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The Money Theory of World History


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How financial considerations prompted the Crusades, and other surprising explanations of famous events

The Ascent of Money:

A Financial History of the World

By Niall Ferguson

Penguin Press; 442 pp.; $29.95

Glance at the artwork scattered throughout Niall Ferguson's The Ascent of Money: A Financial History of the World and you'll quickly get an idea of the book's scope. But you may find the exercise perplexing. An image of a second millennium B.C. clay tablet from Mesopotamia is followed a few pages later by a recent photo of a Glasgow loan shark being led away in handcuffs by police. Soon after, there's a shot of a ledger from the Renaissance-era Medici bank, an image of Confederate cotton bonds, and a photo of Alan Greenspan shaking hands with Enron's late chairman, Kenneth Lay. What's going on here, you may well ask?

Reader, this is global history, Freakonomics-style: an assorted group of past events given surprising explanations. And it's packaged to accompany a forthcoming PBS documentary, so there's a plethora of visual props and picturesque settings. Ferguson, a historian at Harvard University with ties to Oxford and Stanford University's Hoover Institution, has reached that place in the world where he gets to do pretty much whatever he wants, it seems.

Not to say that this volume isn't an enjoyable, if scattershot, account of how "the ascent of money has been essential to the ascent of man." Behind great historical events, the author asserts, lie a host of financial secrets, and Ferguson intends to illuminate the ones he deems most important.

Here, point of view is everything. Consider this: Ever wonder why Napoleon lost to the Brits? Was it the Duke of Wellington's superior military strategy? The unmatched power of the Royal Navy? Grit acquired on the playing fields of Eton?

None of the above, it seems. Instead, Bonaparte's Achilles' heel, Ferguson tells us, was that he supported his military adventures on the quaint model pioneered by Attila the Hun: plunder. The innovative Brits, by contrast, utilized debt markets—and the skills of the Rothschild family, which supplied gold guineas and subsidies to London's Continental allies. Conceded a rival from Barings: Nathan Rothschild "is in money and funds what Bonaparte was in war."

Fair enough, I guess. To Ferguson, finance casts light on the Crusades (motivated in part by a European currency shortage), Shakespeare's The Merchant of Venice (high interest rates must be understood in the context of the Adriatic port's risky global commerce), and the defeat of the South in the U.S. Civil War (an aggressive bond-market play backfired).

Credit, the bond market, financial bubbles, risk, real estate, and globalization each get a chapter. Some of the events described, such as the 18th century South Sea bubble or the 19th century Opium War between Britain and China, may be familiar to business readers. We revisit the saga of Long-Term Capital Management and the details of how George Soros shorted both the British pound and the Malaysian ringgit. Less well-known is the tale of how two Scottish ministers in the 1700s devised the first true insurance fund. And it may have been German Chancellor Otto von Bismarck who invented the welfare state, but the "world's first welfare superpower" was Japan. In each case, the author's stylish prose makes for enjoyable reading.

Ferguson, a conservative admirer of the late economist Milton Friedman, sometimes indulges in sneaky, rapid-fire political targeting. Out of nowhere comes a two-page cudgeling of liberal economists Joseph Stiglitz and Paul Krugman, who are found to have been overly critical of the International Monetary Fund's moves during the Asian financial crisis of 1997. In a description of the Great Depression, the author shoehorns in a blast at Mexican muralist and "Trotskyite" Diego Rivera. Are these personal hobgoblins? Visual aids for the PBS show?

Ferguson's strongest chapter focuses on housing and the subprime mess. The author offers a useful overview of public attitudes about home ownership and public policy toward housing on both sides of the Atlantic. The New Deal, which reinvented the mortgage market with federally backed insurance and more, "pioneered the idea of a property-owning democracy," he says, in contrast to the European model, which favored government- financed public housing for the working classes. Broad availability of home mortgages in the U.S. gave American workers a stake in society and encouraged conservative political tendencies. It seemed like a good deal for everyone, at least until the savings and loan crisis of the late 1980s and '90s and the recent subprime implosion. "We all knew that property was a one-way bet" in which values always rose, writes the author. "Except that it wasn't."

The recent meltdown may have led some to feel, along with German President Horst Kohler, that financial markets are "a monster" that "must be put back in its place." Ferguson disagrees: Such markets are, rather, like a mirror of mankind—and we shouldn't blame the mirror if it "reflects our blemishes as clearly as our beauty."

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History Plays Games, Too

Ferguson mines historical details from the 2006 book Monopoly: The World's Most Famous Game—And How It Got That Way by Philip E. Orbanes (Da Capo Press). It turns out that in its first incarnation in 1903, Monopoly was intended to expose the evils of a system in which landlords ruled. The game's inventor, Elizabeth Magie Phillips, was a disciple of radical 19th century economist Henry George, who believed all economic woes could be cured via the Single Tax on land.

To read the Associated Press review of Orbanes' book, go to: http://bx.businessweek.com/us-economy/reference


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