Money Changes Everything

Subtitled 'how the development of finance over thousands of years enabled the growth of civilisation', this is a fascinating book of magisterial scope, which must surely be the definitive history of the topic, beginning as it does with the Sumerians and bringing the analysis right up-to-date. The first two parts look at the history of finance in Europe and China, with extensive coverage of Athens and Rome. The book enables the reader to think about finance in a new way, as enabling value to be moved backwards and forwards in time (think of mortgages) as well as a means of mitigating risk, allocating resources and fostering growth. Finance represents a system of thought and quantification. One comes to appreciate the critical nature of finance in relation to cities, which is also reinforced by the nature of contracts and law. It is quite startling to see a 10-year growth plan for a dairy herd showing expected future profits dating from 2400 BC. The establishment and maintenance of Roman Empire required a complex system of finance, and it was also very interesting to learn how closely wealth and political access were linked – senators had to have very considerable private means in order to be eligible for office.

The chapter on China shows the regressive effect of bureaucracy, which arguably prevented a corresponding industrial revolution to that which occurred in Europe, partly because of the fragmentation of political power - a parallel argument can be made for the Enlightenment (see my review of Joel Mokyr's book on the culture of growth on p. 70 of the last issue). The third and fourth parts are devoted to the more recent history of finance in Europe, beginning with the Templars, and the emergence of global markets. While financial innovations have developed to solve economic problems of time and geography, they have inevitably engendered new challenges, as we have seen only too clearly in the last decade. There is an excellent discussion of the importance of Fibonacci (see also my review of Keith Devlin's book on p. 61 of the last issue) and the discovery of chance and working out of probabilities. The emergence of corporations, for instance the East India companies, is related to exploration, and the operation of markets is described, including history of various bubbles. The tremendous value of this book lies in its broad historical sweep that enables readers to understand the present in the light of past history.