Can You Spare a Dime?

The historian Alan Taylor used to say, mischievously, that the only point of history is history. The idea that one could use it to predict the future, still more to avoid past mistakes, was pure illusion. Niall Ferguson’s The Ascent of Money, a history of financial innovation written as a television documentary as well as a book, offers a neat test of Taylor’s theory. Ferguson can claim some powers of anticipation. History convinced him in 2006 that the good times could not last “indefinitely.” This was an insight to which the Nobel Prize–winning mathematical economists who devised the Black-Scholes formula—the complicated model for pricing share options used by the highly leveraged firm Long-Term Capital Management, which famously crashed in 1998—were oblivious. Their formula persuaded them that a massive sell-off could occur only once in four million years.

History has alerted Ferguson to the perils of the state relying on the bond market for its financing. On Lou Dobbs Tonight on November 13, 2008, he said:

How much can the international bond market absorb of new ten-year treasuries?… And if yields go up, the cost of government borrowing goes up, and the thing begins to spiral out of control….That’s why you need the historical perspective….

Between the two opposed views that history can teach us nothing and that the future is simply a reflection of the past lies the sensible middle position that history, like any other way of experiencing the past, can give us “vague” knowledge of what may lie in store for humanity. Only history-free economists could have bought the “efficient market hypothesis,” which claims that the market will price shares correctly, with deviations from accurate prediction occurring only at random. But knowledge of history would not have enabled anyone to predict the timing and extent of the present meltdown. Above all, history cannot settle the question of what our attitude should be toward money, which is at root a moral question.

The Ascent of Money is a superb book, which illustrates both the strengths and the weaknesses of history for understanding what is happening now. It is written with the narrative flair, eye for detail, range of reference, and playfulness of language that we have come to expect from this exceptionally versatile historian. Ferguson is clearly fascinated by the subject of finance, knows a huge amount about it, and communicates his enthusiasm to the reader. Many parts of the story will be familiar enough to specialists, but Ferguson has a special ability to color even the familiar with strange and unusual examples, and he weaves together the separate strands of the financial tapestry with great skill. Some of the financial material is quite technical, but there is no attempt to “dumb down.” The book is an all too rare example of good, even dense, scholarship finding a way to engage the larger public.

Ferguson’s strategically themed structure starts with the origins of money, and shows, in successive chapters, how …

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