The Ascent of Money

I just finished reading Niall Ferguson’s book and I highly recommend it for anyone interested in the history of finance. It is a fascinating look at the evolution of money and mankind from hunter-gatherer to creditor-debtor. The Incas were perhaps the last great moneyless empire but they were eradicated by conquers intent on claiming the metal in their mountains, a symbol of wealth and power in their own culture; and while rocks and metals could be immediately traded or transformed into goods and services, bankers took the concept temporal with loans and interest, creating stocks, derivatives, insurance, mortgages and futures. The World Financial Market is a living organism, or an ecosystem of many economic organisms, and over the past 500 years it has grown to dominate our planet and way of life, yet it is largely intangible and based solely on our belief in it. We work because we are paid, in effect selling our time for credit which can be redeemed for other goods and services provided by others. Our shared confidence in money’s credibility is how I can teach music for kids and still own a computer. I don’t have to make my own computer? That is awesome!

Unfortunately, money has its dark side… History is strewn with financial casualties and the events of the past few years are nothing new in the boom-and-bust style of capitalism we have been riding since the inception of fiat money; people are not always completely rational or informed and when prices are left up to the “market” they are often completely ungrounded in “reality” but end up determining the “future”…

Every time our economy crashes, we re-write the rules and hope that it won’t happen again. But it always does. We will always find a new way to exploit money and create illegitimate wealth, which vanishes in a wave of panic. There is a financial reform bill going through the Senate right now and, unsurprisingly, the Republicans are refusing its passage. While this bill is far from perfect and will almost certainly not prevent the next financial meltdown, it at least makes the offending parties from the most recent bubble burst more transparent and accountable. Bailouts are ridiculous – privatizing the profit and socializing the losses – but they are ingrained in our history and will probably not stop until money loses all its value and government loses all its power.