Monday, May 2, 2011

Book Review: The Ascent of Money

Naill Ferguson's The Ascent of Money is probably best summed as one part history, one part crash course in finance and economics, and one part treatise on the fallibility and hubris of mankind. Another way to describe it might be as a cross of The Big Short with To Engineer Is Human, stretched out over a window of two thousand years.

The book gives a crash course on the history of finance, looking in turn at the advent - and roles of - currency, credit, banking, the bond market, the stock market, insurance, housing, and of course the intersection between all of these in things like derivatives, mortgage backed securities and the like. Each is examined from birth through to current day, as well as looked at in a global context.

Through it all, Ferguson gives a history of bubbles, from the "first bubble" in which an enterprising Scot bankrupted all of France in the early 1700's, through to the mortgage-backed mess the USA finds itself in today. Here is where I found a similarity with To Engineer is Human, in that it is a story of how we inevitably fail to learn from History. Perhaps it's more accurate to say that when we do, time and greed inevitably erode the safeguards we put in place.

This is what the book's closing chapter discusses, is whether such cycles are inevitable, and whether we do as much damage as we protect against, when we mess with the cycle of creative destruction.

While finance in general can be a bit dry, Ferguson does a good job of making this entertaining. The history of finance has no shortage of colorful characters and he introduces the reader to many of them. Even if you are not that enthused about the topic, it nevertheless will give a good overview of it that will entertain. Also, it serves to remind that the "current state of things" (i.e. the last 20 years or so, further back from which people have a tendency to subscribe to different rules) is by no means the way things must remain.

Finally, I'll add that the final chapter's coverage of reasons why people tend to predict the future of financial markets properly applies equally well to the tech industry as well. There are lessons to take away here that have less to do with dollars and more to do with our tendency to believe that "this time is different". If history shows us anything, it's that we repeat it.