Put not your trust in bankers

When I got to the end of this book, I felt a little bit sorry for Niall Ferguson. He's an interesting historian, a good writer, and a charming presence on the TV. But he's just written a book about money. And it's called The Ascent of Money. Ferguson finished the book earlier this year. But he must have started it a couple of years ago, when things looked much more rosy.

Ferguson, it seems, is - or was, at least - a fan of money, and the way the economy works. But it's as if he had written a fan's book about Manchester United, to be published on the eve of the Champions League final, only to discover that the whole team had been arrested for brawling the night before the match, and the board had been embezzling money, and the manager had bribed the referee. Right now, would you want to have written a book called The Ascent of Money?

Still, to be fair to Ferguson, he faces up to this problem in his final chapter - written earlier this year, when things were beginning to look dodgy, but before the actual meltdown. Anyway, what he says is: "In writing this book, I have frequently been asked if I have given it the wrong title. The Ascent of Money may seem to sound an incongruously optimistic note." Perhaps, as he says, he should have called it 'The Descent of Finance'.

He didn't. That, I think, because this book is basically pro-finance. Ferguson explains the history of money - tokens, precious metals, coins, promissory notes, loans, bonds, the stock market, insurance, derivatives… all the way to sub-prime mortgages.

It's a fascinating history, and Ferguson is a good historian. He links things you'd never think of - for instance, he makes a brilliant case for the notion that the American Civil War was lost because of the mishandling of the cotton market in 1862. And his analysis of the influence of Nathan Rothschild on the Napoleonic wars is fascinating.

As is Ferguson's analysis of the housing market. As he points out, houses are superb collateral for loans, because they stay in the same place - and if the owner can't pay the interest on his debt, the bank or building society can confiscate the house.

This means that, in a rising market, the lender takes no risk at all, and so encourages more people to buy, which pushes prices up, all the way to sub-prime loans, or NINJAs - loans to people with no income, no job, and no assets. Some of this is very readable stuff indeed.

But there's no hiding from the fact that Ferguson sees capitalism as a force for good - which, to an extent, it is - but he's not big on its evil side.

Capital is trust, right? And what Ferguson doesn't seem to be saying is that the history of capitalism is the history of greater and greater abuses of trust - coins are, in a basic way, more honest than credit cards, just as selling bonds is more honest than selling sub-prime debt.

And neither does he say much about the central flaw in the banking system. If you lend money to one businessman, you give him an advantage over his competitors. So then they all want a loan. And if you lend money to everybody, they are all back to square one. With one small, but crucial, difference - now everybody's a bit poorer, because they all need to service their loans.

So they must prey on each other that little bit harder. Some will cut corners. Others will scam. Yet others will go to the wall. And some, of course, will set themselves up as bankers. Which means that the financial sector grows, inexorably, until there's not enough wealth left in the world to support it.

And meanwhile, we're all busy ripping each other off, in a land full of lap-dancing bars and casinos. Still, I have to say I enjoyed this book. I just wish the ending could have been different. ·