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Niall Ferguson: The Ascent of Money

Niall Ferguson's The Ascent of Money is not a book for me. I bought it on amazon having read a glowing review in the Financial Times and without first browsing through it in a bookstore. This is one of the risks of buying books online. It had been gathering dust on my bookshelf for months, but I finally decided to read it: a mistake on par with buying the book.

I was hoping and expecting to read a global history of money. I was hoping to fill a gap in my knowledge and education. I was hoping to read how in ancient Egypt, ancient Greece, China, Mesopotamia, among the aboriginals of Australia and during the Aztec and Inca empires money emerged as an economic institution. Ferguson covers this material in little more than a few pages. There's more on the Medici and the emergence of stock exchanges in the 17th century, but most of the book is biased towards recent history. And so figures such as George Soros, Ken Griffin and Alan Greenspan, who within the greater scheme of things are only minor players, and events such as the savings and loan debacle of the 1980s, the current financial crisis and the collapse of LTCM, get far too much weight.

It is also quite obvious that Ferguson doesn't have a clue when he writes about option theory, hedge funds, risk management and economic theory. The term Value at Risk is mentioned within the context of a long paragraph on LTCM but left unexplained. The Black-Scholes option pricing formula is introduced with much aplomb. "Feeling a bit baffled? Can't follow the algebra? To be honest, I am baffled too" Ferguson writes after writing down the formula. It is perfectly well possible to explain the formula in lay terms, but Ferguson doesn't make the effort. Apparently he didn't even make the effort to understand it himself.

He claims that "to make money from this insight [the B-S formula] they [quants] needed markets to be full of people who didn't have a clue how to price options but relied instead on their (seldom accurate) gut instincts." This is plain nonsense. It is true that the first floor traders to incorporate the volatility smile into their pricing models had an advantage over those who didn't, but all option traders are professionals and the counterparties of LTCM were no dummies either (OK, maybe some were...). I'm showing off a bit of insider knowledge here, but the point is there is nothing esoteric about option pricing to those who work as traders. If you buy options as a retail investor you're screwed, not because of the advanced computing power of professional traders, but because of the transaction costs.

For a historian who is a professor at Harvard University and a senior research fellow at Oxford University the book offers very little serious scholarship. The only part that comes close is the paragraph on the Rothschilds. It is not a book that contains useful knowledge or insights and that I'm glad to have on my bookshelf for future reference. It is really a poor cut and paste job from some scholarly references and newspaper stories.

The only positive thing I can say about The Ascent of Money is that it is a quick read and easily forgotten. I haven't been able to offload the book and given my negative review it will be difficult to do so now.

According to the praise on the backcover of my hardcopy Ferguson is "the most brilliant British historian of his generation" (The Times), "one of the world's 100 most influential people" (Time Magazine) and "has transformed the intellectual landscape" (The Economist). Based on this book and his contributions to the Financial Times, of which he is a contributing editor, I have to say that he is "probably the most overrated British historian of his generation" and "one of the world's most overrated public intellectuals" although intellectual would be too much praise still.

I now look forward to reading Power and Plenty. Trade, War, and the World Economy in the Second Millennium by Ronald Findlay & Kevin H. O'Rourke, which looks like the real thing, although it may not appeal to a large audience looking to see its own prejudices confirmed. Here's the book's preface and first chapter.