In Niall Ferguson’s The Ascent of Money, Ferguson analyzes the history of money, banking, and credit. He tracks the development of currency as a form of trade, explores its growth and effects on society, and looks forward to how it may continue to develop in the future. Ferguson explores themes of greed, how we treat people based on money, what our society values and the influence money has on our culture. This book dives deep into the intersection of economics and society. Ferguson shows that finance is the foundation of human progress.
At the beginning of the book, Ferguson points out the ways money is viewed as the root of all evil and discusses the way it factors into war and the march of progress. Christians believe the love of money is the root of all evil, generals think it’s the power of war, and revolutionaries believe it’s the chains or labor. He looks at the ways fluctuations of the market can lead to the rise and fall of ruling powers and believes credit and debt are as important to the rise of civilization as any other innovation. Ferguson states financial markets are like a mirror to humanity.
Chapter 1: “Dreams of Avarice”
The first chapter explores the history of money and how it influenced society from its earliest days. Every society uses money because it is much more efficient than barter. Money-less societies have never proven to be sustainable. Money with inherent value was preferred for its permanence. Today, however, money is closer to a form of credit because it has moved more towards “virtual money.” Surprisingly, only 11% of the total US cash is held in American hands. The rest is virtual: salaries that are transferred to bank accounts and credit cards that spend the money. Ferguson talks about the history of money lending which includes the way courts are involved, the balance of interest, and the targeting of creditors that are members of an ethnic minority by a money-owing majority.
Chapter 2: “Of Human Bondage”
Chapter two explores the bond market which rose in Renaissance Italy. This is how corporations and the government borrow money from institutions and individuals. The bond market has grown incredibly large and often holds the economies of whole nations in its hands.
Chapter 3: “Blowing Bubbles”
This chapter takes a closer book at the joint-stock company whose origins are from Amsterdam and Paris. One factor that led to much more instability in the market was the ability of multiple parties to be able to pool their resources in the search for long-term, risky ventures. Ferguson breaks down the financial bubble into five different stages. The first is displacement which is where a new economic opportunity opens. Second is euphoria where profits skyrocket. Then mania where cons and gullible investors enter the fray. Next is distress where is starts to become clear that the mania can’t last. And finally, revulsion when investors head for the exit and cause a stock collapse. In this chapter, Ferguson looks at some of the biggest stock collapses such as the fall of Enron.
Chapter 4: “The Return of Risk”
This chapter looks at insurance. It was created to minimize financial pitfalls. Hedge funds and derivatives are stock techniques that are used today to ensure financial risk. However, these are highly debated, and investors often question the overall benefits of hedge funds.
Chapter 5: “Safe as Houses”
Chapter five describes the way home ownership has become a universal aim in the western world. As a result, creditors favor homeowners because they have a permanent form of equity that can be repossessed to pay debts. This has caused many entrepreneurs to take out loans or second mortgages on their houses to fund new ventures. “The New Deal” helped stabilize the mortgage market along with the government, but this led to the 2008 housing bubble burst due to many subprime mortgages collapsing.
Chapter 6: “From Empire to Chimerica”
In this final chapter, Ferguson looks at the global shift in financial power as China’s rise means it could eventually surpass the US as the global economic leader. China’s strategic ways give them an advantage and they are making massive investments in US debt.
It was really interesting to learn about the history of money and how much of an impact it has on society and our culture. Money can definitely be the root of all evil and it has definitely factored into negatives things such as war. It’s amazing how far our society has come from using money instead of barter to now it being more “virtual money” and like a form of credit. I did not realize how big bonds have become and that they hold many economies in their hands. My dad is a public finance lawyer and issues large bonds to places such as universities to build affordable housing, so it was really cool to read and learn more about bonds. Another thing I learned about was the joint-stock company and how it can lead to instability in the market. I liked how Ferguson broke the financial bubble into the five different stages and explained each one. Reading about the fall of Enron was shocking and it’s crazy how a company can go bankrupt so fast by all the accounting scandals. I didn’t know about the hedge fund debate and it was interesting to learn that investors often question the actual benefits of hedge funds. It was amazing to learn about the new financial revolution of the world’s biggest countries such as India and China moving from poverty to wealth and how China could eventually surpass the United States as the global economic leader. It’s crazy to think that this may happen someday. Sooner or later every bubble will burst and we can learn from the past which is why it’s important to understand the ascent of money in order to grow our economy and better our society.
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