Bookshelf: The Ascent of Money

A lot has happened since my last post. I have finished final exams (in effect becoming a senior in college); moved out of my fraternity house and back home; and lately have been preparing for my upcoming trip to NYC this week with the rest of the Investment Banking Seminar Class of 2014.

I've also begun reading the highly recommended and critically acclaimed book The Ascent of Money, by Niall Ferguson. More history than hardcore finance, the book has been fascinating thus far, and I'm only 30-odd pages in so far. I think I'll use the book as the first in a series of new blog posts entitled "Bookshelf," which will cover what I'm currently reading or books I'd recommend to my readers.

At the risk of over-quoting from the book, I'd like to share two of the main points from the introductory chapter: 1) poverty is not the result of rich financiers exploiting the poor; 2) modern finance amplifies the effects of human nature, human ignorance, and hard work.

"I myself have learned a great deal in writing this book, but three insights in particular stand out. The first is that poverty is not the result of rapacious financiers exploiting the poor. It has much more to do with the lack of financial institutions, with the absence of banks, not their presence. Only when borrowers have access to efficient credit networks can they escape from the clutches of loan sharks, and only when savers can deposit their money in reliable banks can it be channelled from the idle to the industrious or from the rich to the poor. ...

"My second great realization has to do with equality and its absence. If the financial system has a defect, it is that it reflects and magnifies what we human beings are like. As we are learning from a growing volume of research in the field of behavioural finance, money amplifies our tendency to overreact, to swing from exuberance when things are going well to deep depression when they go wrong. Booms and busts are products, at root, of our emotional volatility. But finance also exaggerates the differences between us, enriching the lucky and the smart, impoverishing the unlucky and no-so-smart. Financial globalization means that . . . The more integrated the world's financial markets become, the greater the opportunities for financially knowledgable people wherever they live--and the bigger the risk of downward mobility for the financially illiterate. It emphatically is not a flat world in terms of overall income distribution, simply because the returns on capital have soared relative to the returns on unskilled and semi-skilled labour. The rewards for 'getting it' have never been so immense. And the penalties for financial ignorance have never been so stiff" (pgs. 15-16; bold emphasis added).

Important thoughts to ponder.