Just finished reading Niall Ferguson's book The Ascent of Money and it's a fascinating read.
Ferguson makes the point that money has been a key driving force behind progress, from ancient Mesopotamia until now. It's a mix of innovation, intermediation and integration that has helped humanity escape the drudgery of subsistence agriculture. The creation of credit and debt, he says, has been more important than any technological innovation.
It was the banks that underpinned the splendours of the Renaissance. The Dutch Republic became powerful for one reason: having the world's first stock exchange was financially more rewarding than silver mines. Corporate finance was the bedrock of the British Empire. Nathan Rothschild played as big a role as Wellington in defeating Napoleon at Waterloo; one reason why the Confederacy lost the Civil War was the worthlessness of its bond market, and a convicted Scottish murderer, gambler and flawed financial genius, John Law, might have, indirectly, brought on the French revolution by wrecking the French financial system with the first boom and bust in asset prices.
Money has also been the engine behind the triumph of the US, particularly with its innovations in consumer credit, insurance and mortgage finance. Significantly, the unwinding of these areas and the financial crisis it has created might also signal the end of US global primacy and transform the global world order. That is why the financial meltdown is now reshaping politics and society.
Ferguson's central point is that money, for all its flaws, is only human.
"Investors these days are said to be an electronic herd, happily grazing on positive returns one moment, then stampeding for the farmyard gate the next. The real point, however, is that stock markets are mirrors of the human psyche. Like homo sapiens, they can become depressed. They can even suffer complete breakdowns. Yet hope – or is it amnesia – always seems to triumph over such bad experiences."
He says financial markets "are like the mirror of mankind, revealing every hour of every working day the way we value ourselves and the resources around us… It is not the fault of the mirror if it reflects our blemishes as clearly as our beauty."
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