Monday, January 16, 2012

The Ascent of Money: A Financial History of the World

The Ascent of Money: A Financial History of the WorldThe Ascent of Money: A Financial History of the World by Niall Ferguson
My rating: 4 of 5 stars

Being a finance layman who isn't as familiar with the craft except on the individual, micro level, I was interested in reading this book to clarify in my mind the way real equity capital (is there really such a thing?) works along with derived financial products such as stocks, bonds, options, etc.. I typically read a series of books of the same theme, and as I just finished Pinker's 'Better Angels' about the decline of violence and the blossoming of culture--including the role of good government, I decided to pick this book up to better understand how the increasing complexity and liquidity of finance has helped industrious citizens and countries prosper. This is a poorly understood topic (not helped by the populist demagogues who amass power by investing ignorance twinged with the black sin of envy on the public)-a subject that when properly understood and followed can produce general wealth and social flourishing.

The book runs through a history of finance from the Babylonian times through the Medici up past the engineering of corporate and national bonds as a mechanism to finance enterprise and finally through the most recent advances in finance that have incorporated the massive computing power and statistics that have generated incredible fortunes as well as incredible losses. As with any complex political or economic instrument there are bumps along the way that usually increases the efficiency of the instrument--sometimes through catastrophe, or that reveal some essential flaw in the instrument, which is then promptly discarded. The book runs through many of these forays into financial innovation and the constructive and/or destructive consequences for society. The cultural attitudes towards money, profit, greed and wealth through the centuries are explored as well.

By the end of the book I had a better appreciation for the progress we have made in finance and continue to wonder at how, like the building of a great city, the efforts of individuals come together to erect a system that is almost too complicated to understand in real-time for any one person or group, but that simply works to the benefit of every member. I have lived in broken societies with failed governments (Nicaragua--two years), and have experienced the effects of political phenomena such as hyperinflation as well as the social turmoil that comes from diminished wealth accumulation and credit, and this book helped me understand better the reasons for these financial failures.

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