The Ascent of Money image

The Ascent of Money

One of the perils of being a great populariser is that you can express ideas in paragraphs rather than books, which can lower the chances that people will buy or read your books. Admittedly, it doesn't seem to be hurting Niall Ferguson. But this section from his The Ascent of Money: A Financial History of the World really does sum up the entire book very comprehensively. Personally I would recommend it anyway, but for all those who won't read it, this is basically a financial history of the world in a few sentences.

Today’s financial world is the result of four millennia of economic evolution. Money - the crystallised relationship between debtor and creditor - begat banks, clearing houses for ever larger aggregations of borrowing and lending. From the thirteenth century onwards, government bonds introduced the securitisation of streams of interest payments; while bond markets revealed the benefits of regulated public markets for trading and pricing securities. From the seventeenth century, equity in corporations could be bought and sold in similar ways. From the eighteenth century, insurance funds and then pension funds exploited economies of scale and the laws of averages to provide financial protection against calculable risk. From the nineteenth, futures and options offered more specialised and sophisticated instruments: the first derivatives. And, from the twentieth, households were encouraged, for political reasons, to increase leverage and skew their portfolios in favour of real estate.

Economies that combined all these institutional innovations - banks, bond markets, stock markets, insurance and property-owning democracy - performed better over the long run that those that did not ...

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