The Ascent of Money
by Niall Ferguson Penguin, HK$240
Anyone who publishes a book like this when the world's financial markets look set for Armageddon must be supremely confident or exceptionally naive. Naive Ferguson is not. He is a historian with a gift for telling stories. He has Bill Bryson's faculty for making difficult concepts simple and for drawing apparently disparate themes together to show a broader whole.
The title reflects Ferguson's respect for Jacob Bronowski, whose masterful television series, The Ascent of Man, made a huge impression on a generation. Ferguson takes us through the development of debt and stock markets and explains the growth of credit, derivatives and bubbles - and it's all eminently interesting. He can even draw parallels between the case of Shylock in Venice and moneylenders in his native Glasgow while making a telling point about economic growth.
He takes us through early coinage, the gold standard, Bretton Woods and the Plaza Accord and the 'cotton famine' of the US Civil War. He looks at the great banking families and explains how the banking sector developed. And although number-crunchers are probably the only people excited by the Fibonacci sequence, compound interest and double entry book-keeping, Ferguson succeeds in explaining why they matter.
The book was finished in May and the author admits that timing was a problem. It is sprinkled with hints that the financial landscape may well be redrawn by the time it comes out in print. The collapse of Lehman Brothers and the rescue of AIG, Fannie Mae and Freddie Mac, for instance, might have changed the tenor of the later chapters.
That said, reading about financial disasters such as the South Sea Bubble and John Law's Mississippi Bubble helps you keep a perspective on our own market meltdown.
The book covers millennia, so avoids the arcane and tiresome, and Ferguson does a good job of explaining how simply money supplies can come unravelled. He cites Harvard Business School, where first-year students watch while a 'notional' US$100 is deposited with a bank and then goes back into circulation. After three deposits, the US$100 has turned into US$271 (cash in circulation plus demand deposits). It is established banking practice, but it comes unstitched in a credit crunch, when everybody wants to put their money under the mattress. It also goes a long way to explaining why 2008 is a year that most bankers would like to forget.
Read an excerpt from The Ascent of Money in Tuesday's Net Worth magazine.