If the mavens of business and government had only read their history books, could we have avoided the extraordinary events that have taken place in global financial markets during the past few months?

That is hard to say. But, certainly, reading The Ascent of Money: A financial history of the world, by historian Niall Ferguson, can help you put the current crisis into perspective during discussions with clients. Ferguson shows us that periodic bursts of financial chaos have occurred throughout history — and will occur again.

I am not sure Ferguson set out to write a book that would warn of the impending danger, except in the general sense of George Santayana’s caveat: “Those who cannot remember the past are condemned to repeat it.” Rather, Ferguson chronicles the story of money, credit and banking through time, noting that it is the intertwining of these three basic elements of society that are at the root of all old- and new-order financial calamities. I think it almost coincidental that the current crisis, which may be the greatest one yet, has come along.

In The Ascent of Money, Ferguson marches us through money’s evolution, from the earliest coins to paper notes and modern-day electronic debits and credits, when the global ethernet serves as legal tender, with each transition multiplying both the utility of money and the potential for its abuse. We journey from the Spanish conquistadors raping Peru of her “mountains of silver” to the “mountains of debt” (government bonds) used to finance the Italian Renaissance and on to the ultimate creation of the London bond market, in which global interest rates are still largely determined today.

For those of us who work in and around the stock market, its characterization as a succession of financial bubbles — in which share prices soar to unsustainable heights, only to crash as unscrupulous insiders profit at the expense of naive outsiders — may make us uncomfortable. Ferguson argues that this recurring pattern has three features: insiders who know much more than outsider investors; freely flowing cross-border capital; and easy credit. Sound familiar?

Ferguson scrutinizes the role of insurance in society with equal disparagement. In a bit of a stretch, he identifies it as the precursor of the creation of welfare states and the eventual birth of hedging as an investment strategy. Nor does real estate escape his critical examination, as he recounts boom/bust cycles and the journey from the U.S. savings and loan crisis to the subprime mortgage catastrophe.

Being exposed to the systemic weaknesses in the world’s financial underpinnings left me feeling helpless. But I was particularly impressed and encouraged by Ferguson’s ability to link the past with the present.

For example, Ferguson compares international investment during the last great burst of globalization, from 1870 to 1914, to the massive global capital flows of the present. He notes that during the 19th century, it was mostly a case of the developed world, particularly Britain and Europe, financing infrastructure spending in developing countries. Today, however, we have a still-developing country, China, financing consumption in the fully developed U.S.

In that context, Ferguson describes “Chimerica” as “the wonderful dual country … which accounts for slightly more than a tenth of the world’s land surface, a quarter of its population, a third of its economic output and more than half of global economic growth in the past eight years.”

Ferguson goes on to argue that the now-burst financial bubble was, in part, due to the Asian savings glut, which was “the underlying reason why the U.S. mortgage market was so awash with cash that you could get a 100% mortgage with no income, no job and no assets.”

Ferguson reminds us that evolution depends on extinction as well as on creation. So, we have to allow ill-adapted techniques to fail if we are going to get something new. “From ancient Mesopotamia to present-day China,” he observes, “the ascent of money has been one of the driving forces behind human progress: a complex process of innovation, intermediation and integration that has been as vital as the advance of science or the spread of law in mankind’s escape from the drudgery of subsistence agriculture and the misery of the Malthusian trap.”

As the current financial bust surrounds us, perhaps that belief is one to which we should cling.

@page_break@Students of business and human nature will find this book informative and thought-provoking. It is overly detailed and uneven in places as the author attempts to marry history with present events. Its lessons, however, are well founded, timely and valuable. IE