Niall Ferguson. The Ascent of Money--A Financial History of the World.
Author: Hasan, Lubna
Pub Date: 09/22/2009
Publication: Name: Pakistan Development Review Publisher: Pakistan Institute of Development Economics Audience: Academic Format: Magazine/Journal Subject: Business, international; Social sciences Copyright: COPYRIGHT 2009 Reproduced with permission of the Publications Division, Pakistan Institute of Development Economies, Islamabad, Pakistan. ISSN: 0030-9729
Issue: Date: Autumn, 2009 Source Volume: 48 Source Issue: 3
Accession Number: 249960126
Full Text: Niall Ferguson. The Ascent of Money--A Financial History of the World. London: Allen Lane/Penguin. 2008. 442 pages. Hardcover. 25.00 [pounds sterling].

Among the most celebrated of historians today, Niall Ferguson's varied work has been described as 'brilliant', 'incisive', 'controversial', and 'unconventional'. He now ventures into uncovering the history of money, and in his usual flamboyant style equates the progress of human society with advances in the financial system.

His narrative of money has many colours. It is a medium of exchange, a unit of account, a store of value. It facilitated personal exchange by eliminating the inefficiencies of barter trade. It further enhanced the frontiers of exchange by making possible long distance trade. Subsequent financial innovations in the shape of credit and bond markets, limited liability corporations, and equity markets are all the various chapters of the story of human progress from a society of hunter-gatherers to where it stands today. Is he make a convincing argument? Or is he reading too much into the financial history?

The striking thing about this ambitious account of financial history is its modest length--340 pages. It is not a complete A to Z history of money. Ferguson picks only the important events that helped shape or were shaped by financial innovation. Pizarro's conquest of Peru, which marked the beginning of the end of the Inca Empire, opened a wealth of gold and silver reserves for the Spaniards, who transported that back to Europe where money supply was scarce. These precious metals which had aesthetic and spiritual value for the Incas was only 'money' for their Europeans invaders who used these reserves to expand trade. He then picks up the emergence of lending operations in Italy as the next important episode remarking, 'Without the foundation of borrowing and lending, the economic history of our world would scarcely have got off the ground'. European merchants needed money to finance their long distance trade operations, and since Christianity prohibited usury and money lenders had to be compensated for the risk they took, the Jewish settlers in Venice seized the opportunity. Their single table kiosks were the first signs of the emergence of banks. They paved the way for further financial innovations like cheques and debit accounts by the Amsterdam Exchange Bank, which helped exchange to take place without money actually changing hands; fractional reserve banking by the Swedish Riksbank that required banks to keep only a fraction of the depositor's money and thereby permitting them to invest the rest in extending credit facilities; and the monopoly powers to Bank of England to print money.

After the creation of credit markets, the next giant leap in the development of finance was the bond market. Developed initially to finance the war expenditure of feuding city states in Europe, Government bonds have become a major tool to finance large fiscal deficits--by borrowing from the citizens--throughout the world. Further down the road, the emergence of limited liability corporations--which allowed companies to exist as separate legal entities and provided impetus to individuals with ideas and talent to venture into productive activities--and equity markets paved the way for the rise of capitalism. He also takes note of personalities who changed the course of history: Giovanni di Bicci de' Medici who legitimised lending; Nathan Rothschild who architected the bond markets to finance wars. In fact in his enthusiasm he goes overboard in emphasizing their historic role. For example, he writes, 'perhaps no other family left such an imprint on an age as the Medici left on Renaissance'; and calls Rothschild 'the Bonaparte of Finance'. You may disagree with him, but Niall Ferguson has penchant for creating controversies.

He attributes the French Revolution of the eighteenth century and the downturn of the Argentinean economy in the twentieth century to grave financial mismanagements. He makes a strong case for the role of financial systems in the rise or fall of human civilisations ignoring other fundamental forces--culture, institutions, geography in shaping human evolution. North (1990) explains that the emergence of private property rights and institutions that helped check opportunistic behaviour in market exchange had put Europe on the path of sustained growth. Diamond (1999) focused on the unique geographic endowment of Europe that gave it a head start over other regions. Ferguson's assertions do make an interesting story when read in conjunction with other theories of human evolution, but it may be farfetched to regard the ascent of money as the main driver of human progress. It is only in the last chapter that he delves into other factors--topography, resource endowments, culture, attitudes toward science and technology--as possible reasons behind China's late arrival on the scene as an emerging world power, but there again these factors are mentioned in name only and do not weave into his argument.

He ends his book on an interesting note about the changing relationship between the USA and China that until the financial crisis of 2008 was a marriage made in heaven but could turn into a marriage into hell if there was a deterioration in the nature of those ties. The booming Chinese economy had helped sustain the US economy by providing for the unquenchable consumerism of its citizens as well as the ever widening fiscal deficit. The financial crisis of 2008 is considered as much a consequence of surplus liquidity in the US capital market due to pouring of billions of dollars of Chinese capital as of tales of moral turpitude damaging the capital market. He fears that any deterioration ill this relationship may ring alarm bells for the global capital system. This has happened before in 1914 when rivalries among nations of continental Europe triggered a catastrophic war that ultimately undermined the globalisation process and forced countries to erect barriers to protect themselves. It may happen again if political tensions among China and the US mount to a level where cracks begin to appear.

It is interesting that in winding up his discussion on the financial history of the world as the essential story behind progress of human societies, he points to political tensions among world powers as the next great threat to human peace and prosperity. In doing so, he has inadvertently opened the scope of the discussion to reflect upon other 'essential stories' behind human progress.


Diamond, J. M. (1999) Guns, Germs and Steel. The Fate of Human Societies. New York: W. W. Norton and Company.

North, D. C. (1990) Institutions, Institutional Change and Economic Performance. New York: Cambridge University Press.

Lubna Hasan

Pakistan Institute of Development Economics, Islamabad.
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