Money is the root of all evil. But, according to Niall Ferguson in “The Ascent of Money,” it’s also the “root of most progress.” Woolgatherers from Rousseau to Marx have dreamed of a society that operated without money. Yet, money and its offspring — credit and debt — have been “as important as any technological innovation in the rise of civilization,” writes Ferguson.
Money in some form has been around since the beginning of time. Shells, beads, stone discs, cattle, gold and silver have performed its roles. But money got really interesting when someone figured out that paper backed by gold could serve as a medium of exchange. A unit of gold held in reserve could be multiplied by issuing units of paper money. It was a kind of magic, which dramatically stimulated economic activity and increased wealth. As long as people had faith that they could redeem their paper for gold, the magic worked.
At some point, however, the magicians created too much money. Excess liquidity drove prices up. Fear overcame euphoria. One day the gong of doom sounded and everyone wanted to exchange paper money for gold. But there wasn’t enough gold in the vaults to cover all the paper money afloat. A moment of epiphany arrived: The paper was worthless. The bubble burst. The financial system collapsed.
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