53 pages • 1 hour read
Niall FergusonThe Ascent of Money: A Financial History of the World
Nonfiction | Book | Adult | Published in 2007A modern alternative to SparkNotes and CliffsNotes, SuperSummary offers high-quality Study Guides with detailed chapter summaries and analysis of major themes, characters, and more.
AfterwordChapter Summaries & Analyses
Afterword Summary
Ferguson begins with a quick review of the topics the book covered, in chronological order. He then states that economics that have combined all the financial institutions have fared better than those that have not because the combination tends to allocate resources better. He reiterates what he said in the Introduction: that financial innovation has been as important to civilization throughout history as technological or other innovation.
However, the ascent of money “has not been, and can never be, a smooth one” (342). Even with the sophistication we have today, this is unavoidable. Ferguson gives three reasons for it. First, the future is uncertain to such a degree that we cannot calculate the probability of something with perfect accuracy. Second, human behavior is not rational and is subject to biases. As such, the new area of behavioral finance may be promising in helping to determine how people’s behavior affects the way markets work. Third, markets have a Darwinian nature that can be compared to the theory of evolution. One way this is manifested is in the number of failed firms. Ferguson states that an average of 10% fail every year, and as high as 20% in a bad year.
On this last point, Ferguson gives six qualities that make financial and biological evolution similar: (1) genes, allowing for “organizational memory” and the passing on of certain traits; (2) spontaneous mutation; (3) competition for resources; (4) a method for natural selection, by allocating resources; (5) the extent of speciation, allowing for diversity; (6) extinction.
He concludes, “Financial history is essentially the result of institutional mutation and natural selection” (350). While some “species” might rise to the top, innovation can change the context and prevent its permanent dominance. In that way, it truly is the survival of the fittest that prevails. Size can matter, but bigger isn’t always better, and it’s important to keep in mind the scope of diversity. Smaller “species” can thrive, too, if they find the right niche. As a final comparison to biological evolution, Ferguson writes that the recent proliferation of financial institutions and instruments has been like the Cambrian explosion, an era millions of years ago when many new species appeared and flourished.
Ferguson ends by speculating on the present moment (when the book was written: 2008) and what the effects of the recent shocks to the system would be. He writes that while some destruction is inevitable, it’s too soon to know exactly how severe it will be. On the other hand, new innovations are likely to result. Like the economist Andrew Lo has stated, “As with past forest fires in the markets, we're likely to see incredible flora and fauna springing up in its wake” (356). On this point, Ferguson notes that one difference between biological and financial evolution is that the former occurs randomly, while the latter takes place within a framework of regulation. The choices stemming from this regulation are crucial for how the 2008 crisis plays out. A governmental safety net can foster stability and confidence, but artificially propping up entities that are “too big to fail” can be also be detrimental.
Ferguson’s final point, which he says stands out after examining financial history, is how much markets are like ourselves. They act as a mirror of what we value, and how. In the end, “It is not the fault of the mirror if it reflects our blemishes as clearly as our beauty” (358).
Afterword Analysis
The Afterword allows Ferguson to sum up his main points and, since the book was about financial history, to look ahead a bit toward the future. It’s hard to look too far ahead, as one of his main points is that the future holds greater uncertainty than it does calculable probability. Aside from that, the distant future is partially obscured by the huge, looming near future in the form of the financial crisis that broke out just as he was writing this book. Indeed, he states that he has “frequently been asked if [he] gave [the book] the wrong title,” implying that some think the descent of money might be the new trend (358). As a result, he spends some time here at the end of the book to describe what happened, and how it might play out in the following couple of years.
A large part of the Afterword consists of Ferguson’s analogy of the financial system to biological evolution. He draws many parallels between the two and points to a number of common features. This has at least two purposes. First, it gives a sense that the financial system is a natural phenomenon, working out obstacles and disruptions in its own organic, adaptive way, just as evolution works among flora and fauna. Following from this, the second purpose is to hint at Ferguson’s philosophy toward managing the financial system. His approach is to let the markets work out problems in their own way. He cautions against too heavy a hand in dealing with the ongoing crisis, arguing that this can cause more problems than what some have called the “creative destruction” of capitalism. While tools can be useful in protecting people from the worst of crises, we also don’t know how a crisis might lead to innovations that provide solutions for the present, along with new developments in the evolution of the system.
