Customer Reviews

The Cash Nexus: Money and Power in the Modern World, 1700-2000

5 star:		(6)
4 star:		(9)
3 star:		(3)
2 star:		(5)
1 star:		(0)

 

 

In this monumental work, Professor Niall Ferguson traces the evolution of and relationship between money, the state and war. Beginning with a section on taxes (the earliest form of large-scale finance), the book continues with a history of bonds, currency and finance. Then, there is a great deal of information on how these financial institutions have influenced society. And, most importantly, the final chapters of the book look at money and finance on a global scale, analyzing everything including stock "bubbles", gold and military success and failure. This book was written in September 2000, which means that much of the author's data is right up-to-date!

The above description of this book does not begin to do justice to it. The author's knowledge is obviously encyclopedic, and this book covers a vast multitude of subjects relating to money and power. Indeed, my one complaint against this book is that, at times, does seem to meander from subject to subject, seeming to lose track of the point. However, that said, this is a fascinating book, one well worth taking the time to read.

As an aside, I must say that the author does seem to severely undermine Paul Kennedy's (author of The Rise and Fall of the Great Powers) concept of "imperial overstretch." Instead he raises up the possibility that countries have experienced "understretch" leading them into costly later wars (such as the British Empire before World War I), and that America may be understretching right now.

Niall Ferguson is a professor of political and financial history who has written other well-received, albeit controversial, books. My feeling after reading this book was rather mixed.

[..]
This, I think, is where things become more complicated than the book suggests. Did England found the Bank of England and establish the other institutions that allowed the United Kingdom to become the global hegemon in order to become a global hegemon? Or did Parliament and the Bank of England etc. arise to meet other needs, and prove far more useful than originally foreseen? I strongly believe the latter to be true: Britain, as an island nation, had no neighbors, and was an (after 1066) invasion-proof distance from France. These factors almost certainly allowed the United Kingdom to generate a merchant class far more influential than its counterparts on the continent, engage in more maritime trade, and devote less to military spending than did land-locked nations that faced war at any time. In time, this merchant class, and the practice of dividing risks and participating in syndicates to conduct foreign trade almost certainly led to the culture and institutions that led to the Bank of England. Of course, if the Bank of England and the like did not arise as much from conscious policy decisions as from circumstances, it would seem more expedient to focus on the circumstances that led to the BofE and Britain's broad and deep credit markets, rather than on arcane policy decisions.

The rest of the book is an exhaustively documented look at the relationship between the health of various states and various financial indicators, such as debt, the presence of the gold standard, unemployment and the like. Some of the ideas may be provocative to some, but are very well-founded, and well worth reading, others less so. They are, however, not presented in a focused manner, and many of them are more advanced as "working hypotheses" than exhaustively proven. I believe that case studies examining multiple variables would have been more informative than attempts to reduce complex situations to a single variable.

Somewhat jarring is that some of the Ferguson's facts are wrong: in Chapter 12 he suggests that Switzerland succumbed to the Nazi tide, three pages later we learn that the opposite happened. To emphasize the importance of bullion he goes into the details of the movie based on Ian Fleming's "Goldfinger," but gets them wrong: the idea was not to sneak off with Fort Knox's gold - a logistical impossibility - but rather to render it radioactive and hence untradeable. At least one somewhat complicated book that Ferguson endorses is so flawed that its own author has repudiated it; this shouldn't happen in a polemic whose credibility is based on the author's ability to get his facts straight.

To sum up, parts of this book are quite interesting and stimulating, other parts less so. Having read this book, I personally would not choose to read it again.

The Cash Nexus is an overly ambitious attempt to re-examine the link between economics and politics in the post-Cold War period.

The most interesting part of the book is the first 6 chapters, which focus on how state institutions have emerged over time to serve the needs of war finance--the principal impetus behind the rise of the modern state. These institutions produce what Ferguson calls an optimal combination for producing power and include 4 institutions: a professional tax gathering bureaucracy; a parliament that accords a measure of representation to tax payers; the management of a system of national debt, which allows the state to borrow; and a central bank to manage a currency and the national debt. Ferguson maintains that this combination first emerged in Britain after the Glorious Revolution and was later exported to other countries and, together, produced many unintended benefits, such as an educated civil service and expanded capital markets which served the needs of the economy.

An important part of Ferguson's argument is that economic philosophies have produced two deterministic views of history--one Marxist and the other liberal capitalist. While one opposes capitalism and the other celebrates it, both see history as being essentially economic history. The modern variety of economic determinism (neoclassical economics) has produced three ideas that Ferguson criticizes: economic growth promotes democratization; economic success leads to re-election; and economic growth is the key to international power. While Ferguson's criticisms are interesting, there are a few shortcomings.

One is that he makes the mistake of equating wealth with money when discussing liberal economics. In fact, the term money seems to be a synonym for economics wherever Ferguson discusses modern economic ideas on history, but he does not take note of the fact that liberal economics--whether classical or modern--does not view money as being the core of the economy.

The dichotomy between Marxism and neoclassical economics appears too simple as well. He fails to note that much of the West--i.e., on the Continent of Europe--practices a rather different variety of capitalism than that suggested by the Anglo-American model, one that is corporatist and whose adherents are often in strong antipathy to open and competitive markets. The absence of this distinction becomes annoying when he discusses fixed exchange rates and monetary unions (Chapter 11). He argues that floating exchange rates and market instability cannot go on forever, that some sort of supranational controls are required. If we take the Anglo-American model to mean the way the United States and Britain operate, then fixed exchange rates and monetary unions are not part of that. In fact, proponents of this model generally argue against what Ferguson argues for.

Sections 3 and 4 (Chapters 7-14) cover so many different topics that the material does not integrate well into the core themes of the first two sections. A related matter is one of depth. While the research of other disciplines is frequently discussed (e.g., political science and economics), he often considers too thin a slice of that research to provide enough depth in any one place. While arguing against the idea that political manipulation of the business cycle always leads to re-election, for example, he does not engage most of the literature on this question.

Another issue is the way in which data is used. Some of his charts present data across so many years and countries that it is hard to see the detail in the movement of the figures. This is especially true when the figures contain extreme values during the world wars.

Ferguson returns to the warfare state at the end of the book to argue that the West is quite under-militarized and potentially vulnerable to more aggressive states. The United States should heed this warning and assert its role as a hegemonic power again. Ferguson concludes that money does not, after all, make the world go round. People are driven by motivations other than economic gain and power has many facets to it--some tangible and some not. While this may be true, it is not much of a revelation.

Niall Ferguson has written an excellent book from a generally objective point of view full of intriguing arguments backed up by extensive statistical analysis. The part that seems to have received the most attention is his discussion of great power "overstretch" and it is the part that also caught my attention especially since I read it with the benefit of hindsight.

He wrote this book in the year 2000, just before 9/11 and the invasion of Iraq. In the last chapter of his book he argues that great powers do not fail because they are overstretched but rather because they are overly reluctant to wield their enormous power.

He says that "there is no economic argument against" a policy to establish democratic institutions where they are lacking even if "by military force" since it would not be "prohibitively costly." In particular, he mentions the desirablity to violently overthrow Saddam Hussein using the war against Germany and Japan and our subsequent successful imposition of democratic institutions on these two countries as examples in support of his thesis.

His final sentence is this: "Perhaps that is the greatest disappointment facing the world in the twenty-first century: that the leaders of the one state with the economic resouces to make the world a better place lack the guts to do it." Meaning the use of military intervention where needed.

Judging from what happened after Ferguson's book was published, someone in the future Bush administration must have read it.

When we invaded Iraq, we showed the world that we have the guts but the results have been morally and economically dismal. The invasion has certainly been and continues to be very costly and we seem to be in cul-de-sac from which there is no good way out. And Iraq is not the world. It was just one country among many in dire need of radical transformation.

One point Ferguson seems to have missed is that all countries are not like Germany and Japan.

Are our problems in Iraq because the idea of an invasion was good but the execution was incompetent; or was it a bad idea to begin with; or is it actually going well? Is this feeling of "overstretch" just an illusion?

I, for one, would certainly like to hear what the author has to say now that six years have passed.

Niall Ferguson's The Cash Nexus (Money and Power in the Modern World 1700 - 2000) is sure to upset many. It is an impressive look at economic history for the last three hundred years in order to show that there is nothing deterministic about the apparent success of capitalism and democracy in our time. This is the most effective aspect of the book as the author makes a clear case for smashing the myth that the "End of History" has been achieved by the double helix of capitilism and democracy. It is effective in demonstrating the complexity behind the ups and downs in the various fates of countries. He relies on Britain and America predominantly and they both figure into his concluding discussion of the need for America to become involved in exporting democracy and free markets to "rogue" states (never clearly defined), by military means if necessary. This somewhat startingly conclusion is too simplistically presented at the end of the book, particularly as the theories and ideas throughout the rest of the book are far more broad ranging and complex. Nonetheless, the ideas are presented well and argued competently. Some of the economics did soar over my head and while not agreeing with everything, the book does give one much to think about. It is sure to be a controversial read that has some interesting ideas.

First, this book deserves more publicity and more praise. It deserves to be included in the ongoing debates between Francis Fukuyama's "End of History" approach, Huntington's "Clash of Civilizations" and finally Kennedy's "Imperial Overstretch" Hypothesis.

I haven't read such a well argued, informative and in addition entertaining non-fiction book since "Guns, Germs and Steel". I was overjoyed when that book won the recognition it deserved. I hope this book does as well.

In addition, this book is important because it hits on today's news. Read the section on Debt management, and then see how you feel about Bush's tax cuts, or defence policy. This is not to say the book is partisan, but the author is a financial historian, and will bring up new ways of thinking about current topics.

If your are interested in financial history, the link between finances and politics, you will find this book fascinating.

Professor Ferguson tries to examine the link between money and history. However Mr. Fergusson changes the argument around and persuades the reader that money does not influence history so much as warfare does. According to Mr. ferguson it is fighting between countries that has given rise to the modern state. One cannot predict when a nation will journey to war and so an apparatus(tax gathering and bond issuing) is left in place to cover any sudden conflict. Mr. Ferguson points out correctly that the state has moved away from a warfare viewpoint of government function to a welfare viewpoint. The best part of the book is the last chapter which criticizes the US for not getting involved in other countries' affairs due to a post Vietnam ambivalence. I would highly recommend this book simply because there is nothing out there right now which examines history in a different light. I would have given this a 5 star rating but Professor Fergusson tends TO REPEAT HIMSELF at times.

It would be a mistake to emphasize the word "cash" in this book's ambivalent title without giving equal weight to the word that follows, "nexus." A nexus is the bond between two disparate things and, indeed, this is a book about the intersection of power and money. Its thesis, to the frustration of economic determinists everywhere, is that while money matters, other things matter more, at least when it comes to the cultural chessboard of international politics. One might quibble that author Niall Ferguson underemphasizes the extent to which competition for economically vital scarce resources leads to war. The other caveat is that he refers to the U.S.'s reluctance to go to war with a pre-Iraq state of mind. Yet, the author is an accomplished historian who capably supports his arguments. He manages overall to portray economic history in all its rich nuance, detail and complexity. His premise that war, not economics or politics, is the great engine that has driven the evolution of the modern welfare state is as enlightening as it is chilling. We highly recommend this book to the lay reader with a developed interest in history, politics and, especially, economics. However, a warning is in order: Those who only read the headlines may find this just a little too deep.

This is an interesting book as it is part of "the new history". Ferguson is a person who heads a team of researchers who collect a range of data. This data is then written up into a book.

It is an interesting approach and breaks free of the simple narrative history of years gone by. This book is basically a history of the financial mechanisms of government and their effects.

It is unusual to read a book which is written from what is largely an ideology free perspective. (The author has a mild bias towards free market mechanisms but he would not doubt suggest that instead of these representing a defined ideological position they reflect current what is now commonly accepted across the board as economic fact.) In some ways it is quite refreshing. The book also writes history free of the sorts of biases brought about by seeing history as a process. The development of democracy or the development of a national identity for instance.

One thing which astounded me was the fact that no one ever in reality tried to manage overall levels of demand as advocated by Keynes. Even when Governments accepted Keynsian orthodoxy, they never used deficient financing to offset unemployment because of balance of payment considerations.

The book basically sees the development of British financial institutions as the key to a large amount of modern history. Britain pioneered the use of salaried officials to collect tax, when they borrowed arrangements were put in place to ensure that such a debt would be repaid. The British system was successful in financing wars, the major expense of states until the 20th century and was adopted by all other states.

The book however is more than a history of the financial arrangements of states. It is a discussion about the role of governments, what they have done historically and the sorts of things they do now and what challenges they face. Well worth a read.

Does money make the world go `round ?

In The Cash Nexus, Niall Ferguson analyzes the relationship between money and power in the modern world.

In the first part of the book, Ferguson starts by exploring the history of taxation, mainly of Britain and France. He continues with the transition that most Western countries went through after WWII from warfare states to welfare states.

He then goes on with how countries dealt with their excessive public debt problems (a problem that is more than relevant today for most western countries). He notes that there are three main ways to deal with excessive debt. First, the best way, is to just to pay off the excssive debt by growing the economy, or by raising taxes. Second, is to default on the debt -- not a easy decision to make from a political perspective. Lastly printing money, which in effect inflates the debt away. Ferguson also makes a brilliant observation on the topic of debt servicing, where he analyzes what the economic and political effects on countries are when they reach the point that most of their budget goes toward servicing their debt.

Ferguson then goes on to examine how political parties used to raise money in order to finance political campaigns and the connection between private donations to political parties and corruption. Ferguson argues that "a party whose platform consisted of tax cuts for the top 0.5 per cent of taxpayers might raise a fortune in donations from the rich, but would almost certainly lose to a party that campaigned to deliver improved public services without altering the burden." (p. 257)

Ferguson continues with "The essential point is that political parties -- those essential institutions of a functioning democracy -- are being denied the funding they need by rules aimed to curb private influence, yet at the same time, forced into an unhealthy dependence on the state." (p.257)

I find this argument to be rather false. It's true that politicians need the public's votes in order to be elected; however, it completely ignores the fact that the big corporations donate huge amounts of money to both parties. The corporations do not necessarily expect an immediate benefit in the form of tax cuts or anything else; however, they do know that their interests are being taking care of (as can been seen from the current financial crisis, where the big corporations received staggering amounts of taxpayers money). But don't get me wrong -- I am pro-free markets. It's quite noticeable that the corporations do have huge influence over the governments and that they're well connected to each other.

Overall, the parts of the book that concern economic history are highly recommended. Ferguson deals with a wide range of topics such as the connection between democracy and economic growth, military budgets, debt financing, and more. I found the rest of the book to be less informative and some of the conclusions arguable.