Wednesday, June 9, 2010

Ascent of Money - by Niall Ferguson

I am always a little skeptical to pick up a book on finance or economy because I fear that I might not understand most things. Ascent of Money by Niall Ferguson confirms the fear but it also suggests that a readable book can be arresting regardless of its topic.

The Ascent of Money traces the evolution of financial system – through the growth of banks, bonds, etc. – and how they influenced course of events (if not always the final outcome) of apparently non-financial matters. The book explains how difficult it is to understand the causes that influenced the turn of great historical events without visiting the backwaters of financial dealings and the men who did them.

The book, however, will sometimes put you off with chunks of intricate financial details. The author could have tried a little harder to simply matters for the uninitiated reader.

Among the interesting facts the book brings to light, I want to share this one with you. Shylock, the Jew money lender from Shakespeare’s Merchant of Venice, reflects the condition of Venetian Jews of his times, the community that invented loan sharking, lending small amount of loans at high interest rates. Hounded from other places, a sizable population of Jews had flocked in Venice, Italy. The Venetian authority had demarcated a place in the town for the Jews to stay and banned them from all forms of businesses, leaving them the option of money lending.

This professional choice had met with religious sanction in the Old Testament, the religious book of Judaism, albeit in a round-about way. The Old Testament forbids the Jew from Usering (lending money) but also presents an exit clause. The Jew shouldn't lend money to his brethren, the book ordains. Taken in another way, it can mean the Jew is free to participate in money-lending as long as he his lending money to a person outside the Jewish community.

According to the author, the Merchant of Venice perfectly establishes the ground rules of loan sharking. The judge’s ruling that Shylock cloud insist on his claim - a pound of flesh from Antonio’s chest - but without shedding a drop of blood – shows how loan sharking works:

a)The lender’s right to claim his money
b) The importance of court in settling financial disputes without recourse to violence
c)Linkage of interest rates with risks: when Antonio had agreed to become the guarantor of the loan, Shylock had forecasted – although Antonio was wealthy and so a good guarantor, his source of wealth was fleet of ships going to various parts of the world – a business which is always fraught with risks.

The book has many such interesting trivia.


Mark said...

good book review Indra, am looking forward to read the book, the use of good case references (like the Shylock example) seem to help understanding of finance matters...keep them posting....

indrablog said...

Hi Mark,
Thanks for visiting. Yes, this is a good book. You can try this out.

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