In The Ascent of Money, Niall Ferguson argues that behind every major twist in history lies “a financial secret
Clinton gave a speech at a UN conference on women’s rights in Beijing. She rolled in like a juggernaut, delivering a fusillade of thinly veiled attacks on China’s authoritarian regime. “Freedom means the right of people to assemble, organize and debate openly,” she inveighed, to eruptions of applause. “It means not taking citizens away from their loved ones and jailing them, mistreating them, or denying their freedom of dignity,” she thundered, her canon shots scattering Chinese leaders to sanctuaries beyond the reach of the international press.
But when she found herself on Chinese turf in 2009, this time as Secretary of State, Clinton sounded more like a used-car salesman than a righteous emissary from the Free World. Gone was the tirade on human-rights abuses; in were sycophantic platitudes like this one: “Now it is more important than any time in the past to deepen and develop China-US relations.”
Times change. After eight years of tremendous overuse, the word “freedom” doesn’t have the cache it once did. The world is in the throes of a financial crisis that has pushed any issue beside self-preservation to the side. But Clinton’s about-face can be explained quite simply. To borrow a phrase from Niall Ferguson’s The Ascent of Money, she flipped because the mighty bond market said so.
The mighty bond market and its origins are just one element of The Ascent of Money, which a less clever author might have simply titled Financial History 101. But Ferguson, a Harvard professor and author of several works of popular history, is clever and much more besides. It’s a rare talent that can transform the evolution of banking, the stock market, the insurance industry and the housing market into a compelling read. But it’s another altogether – the good historian’s gift – to nestle the current moment in its proper context and give the reader a wider view of the land.
Ferguson’s narrative hopscotches around the planet and zips across epochs, showing that “behind each great historical phenomenon there lies a financial secret.” At one moment we are witnessing Weimar Germans pushing wheelbarrows of worthless deutschmarks. The next we are watching in stupefied wonder as the mother of all asset bubbles, John Law’s Mississippi Company in the early 18th century, explodes and eventually takes down the French monarchy with it. And the great individual coups in financial history – from Nathan de Rothschild’s bet on British bonds in 1815 to George Soros’s bet on the British pound in 1992 – are retold with the same dewy-eyed admiration of a football fan recounting Maradona’s legendary performance at the 1986 World Cup.
Ferguson moves around so much, and at such a frenetic pace across the centuries, that the reader, in effect, is left with a series of vignettes. Many of them, from Argentina’s multiple debt defaults to Japan’s banking crisis, are case studies in disaster. But that’s not to say that Ferguson is an anti-capitalist crusader. Despite the occasional mutation – which like Frankenstein’s monster wreaks havoc on the innocent and hunts its maker for years – Ferguson believes capitalism’s “trajectory is unquestionably upward.” For what lays at the heart of capitalism is not the exploitative relationship between worker and industrialist, as Marx or the (nominally) Communist China would have it, but between creditor and debtor. And Ferguson argues that this relationship, with the wealth that it produces, has been as essential to civilization’s progress as any leap in technology or democratic revolution, an idea backed by recent breakthroughs in “micro-financing” for some of the world’s poorest populations.
Instead, these vignettes serve as reminders of how easily capitalist economies can become unhinged due to political mismanagement or negligence, a historical truth that the whole world is keenly aware of now. Borrowing is good, but over-borrowing is not. Ferguson points out that the greatest imbalance in modern economics is the symbiotic relationship between the US and China. Their economies are so intractably intertwined that Ferguson proclaims them to be one giant entity – “Chimerica.” Chimerica is one of the underlying causes of the US housing bubble and the massive debt banks accrued in recent years. For since Clinton’s 1995 speech, China has become “America’s banker,” buying billions of dollars of Treasuries (to keep its own currency low, and its exports cheap). That led to low US interest rates across the board, fueling a lending boom and a subsequent mirage of US economic growth. Ferguson puts it this way: “The East Chimericans did the saving. The West Chimericans did the spending.”
With the US borrowing more heavily now to fund its economic recovery programs, the imbalance is only going to get worse. Suddenly, having a good understanding of Argentina’s debt defaults is important. In a historical light, it is not at all alarmist to suspect that the fate of an empire will rest on how the US resolves its mounting debts. In the meantime, when we hear Chinese Premier Wen Jiabao say he is “concerned” and “worried” about the safety of China’s investments in the US, and we see US officials scramble to reassure its largest creditor, it is clear to everyone that from now on the mighty bond market will be doing the lecturing.
