Saturday, February 22, 2014

“The Ascent of Money” by Niall Ferguson (Book Report)

Donna Welles
Empirical Research Methods
Book Report
Georgia Tech
Due: Nov. 5, 2012

“The Ascent of Money” by Niall Ferguson


          For this exercise I’ve included the major points I’ve taken away from each section of Niall Ferguson’s “The Ascent of Money”:

Dreams of Avarice
          Is it possible to live in a world with no money? Ferguson illustrates that no Communist state, including North Korea, has found a practical way to dispense with it. He discussed how ancient hunter-gathering cultures fought over scarce resources rather than traded for them and thus lived in a more Hobbesian state.
          Ferguson discussed the issues relating to coinage in that, for it to serve as a medium of exchange, money must be "available, affordable, durable, fungible, portable and reliable". He continued to argue that precious metals fit this criteria and that's why they were so valuable to early international traders. He discussed how the Roman system of coinage outlived the Roman Empire and that during Charlemagne's time (768-814), Western Europe was suffering from a chronic shortage of silver. Economists have defined "the big problem of small change" as "the difficulty of establishing stable relationships between coins made of different kinds of metal". The New World offered explorers a solution to this problem by providing large amounts of silver and gold.

Of Human Bondage
          Ferguson stressed how crucial bonds are for the world economy. Specifically, Ferguson says that we're all affected by the bond market in two important ways, including (1) most retirement funds derive from the bond market, and (2) the bond market sets the long term interest rates for the government as a whole.
          History of bonds: Bond date back 800 years to the Italian Renaissance when city states in Northern Italy struggled to pay their war debt. Instead of paying property taxes, wealthy people were forced to lend money to the government in the form of bonds for which they'd receive interest. These bonds were highly liquid and could be sold off if the owner himself needed money. The fact that these wealthy persons were forced to buy bonds absolved the lenders from the Catholic Church's anti-money lending policies.

Blowing Bubbles
          The next stage of the ascent of money, according to Ferguson, was the creation of both the 'company' and in turn the stock market. The section opened with an example of building a pipeline through the South American Andes and Ferguson asserted that this project would not have been feasible until 'companies' were formed and individuals could pool their resources so as to share in the profits and the risks. Stock markets, Ferguson continued, serve as hourly referendums on the performance and expected output of these companies.

The Return of Risk
          Ferguson next explored the nature of insurance as exemplified by Hurricane Katrina - the costliest disaster in modern American history. 1.75 million property and casualty claims were filed totaling $41 billion. Insurance companies attempted to show that much of the damage was caused by flooding rather than wind damage, making them exempt from the coverage policies that protected against "direct physical loss or damage to covered property caused by the wind, wind gust, hail, rain, tornadoes, or cyclones caused by or resulting from a hurricane". The long run result is that several major insurance firms refuse to extend coverage to Gulf Coast regions.

Safe as Houses

          Ferguson in this chapter discussed the relationship between owning property and English-speaking democracies. Ireland is atop the list with 83% of households owning their own homes, followed by Australia (69%), the United Kingdom (69%), Canada (67%) and the United States (65%). The copyright indicates that the book was published in 2008 and so it is unclear how these numbers have been affected by the Great Recession.

From Empire to Chimerica   

          In this final chapter, Ferguson illustrates the 'Great Divergence' when China, who had for millennia enjoyed a relatively high standard of living, fell behind Europe in technology and quality of life. Ferguson suggested two possible reasons for this shift, including (1) China did not benefit economically as the West had with the discovery of the New World, and (2) China's geography did not allow for the incorporation of coal into industry as had taken place in the West

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