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Mint tales

Book>> The Ascent of Money, A Financial History of the World By Niall Ferguson, Allen Lane London 2008 Price Rs 595

By Hrishikesh Mattoo
Published: Sunday 15 February 2009


In October, there were reports of Europeans scurrying to Karl Marx to understand the financial crisis. If these news items are to be believed, Marx's critique of the banking system had become a big hit. Bankers, indeed, have taken a lot of flak for the global financial crisis. So it is refreshing to find someone springing to their defence. Far from being castigated, writes historian Niall Ferguson, financiers should be celebrated as the source of our wealth and prosperity.

Ferguson is the veritable enfant terrible of the Oxford history establishment. He has edited a collection of essays on counterfactual history and his recent books, Empire and Colossus, have ruffled quite a few politically-correct feathers.The Oxford don has been panned for extolling the virtues of British and American expansionism; he has acquired notoriety in certain academic quarters by asking the US to export democracy and capitalism. But perhaps the continuing war in Iraq and his chosen agency's economic difficulties have chastened him The Ascent of Money is far less polemical.

We are much the better off for that. The seeming invisibility of money amid complicated financial transactions can make already confusing operations seem utterly incomprehensible. It is here that Ferguson's account works. It also helps that the book was written to accompany a television documentary The Ascent of Money is a superbly illustrative work. There are colourful stories about Renaissance bankers like Nathan Rothschild; the Scottish economist and gambler John Law; and Texan property developers. The Ascent of Money takes us to the humble origins of money in clay tablet trading Mesopotamia, 5,000 years ago, it hurtles through the role of money in Roman society, unravels the role of inflation in the decline of the empire and illuminates the post-World War II Bretton Woods arrangement that gave birth to the World Bank and the International Monetary Fund.

Down to Earth Those doffing their hats to Joseph Stiglitz or Paul Krugman are not likely to be impressed. Ferguson can see absolutely no wrong in the working of the International Monetary Fund. He goes to lengths to praise Milton Friedman's Chicago boys for extricating Chile out of an economic morass in the 1970s. Pity, he didn't visit contemporary Chile. According to recent reports it's economy is in a shambles with pension funds drying up by nearly 30 per cent. Is that a convenient sleight of hand?

Perhaps not. Let us give Ferguson the benefit of our doubts. After all he has always resisted typecasting. At one place in the book, he even outdoes his neo-liberal hero, Milton Friedman, in suggesting that hedge funds offer a superior model for risk management than welfare states. But at another place in the book, Ferguson launches an attack on the obsession with property ownership and the pursuit of "one-way, totally unhedged bet on one market".

How do Ferguson's stories fit in with the contemporary credit crunch? As ever, there are plenty of lessons from the past. Ferguson plays Darwin. In one of the most evocative section in the book, he explains how financial history is essentially the result of institutional mutation. And just like the mass extinctions that eliminated 85 per cent of the earth's species 65 million years ago, the credit crunch stands out as a period of major discontinuity in the world of finance. During the capital boom of the late 1990s, those who took on the most debt amassed the largest fortunes. According to Ferguson, the crisis will exterminate the overextended. The next generation of financiers will be less ambitious and earn smaller bonuses. But they will probably do a better job at allocating capital.

Well said. Will the financiers of Satyam in India read this?

Hrishikesh Mattoo is working on a doctoral thesis on early Indian stock firms

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