The Ascent of Money: A Financial History of the World

Ferguson begins with a list of different terms for money, stating that, whatever we call it, money matters. He then asks rhetorical questions about what money really is and how we got the system we have today. In 2007, the average income in the United States was not quite $34,000. Yet the top bankers make millions and hedge fund managers make billions. It may seem unfair, Ferguson writes, and throughout history there has been friction between those with little money and those with an abundance. He attributes this to three factors: 1) debtors outnumber creditors and have negative feelings toward them; 2) financial crises happen often enough that they seem like the cause of poverty and instability; and, 3)people from ethnic and religious minorities have often provided financial services throughout history. Nevertheless, “the ascent of money has been essential to the ascent of man” (2).

In fact, Ferguson asserts that “financial innovation has been an indispensable factor” in the development of civilization, just as much as technological innovation (3). Though we may not be aware of it, finances have played a role in every great historical event, such as Napoleon’s defeat at Waterloo. Indeed, the ascent of money has often seemed unstoppable. Ferguson gives figures as of 2006 for total economic output of the world ($47 trillion), total value of stock markets ($51 trillion), total value of bond markets ($68 trillion), and the total value of derivatives ($473 trillion), showing that “Planet Finance is beginning to dwarf Planet Earth” (4).

He then describes how finance has increased in importance in the economies of the West over the last half century. The financial sector is a larger share of GDP, more university students are majoring in fields related to finance, and the stock market has climbed despite shocks such as the September 11 attack on the World Trade Center in 2001. People were optimistic, wondering if volatility were a thing of the past.

Then the subprime mortgage crisis hit America in mid-2007, sending ripple effects throughout the world. This proved one immutable fact of finance: “Sooner or later every bubble bursts” (8). The world had become some interconnected financially that what seemed like a local occurrence in the US real estate market affected countries halfway around the world. At the time this book was written (early 2008), America and Europe appeared to be on the verge of recession, and it wasn’t clear whether or not Asia would be able to ride out the storm. Ferguson explains what happened in some detail, along with the implications for the near future, concluding that “[a]nyone who can read a paragraph like the preceding one without feeling anxious does not know enough financial history” (10).

So one purpose of the book, he writes, is to educate. It’s a fact that people do not know enough about finance although its impact in today’s world is strong and complex. He gives examples of this lack of knowledge in both America and Britain, such as not knowing what interest rate their own credit cards charge, that stocks generally outperform bonds over the long term, or the effect of inflation on interest-bearing accounts. In order to understand these things, Ferguson argues, it helps to know the origins of financial instruments and institutions. He then outlines the topics of each chapter and some of the questions the book addresses.

Finally, he says he has learned three things from writing this book: (1) poverty is not caused by greedy financiers taking advantage of people on the bottom rungs of the economic ladder; (2) the financial system mirrors human nature, with its range of behaviors and foibles, and can amplify them; and,(3) that predicting the timing and severity of financial crises is nearly impossible because of the complexity and non-rational nature of the financial system.