This one was quite an accidental read, something I stumbled upon at my neighbourhood bookshop. This was something I hadn't seen before, an attempt at placing the standard tools of the global financial system in historical context, so I picked it up on a lark. Given that, I'd say it wasn't a disappointment at all, but rather good. Niall Ferguson does succeed in creating an engaging and interesting read.
The book takes off with the story of the Medicis and their banking system. Unlike prior banks, the Medici banks were of larger scale and diversified across various assets including currencies and merchant debt. The Italian banking system spread to the financial centres of Northern Europe, and thus was born the modern fractional reserve banking and currency issuing central banks.
We are then shown the evolution of public debt in Italian city states, where governments borrowed from rich citizens as an alternative to taxation, and how that model was adopted by other European powers. This led to the bond market, and consequently the birth of the rentier - someone who could live off he interest on purchased debt. This market of trading in public debt (bonds) produced the Rothschild mega-fortune - quite by accident, if you believe Ferguson. The Rothschild dynasty lives on, and is the subject of much gossip of a financial nature. The US Confederacy, Ferguson would have you believe, was defeated as much due to the Rothschilds not buying their bonds as anything else. We are led through World War I, German Hyperinflation, South American debt defaults, and other bond market tragedies, but left on a relatively optimistic note thanks to moderation of inflation and fewer defaults in recent times.
The Stock Market bubble is considered to have a history as old as Stock Markets, illustrated through the tale of John Law. Law was a Scotsman, who became, in quite an unlikely fashion, financial czar of recession-plagued France. Through a combination of loose monetary policy and a bubble in the stock price of the Mississippi company, he took the French economy from bad to better to horribly worse than where he started from. Parallels with Alan Greenspan's attempt to bring the US out of the recession of the early 2000s are not explicitly made, but are probably intended.
An interesting connection between the evolution of the insurance market, and the later evolution of the welfare state is made. Those of a lefty economic bent would do well to avoid the temptation to utter words of an unprintable nature while Ferguson presents his case, mildly though, that the welfare state is economically untenable in its 20th century form. If you believe the welfare state is a good thing, this would have been a good starting point to craft an argument about how it may be funded in a tenable fashion. One gets the feeling, to borrow a phrase from Ravi Shastri, that Ferguson wouldn't be in the vanguard of those wanting to try.
When discussing the housing market, Ferguson sticks to script, not-so-gently hinting that the governmental tendency to incentivize home ownership contributed a good bit to the rise and then crash in home prices, and the following recession. We aren't likely to see a conclusion to that particular debate - whether it was governmental incentives that created an environment where Wall Street trickery thrived, or whether the tricksters would've thrived regardless.
To his credit, he does make the point that it is the evolution of governments and exigencies of historical governance - war, colonialism, slavery and such - that created most of the institutions of modern finance, which is a valuable insight not easily obtained without perspective.
Ferguson does seem to have a reputation of being a bit simplistic. The book could possibly have done with some broader geographical perspectives, and pre and post-colonial looks at money in great non-western civilizations, but that would perhaps have distracted from the simplicity of the narrative.
In summary: this is definitely worth a read and a ponder.
The book takes off with the story of the Medicis and their banking system. Unlike prior banks, the Medici banks were of larger scale and diversified across various assets including currencies and merchant debt. The Italian banking system spread to the financial centres of Northern Europe, and thus was born the modern fractional reserve banking and currency issuing central banks.
We are then shown the evolution of public debt in Italian city states, where governments borrowed from rich citizens as an alternative to taxation, and how that model was adopted by other European powers. This led to the bond market, and consequently the birth of the rentier - someone who could live off he interest on purchased debt. This market of trading in public debt (bonds) produced the Rothschild mega-fortune - quite by accident, if you believe Ferguson. The Rothschild dynasty lives on, and is the subject of much gossip of a financial nature. The US Confederacy, Ferguson would have you believe, was defeated as much due to the Rothschilds not buying their bonds as anything else. We are led through World War I, German Hyperinflation, South American debt defaults, and other bond market tragedies, but left on a relatively optimistic note thanks to moderation of inflation and fewer defaults in recent times.
The Stock Market bubble is considered to have a history as old as Stock Markets, illustrated through the tale of John Law. Law was a Scotsman, who became, in quite an unlikely fashion, financial czar of recession-plagued France. Through a combination of loose monetary policy and a bubble in the stock price of the Mississippi company, he took the French economy from bad to better to horribly worse than where he started from. Parallels with Alan Greenspan's attempt to bring the US out of the recession of the early 2000s are not explicitly made, but are probably intended.
An interesting connection between the evolution of the insurance market, and the later evolution of the welfare state is made. Those of a lefty economic bent would do well to avoid the temptation to utter words of an unprintable nature while Ferguson presents his case, mildly though, that the welfare state is economically untenable in its 20th century form. If you believe the welfare state is a good thing, this would have been a good starting point to craft an argument about how it may be funded in a tenable fashion. One gets the feeling, to borrow a phrase from Ravi Shastri, that Ferguson wouldn't be in the vanguard of those wanting to try.
When discussing the housing market, Ferguson sticks to script, not-so-gently hinting that the governmental tendency to incentivize home ownership contributed a good bit to the rise and then crash in home prices, and the following recession. We aren't likely to see a conclusion to that particular debate - whether it was governmental incentives that created an environment where Wall Street trickery thrived, or whether the tricksters would've thrived regardless.
To his credit, he does make the point that it is the evolution of governments and exigencies of historical governance - war, colonialism, slavery and such - that created most of the institutions of modern finance, which is a valuable insight not easily obtained without perspective.
Ferguson does seem to have a reputation of being a bit simplistic. The book could possibly have done with some broader geographical perspectives, and pre and post-colonial looks at money in great non-western civilizations, but that would perhaps have distracted from the simplicity of the narrative.
In summary: this is definitely worth a read and a ponder.
