The Ascent of Money

Below is another book review I wrote for the Nashville Business Journal. The book, The Ascent of Money, was written by one of my all-time favorite thinkers, Niall Ferguson, and is a must read for anyone wanting to pretend to understand the basics of finance and the effects it has had on the history of the world:

“In 1947, the total value added by the financial sector to US gross domestic product was 2.3 percent; by 2005 its contribution had risen to 7.7 percent of GDP. In other words, approximately $1 of every $13 paid to employees in the United States now goes to people working in finance.” – Niall Ferguson

Niall Ferguson, a professor of history and finance at Harvard University, has written a must-read book in his latest project, “The Ascent of Money.”

Harry Truman once said, “The only thing new in this world is the history you don’t know.” Truman’s comment was most likely directed at the history of war and politics. However, as today’s economic environment continues to unravel in front of our eyes, it’s more important than ever to apply Truman’s maxim to money and finance?

The subtitle of Ferguson’s book, “A Financial History of The World,” may scare off a reader or two. However, Ferguson’s book reads more like a historical novel than a financial textbook. Ferguson is a historian by trade, so don’t worry about getting bogged down with mathematical formulas or financial minutia. Ferguson details the history of finance as a storyteller would.

Ferguson leaves no stone unturned in his investigation of the history of money and finance. He divides the book into six sections: Dreams of Avarice (Money & Banking), Of Human Bondage (Bond Markets), Blowing Bubbles (Stock Markets), The Return of Risk (Insurance & Hedging), Safe as Houses (Real Estate), and From Empire to Chimerica (Global Finance). Each section builds on the next, weaving an amazingly entertaining story of how money and finance have shaped the events of history.

If you think Bernie Maddoff has been destructive to our current stock market, wait until you read about the catastrophic impact an ambitious and unruly Scot by the name of John Law had on France’s economy and stock market in the early 18^th century. Ferguson even shows how Law’s actions indirectly plunged France into the French Revolution.

Ferguson also tells such stories as how two Church of Scotland ministers created the first modern insurance fund in 1744 for Ministers’ widows, paving the way to today’s welfare state; how five Jewish brothers, the Rothschild boys, were able to corner the bond market in the early 19^th century and become one of the wealthiest and most powerful families in the world; how the Medici family in Renaissance Italy revolutionized banking and came to dominate the political and financial landscape of the day (two Medicis even became Pope); how an illiterate Texas developer named Danny Faulkner made himself a multi-millionaire and helped create the S&L crisis of the 1980’s; how George Soros made a $10 billion hedge bet against the British pound and made himself both rich and famous; and how the relationship of “Chimerica” (China + America) will shape our financial future.

While you won’t finish Ferguson’s book with an MSF’s understanding of the mechanics of CDOs, CMBS’s, or Hedge Funds, you will have a valuable knowledge of the progressions and regressions of the financial markets through history and the impact these progressions and regressions have had and will have on our personal, professional, and political lives.

Finance is both the international language of business and the engine driving companies to success and failure. Financial ignorance does not lead to financial bliss, and Ferguson’s book proves this fact.

This book will not make you a financial expert, but it will make you wary of financial “experts”. This book will not make you rich, but it will help you understand wealth and poverty. This book will not help you accurately predict the financial future, but it will help you understand the financial past and present.

Ferguson says it best in the end of the book: “…until we fully understand the origin of financial species, we shall never understand the fundamental truth about money; that, far from being ‘a monster that must be put back in its place’, as the German president recently complained, financial markets are like the mirror of mankind, revealing every hour of every working day the way we value ourselves and the resources of the world around us.”

It’s about time we all stare into our financial mirror and determine if we really like what we see.