Media Spotlight: The Ascent of Money by Niall Ferguson
Share
As philosopher George Santayana famously put it in his book Reason In Common Sense, those who cannot remember the past are condemned to repeat it.
That is the underlying theme of Niall Ferguson’s book The Ascent Of Money.
The right-wing historian’s book, which had an accompanying television series, charts the course of global finance from clay slates calculating debts owed in ancient Mesopotamia to the securitisations and property bubbles we know and love.
And contrary to what our esteemed Prime Minister Gordon Brown once claimed, booms always end in busts.
Ferguson cites a study of GDP which found that since 1870 there have been 148 crises worldwide in which a country’s GDP has shrunk by more than 10%, and 87 crises in which consumption has fallen by a similar amount.
This puts the probability of financial disaster at 3.6% - not bad odds really. But facts and figures like this count for nothing if the professionals operating in a market are not of an age to learn lessons from the last downturn.
“The average career of a Wall Street chief executive is just over 25 years which means that first-hand memories at the top of the US banking system do not extend back beyond 1983 - 10 years after the beginning of the last great surge in oil and gold prices,” Ferguson says. “That fact alone provides a powerful justification for the study of financial history.”
Navigating financial entropy has always been the hallmark of winners and losers. It’s perhaps not surprising to learn that asset rich superpowers have consistently come unstuck.
In the 16th century Spain was flush from plundering the silver it found in Peru. But the silver of the New World failed to give the Spanish a global advantage because they dug too much of the stuff up, devaluing it as a result.
By contrast Nathaniel Rothschild and his brothers’ ability to source gold and sell bonds through the family’s European network of offices was a key factor in Britain’s triumph over Napoleon.
And Ferguson’s warning against property speculation is especially appropriate at the moment. He argues that the phrase ‘home bias’ - used by financial theorists to describe the strategy of only investing in assets produced in an investor’s own country - is in fact a literal description.
We prefer to plough everything into the property market rather than hold a diverse range of investments.
He also talks at length about something that sounds at first like a gigantic lizard - Chimerica. But while Chimerica may not be Godzilla’s cousin, it’s certainly been destructive.
Ferguson contends that the close relationship between two global superpowers was the underlying cause behind the sub-prime crash. China kept lending and America kept spending in ever more reckless ways, such as the infamous ninja loans.
Combined with a global securitisation market, this was a disaster waiting to happen.
But rather than demonise global finance, Ferguson closes the book with the argument that the banks, investments and products we use today are an accurate reflection of our true selves. The finance industry has evolved over hundreds of years by trial and error.
“It is not the fault of the mirror if it reflects our blemishes as clearly as our beauty,” he adds.
If you enjoyed this article, sign up here to receive daily email updates from Mortgage Strategy and Follow @mortgagestrat
