Bleakonomics

Niall Ferguson ponders the wild history of money.

CENTS AND SENSIBILITY Ferguson says that markets are inherently unstable.

CENTS AND SENSIBILITY Ferguson says that markets are inherently unstable. Photograph: Justine Stoddart

No one would accuse Niall Ferguson, author of The Ascent of Money, of inactivity. Born in blue-collar Glasgow, Ferguson has written best-selling books that range in subject from World War I to the Rothschilds, holds two positions at Harvard and is a contributing editor for the Financial Times. He has been named one of the 100 most influential people by Time, and has written and starred in a documentary television series on the British Empire. He’s photogenic enough that, as one Guardian journalist speculated, Colin Firth could play him in the movie. Add to all of that the fact that we’re now in the midst of a financial slump. Of course everyone wants him to speculate on all things monetary.

Favoring the historically sound middle ground, the author’s assessment of the current world economy is neither optimistic nor catastrophic. “Before this crisis,” Ferguson says, “there were people who thought there would never be another recession—that kind of crazy, myopic, unhistorical belief. That was followed in the last month or so by wild panic, as if it’s the end of the world.”

The primary message of The Ascent of Money is that financial markets are inherently uncertain, a “mirror of mankind…reflecting our blemishes as clearly as our beauty.” What goes up must come down. The book also functions as a primer to reduce “public ignorance” about our financial system and its history. In remarkably readable, chronologically organized chapters, Ferguson covers stocks, credit and commodities markets. He reflects on Babylonian tablets engraved with the first recorded financial transactions; Medici-era Venice; the battle of Waterloo; Weimar, Germany’s infamous inflation and “Chimerica,” the author’s moniker for the relationship between the U.S. and China.

It’s when he talks about the behavioral psychology surrounding money that Ferguson has the most surprising things to say about our current situation (unfortunately, he says nothing about dropping Wall Streeters into a Skinner box and making them run a maze for treats). People who work with money, he says, are deluded by gains, and are “incredibly bad at figuring out probability.” Gambling is his favored metaphor. “There’s something quite addictive and almost deluding about winning in the casino,” Ferguson explains. “When people have a run of luck, they very quickly impute this to their own brilliance. Once you start interpreting your good fortune as your skill, you’re very quickly a master of the universe who can never fall. That, of course, is precisely when you fall.”

Some of our current economic woes can be attributed to the fact that most business schools don’t require students to take an economic-history course. “Anyone who has looked at a thousand years of economics knows that financial markets are prone to bubbles, that they do these crazy things, and you should be able to recognize it when it’s happening to you.” Ferguson himself teaches economic history at Harvard, though he doesn’t “use the word history because it would put the students off.” With a wry laugh he adds: “Now that my pupils have had their offers from Goldman rescinded, they’ve discovered the joys of academic research.”

“This is clearly a time for this generation of business-school students to rethink its career options,” Ferguson says. “The best advice I would have for any young person at this moment is to ask, ‘What difficult skill can I now acquire from the academy?’ Count on at least two pretty tough years, when hiring is not going to be at the top of employers’ agendas.”

Sometimes Ferguson’s quotes take on a cavalier and almost callous edge. Sure, the academy sounds like a nice place to retreat as the economy readjusts, but what if you don’t have the coin to pay for it? Even as Ferguson’s new book gives a clear view of money’s big-picture history, his insights into the present belie a disregard for people who don’t already have lots of cash at their disposal. “The coming months are going to be painful in New York City, but they’re worse elsewhere,” he says. “There’s always Christmas shopping in London, if the pound gets any weaker.” Makes sense if you can afford that plane ticket.

Still, wherever you are and whatever you’re doing, Ferguson says that you’ll be somehow affected by the mess, and that it will take a while for the market to correct itself. “Hank Paulson spent the money,” Ferguson says. “Enjoy the inaugural. It’s going to be all downhill from there.”

The Ascent of Money (Penguin Press, $29.95) is out now. Ferguson reads Wed 19.