From a five centuries old dominant society in south America that had no concept of money to a

market crash that crippled one of the strongest capitalistic economies of the world, Niall Ferguson, in
his book ‘the ascent of Money’ narrates the evolution of financial instruments from their origin up to
their current state in the modern world. The book travels through popular events such as Spanish
Conquest of Inca Empire, Rise of Medici Family in Europe, Financial geniuses of optimistic humans
like Giovanni de bici, Nathan Rothschilds and John law that shaped the history of money and initiated
the contemporary complex monetary system centuries ago. The book can be seen as a lesson for
present day investors and policy makers to save themselves from missteps that can lead to crashes
and financial losses.

Chapter 1 – Dreams of Avarice

In Chapter one, author describes the empire of Inca that belonged to south America and
was a dominant society 500 years ago. People belonging to the Inca community knew
about the importance of precious metals such as gold and silver. However, they had no
established concept of Money. Inspired by the legend of El Dorado, Spanish conquistador
Francisco Pizzaro invaded the south American empire. He knew that metals such as gold
and silver can be converted into something that holds portal power and can be used as a
unit of exchange. They extracted metals from rich mountains such as Cerro Rico by
enslaving local men. However, conversion of metals into fiat money could not help Spanish
economy from falling. This excessive formation of money resulted in inflation. The event
highlights the very basic but critical actuality of economics. When too many hands chase
too few goods, the price of commodities increase. Sometimes inflation reach to the point,
as mentioned by Lord Keynes, that money starts to value lesser than the paper it is printed
on.

Fergusson than talks about Italy which was on the process of developing the concept of
Credit. Without the invention of credit, economic history of the world is impossible. Venice,
which became the money lending laboratory of Europe, needed the system of credit for its
abroad salt trade transactions to operate. The system where a money lender could provide
money and get interest as reward in return for the risk involved with the default and loss on
the loan. However, charging interest on loans was a sin for Christians. For borrowing,
Christians would go to Jews that were ghettoized to an area in the city of Venice. In his
famous play, the merchant of Venice, Shakespeare narrates the story of money lender
Shylock who faces indignation from the society for being inhuman and ruthless.

Before the advancement of Medici Family, money lenders had a bad reputation in front of
the general public. Medici family was the most influential family during the Renaissance that
gets the credit for initiating what is known as today’s banking system. Giovanni de bici de
Medici, one the most important figure in the family of Medici, used creative accounting to
get away with the anti usuary laws and the notion of sin attached with money lending.
There were no restrictions on trading and merchants making profits on transactions. He
used to charge commission on conversion of one currency to another and the amount of
commission dependent on the interim for which a borrower held the money. Also,
commission was provided to depositors who entrusted the Medici with their money. The
network was decentralized with multiple independent networks and flourished during that
time and reached to different cities from Florence to Rome and then to Venice.

Chapter 2 – Human Bondage

Period between 15th to 19th century witnessed wars in different parts of the world. These wars
required huge expenses by the states and empires that were already trembling with the burden of
deficits. This resulted in formation of a system of finance where people could lend to the
government by purchasing an agreement of repayment from it. These bonds were liquid and thus, if
at any point someone wants the cash back, se could sell the bond.

These bonds were an important tool in 14 th-15th century Italy where states were hiring mercenaries
to fight on their side. The biggest of them was John Hawkwood. Hiring such military contractors
required huge expenses and to afford such expenditures, states used to sell bonds. Government, in
return for the bond used to provide citizens with interest was a reward for bearing the risk involved
with entrusting money with a state at war.

During the 19th century, when Napoleon Bonaparte was about to invade the fields of waterloo, an
optimistic risk taker had his fortune on the verge of outshining and creating history. Nathan
Rothchild was given the responsibility to supply for universally acceptable currency (Gold) to support
the expenses of the war. It was not the war that allowed Rothchild to earn millions, it was what
came after the war ended with the defeat of Napoleon. The money that Nathan had accumulated
was used by him to purchase government bonds. He predicted that after the war, value of British
bonds is going to increase and thus kept his hold on the bonds for a year. The profit made by him
presented it to the world that bonds are not just a tool to finance wars but can also be utilized as a
financial instrument.

Bonds also played a critical role during the American civil War. Southern spart of America was rich in
cotton. They used to back the bonds by allowing lenders to exchange for cotton if the state become
unable to repay the loans. This resulted in increment of value of south American bonds. South saw it
as an opportunity to keep Britain in their side and thus they increased the embargo on the ships
reaching to Liverpool carrying cotton from southern America. However, they overplayed their hand
and importers found other sources of cotton in Asian regions. This resulted in huge inflation and
ultimately the loss of Southern America in the War.

Chapter 3- Stock Markets

The credit for the wonderful invention of joint stock liability company goes to Dutch. It allowed
people to pool their resources at one point for investment that had less risk associated. The Dutch
east Indian company was formed by uniting several companies competing against each other for the
purpose of trading across half of the world. The company was formed with an intention to hold
monopoly and trade with eastern region of the Asia that was rich in Spices. In 1602, the company
used to accumulate liquidity by providing stocks to the people. However, the directors of the
company later declared that the people seeking cashbacks can’t directly come to the company. Thus,
people in need of money had to go to other traders in exchange for their stocks. As a result, worlds
first stock market was created that followed the rules of supply and demand to decide the prices of
the shares. It was the first company to merge economics of scale and reduction in cost together to
decrease the network externality. They were also the first to develop turnover concentrated for
distributing the profits.

When all this was happening in Amsterdam, a gambler and convicted murderer, john law was
learning the basics of the framework of finance developed by Dutch. He was inspired by the system
however he witnessed two loopholes. He realized that the number of shares for the company is
limited even though the demand for them in enormous. Also, the bank has an internal system of
cashless transfers for merchants to settle their accounts. However, the bank has no authorised notes
of its own. Law saw an opportunity to combine the monopoly with a bank to form a perfect combo that
can take profits to the sky.

Law created a scheme that included taking over the business of the West (Mississippi company)
worth 100 million livres, taking over direct tax collection, and agreeing to lend the royal crown 1.2
billion livres. It was as though a single guy was in charge of the Fortune 500, the US Treasury, and
the Federal Reserve. He essentially created a bubble to inflate the value of his stock. The stock rose
to a new high of 1720. The term "millionaire" was first used here. It was laws understanding of
economics that allowed him to have control of several functions of a prior vulnerable French economy
that was under the rule of Resurgent Duke of Orleans. Law controlled all French indirect taxes, total
national debt, mints that created gold and silver coins, Louisiana, Mississippi company, French
business with Canada, Asia, Indies and Asia.

The United States of America experienced its first depression in 1929, the reasons of which are more
difficult to understand than the one that occurred in 1914. For the first time, depression was attributed
to people's mental health.

Indeed, the demand and business strengths in the United States may have provided the initial catalyst
for the crash. The biggest bull runs were in the stocks of a few firms, which triggered further IPOs. For
the first time, Milton Friedman and Anna Schwartz suggested that the Federal Reserve was
responsible for the Great Britain's accident. They didn't blame the bubble because they had kept
prices stable and gold bullion on hand. The primary explanation for this was that the Fed should have
increased credit and liquidity rather than seeking to delay gold's advance.

The late 1980s bubble was remarkably close to the 1710s John Law bubble. However, another
organisation attempted to do the same thing. Enron was a reincarnation of the Mississippi business.

Chapter 4 –

Several natural disasters can be credited for the origin of insurance schemes in various parts of the
world. Hurricane Katrina was an example of a natural catastrophe that highlighted the shortcomings of
the new insurance scheme. Private insurance providers were responsible for wind damage, while the
government was responsible for floods. The bulk of the damage was due to flooding rather than the
storm according to private insurance agencies. Scruggs, who won a $200 billion pay out from
cigarette firms over Medicaid expenses due to lung diseases, aided many policyholders in their battles
with insurance companies, but was eventually charged with bribing a judge. Later, insurance carriers
proclaimed the whole region to be a no-insurance zone.

Insurance was developed hundreds of years ago (1350), mostly as a self-insured coverage for ship
owners and businessmen. Harm and its coverage were better understood only after the discovery of
the following parameters: chance, life expectancy, certainty (law of big numbers), normal distribution
and uncertainty, efficiency (the value of a good is not the price paid but the utility obtained from it) and
inference (what counts is the probability of an event times its impact). These materials were used in
Edinburgh to establish a life insurance scheme for Church of Scotland ministers. Robert Wallace and
Alexander Webster received enough funds from a group of 930 ministers to spend profitably to pay
the widows of these ministers out of the profits. It rapidly developed into a broad company, raising the
predictability of pay-outs. By 1950, insurance companies had been the top shareholder in British
companies, controlling a majority of the big UK firms. To date, Britain is also the most insured nation,
with annual premiums twice as high as Germany. Through creating a scheme of pensions for the
aged, Otto von Bismarck was the first to advocate a state-sponsored way of caring for the poor and
elderly. Britain copied it 20 years later and greatly improved it, owing to the increased voting influence
of the deprived masses. During WWI, the merchant fleet was insured by the government because
private businesses could no longer afford it. But it was Japan, following WWII, that lifted the British
model to new heights. Any detrimental consequence, such as sickness, unemployment, or old age,
was covered for the whole population by the state. In reality, there was a movement against insurance
in the years leading up to World War II. By the 1970s, Japan had established itself as a healthcare
powerhouse, outperforming the rest of the world in terms of life expectancy and educational
attainment. Meanwhile, in the United Kingdom and other parts of the Western world, the welfare state
has developed into a confiscatory taxation scheme, eliminating all benefits for hard jobs and paying
out state wages to the lazy. As a result, stagflation occurred, in which production per capita expanded
steadily while inflation increased. By eliminating risk, it seemed that the welfare state was doomed to
sluggish inaction.

Milton Friedman was a genius, Nobel Laureate economist who travelled to Chile in 1975 for an
economic experiment under General Pinochet's dictatorship. To resurrect financial markets, the
money supply was sharply reduced. José Piera, a Harvard graduate, returned to Chile and changed
the state-owned pension system by giving people the option to switch to a more individualistic system.
By 1990, 70% of employees were enrolled in a private pension plan. The savings rate increased to
30%, with virtually all of the money saved being re-invested in Chile, making it Latin America's most
prosperous economy. There is a lot to talk about welfare and social welfare in the United States. In
1993, social security spending overtook the national security budget, suggesting that a significant
number of Americans are opting out of private health benefit insurance. Given the exponential growth
in the number of Americans aged 65 and over, their insufficient investments would become a burden
on the whole nation. In addition, healthcare costs are rising faster than inflation; by 2019, Medicare
will consume 24% of all federal income taxes. The only nation in greater peril is Japan, where seniors
would outnumber jobs by 2044. And the real catch is that lawmakers must drive reforms forward for
constituents who will all be impacted. Another issue is a spike in major disasters that cause private
insurers to request federal assistance. Although Katrina and 9/11 are recent examples, climate
change would also have an impact. One way to deal with this is to charge people who want to live in
high-risk areas a higher risk fee. Another choice is to use risk control. This may be achieved by using
forward selling or selling options (weather options being a specific subset). The planet is increasingly
dividing into two groups: hedged firms and those that can afford it, and unhedged individuals. Those
citizens would have to rely on insurance, the government's healthcare scheme, their own investments,
and one investment, normally a home. More on that in the next chapter.

Chapter 5

Initially only influential people of the society had rights to own lands and built houses. Even the voting
rights in some of the democracies were reserved just for the house owners. As the inflation increased
and the industrialization decreased, the importance of owning a land decreased. Thus, resulted in
decrement of political power of the aristocrats. As a result, importance of a fixed job with a fixed
income rose compared to title and income earned through land. In the years leading up to the Great
Depression, few workers in the United States owned a home, and mortgages were rare. There were a
number of foreclosures during the Great Depression, and civil turmoil was on the rise. The New Deal
of Franklin D. Roosevelt addressed the needs of large numbers of displaced Americans who were
increasingly willing to listen to communist voices. It made it possible for ordinary people to purchase a
home, and a vast amount of affordable housing was created. Low-interest, long-term loans became
available through the Savings and Loans Association and then the Federal Housing Administration.
Due to the fact that the collateral was as secure as a home, a secondary market for these mortgages
arose.By 1970s , a huge portion of Americans were house owners.

In the United Kingdom, the emphasis was far more on public housing than on low-cost loans. Even in
the 1960s and 1970s, property-owning democracy became a reality, aided by higher inflation.
Savings and loans, as previously stated, suffered with inflation and later increased interest rates in
the 1970s, and were deregulated as a result. They could now invest in far more than long-term
mortgages while still being covered by the government. This resulted in risky investments and
outright bribery. The funds were used to turn abandoned land into industrial parks and homes,
which were paid for by developers who borrowed money from the Savings and Loan Empire. The
liabilities were much larger than the assets at the moment, and the assets could only be exchanged
for the amount that they were accounted for. The corporation went bankrupt, and the management
was prosecuted, but it emerged that the entire Savings and Loans industry in the country had been
implementing the same scheme. Through examples of US and UK, author highlighted the linkages
from the period of great depression to the market crashes of the current times. Safe houses are a
myth and in order to avoid losing all the capital an individual has earned, author suggested to have
an investment t portfolio with different types of investments.

Chapter 6-

Author, here describes how the USA which used to have influence on the world economy, is now
getting sidelined by the resurgence of China. He describes the current scenario of two leading
economies of the world as Chimerica. The Chinese relied on low-cost exports to boost jobs. The
Chinese, on the other hand, had to buy US dollars in order to keep the dollar high and their currency
week in order to keep their exports cheap. The desire of the Chinese to fund US debt made achieving
the American dream much easier. However, there is a snag. China pumped large sums of capital into
the American economy by acquiring US government bonds, and this additional money was later used
to give loans to uncreditworthy customers, resulting in a financial meltdown.

Ferguson in the end doubts that this symbiosis of China as a producer and America as a consumer is
not going to last for a longer duration of time. He recalls the time when such a symbiosis between
Germany and Britain resulted in a collapse and consequently a large-scale war commenced.

Conclusion –

The book by Niall Ferguson interestingly covers the events that occurred in history and their impact
on how we observe these financial instruments. However, the book seems to have theories that
were as understood by Ferguson and lacks the opposing views of certain events. For example, a
theorist who belongs to different school of thought might not completely agree to every event that
is written. Thus, in order to make the work more acceptable is to mention empirical research works
from other authors too and mention opposing views at points where they are very relevant. When
the author talks about capitalistic world’s greatest crisis in last 8 decades, he should also have
mentioned opinions of greatest critic of capitalism (Marxists). The book also puts not much light on
geography, history and role of other non-European cultures on the evolution of money. Though the
author has tried to be liberal towards the events, the book seems to applaud the capitalism without
mention the cons of it to the readers. The book could also have mentioned the role of colonialism
and its effect on the resurgence of capitalism.

However, these are minor criticism to the book that is wonderfully written and capable enough to
grasp reader’s attention. The way author mentions the famous architecture and museums where
the history is preserved safely in the form of art is interesting and inspires reader to search and seek
more information about such architecture.