Are you tired of financial news? The past year provided a continuing stream of financial problems from the United States and around the world. It might be time to update your news perspective by looking at lessons learned from history. "The Ascent of Money" by economist, historian and author, Niall Ferguson, gives an alternative view of the historical antecedents of financial transactions that play into today's news.
"The Ascent of Money - A Financial History of the World" uses financial history as the backdrop for human progress, innovation, and change over the centuries. A simple definition of money as "the medium for exchange" is only the beginning of the story. The big story is neatly summarized by the author on page 341: "Today's financial world is the result of four millennia of economic evolution. Money - the crystallized relationship between debtor and creditor - begat banks, clearing houses for ever larger aggreations of borrowing and lending. From the thirteenth century onwards, government bonds introduced the securitization of streams of interest payments; while bond markets revealed the benefits of regulated public markets for trading and pricing securities. From the seventheeth century, equity in corporations could be bought and sold in similar ways.
From the eighteenth century, insurance funds and then pension funds exploited economies of scale and the laws of averages to provide financial protection against calculable risk. From the nineteenth, futures and options offered more specialized and sophisticated instruments: the first derivatives. And, from the twentieth, households were encouraged, for political reasons, to increase leverage and skew their portfolios in favour of real estate."
I found the historical trek through financial history, wars, booms, bubbles, and busts a fascinating read. From explorers seeking gold and silver in South America, banking to enable Italian trade with China, bond markets to finance wars, stock markets to finance expansion, inflation and money supply growth, and on to the present day real estate and sub prime mortgages there is a story that ties financial transactions and history together.
Note: A two hour PBS documentary which aired in January 2009 is available online. A four hour version is scheduled to air on PBS in July 2009.