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Money Matters

Money outdoes technology in advancing our well-being, and money grows based on what government does, not private institutions. Neither argument will sound right to those of us in today's framed by Moore's Law and hooked on debt, derivatives and deregulation.

But the power of money and government is the history-driven argument of Niall Ferguson's "The Ascent of Money: A Financial History of the World." These are not points much quibbled with by Robert Skidelsky in his essay Can You Spare a Dime? (subscription or article purchase required). Skidelsky lays out Ferguson's case in tantalizing fashion, lauding his excellent writing, his unconventional thinking and use of novel proofs from world history and current events. The book sounds like a must-read.

But there are caveats. Skidelsky argues that Ferguson fails to fully appreciate money and its role in markets and society. He chides Ferguson for believing, with Milton Friedman, that monetary policy will suffice to help us avoid a major depression. He writes that:

"This view that monetary policy alone is sufficient to keep economies relatively stable is unlikely to survive its harsh confrontation with present reality."
He also says that Ferguson falls prey to "the dead end of 'behavioral economics' and false analogies between financial evolution and Darwinian natural selection." Skidelsky calls such notions "morally and philosophically naive."

It's unfortunate that Skidelsky does not expand on these points. He attacks two of today's most important developments in economic theory and then basically makes a broad-brush argument that mathematical economists are Platonic idealists, doomed to create theories of a utopian world that can never exist. Behavioral economics would seem to be on his side, and his critique would be interesting to read.

This complaint aside, it is a review that suggests Ferguson's "Ascent of Money" is a terrific read. Anyone in the BNET universe care to comment?

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