Ascent or Descent of Money

Murray Rothbard once said, "Historians don't understand economics and economists are useless historians". As an avid reader of history, it's a common issue that I fully appreciate. One historian who is held in high esteem regarding economics is Niall Ferguson. After reading his recent book, 'The Ascent of Money', I beg to disagree. He may be on TV, he may have a fancy academic post, he may in fact be a highly intelligent person, but clever people can be as fallible as any other person. In Contrast with his other works, 'The Pity of War' or 'Empire: How Britain Made the Modern World', his recent book felt rushed, an attempt to cash in on the unfolding economic events at the time of publication. It was after all published a full year after the credit crunch.

Money, Regulation, Gold Standards, Bubbles and Greenspan are typical topics discussed, but in many of the above, confusion is the only common theme. Professor Ferguson tries to piece together various areas without the pre-requisite economic knowledge. The Achilles heel of historians is once again on display for all to see.

Money. The books title has the word. It dramatically begins with a list of aliases, however the book falls woefully short of explaining what money is, what its context is, how important it is. A passing mention regarding our sovereign monopoly of money doesn't connect the dots. If the required homework had been carried out, Ferguson would have realised that this was the key. Why do we live in seemingly free markets but they periodically crash, overproduce, mal-invest? Its our governments incompetence over money that causes this. There is no mention that money originated from the free market to overcome barter, that kings took over money for personal gain, that inflation has always been a common phenomenon under this type of arrangement. This admission sets the pace for the rest of the book - for non-critical minds a satisfying read, for others, frustrating.

Stating 'Anything can serve as money, clay, silver, paper', it is true many things have served as money but it doesn't mean they have lasted throughout the ages. Metals have generally been used as the de-facto monetary standard. On the other hand, paper, has continuously ended in runaway inflation as there is no limit to expand the supply. Unfortunately this part of history is omitted leading Ferguson to the conclusion that its 'different this time', they can suck out the liquidity, but as Winston Churchill would argue 'All fiat money has ended in inflationary disaster'. Gold Standards are rendered as inflexible, inelastic, incompatible to increase the money supply under times of extreme contraction, however only half the story is told. It is the first part, the initial unwarranted monetary expansion during the boom that causes the bust, not the lack of expansion in money after the crisis. Classic examples such as John Law in France, which lead to hyperinflation because he tried to fix the economic bust by printing more money seems to allude our academic friend. Despite coming to the conclusion that it ended in disaster and no good came from printing more money, Ferguson still believes it to be a good idea. As the quote at the top of this blog states, you either keep expanding indefinitely destroying the currency or you take the medicine.

Despite mentioning the recent great economic powers, Germany, United Kingdom, America, Holland did he ask the question what did all of these have in common during their height? Sound Money. The United Kingdom exported sound money around the world, gold, silver or bimetallic standards, to keep a check on government abuse. All the nations listed went into decline as soon as they abandoned these principles. The Bank of Amsterdam abandoned 100% reserves, Britain abandoned its gold standard in the thirties, Nixon's closing of the Gold Window in '71 in which we have since seen a relative decline in Americas Global dominance.

One pressing issue isn't even mentioned, fractional reserve banking. Its one of the most important issues in banking and one of the reasons finance makes a disproportionate income compared with all other sectors of a modern economy. Despite what is conventional told, you don't need fractional reserve banking to run a successful economy. 100% reserve banking, where the banks can not create money out of thin air would not only give greater stability, but would be fairer for all. Savers are rewarded, peoples purchasing power would increase, all sections of society would gain equally from such a system. One of the reasons society is plagued with great income inequality is that when you inflate the currency based on no supply and demand dynamic, this excess liquidity will inevitably end up in assets such as houses, stocks and so forth. The rich in general posses more assets and when they increase in value caused by the monetary expansion their wealth increases disproportionately. For example, if houses went up 100%, then a person with the previously valued £100,000 house would gain £100,000, however the asset rich person with a £1,000,000 would gain £1,000,000 - ten times the gain, or to put it another way a 1000% more! The rich get richer while the poor get poorer. People with no assets have no such luck.

Fractional reserve banking is an immoral system. It allows the banking community to leverage, i.e. create money at will and profit from something that they can create out of thin air. Can you imagine a factory that could make products out of thin air? A civil engineer making invisible bridges and getting paid for them? This is finance, the rules the government lay down. Allowing our banks to inflate the money supply based on governments targeting their inflation metrics. The better the free market does its job, by lowering the cost of goods and services, the greater the rewards for the banking community as expansive monetary policy is the solution for falling prices. Alas this topic isn't even covered in the book.

Bubbles and Regulation are narrated upon, nevertheless critical analysis is lacking. Ferguson outlines bubbles along with expansive monetary policy but the vital connection is not made. Instead human psychology is used to explain the 'irrationality' of markets, the conventional scapegoat. If our money was sound there wouldn't be the excess money to inflate bubbles and prolong their expansion misleading people to mistake these false price signals. The liquidity would not be available to inflate bubbles as other sectors of the economy would require capital. I recently saw Ferguson interviewed after his book in which he remarks that behind bubbles you will almost always find a central banker, from John Law to Alan Greenspan. It's a shame the book misses this point.

Regulation. We need more regulation? We need to set up a regulatory committee to stop people from poking themselves in the eye, or do we? People are rational to the extent that they make informed decisions. When banks get reckless they get reckless based on the premise that they get bailed out. One of the most heavily regulated industries is banking. I work in the computer software sector and from what I know we don't have any regulation. We don't have codes of conduct in how to make software. Good software companies survive using good business processes and sound coding techniques. They don't need some bureaucrat who visits every so often to inspect the software. The market, that is people, decide what is good or bad quality and cost effective. It should be the same with banks. If a bank is unsound it fails like any other business. When banks used to be allowed to go bust, they took pride in their long history. This in turn attracted people to bank with them as they continually survived during economic crisis. All of this occurred with little or no regulation, people came to that decision on their own accord.

Take for example electronics companies who for example make Computers. Should we have a regulation that states a certain quality of hard drive should be used in order to minimise computer failures, or should we allow people to decide if they wish to pay more for a PC with greater reliability. Of course the market drives up quality. When the Japanese companies started destroying the Western electronics giants they did so not from government regulations but because of market forces, people individually making rational decisions based on build quality and innovation. The books passing comments in relation to regulators maintaining financial stability contradicts the recent economic crisis we are living through.

Described as the best historian of his generation, what premise do I a software developer, have to disagree? Was it not the clerk in a patent office who challenged classical Newtonian mechanics and set off a whole generation of physicists who questioned authority and conventional wisdom? Just because a person has an academic post or a prestigious award doesn't mean he has mastered a particular subject matter. Just as Einstein was brilliant, he was as fallible as us all. Later in his life he couldn't accept quantum mechanics and a host of other new theories, stuck in the past he slipped into insignificance despite being one of the most recognised scientist in modern history. In my opinion one of the greatest economists, Ludwig Von Mises, couldn't even get a paid academic post whilst residing in America.

Critical thinking is rarely conventional wisdom, something Professor Ferguson has forgot. His earlier books such as 'Empire: How Britain Changed the Modern World' challenged the conventional viewpoint that the British empire was inherently bad for the world, on the contrary Ferguson argues well that it was beneficial and ahead of its time. 'The Pity of War' argues that the first world war was not inevitable, people were more apprehensive than conventional wisdom makes belief. It wasn't as black and white with the infamous Archduke assassination that set off a series of chain reaction events that is narrated by many historical texts. Britain held the key, indeed she was the prime cause of the war due to unusual diplomatic moves and indecisiveness.

Ferguson states that finance is the key to modern society. Finance is vitally important but its no more important than the doctors, the engineers, the scientists, the factory workers; everyone plays a key role in society enabling living standards to rise. Finance is the heart of the economy, not the brain. It pumps credit around the economy to the sectors that require it, the brain is the scientists, innovators, entrepreneurs and inventors. These people decide how to do things better and how best to satisfy individuals desires.

Whilst reading the book the title always troubled me. Have we witnessed the 'Ascent of Money'? If that were the case would the story of money not read that people first experimented with common objects such as, shells, clay, beads then we moved to using metals. This became cumbersome so we transitioned onto a more convenient medium which behind it lay the backing of a finite metal such as gold or silver. Then people threw away the governments monopoly and allowed the market to choose what money was. Instead we witnessed the first three steps, but have now instead moved to fiat money, backwards in time to the exception, not the rule. History warns us that fiat systems have always self imploded and we are no more wiser than any previous civilisation that tried to manage paper money. The 'Descent of Money' I feel would have been a more fitting title.

Labour Cuts, Tory Cuts, does it matter?

“This kind of red ink implies both spending cuts and tax hikes that could make the 1980s look like a teddy bear’s picnic.”
Niall Ferguson, British Historian, Part of comments made recently about a possible run on Sterling in the near future

As recent as two years ago politicians were avoiding talk of government spending cuts, seeing it as a poisoned chalice that should be avoided at all costs. Issues such as the environment, raising the Inheritance tax due to housing 'wealth' were the hot topics of discussion for flippant middle England. No party was seriously discussing the government fiscal deficits that were evident to people who noticed. No one was talking about off book debts, or even dared mention NHS cuts. Now all politicians want to talk about is cuts, the unsustainability of the previous spending policies. Again David Cameron has twigged onto this when it has clearly become an issue rather than stick his head out when he became the leader of the Conservative party, that would have gained him credibility. The public are still being misinformed, indeed the true severity of the situation has not been realised, with people truly believing that the deficit will be dealt with in due course and everything will run its course. It is the authors opinion that this is wishful thinking and that it is already too late to avoid the real crisis that will emerge over the coming years. Government deficits between 12.5 and 15 percent, is verging on banana republic status. Japan only obtained double digit deficits 7-8 years after its credit crunch, not months after the event such as in Ireland the US and the UK. How will the years to come look and how do we get out of this mess?

The state of California recently declared an economic state of emergency, promises to pay are being issued, positions and working hours slashed as the state is no longer solvent, in other words a lot of short term pain. They do not have their own printing press so have accountability over their spending plans. This is how it should be. Limits on government spending, the monopoly of money taken away from them, letting the market determine if they are creditworthy. It remains to be seen if they stay the course or if the US government does decide to offer some assistance.

So talks of UK Government cuts in the media still seem to be under the illusion that 'efficiency savings' or purging the Quangocrats will do the job, but much tougher decisions will have to be taken, cuts that also take time to implement especially when we are talking about vital services such as health and education for example.

If we first look at the NHS, it will be a huge burden on society as time passes, a burden the government will not be able to afford. The NHS was set up after the nation returned from war, turning their back on war leader Churchill in favour of Clement Attlee's more collective polices. Free health care for all and so on. Fast forward 60 years plus, and technology has come a long way. Medical science has ever more sophisticated tools and operations, able to diagnose all sorts of illnesses. With people living longer, more and more of us use this service as average ages have climbed. The NHS was not designed for these leaps in technology and associated costs, but no politician has had the will to reform the institution substantially. Myths are told by the left that Tory underinvestment killed the NHS during the Thatcher years but spending rose more in real terms than during the 1960's or 1970's - the perceived decline was from the above factors. This has followed on during Labour years, and despite Labour pouring money into this money pit, the result is still a shambles of a system, with many people on average wages shunning it for private health care.

If the government wishes to balance its budget at some point this will be one area they will not be able to neglect. So how bad could it be? With resources already so stretched how much more can it take? I honestly believe that people in the future will continue to look at the private sector for alternatives as the NHS crumbles and the quality of service continues to decline. It is a myth that government can simply just cut money in a matter on months from an institution like this, as the NHS still provides the majority with their basic health care needs. If cuts are too drastic people will suffer from more time off work, lowering working productivity. There needs to be further encouragement for people on reasonable incomes to move into private sector solutions. If people are penalised from opting out of the NHS then there is less incentive to get private health insurance. Its an opinion I hold myself, why pay income taxes, National Insurance etc, if opting out of the NHS is taxed as a benefit despite you doing the government a favour.

Education is a similar story. Cuts are also inevitable in this area. The government has promised the world to everyone without thinking through market needs or the costs involved. Higher education is a classic example, with quotas of students set at 50% and percentages that persecute against private schools rather than ability. Despite the waste producing graduates who end up in jobs that need no qualifications, the government pursues with this so they can claim they are improving peoples lives. It seems more like appeasing the middle class to ensure all their children go through 'higher' education. The reason why the student loan was introduced was due to these reasons as numbers began to swell during the nineties. Society just couldn't afford or had the need to send such numbers into higher intellectual pursuits, hence they imposed debts on people that wished to participate (by the way its not a real debt as so many misinterpret or whine about, its a tax as the obligation to pay is based on earnings not interest payments, in effect an extra income tax, something I do not begrudge paying). Higher education isn't a right as it has become, but a privilege where society invests in this segment of the population in order to have a skilled workforce.

Its the same story in compulsory education. Why will they move the age up to 18 from 16? Why was it at 16 in the first place? Many children are forced to go through the system for the sake of government rules, despite the fact the school won't put them in for exams as it would 'blemish' their position in the results table. Years ago they would have found a job that interested them early on. Commentators argue that we are now in the 'knowledge' economy and we need to invest in education, but its all nonsense. There are plenty of low skilled service sector jobs that require basic skills that are obtained earlier in life, but nothing taxing. Just sit back and think of all the jobs that people perform that require basic skills. The majority of jobs require no academic training, just work experience and common sense. By keeping kids in the dilapidated, overstretched state schools, it further expands a new underclass, a class of society who used to go into the workforce at 14 such as my Grandad, but now become despondent and angry, trapped in an education system that neglects them and destroys their self esteem. I think education is vitally important, in which it doesn't necessarily need a practical requirement. For years I have enjoyed reading history, but I haven't asked for society to pay for it. There is nothing stopping people pursuing intellectual activities in their own time.

Pensions will be a hot topic going forward. Why we rely on the government to provide us with a pension I will never know as the government never saves for them, just placing further future liabilities on their balance sheet. When pensions were introduced at an age of 70 one hundred years ago, you were lucky to collect one. Now it is deemed a young death if you don't reach retirement age. Real pensions are peoples saving which eventually buys an annuity. With increased capital in society this can be further invested, by financial intermediaries to build businesses and so on. Instead we have a system where pensions have become a drain on society, rather than a driver of prosperity, as the government have messed up yet again. The current public sector pensions can not be paid, they are too large and the government is already in a terrible fiscal position. They can't easily be cut either as people have made no alternative plans. Companies are already making cuts, the correct approach sooner rather than leaving it longer and allowing deficits to get too large or not giving people time to plan for alternatives like the government has done.

In the years to come interest payments are going to increase further, diverting spending away from real aspects of the economy such as education or health. The sooner the government begins the cuts the better the long term results. There is going to be hardship, but the cuts can be strategically carried forward like the post suggests. Cut University numbers, give people incentives to opt out of the NHS instead of taxing it as a benefit, some honesty regarding pension figures by bringing the numbers to the balance sheet and helping youngsters realise their potential by giving them choices. This article is not a critique of public sector workers, such as teachers, nurses or doctors as many offer a great deal to society but it is a criticism of the system they work under. Cuts are inevitable. It just doesn't have to be as painful as what I fear it will be as politicians don't like to abandon the status quo.

The Descent of Niall Ferguson?

We came close to financial collapse, Wall Streets big Investment banks went bankrupt or were merged into other banks, the IMF bailed out various countries from monetary implosion, Sterling plunged, Governments turned to Socialist solutions, the myth of houses being a 'safe investment' was derailed. In all the turmoil with every asset in sight heading south, historian Niall Ferguson was on our screens again, this time with a series titled "The Ascent of Money" to promote his new book. A six part series that looked at the historical impact of finance within human society and how it has evolved, into the modern system we now use in our economies. I personally enjoy reading Niall Ferguson's books and there are some interesting titles to his name, my favourite being Empire: How Britain Made the Modern World. After the last episode there was an open web chat in which he answered peoples questions, which can be found here. Like the television series, Prof Ferguson seemed to have flawed analysis of economic matters, such as deflation and inflation which I wish to explain briefly here. Inflation and deflation is strictly a monetary phenomenon, it is caused by an increase in paper money compared with the goods and services in an economy. This shows up as rising prices, however the goods do not rise in price from market forces, but from monetary expansion. For the sake of this article, I may refer to deflation as falling prices, but technically it is a falling money supply. However I will use this definition to elaborate on Prof Ferguson points in question. I have selected some of the quotes he made in the online discussion that I found interesting.


"Well, right now Ben Bernanke is more worried about deflation than about inflation. But if he's successful we can soon revert to worrying about inflation. As I said in an earlier post, central banks today do not want 0% inflation (i.e. price stability). It limits the room for monetary policy too much. Are we going to see a big surge in inflation after this crisis is over? I frankly doubt it. The Fed can mop up a lot of this excess liquidity quite easily, as the Bank of Japan did after the end of quantitative easing."

The above analysis is flawed, in many aspects. First of all, that we are suddenly worried about deflation. This is a myth, as the past couple of decades have been deflationary. As I've said before market forces are always deflationary, people reinvest capital to increase productive capacity, thus reducing the cost of goods and services. Prof. Ferguson confuses general deflation, with the aspect of deflation that Ben Bernanke is worried about, that is asset price deflation - houses and stocks. As the US and UK have consumption debt based economies, where the 'wealth' is based on the price of the above assets, when these are falling in value then the economy contracts. This is what the Western Central Banks are worried about, as our whole economy revolves around these assets. They will inflate these assets at all costs, hence why they want to print money. History has always shown governments will do this as people want the government to take action. Prof. Ferguson does not mention any of this which is a big omission. He also doesn't mention it in the television series.

Apart from the first episode there is no great mention about inflation. Inflation is a purely monetary phenomenon, which amazingly he doesn't seem to explain in great depth. In order to obtain the 'price stability' he references above, central banks must constantly inflate the currency as the prices of goods and services continue to fall. Achieving price stability is a path to periodic financial crisis. Price stability helped cause the Great Depression, as the FED had to inflate during the 1920's in order to ensure inflation was ticking along, fighting against the deflationary forces of industialisation. Then when the bust came in, they tried to inflate to keep inflation up (i.e. keep wages, agriculture and stock market prices high), however they were beaten in the end by the gold convertibility so deflation won in the end. Rather than the economy resuming normal operation it stagnated for years due to the huge inflation in the proceeding years, accompanied by the draconian measures that were introduced as the government constantly interfered during the bust. It wasn't deflation that made the great depression, it was the inflation in the stock market. Then there was the stagflationary seventies. All currencies were off gold, therefore governments this time could inflate so inflation reached as high as 25% in Britain. Again the result was the same - economic hardship for years. It was inflation again in the 50's and 60's into asset prices that caused this as central banks looked for 'price stability'. Yet again, we are following the same foolhardy decisions, as price stability causes financial instability.

When Dr Ferguson mentions this price stability he says it limits the room for monetary policy. Does he really understand what he is saying here? The only thing it limits is the economies ability to re-deploy its resources efficiently and effectively. It has helped cause the stock market bubbles and the housing bubbles with the recent one, being one of the prime reasons we find ourselves in this mess as Greenspan and Co decided we had to pump cheap money in the system to ensure 'Price Stability' to combat these deflationary forces. They expanded the money supply so much that the West quite simply misallocated its resources in the wrong areas, hence the major correction we are now going into. Capital should always be scarce despite what people say, as it tries to direct a scarce amount of resources in the real economy into the required productive channels.

Then we come onto his other comment regarding if we going to see a big surge in inflation, in which he doubts we will. His reasoning is that we will be able to mop up any excesses like Japan. Like Japan did? As I have mentioned before, and unfortunately our governments have begun implementing this policy, Japan cut interest rates to 0% and tried to inflate to cure their downturn in the 90's but all it did was kill the economy. They also tried the new buzz word in the media "Quantitative Easing" which is effectively printing money, as I have earlier warned about. The reason Japan didn't experience inflation domestically, was that they exported this excess money to the world. Japan exported inflation to the world. You have probably heard of the Yen Carry trade well this is what it was in effect, people buying up huge amounts of Yen at cheap rates and putting the money to use in other countries where the returns were higher. It was also the reason for the Yens surge this year, and the deleveraging we saw in the autumn and winter of 2008 as these returns evaporated and the Yen increased in value against all currencies - people had to sell to cover these loses. This is also one of the causes of our asset booms in the stock market and housing. If it wasn't for this and the fact Japan is a huge creditor nation who have a trade surplus, they would have experienced huge inflation. So then we ask the question, how will the West mop up this excess money if the majority of the worlds economies are doing it? Quite simply, they can't, once this money is in the system along with less goods and services (which is what is happening at the moment as businesses won't invest) inflation is inevitable. The only way to stop it is by raising interest rates to double digits, a policy politicians don't particularly like, as Margaret Thatcher found when she became a demonised figure. Our economy is based around debt, so they are not going to be doing this for some time.


"Don't know the book. But people are always writing things like that. My favourite is William Rees Mogg's Great Depression of the 1990s, which never materialized (rather the reverse). Usually the predicted event doesn't happen. Sometimes it does -- though by 2010 I suspect we'll be out of this hole and Harrison's book will be out of print."

The comments above are in regards to Fred Harrison's book, Boom Bust: House Prices, Banking and the Depression of 2010, this is also a book I have read. Yet if Prof. Ferguson had done sufficient research and indeed read the book before passing judgement, he would have discovered that there is a very set pattern for the gap between each housing boom, specifically 18 years which Fred Harrison shows in his book. The book was also written in 2005, just as the housing market was slowing down and many thought it would collapse, however Fred stated that it would carry on for another two years, the period he terms as the "winners curse". He also said it would carry on with double digit rises, when everyone said it would slow to more moderate growth, as he claimed hysteria would grip the market once more. He also wrote a book back in the early eighties, The Power in the Land, in which he predicted the recession of the early nineties, so this is not a one off.

The assumption that we will be over the worst by 2010 is wrong and sounds like he has been listening to the Labour Government. This stagnation will go on for years in the West. 2009 will be even worse, with more bank failures, huge unemployment, and rising debt. Government finances will be in a hideous state and 2010 will be a grim year too, with in all probability the beginning of what will be years of inflation, as 2009 winds down.

"No, we are in a very different situation from the world in 1929, although the potential was certainly there for a Great Depression 2.0. The key difference is that the Federal Reserve System and the U.S. Treasury are doing everything in their power to combat the collapse of the banking system. And so far they've done a pretty good job. I find it hard to believe that this time next year will be so worried about deflation and depression. The conversation may even have switched to inflation and the need to reverse some of the stimulus that was injected."

The final sentence of the above comment concurs with the first statement in this article, however it is his comments regarding the authorities' interventions that I wish to tackle, as he quite clearly has a incorrect interpretation of history. As I have shown in a previous post the Great Depression was caused by government intervention, the Federal Reserve slashed interest rates from 6% to 1.2% and took all sorts of financial instruments from the banks to prop them up. Prof Ferguson seems to place a belief that they have done a good job, however President Hoover was saying exactly the same at the end of 1930. It wasn't until the second half of 1931 when things really were desperate, and the previous measures had quite clearly had no effect. Governments make the situation worse, which I will dedicate a post at a later date to fully explain why free markets should never be interfered with, even during a bust. He's right in once aspect that later in 2009 we shouldn't be worried about deflation, the monetary expansion along with the depletion of goods should ensure a resurgence in inflation again. We are facing a depression, even if the authorities never admit it, but it will be an inflationary depression.


These were just three of the comments he made in the web chat, I didn't feel the need to choose anymore comments as the post would have been too long. There were some good points regarding the Socialist Chilean President Salvador Allende from various posters and from Prof. Ferguson himself. His successor, General Pinochet was a tyrant and an oppressor of personal liberty, but Allende would not have been the Socialist Utopian alternative, as so many among the left like to believe. Before the coup, Chile was already showing signs of Totalitarianism, along with the classic hallmark of Socialist overspend resulting in the escalation in inflation. There was quite an extensive debate on this subject matter, with some emotions running high.

One of the terms coined in the series is that of "Chimerica", or the union of China and America in recent times. Ferguson paints a rosy picture of this relationship, although he does mention the possibility of a Third World War between the two without the mention of possible alliances. In one of his books "Colossus: The Rise and Fall of the American Empire", he evidently can see that America is on its way out as the worlds superpower, displaying signs of overstretch and faltering economic growth, similar to Britain's decline, decline that I suspect we will see over the coming decades (as empires always decline in over a long period of time). In the book he doesn't use the term Chimerica but acknowledges the China effect and the deficits that America is running with the rest of the world. This is one point he doesn't make an issue of in the series, which in my view is a major point. Britain, when it began its decline, was a large creditor nation with assets all over the world. America, on the other hand, is a huge debtor nation the largest in history with very little in terms of overseas assets. America, is in a far worse state than Britain was during its decline. Yet Ferguson seems to believe that America will be the main economic powerhouse for years to come. I disagree, and think he has overlooked this fact, or forgot to mention this historic parallel. The globalisation of today is far different to the one before the first world war. He mentions British trade with China, however the Chinese were very restrictive back then, only allowing European merchants to trade at key ports. They had no access to mainland China, and shifted their goods through the local merchants. In this recent revisit of Globalisation, the situation is very different. China now produces and exports huge amounts of goods to the West, and have modern economic capabilities. They are becoming self sufficient, while the West now relies on their productive facilities to make goods. This is why this time it is more experimental, as the West slowly loses its status as the economic center of the world.

In the final series Prof. Ferguson detailed the various financial events of the past two decades, from the Savings and Loans Crisis, the Asian financial crisis, the Russian Government Default, LTCM collapse, the dot com bubble, Enron then finally the housing bubble. Yet he didn't link into what caused these events, and how they kept reoccurring. Again the Federal Reserve has fostered these, and persistently distorted the market causing the major downturn we are now seeing today. All the above is created by Greenspan and Co who kept bailing the markets out. People were amazed that Lehman Brothers went bust last year, but half of those US investment banks should have gone bust 10 years ago, along with LTCM at the time. He instead pins the mistakes on human behaviour and markets. This is not true, as the market would have corrected these excesses long ago, instead the Central Banks kept bailing out everyone. In other words they took the risk out of the free market. The free market therefore did not price risk, which is a reason why the banks have so many issues we see today. This omission was fatal, as it explains the bust we are going into is not a product of the true free market, or the product of Capitalism (as many anti-capitalists have begun prophesying its downfall) but the product of Central Bank intervention. The market would have corrected all the above long before, thus we would have never had house values escalate as high as they did and an economy orientated so heavily towards these asset prices. These banks would have gone bust long before and along with it more sensible lending standards, with a more balanced economy.

After viewing the series I don't think I will be buying the book, and will probably wait until it becomes available at my local library. I was also disappointed that the series did not go into the details of fractional reserve banking, Central Banks and the artificial market forces that China have been exerting in recent years in order to grow their economy quicker. There was also a lack of history towards recent financial events, which would explain more clearly the predicament we find ourselves in. However, Prof. Ferguson is an academic, not an economist. His book Cash Nexus, another book that I have read, he declares gold as an old relic with comments such as "Gold has a future, of course, but mainly as jewelry". This was in 1999, around the bottom in Golds price, since which Gold has increased around 400%-500% in Sterling a decade since these comments. Other recent comments such as "Money is trust, not metal", is true with our modern fiat currency, however only metal ever keeps its value over history. Another historical point Prof. Ferguson misses.

Alan Greenspan, who helped cause the current issues we see, understood the damage central banks and a fiat monetary system can cause. Back in 2002 Ron Paul asked him about Gold and Economic Freedom, an essay he wrote (in which I have taken an extract from), and if he still believed it to be true and valid for today. He responded with "I wouldn't change a single word". It's a shame many mainstream commentators such as Prof. Ferguson can't see the flaws in our current system. Greenspan could.

"But prior to World War I, the banking system in the United States (and in most of the world) was based on gold and even though governments intervened occasionally, banking was more free than controlled. Periodically, as a result of overly rapid credit expansion, banks became loaned up to the limit of their gold reserves, interest rates rose sharply, new credit was cut off, and the economy went into a sharp, but short-lived recession. (Compared with the depressions of 1920 and 1932, the pre-World War I business declines were mild indeed.) It was limited gold reserves that stopped the unbalanced expansions of business activity, before they could develop into the post-World War I type of disaster. The readjustment periods were short and the economies quickly reestablished a sound basis to resume expansion ... In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. There is no safe store of value."
Alan Greenspan, Gold and Economic Freedom, 1967
Note: The Federal Reserve was established in 1913