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The Ascent of Money

Scottish historian Niall Ferguson explores the links between money and human progress.

By Randy Dotinga / January 6, 2009



Money is the root of all ... progress. Now there’s something you don’t hear every day outside the confines of Wall Street.

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Here’s another: The trouble with poor people is that they don’t have enough banks. And one more: The biggest fault of our financial system is not in the institutions, but in ourselves.
These ideas aren’t entirely original, but bestselling Scottish historian Niall Ferguson gives them new life in The Ascent of Money: A Financial History of the World, an engaging and convincing exploration of humankind’s love affair with lucre, filthy and otherwise.
Ferguson’s goal is to educate a general audience in a world where many people are clueless about finances. Two-thirds of Americans, for instance, don’t understand how compound interest works, and just 14 percent of high school seniors knew that stocks are more likely than government bonds to make more money over 18 years.

“The Ascent of Money” is not always easy reading.

Ferguson deftly intertwines the history of money with the story of human progress, profiling extraordinary personalities along the way, but there are places where even readers with some financial background may have trouble navigating the complicated explanations of monetary topics.
Yet despite occasional tough sledding, “The Ascent of Money” is an enjoyable read, thanks to Ferguson’s personable and perceptive voice and his keen ability to link the past to the present and vice versa.
In the beginning, Ferguson explains, there was no money. But hunter-gatherers did not necessarily live happily ever after. They just found brutal ways of getting other people to cooperate with their wants and needs, relying on clubs instead of credit cards.
Enter money – ocean shells, clay tokens, coins, greenbacks and, eventually, the invisible virtual cash that lines our bank accounts today. Along with money came debt, stocks, bonds, credit, insurance, and derivatives, which all get their due in “Ascent of Money.”

Ferguson ranges far and wide, uncovering monetary lessons from throughout the course of human history.
The American Civil War, for example, provides an education in government bonds and their crucial role in warfare. The country of Argentina, once fabulously wealthy and a “byword for prosperity,” offers a case study in the dangers of financial mismanagement.
And in modern Glasgow, his hometown, Ferguson finds the roots of medieval banks by examining the loan sharks who haunt the city’s slums, lending money at huge interest, sometimes more than 1 million percent a year, to poor people too scared to default.
Poverty has “much more to do with the lack of financial institutions, with the absence of banks, not their presence,” Ferguson writes. Only banks can help the poor leave loan sharks behind, whether they live in a developing country or a slum in a Western country.
Once they get access to banks, the poor could start buying homes. But they might want to think twice. “[I]t turns out that houses are not a uniquely safe investment,” Ferguson writes, expressing what millions of Americans have already discovered.
But there’s more: Homes are actually an albatross during downturns because they can’t be easily sold – causing their owners to miss out on new jobs elsewhere.

“The question that remains to be answered is whether or not we have any business exporting this high-risk model to the rest of the world,” Ferguson writes.
Perhaps expert financial management can fix everything. Well, maybe not –  at least not as long as people are part of the picture.
As a growing pile of research is suggesting, “[M]oney amplifies our tendency to overreact, to swing from exuberance when things are going well to deep depression when they go wrong,” Ferguson writes. “Booms and busts are products, at root, of our emotional volatility.”
Still, Ferguson doesn’t pine for the cashless society sought by utopians and communists, nor does he dream of a day without car loans or mortgages. Instead, Ferguson finds hope in the continuing evolution of money.
After all, we now have pensions, reliable bank deposits, and life insurance (the latter thanks to two brilliant Scottish clergymen.) American poorhouses have vanished into history. And many of us remain fed, clothed, and housed even in the worst of times.
“There have been great reverses, contractions and dyings to be sure,” Ferguson writes. “But not even the worst has set us permanently back. Though the line of financial history has a saw-tooth quality, its trajectory is unquestionably upwards.”
That sounds like good news. But as money managers like to point out, past performance is no guarantee of future results. Unless you have money to burn, it’s still wise to be cool and collected about your finances.

And if you can figure out how to do that, let the rest of us know, won’t you?

Randy Dotinga is a freelance writer in San Diego.

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