book reviews

The Ascent of Money— hidden financial hand behind so But does anyone really understand A Financial History of much of the development of Western the workings of the contemporary the World political and social institutions. global economy? by Tracing the economic Using the Darwinian theory of Penguin developments behind significant natural selection, Ferguson describes United Kingdom, 2008 events such as the French Revolution, the and capitalist financial $35, 448pp Ferguson shows how we downplay institutions as constantly evolving ISBN 9781846141928 the financial influences on Western in new and creative ways. This history and society at our peril. evolution of financial institutions iall Ferguson—author of Ignoring the economic realities of is beyond the capacity of any Western history leaves us with only individual or group of individuals Empire and Colossus—has half the story and undermines our to understand, let alone control. It another riveting read in N ability to comprehend much that arises from the constant interaction his latest book, Ascent of Money— drives human behaviour. Lacking of tens of millions of individuals and A Financial History of the World. an understanding of the hidden companies in the global economy It’s hard not to imagine, however economic hand in history is not our every day, with new commercial improbable it may be, that Ferguson only failure—Ferguson also laments institutions arising to meet the needs timed the release of his book to the failure of modern people to of buyers and sellers. coincide with the global financial understand the basics of their Alan Greenspan no less—the crisis, thus guaranteeing huge economic world. architect of US financial book sales. The book is extremely It is a well-established d e v e l o p m e n t s f r o m well timed to take advantage of f a c t , a c c o r d i n g t o the late 1980s until his our bewilderment in the face of a F e r g u s o n , t h a t a retirement only a few years worldwide financial crisis that no substantial portion of the ago—admitted ignorance one seems to have predicted or has Western public is woefully o f h o w t h e g l o b a l the foggiest idea how to rectify. ignorant of financial financial markets really Ferguson’s book attempts to trace matters. Ferguson quotes worked. Lucky for him, the origins and development of a 2007 survey that shows he didn’t mention this modern capitalism at a time when the four in 10 American when he was Chairman global economy seems increasingly card holders don’t of the US Federal Reserve! incomprehensible even to the experts repay the full amount The complexity of the in the sector who analyse the every month—despite contemporary global markets daily. In tracing the economic the high interest rates charged financial market is such that it is development of the modern financial by credit card companies—and becoming increasingly difficult to institutions we take for granted, almost a third don’t know the predict how the market will evolve in Ferguson also hopes to educate his interest rates on their credit card. A a year’s time, let alone in the decades readers about financial management 2008 survey found that two-thirds ahead. What does seem certain is and the importance of money. of Americans don’t know how that our economic future will be This historical aspect of the book compound interest works. And so full of surprises and will likely defy is of special interest for those not on. Suddenly the collapse of the US the expectations and predictions of particularly knowledgeable about subprime mortgage market seems the experts. the institutions of contemporary more explicable. One of the most interesting global finance. Ferguson focuses Surveys conducted in other parts developments in last few years that on the origins of modern capitalist of the English-speaking world Ferguson only touches on briefly institutions in the , reveal similar levels of financial is the re-emergence of various including the genesis of the bond ignorance. Ferguson argues that in forms of state capitalism. Just when market in fifteenth-century Florence, an increasingly complex, globalised it seemed the state was out and the rise of hedge funds, and the economy that encourages individual the free market was supreme, the recognisably modern concepts of initiative and entrapreneurial drive, nation-state has made something of banking in the Italian city-states of it is imperative that the public be a comeback. This is most evident in that era. Ferguson goes on to reveal well informed about the basics of the resurgence of the Russian state the shadow history of the West—the finance. in recent years and the growing

Policy • Vol. 25 No. 3 • Spring 2009 57 book reviews

power of the Chinese corporate norms would avert Great Power protect their culture and way of life. state. Ignoring Adam Smith and rivalry and violent world conflict. Our challenge is to see the complexity taking a leaf out of Friedrich List’s Many thought the economic links of the environment, disaggregate our national economic theories, the between Great Britain and Imperial response, and deal with the root Russian and Chinese economies Germany in the early 1900s would causes of each conflict. combine the strengths of the market make war between the Great Powers Like most of his generation of economy with a nationalist, state- unthinkable—and we all know how Australian Army officers Kilcullen directed developmental economy that ended in 1914. joined an army at peace. He and designed to overcome the volatility of Ferguson’s book, which is not his compatriots trained for one type Western economies and build what overly technical and can be easily read of war and have found themselves the Chinese call the ‘comprehensive by non-economists, is a fascinating in another. He has an inquiring national power’ of the state. tour of the global economic horizon, mind and a willingness to challenge The Chinese state capitalist where we’ve come from, and where old ideas and propose new ones. system is reaping the benefits of we might be going. Kilcullen is at the vanguard of a new the global financial crisis. Being understanding of hybrid conflict largely insulated from the effects Reviewed by Martin and has been influential in shaping of the economic downturn, China Sheehan current strategies and explaining is using its huge savings reserves how to prepare for and fight future to fund recovery in countries like wars. He challenges us to look at Australia, the United States, and The Accidental Guerrilla: what is happening from a different other Western nations. China is also Fighting Small Wars in the perspective and realise that it is the calling for a fundamental reform Midst of a Big One future of war. of the global financial system and by David Kilcullen Kilcullen questions the visceral US blames the United States for much Scribe Publications response to 9/11 and the invasion of the current downturn. China is 2009 of Iraq. The fact that we have not now the world’s greatest creditor $35, 384pp achieved a quick and decisive victory nation and the United States is the ISBN 9781921372537 means that we need to rethink world’s largest debtor nation. Some warfare for modern conditions. As observers even see in the current n his book The Accidental he points out, we are generating economic crisis the ultimate decline Guerrilla, David Kilcullen accidental guerrillas because we of US power and the rise of China Itakes us on a journey through have invaded their space and they as a future economic—and possibly Indonesia, East Timor, Iraq, and deeply resent our presence. We have political and military—superpower. Afghanistan, with a preview of lent prestige and credibility to the What seems certain is that the Pakistan. He tells us that Afghanistan terrorists by our too willing and economic power of United States has and Pakistan are one fight. He knows heavy-handed interventions. been badly shaken, and continued the ground and the people. He As an Australian, on the inside US global dominance over the next listens to what our enemies are of American political and military few decades is far from certain. saying. We need to listen to what he thought, advising people like Ferguson writes about the rise is saying. Condoleezza Rice and David of what he calls ‘Chimerica’—the His book should be read by all Petraeus, Kilcullen is able to ask combined economy of China and seeking to understand the nature these questions and implicitly the United States—where Chinese of the current conflict and the challenge the limits of US military workers make the products that shape of future war. Kilcullen has power. He is properly critical of US consumers buy. This mutual a comprehensive understanding of many current policies and offers economic reliance is often touted as global and regional events and their alternatives. He directly challenges a triumph for US diplomacy, locking historical, social, anthropological, America to observe its own rules the authoritarian Chinese state into cultural, and economic context and because the world won’t trust it the global economy and therefore the an ability to relate them to current otherwise. As we are beginning to Western order of human rights and conflict. He patiently explains that realise, American power must be democracy. But this wouldn’t be the we are not fighting one war but a matched by American virtue. first time that Westerners thought the hybrid mix of terrorists, nationalists, The book is far more complex free market and liberal democratic local villagers, and those seeking to and sophisticated than has so far

58 Policy • Vol. 25 No. 3 • Spring 2009