arose ‘from trends toward socialism that started forty years ago, and reached their logical - and terrible - climax in the Allende regime’. As he later recalled, ‘The general line I was taking . . . was that their present difficulties were due almost entirely to the forty-year trend toward collectivism, socialism, and the welfare state . . .’ And he assured Pinochet: ‘The end of inflation will lead to a rapid expansion of the capital market, which will greatly facilitate the transfer of enterprises and activities still in the hands of the government to the private sector.’


Riku Sayuj Jibran wrote: "So the financial recession of the last decade was just a 'random drift' that did not follow the laws of natural selection? Interesting. Interesting also the fact that the market had to be saved fro..."

Thanks, Jibran!

It seemed like to Ferguson the crisis was a result of the financial system overreaching and extending itself prematurely to the non-propertied classes! As i said, the property owning democracy is his ideal state. Once this is corrected, Ferguson is sure things will be hunky-dory again.


message 9: by Tanuj (new)

Tanuj Solanki Riku wrote: "Maru wrote: "Hello - I remember giving this book one star after reading comments in it about the 1973 Chilean Coup against Allende that simply were not in accord with the historical record - but wh..."

What bs!


message 10: by Riku (new) - rated it 3 stars

Riku Sayuj Tanuj wrote: "Riku wrote: "Maru wrote: "Hello - I remember giving this book one star after reading comments in it about the 1973 Chilean Coup against Allende that simply were not in accord with the historical re..."

Blame MF :) He provides all the fodder here.


message 11: by Maru (new) - rated it 1 star

Maru Kun Hi - thanks for tracking down the quote.

Its fascinating to see how in NF's hands Allende's implementation of his democratic mandate becomes "...full blown Marxism..." and how NF conveniently forgets to mention that the CIA helped set the stage for a dictatorship under Pinochet that was required to force Chile into the role of experimental testing ground for Friedman's policies.

Sorry to say Ferguson lost all credibility when I realized he was happy to miss out such material parts of the story.


message 12: by Riku (new) - rated it 3 stars

Riku Sayuj Maru wrote: "Hi - thanks for tracking down the quote.

Its fascinating to see how in NF's hands Allende's implementation of his democratic mandate becomes "...full blown Marxism..." and how NF conveniently forg..."


My pleasure. I am not entirely acquainted with the period, but even without that, it was obvious how NF was painting it.


message 13: by Will (new)

Will Ansbacher Nice review, Riku. I only saw the TV version of Money and that was enough for me.

It’s funny how people like NF who invoke Darwinism to prove the triumphal rightfulness of their ideas never seem to consider that the “successful gene” model is completely amoral (in the sense of being neither good nor bad). Capitalism is not “good” because of its success over Marxism any more than Ebola is “good” because it’s better adapted for killing people than the flu.

So should we have allowed Ebola to rage worldwide because the benefit might have been a remnant disease-resistant population? Or should we be fighting the uglier virally-infected aspects of Capitalism with everything we’ve got?


message 14: by Cecily (new)

Cecily I know you've read Borges; yesterday, I read these words of his (in The Zahir): "There is nothing less material than money, since any coin... (is) a panoply of all possible futures. Money is abstract... Money is future time."


message 15: by Jan (new) - rated it 3 stars

Jan Rice I read this book too and didn't find nearly the degree of coherence in it that you find, Riku. In fact that was one of its failures--being a string of disparate events with little historical connection (and the TV show even worse in that respect; that's why I had to go read the book). Nor do I remember the aspect of inevitability of the rise of money. I'm going to reread my review and think about it. As to financial innovations being behind the rise of the west, how would that work? What would be the mechanism? I was more swayed by the commercial economy as the salient factor: that individuals for the first time could rise and change their stations by means of commerce, which had never before been the case. Financial innovations could function as part of that, as necessity became the mother of invention. Interesting review, Riku. Thanks for inspiring me to go back for another think.


message 16: by Inam (new)

Inam Neoliberal horseshit. Appreciate the review tho!


message 17: by Riku (new) - rated it 3 stars

Riku Sayuj Jan wrote: "I read this book too and didn't find nearly the degree of coherence in it that you find, Riku. In fact that was one of its failures--being a string of disparate events with little historical connec..."

Yes, commercial economy is salient - but commercial economy has thrived in many places. so the next innovation has to be considered. To me this was the crux of the book - financial innovations and their progress - the "ascent" of money :)


message 18: by Riku (new) - rated it 3 stars

Riku Sayuj Will wrote: "Nice review, Riku. I only saw the TV version of Money and that was enough for me.

It’s funny how people like NF who invoke Darwinism to prove the triumphal rightfulness of their ideas never seem ..."


Thanks for the laughs!


message 19: by Jan (new) - rated it 3 stars

Jan Rice Riku wrote: "...Yes, commercial economy is salient - but commercial economy has thrived in many places...."

Of course there was commerce in many places, but in all the old empires commerce had been the lowest of the low. If someone did make money he tried to buy land and become a lord of the manor, so to speak. "The West" was just a backwater compared to the Islamic empires and it looked like it was going down. But then another dynamic got going, despite of, or maybe in part because of the fragmentation and the depopulation from the plague: the idea that it was okay to get rich through buying and selling, and that released beaucoup energy, created room for opportunity and led to all the exploration to search for new markets; the new world was discovered; expansionism occurred--it was a real black swan.

Yes financial innovation may have been the crux of the book but also the weakness of the book. First there had to be some finances with which to innovate.


message 20: by Riku (new) - rated it 3 stars

Riku Sayuj Jan wrote: "Riku wrote: "...Yes, commercial economy is salient - but commercial economy has thrived in many places...."

Of course there was commerce in many places, but in all the old empires commerce had bee..."


True, but without that crux, there is no reason for this book ;)


message 21: by Jan (new) - rated it 3 stars

Jan Rice Oh my goodness, just b/c I disagree w/something or see a weakness doesn't mean no reason to read! People doing that straw man stuff so they don't have to think! :( There is always something to learn, even from someone with whom you disagree strongly! ☼


message 22: by Riku (new) - rated it 3 stars

Riku Sayuj Jan wrote: "Oh my goodness, just b/c I disagree w/something or see a weakness doesn't mean no reason to read! People doing that straw man stuff so they don't have to think! :( There is always something to lear..."

No, I meant without that crux, there is no reason for the book to exist - the rest of it is pretty well-explored elsewhere and hardly at all here.


message 23: by Jan (new) - rated it 3 stars

Jan Rice Just reread your review, Riku, especially the first part, and perhaps we're talking at cross purposes. :)


Basil The book explains the origins of every financial advance thoroughly with a great number of facts and dates. At times, it can be hard to follow all of he financial jargon.


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