There is hardly a person who is not disturbed by the events of the financial world. The series of the financial crises, which had taken place not so long ago, shook the society. What were the reasons for the events, which had affected the crises? Is it possible to find the solution and to avoid them? Niall Ferguson tries to give the answers to these questions in his book The Ascent of Money.
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The book, after its publication, became the target of the criticism of many economists. They view the content of the book with a grain of salt, calling the financial examples and schemes proposed by Ferguson to be simplified. He is criticized for the passion for money, which is the subject of his research, and for the submissiveness of a capital. From that follows, that Ferguson has succeeded in the creation of the book, which has sparked the public outcry. This book is worth reading.
The Ascent of Money is not in a full manner the scientific research. Ferguson tells the history of finance in a popular manner, fascinating and serious at the same time. For what purpose is it necessary to know the financial history? The answer is – in order not to repeat its mistakes. By Ferguson, the main purpose of the historian is to relieve humanity from the financial illusions on the examples of the past.
The problem is not in the fact that in the world of capitalism, somebody wins and somebody loses. Ferguson is conscious of the economic basis of financial history. The key point here is globalization. The author reminded us that the world had already come through one capitalistic globalization, which had been connected with the increasing of the living standards. The basis for it was the British Empire and the symbiosis between London, which was the financial capital of the word, and Germany with its dynamic developing economy. For example, the major part of the German commercial ships was covered by the insurance in England. Only several days of World War I was required to destroy the world commerce and to collapse the financial markets for several decades.
The basis for the contemporary globalization is the partnership between the largest debtor in the world and the largest creditor of it. That is between the USA and China. Fergusons cautions that the political tension between these countries may destroy the so-called Chimerica, which is the financial chimera connecting the USA and China. It may lead to the difficult consequences. At the end of his book, Ferguson frightens the reader with the war.
The finance for Ferguson is one of the branches of the economy, the same as the textile manufacture or the IT technologies. Without money and the financial instruments, we would not be able to afford the existing living standards. For the history of the humanity the financial innovation is of the same importance as the invention of the weaving machine. In such a way the history of money was the history of the efforts of the humanity, which during the whole period of its existing, had been trying to make the trade and the accumulation more effective, making the human life happier.
According to Ferguson, money is the embodiment of the relations between the creditor and the borrower. The systematization of these relations led to the appearance of the banks. The public bounds, appeared in the Italian city-states in the XXIII century, became the source of the institutionalization of the bond market, allowing to calculate their value and to exchange them upon one another and for money.
In XVII century there appeared the stock companies, the aim of which was to join the efforts for the realization of the ambitious projects, impracticable for the private individuals. In the next century, there appeared the security and retirement funds, which were able to implement the latest developments of the statistical theory. Due to the law of large numbers, they were able to protect the market insiders from the predictable risks. The increasing number of the risks led to the development of the new instruments of the financial security, such as the futures and the options, which created the class of the so-called derivatives.
In addition, at the XX century we can observe the quick rise of the home loan market. Fergusons asserts that the major part of people have trusted to the political statements and have invested their savings to the real estate. So, this is the short history of the ascent of money by Ferguson. But in his narration all this financial terms are illustrated with the picturesque historical events and characters.
The story began in Florence, where the Medici family managed to create the market of the banking services, which was very effective. Another Italian cities were trying to keep apace with them and soon there appeared the powerful financial-military alliances.
Their experience was reconsidered in the North Europe. The Dutchmen, the British and the Swedes became the new financial leaders. In Amsterdam the settlement bank was opened, which became the prototype of the cotemporary banks. This bank implemented the system of the standard checks, which allowed the merchants to open the accounts in a single currency. That time it was the genuine breakthrough, because there appeared the first cashless operations.
According to Ferguson, there was a serious restriction is the Dutch bank. All his deposits were guaranteed by the gold equivalent. Ferguson thinks that such a system is not able to provide the main function of the financing. This task was fulfilled be the Swedes, who opened the bank in the Stockholm. This bank was the first financial institution in the world the work of which was organized on the model of the contemporary banks.
One part of its deposits was kept as a reserve, but the considerable part of money was given as the loans. The most important innovation took place in England in 1742. Here the Bank of England obtained the note issuing privilege- the special form of the non-interest-bearing obligations, aiming to simplify the calculations without the need of both parties to have the banking accounts. These three events Ferguson considers to be the key points in the formation of the contemporary banking system.
In spite of the certain drawbacks of the book, it is worth reading. Many Fergusons critics state that this book is far from being the serious scientific research. Moreover, he is reproached for the structure of his book, which has a definite resemblance with the scenario for the TV show. However, it must be admitted that by writing the history of money, Ferguson has made a good cause. In his book, he has made an attempt to explain the basic financial notions and the financial processes to the ordinary reader.