Ever published a book? Like the idea of those nice people at Channel 4 giving you a programme to plug your latest title? That's the gig Niall Ferguson has managed to land for The Ascent of Money. The first in a six part series aired earlier this evening, and is neutrally described as "the story of money and the rise of global finance. Bringing context and understanding to the current economic crisis, he reveals how the history of finance has been punctuated by gut-wrenching crashes. Each episode shows how a big bang in the ascent of money has changed the course of history." The blurb on his book is far less modest. It says "Niall Ferguson shows that finance is in fact the foundation of human progress. What’s more, he reveals financial history as the essential back-story behind all history."
It certainly sounds interesting. Shouldn't the series be something welcomed by Marxists? Isn't Ferguson confirming a basic tenet of historical materialism, that economics (the forces and relations of production), in the last instance, is the key driver of historical development? Not quite, as will soon become apparent.
The first episode, 'Dreams of Avarice', begins with the "bafflement" over the financial crisis and Ferguson asks if his series should be called The Descent of Money? The answer, unsurprisingly, is in the negative. Money has utterly dominated history and its hand can be felt behind technological breakthroughs, wars and revolutions. From ancient Mesopotamia to modern day London, in Ferguson's opinion the ascent of money is synonymous with the ascent of our species.
He takes us back to Peru under the Incan empire. Unlike most other class societies, Incan society had no concept of money. Its economy was directly based on labour and labour time - no medium stood in to represent it as was the case elsewhere. Therefore precious metals were prized for their aesthetic value, not as tokens. Therefore when it came into contact with Francisco Pizzaro and his conquistadors, they were perplexed by the Spanish thirst for gold and silver. But for Pizarro, it represented an opportunity. They secured Peru and the Incan lands for the Spanish crown, and systematically looted the empire of its gold, and used bonded labour to force many of the natives to work in the mines - particularly in what later became Bolivia.
Despite Spain's overseas possessions and seemingly inexhaustible reserves of precious metals, the empire went into sharp decline. Why? For Ferguson, all this was shipped back to Spain to help finance its wars of conquest in Europe. It didn't make Spain any more wealthy - instead it fuelled rampant inflation. What the conquistadors and the Spanish royals failed to appreciate was that money is essentially a promise, a bond of trust. Going further back into history to Babylonia, Ferguson argued money started off as clay tablets detailing a promise to pay for a good or service in exchange for a good or service. Over time these promises assumed monetary form, going through phases of precious metals, coin and bank notes. The character of trust symbolised in money changed from a promise to exchange a set amount of commodities to a trust in people and banks not to behave irresponsibly.
Ferguson then moves on to the development of credit, without which the modern world would have been impossible. The historical developments from around 1200 in Northern Italy are key here. Then the region was divided up into feuding city states with very little in the way of trust between them. Furthermore the development of trade was retarded by a continuing dependence on Roman numerals - a system that was cumbersome and overly complex when dealing with large sums. If that wasn't bad enough, there was no standardised currency. In Pisa, for example, several different systems of coin were in circulation. The Caliphate to Europe's south and east were much more advanced when it came to mathematics and trade. Then, for Ferguson, Leonardo Fibonacci of Pisa entered the stage of history. Fibonacci's father directed a trading post in what is present-day Algeria, which exposed the young Leonardo to the Hindu-Arabic numeral system, which was far simpler and concise than that burdening the Italian states. He spent years travelling around the south-eastern Mediterranean basin studying under the Arabian mathematicians of the day, and published his findings in the celebrated Liber Abaci - a book that made the case for Hindu-Arabian numerals, and was widely influential on European mercantilism - not least because the examples he used was taken from business (bookkeeping, interest calculation, etc.).
The infrastructure of numbers were in place by the mid 13th century that allowed for an expansion of lending. Traditionally, in Venice, it had been the preserve of the city state's ghettoised Jewish population. Scripture prevented Christians from charging interest on monies loaned (usury), a position enforced by the powerful medieval church. However, a theological technicality allowed Jewish money lenders to do so. Deuteronomy forbade the faithful from charging interest to one's "brother" - but Christians and Muslims were not counted as such. One could be a usurer provided it was they who were the customers. Therefore the religious animosity toward usury combined with biblical-inspired antipathy toward Jews to make the position of the money lender extremely undesirable.
How was this overcome? For Ferguson the sea change began with the emergence of banking, and in particular the rise of the Medici family in Florence. Initially a family of merchants with a less than flawless record (five Medicis were sentenced to death for various crimes and plots), they achieved wealth, power and respectability thanks to the role played by Giovani di Bicci de Medici in setting up the Medici bank. They were able to get around the rules on usury by dealing with foreign currency exchange - the bank charged a commission for undertaking the conversion. By building the bank up and diversifying its activities, it was able to whittle away at usury by recasting the terms. Loans became 'advances' that had 'commissions' to compensate for the risks the bank was taking. This was funded by allowing deposits to be made, which funded the loans. In return, savers received 'credit' as a reward for their investments (this credit, or interest, was typically well below the commission rates charged on advances).
In this way, modern banking was born. The Medicis reaped the benefits, becoming de facto rulers of Italy for a period, producing three popes and marrying into two royal families. Scale and diversification meant that went debtors defaulted on their loans, the spreading of risk meant there was less chance the bank would go under - but nevertheless the Medicis did suffer from bad debts, especially from aristocrats who thought nothing of taking out loans and not repaying them.
For Ferguson, the USA is the country par excellence that has demonstrated the benefits of this financial innovation the most - its success rests on borrowed money. As compared to European nations in the 19th century, who used to imprison defaulters, the process of US bankruptcy is comparatively painless. For example, if one files for chapter seven bankruptcy the property of the debtor is collected by an appointed trustee who auctions it off to pay the creditors. However, most US states allow the debtor to keep essential property. Chapter 13 bankruptcy allows for a rescheduling of debt repayments against projected future earnings. This ability to emerge relatively unscathed is key to the success of American capitalism: it encourages entrepreneurship, and he cites the careers of Mark Twain, Buster Keaton and Henry Ford as former bankrupts made good.
Summing up the first episode, Ferguson argues that lenders should not be seen as parasites or leeches, but as providers of an essential service. But if the banks are the answer to the problems posed by finance, why are we now suffering from a collapse in confidence in the banking system? That question, which is tied to bond markets, is the subject of next week's episode.
There's no doubting Ferguson's ability to make a topic usually the preserve of dry economics text books interesting. But, if you would forgive the pun, there are a couple of reasons why this history of money should not be taken as good coin.
There is the money question itself. As we have seen, Ferguson argues money originated as a bond of trust, as a promise by the buyer to pay the seller a given quantity of goods in exchanged for their purchase(s). Indeed this is the case, but there's more going on beneath trust that Ferguson allows for. Karl Marx argued that all commodities embody greater or lesser amounts of labour time. i.e. Some things take longer to make than others. Therefore in an economy based on barter, the value of one commodity can be expressed in a given quantity or portion of another commodity. When promises of payment emerged as either clay tablets, sea shells, gem stones, precious metals, etc. their function as standing in for payment developed into the means of payment. They became the universal equivalent against which all commodities, as expressions of abstract labour time, could be measured.
The second problem is Ferguson's treatment of capitalism. Or rather, his non-treatment of it. By focusing entirely on the history of finance he abstracts it from their contexts. For example, we are led to believe there is no real difference between the capitalism of today and the mercantile activities of 13th century Northern Italy. Taken at face value, it results in a naturalisation of capitalism, a presumption that the mode of production in which we live now is as old as humankind itself. For example, it is true the Medici innovations can be found in modern day banking, but the mode of production in which they were operating was very different.
In this period, the European economy was based on the feudal system whereby peasants were bonded to the land and forced to labour for a period of time for the land owners. This could take place either as set quantities of grain farmed from the peasant's plot and handed over as tax, or as a set number of days labouring in the lord's fields. If after fulfilling this obligation and attending to the household's needs there was a surplus, the peasantry could sell it on the local markets. Monies made would then be spent on replacing tools, buying livestock, purchasing clothes, etc. The landowners would spend the money realised from the forced surplus labour of the peasants on furnishing their retinue, their castles, objects of (aristocratic) conspicuous consumption, currying royal favour, and so on. Peasants had no economic self interest outside of their immediate needs and their antagonistic relationship to the feudal land owners. Similarly the baronial class had an interest in maintaining these relations of production, but not increasing the productivity of the peasants in their charge. As far as feudalism was concerned, markets were ancillary to its core relationships.
The merchant class of the Italian city states grew up around these markets. Their fortunes were made by purchasing surpluses of this kind and trading it with other city states and empires around the Mediterranean. This activity demanded certain outlays, which was where the money lenders and later, the Medici bank came in. But the sums advanced realised interest off the back of trade profits, or booty from conquest and plunder. Capital accumulation as we understand it now was not sustained as profits went into pursuing dynastic intrigues, funding armies and navies, and patronising the arts. There was no production for profit and accumulation of capital for its own sake. There was no labour market and waged labour, if it did exist, was rare and marginal. In short, no capitalism, despite the superficial differences between the medieval and modern finance systems.
In addition to ignoring the discontinuities between capitalist trade and trade in feudal social formations, Ferguson is guilty of what Ellen Meiksins Wood calls a 'Neo-Smithian' interpretation of history. For Adam Smith, capitalism was an expression of our natural state of being. What Wood argues against (principally against other Marxists, sometimes including Marx himself, as well as the famous German sociologist, Max Weber) is approaching history as if capitalism is a system waiting in the wings to emerge onto the historical stage - provided the conditions are right, instead of treating it as a highly specific mode of production that was born out of a particular conjuncture of feudal crisis and class struggles. Ferguson is certainly guilty of this, suggesting that the law of usury was holding finance, and by extension, capitalism, back from its free development - an argument paralleling some of those made in Weber's otherwise seminal The Protestant Ethic and the Spirit of Capitalism.
Perhaps it's too early to make these criticisms of Ferguson's series. After all only one episode has aired and there are still five parts to go. If it is anything like the book, these will deal with previous crises (including the South Sea Bubble), the development of bonds and securities, the colonial globalisation of the late 19th and early 20th centuries, the financial roots of wars and revolutions, the present crisis, and what we can learn from this history. All interesting material, but unfortunately a very one-sided and distorted view of the real history fomenting beneath the financial froth.