October 29, 2008

Harvard's Ferguson Praises `Ascent of Money' as Markets Plunge

Niall Ferguson, a canny chronicler of financial history, knows a thing or two about market timing.

Sellers have sliced more than $10 trillion off global stock- market value this month, the U.S. is mired in its worst housing crisis since the Great Depression, and hedgehog Andrew Lahde has shut his fund, telling investors, ``Goodbye and good luck.''

So what does Ferguson do? He publishes ``The Ascent of Money,'' an upbeat account of finance from Mesopotamia to McMansion. His thesis: ``Money is the root of most progress.''

After that windup, you might expect me to trash his book. Alas, I can't.

Ferguson, a Scotsman who teaches at Harvard, is the bestselling author of books including ``The House of Rothschild'' and ``The War of the World.'' His new work, like the last three, was conceived as a TV series as well as book. His reputation is riding so high that someone would short him if he were a stock, as Adam Smith biographer James Buchan recently wrote.

``The ascent of money has been essential to the ascent of man,'' Ferguson writes. ``Far from being the work of mere leeches intent on sucking the life's blood out of indebted families,'' he says, ``financial innovation has been an indispensable factor in man's advance from wretched subsistence to the giddy heights of material prosperity that so many people know today.''

Ferguson mercifully lifts the reader above today's doom and gloom with this smart reminder of how mankind has benefited from the rise of bankers, credit and markets. The book works as either a primer or a refresher course, though a serious student of financial history may learn little from these pages.

Clay Tablets

Cantering off in swift, declarative prose, Ferguson traces the rise of money from ancient clay tablets and Roman coins up through the Medici's foreign-exchange dealings; the development of banks; the Dutch formation of a joint-stock, limited liability corporation, the United East India Company; and the resulting creation of the Amsterdam stock market, where bulls were already battling bears in the early 17th century.

As befits a storyteller with a TV deal, Ferguson whips up a good old-fashioned narrative history, complete with heroes and villains, visionaries and scoundrels. Nathan Rothschild is seen shipping gold coins to the Duke of Wellington's army during the Napoleonic Wars. Two hard-drinking Scottish Presbyterian ministers Robert Wallace and Alexander Webster set up what Ferguson calls the first true insurance fund in 1744.

Flawed financial alchemist John Law of Edinburgh introduced 18th-century Paris to the stock-market bubble. We even glimpse a grinning Alan Greenspan accepting the Enron Prize for Distinguished Public Service from Ken Lay just weeks before Enron Corp. filed for bankruptcy protection in December 2001.

British `Narco-State'

The tales, though familiar, are told with brevity and irreverence: The opium-trading British Empire was ``history's most successful narco-state.'' Long-Term Capital Management LP became ``Short-Term Capital Mismanagement.''

Ferguson delights, too, in challenging conventional interpretations of events. The Rothschilds, he argues, made their fortune in spite of the Battle of Waterloo, not because of it. The real turning point in the American Civil War, he argues, came when Union forces captured New Orleans in April 1862, preventing investors in Confederacy cotton bonds from taking possession of the cotton underpinning the securities.

Each chapter teases out a topical thread -- be it real estate or risk -- and toggles ahead in time to show how past trends created present realities. A chapter on banking lands in Bankruptcy Court in Memphis, Tennessee. A discussion of bonds closes with a Congressional Budget Office forecast that the U.S. federal debt will balloon to more than $12 trillion by 2017.

Fittest Survive

Like many economists these days, Ferguson sees finance through the filter of evolution: Each shock to the system results in casualties, as the weakest institutions expire.

``Financial history is essentially the result of institutional mutation and natural selection,'' he writes.

Ferguson closes on a somewhat defensive note. While writing the book, he was often asked if he had selected the wrong title, he says. He stands by the name.

``There have been great reverses, contractions and dyings, to be sure,'' he 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.''

``The Ascent of Money: A Financial History of the World'' is from Penguin Press in the U.S., Allen Lane in the U.K. (442 pages, $29.95, 25 pounds).


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