Money devices created by mankind to magnify the power of humans to do mostly egregious, destructive acts such as wage war and exploit natural resources in order to make nations powerful and a few rich. This illuminating history is told by Niall Ferguson, a Scotsman and a Harvard professor, who despite all the terrible mismanagement and failure he must relate, still believes that such a capitalistic money system is the best way to distribute resources, at least preferable to feudalism or central planning. So many assumptions are made about this system being for the greater good of society that reading the book was as tricky as wading through an issue of The Economist.
The author was favorably interviewed on NPR and his mission to educate people about our financial system seen as an honorable one, which was why Catherine bought the book. And given how so much of this history is being extrapolated to fuel conspiracy theories it is good to know the actual sequence of events. For instance, conspiracy theorists claim that the Rothschild family is so powerful today that they control not only banks, but numerous heads of state in an effort to create a New World Order designed to enslave citizens of the Western world. This is about as useful as claiming that Bill Gates created Windows to control PC users and thus the world. Wickipedia notes that the Rothchild conspiracy story was used by the Nazi's to generate anti-semitism.
The financial roots of anti-semitism goes back to the beginning of the story of money. Ferguson gives an explanation of how usury (loaning money at interest) was considered a sin by the old testament (though nothing is said about why that was the case). Jews were restrained by the sin of usury, but were allowed to loan money at interest to strangers, i.e. Christians. Money owed became synonymous with the outsider, and thus the hated other. Already money was making adversaries of the family of man.
At the time of Napoleon there were two systems of increasing the money supply—steal it through the plundering of an enemy or go into debt. The British prevailed because they invented bonds to allow governments to borrow from their citizens, force them, in some cases, to buy bonds, but apparently didn't force them to keep them. Along with bonds came traders to bet on the likelihood of that bond being paid off. The Rothschilds bet cunningly on the outcome of wars, thus the family also became associated with the ability to wage war. Bond markets set interest rates for the economy as a whole. Thus countries failing in some way are twice punished by investors wishing to get rid of its bonds which then causes interest rates to rise making money more expensive to borrow. This is how the bond market comes to control the decisions politicians make i.e. cut state spending or spend more.
Conspiracy theory claims that governments create financial crisis to scare the populace into accepting increased government power by, for instance, allowing governments to create a central bank which gives them even more control. I had wondered about this, but history shows that central banks were created early in the game by the Dutch in 1609 to insure currency stability and a way to exchange the many different currencies. Local banks betting on the solvency of a local industry i.e. agriculture would see their fortunes rise and fall with every crop failure. This kept people closely associated with their local resources which is a good thing for protecting the Commons, cultivating resilient seed stock and diversity of crops and industry per Vandana Shiva's Earth Democracy, but not a good thing at all for investors. And it is for the benefit of investors that lots of money must be created and made ever ready.
Conspiracy theorists do not seem to find fault with the creation of Corporate Companies with their many rights of personhood and none of responsibility. That territory is left to the Leftists. Ferguson describes the Company as another component of the ascent of money due to its power to raise enormous sums of money for private ventures. These ventures were mostly about financing ocean voyages to bring back booty from abroad. Which led to colonialism and the use of military to enforce British law overseas. Thus imperialism to protect investors from foreigners defaulting on their loans and thus not upholding their end of the business agreement. British law also forced opium on the Chinese market where opium was illegal. Fergusson does not find fault with the ascent of money for having financed such injustice, but seems to lament the rise of revolt in colonialized countries. After all, these countries benefited from such development as they would never have seen otherwise. Fergusson does make a point of comparing the current globalization to the colonial era.
Investment in corporations created stock markets and thus the volatility of stock market bubbles which caused international financial system meltdown when they burst. Fergusson attempts to explain why mismanagement on the part of government monetary policy made things worse, but he excuses the creation of bubbles in the first place as part of the territory of investor enthusiasm. He does mention that "only the Soviet Union, with its autarkic, planned economy, was unaffected". New word: autarkic. Fergusson does not concern himself with discussion of pros and cons of the Soviet System.
He does, however, shed much light on the creation of the welfare state as a form of risk management afforded by the government as opposed to private insurance. The encompassing, cradle to grave, government care covering health, education and everything else, he notes, is exemplified by the Japanese who were driven by a need to ensure a supply of healthy soldiers during WWII. Post-war the population was then persuaded to be as productive as possible which brought Japan the international success it has enjoyed. The same welfare system was the downfall of Britain, he laments, because a culture of individualism just did not indoctrinate the Brits with a desire to be productive and they were inclined "to game the system". (They wanted to be artists and activists protesting nukes while living off the dole.) Capitalism he notes, needs the carrot of serious wealth and the stick of serious hardship to force people to make capitalism work as it's supposed to.
The author brings us up to date on all the latest financial instruments and how hedge funds hedged themselves into oblivion with all their fancy foolproof equations. The only problem is people and their irrational human behavior he seems to conclude, never once considering that systems foster certain societal behaviors and keep people from engaging in such greed as is inevitable when enormous wealth is possible. While fear and feelings of insecurity cause people to wreck the marvelous capitalist system, destroying banks with bank runs and markets with panic. Much text is devoted to what governments should have done with proper monetary policy to control these panics and failures because, after all, a proper relationship between government policy and market shenanigans is what is key to the success of this system.
Much text is also devoted to countering complaints from the Left that monetary policies of the World Bank and IMF caused countries to eat their own in order to join the party of globalization. He also takes on the story of Chile. Fergusson is clearly on the side of Milton Friedman and his Chicago boys having brought financial stability and therefore democracy to Chile while Marxist policies had failed to rescue the welfare state, plagued as it was with sky high inflation.
The story of money seems inevitably to be a vehicle for an author's agenda. In this book it is done with a combination of moral relativity and the sin of omission. Nothing is said of the impact of greed on the environment, only that the industrial revolution could not have happened without an expanded supply of money. And though it is admitted that war cannot happen without financing this is not a problem that a man of finance need concern himself.
I have a firmer grasp, now, of the components of this complex financial machine, but it would seem that this is one of those complex systems of modern society that is beginning to offer diminishing returns.