According to the National
Board Of Economic Research, the current financial crisis can now be properly
termed a recession. Still, it has nothing on the Great Scene Of Folly. Former
speculator John Law decided to introduce bank notes to France in the 18th century
by selling shares in the Mississippi Company, which issued notes guaranteed by
the Crown, and promised a big payout after a Louisiana expedition. The upper
classes rewarded Law's supposed foresight (and his 40 percent returns) by
making him Controller General Of Finances, which allowed him to further tinker
with the country's economy in order to protect his company. Yet in spite of
furious speculation, his frantic issuing of new shares couldn't make up for the
absence of true profit; Law was lucky to leave the country with his head
intact, and the resulting fallout was a major contributor to the French
Revolution.
While it was written
largely in the first flush of the current credit crisis, Niall Ferguson's The
Ascent Of Money: A Financial History Of The World uses stories like John
Law's to provide historical perspective on the formation of the current
financial system. Though Ferguson teaches at Harvard, the explanations of
microfinance and the life cycle of a bubble in The Ascent Of Money are probably too basic
for people like econ majors and Ben Bernanke. (The professorially bad jokes,
however, remain, like the gag about how bonds have "a license to kill.") For
ordinary readers, these capsule histories of hyperinflation in Argentina or the
way the Duke of Wellington could afford to fight at Waterloo furnish just
enough illustration to explain those terms being flung around on CNN.
Ferguson occasionally dips
into Freakonomics?-style analyses to prove
his points, but his matter-of-fact tone suggests his targets aren't other
historians, but greed in all its forms: The Confederacy's gambit to finance the
Civil War with cotton-backed bonds (including inducing an embargo to England)
looked like a shrewd move until New Orleans fell and the blockade tightened,
but Enron shareholders didn't even have the promise of a physical product for
backing. His chapter on real estate and the housing bubble, for which Ferguson
visited foreclosure auctions in Detroit and Memphis, rivals This American
Life's
"Giant Pool Of Money" episode for its cogency without being too concerned with
pinning blame—something Ferguson manages to avoid even in the afterword,
appropriately titled "The Descent Of Money."