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• Extract
• Synopsis
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• Interview

• Biography
• More titles by Niall Ferguson

Synopsis

Money: the root of all evil, or the stuff that makes the world go round?

Modern history shows that a nation’s success largely depends on the way it manages its money. In times of war, finance has been just as crucial to victory as firepower. But where do money and politics meet? Starting in 1700 and ending at the present day, Niall Ferguson offers a bold and dazzling analysis of the evolution of today’s economic and political landscape. Far from being driven by the profit motive alone, our recent history, as Ferguson makes brilliantly clear, has also been made by potent and often conflicting human impulses – sex, violence and the desire for power.

Reviews

Interview

Economics is generally conceived as a difficult, dry subject. In The Pity of War, you were writing about something that is very much tied up with human emotions and passions - nationalism and victory - was it a challenge to write about a subject that so many people feel distanced from?
Carlyle called it 'the dismal science', and he gave me the title 'The Cash Nexus' so he must have had the right idea, I think. Yes, economics has become a very dismal, and impenetrable, science - or pseudo-science. What I was trying to do was to talk about financial issues without being an economist, and making a virtue of the fact that I'm not. You're right - war is about passion. But greed is a passion, and for some people money is a passion, although most aren't pure capitalists. Most people don't want to think about taxation, interest rates and their pensions. There's a resistance to these things, and I think economics has made it worse by turning it into mathematics.

It seems to me that we can't leave out this dominant part of modern life and say that it's boring, because to me it is inseparable from understanding how the World Wars happened, why one side won, not the other - and equally, if you're interested in politics, you can write a million biographies of a million Prime Ministers and not understand a thing if you don't understand how party political finance works. That seems much more important to me than charismatic leadership. You don't think Bush won that election just because he's a charismatic leader? He won that election in part because he managed to raise a hell of a lot more money than Gore in that campaign. The Cash Nexus makes these dismal subjects undismal by showing that in fact they connect with the real world - that in fact war is why financial systems evolve, and the reason we pay the income tax that we do lies in history; it's not some theoretical phenomenon.

So is that how this book was born, as a logical progression from your two previous books, The World's Banker, which was about the Rothschilds, and The Pity of War?
Definitely. The effect of writing those two books - and of course The Pity of War was a lot about economics as well as about war - was that I suddenly realised that there was a general argument coming out of both of those books about the nature of power, and I wasn't really going to be happy with this section of my work if I didn't finish it off. The theoretical hunch was that power is something that can be nailed down, and that its root is in economics.

Is it gratifying when events in the news prove your theories, for example the fuel crisis and the Bush/Gore election result?
Yes, it is. I felt utter glee when Bush won the election, for no other reason than that it meant that what I had always felt about the relationship between economics and politics was right. Political commentators so often see economic prosperity as guaranteeing re-election, but if that was the case then Labour would have been elected in 1992, and the Conservatives in 1997, when of course the opposite happened. The Bush/Gore election was a close-run thing, but I had a strong hunch that Bush would win.

So if Bush won the election partly because he was able to raise more money, where does the power lie? In having cash put to one side for if and when you need it, or being able to spend it as and when you like?
One thing I wasn't taught properly in my financial education as a child, which focused always on saving money, is that the real importance - the key - is being able to borrow money, it's not actually about saving. In many ways, saving has been a completely disastrous strategy, because anyone who saved money from about 1914 was shattered by inflation. The real key to power is being able to borrow. Whether you're talking about great powers engaging in the big wars that shaped modern history, or whether you're talking about political parties. In effect, the political parties are borrowing money when they're getting donations.

Surely that's the best kind of borrowing, the type you don't have to pay back?
Yes, although of course they do have to pay it back, in favours. The problem with political finance is the same problem with wars - which is that they come along irregularly. It's impossible to suddenly jack up your revenue to the level you need, so the question is how can you rustle up the money? So debt is at the heart of the argument. There are some ways of borrowing money which are absolutely disastrous and unsustainable - which is why you get the failure of the French in the 18th century and their descent into Revolution. It was partly because the French didn't have a way of borrowing money that worked, and eventually the only way forward was complete political revolution.

But Bush was able to command the money, as indeed the Americans seem always to be able to do.
Yes. America now is in much the same position as the British Empire was, controlling a vast proportion of the world's wealth. But it seems to me that America's power is much less sustainable, because they aren't using their position to maintain a sustainable situation in the less powerful countries. After the Second World War they imposed a new political system on Germany and Japan, and that has been immensely successful in getting those countries back on their feet. But attitudes have changed, partly because of the experience with the Vietnam War, and partly because voters are extremely wary of any sense of American imperialism. Instead they are using the power of their wealth to allow their people almost unlimited consumerism, which is, I feel, a disastrous strategy. How much can people eat? It would be much better for the Americans to use their power to restore political order around the world. For example, with Iraq - potentially a hugely rich area, governed by a man who in effect is simply a troublesome local despot, and yet they're not really doing anything to improve the situation.

It's interesting that you talk about consumerism. There are many people now who would argue - and who are terrified by the prospect - that there are companies now whose wealth is so huge that they are perceived in many ways as being more powerful than small countries.
Yes, the backlash against globalisation is interesting. But what the protestors in Seattle and Prague don't realise is that in fact those companies cannot operate without the state. They would much rather be working in a country with a well-run political system, because it gives them a smooth playing field. So although those companies have influence because of their wealth, they find it very difficult to operate without strong and stable government. Nike and The Gap and so on will never replace the state in terms of power. Paul Kennedy, in his Decline and Fall of the Great Powers, said that power lies in the ability to produce pig-iron, when in fact the power is being able to buy pig-iron when you need it.

So the Cash Nexus is more than a history of the relationship between power and money, it's also communicating the importance of finance and understanding its role in all our lives?
Many people are reluctant to understand these things. Compared with sex, money is strangely boring to most people, and yet it's so important, and so much a part of people's lives that I have this kind of missionary zeal about it - I really want people to understand it because it's everywhere.

I've been reading the Harry Potter books to my children, for example, and Gringots - the goblin bank - is like a magical version of Rothschilds. Without his stash of gold there, Harry would be entirely dependent on the ghastly Dursleys. From the earliest ages, children are aware of money. They're introduced to consumption much earlier, whereas we were introduced to saving. I spend my whole life trying to save money, for no apparent reason except that it's what I was taught to do. I'm sure that was one of the origins of this book, childhood obsessions with money. If people come away from The Cash Nexus thinking: 'Now I understand why I pay the income tax that I do, now I understand that money is more than just a dull thing that I'm obliged to try and find time for in my life,' then I will have achieved my goal.

Who or what has been your greatest influence?
Everyone from Robert Burns to John Maynard Keynes, I have a very wide range of influences. Keynes for his thirst to understand and enliven economic questions, and Burns for his ability to remind us that in the end it's all about human passions.

What do you read when you can't get to sleep at night?
Anything and everything. It's a ritual with me that I can't get to sleep, however tired I am, unless I read first. Robert Louis Stevenson is a particular favourite. I read The Master of Ballantrae for the first time this summer, and loved it.

Which book that you've read in the last year has stayed with you the most?
The Master and Margarita. It's one of the greatest novels ever written, even Stevenson can't match it. I like books with a bit of the devil in them. If Penguin ever did an anthology of literature in which the devil plays a part, that would be a wonderful thing.

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