Since Ronald Reagan’s presidency, classical economics has enjoyed a rebirth in the Western world. During the so-called Keynesian interlude, critics scoffed at Milton Friedman’s claim that there is a direct relationship between capitalism and freedom. Today it is considered an absolute. The prevailing belief in the developed world is that if we foster economic growth around the globe, democratization inevitably will follow, and vice versa.
Niall Ferguson offers a sobering, broadening vision of economic history in The Cash Nexus: Money and Power in the Modern World, 1700-2000. He points out that the relationship between money and political institutions, unlike physics, is not exact. A subtle interpreter of economic and historical theories, Ferguson emphasizes that in economics and politics, as opposed to physics, the variables are human beings. Forces of violence, power, religion, law, and culture, he argues, influence political institutions more than do money. With such a variety of factors at play, Ferguson claims that the range of possible political and economic outcomes is wide and difficult to predict.
Ferguson is a fellow and tutor in modern history at Jesus College, Oxford, and author of The Pity of War and Virtual History. While he may have intended this latest book to be a work of financial history, The Cash Nexus is accessible to a wide variety of sensibilities beyond the ken of economics.
Ferguson opens the book with a provocative chapter that discusses the shift from the warfare state to the welfare state, using this as a jumping-off point to show how the formation and function of the state has changed over the last 500 years. In the next several chapters he covers the basic political and economic histories of taxation, representation, public debts, and investments and finance.
In the second half of the book, Ferguson delves more deeply into the relationship between governments and growth, discussing the effect that economics has on political campaigns and elections. The conclusion of his book, and its heart, begins with an examination of the relationship between democratization and economic growth.
Ferguson intimates that the widely accepted claim—most notably promoted by political scientist Francis Fukuyma—that democracy and economic growth are “positively correlated” is oversimplified. At first blush, Ferguson acknowledges and accepts the apparently clear relationship between political freedom and growth.
But he also offers a list of anomalies that interfere with this conventional argument, such as the economic stagnation in the wake of the democratization of the Soviet bloc, and China’s tremendous economic growth absent a democratic emergence. To Ferguson, other factors, such as religion and law, must be calculated into the equation when discussing the relationship between economic growth and democratization.
One of the virtues of Ferguson’s work is that it does not consist of theory detached from the concrete world of human economic interaction. He takes great delight in providing explicit details of economics, politics, and history.
There are vices, too, however. This book is weakened by an excess of detail. Still, the careful attention to evidence reveals a richness that makes The Cash Nexus truly an interdisciplinary work. Although Ferguson may be considered a financial historian, he is extremely well versed in economics, philosophy, literature, and political science. The reader is introduced to Hegel, Tocqueville, Wolfe, Shakespeare, Smith, Goethe, and Churchill, just to mention a few. While Ferguson seems to have a clear, specific intention for each of these figures and their ideas, in the overall picture they unfortunately conceal his thesis.
Sabrina Savodnik is an associate with the White House Writer’s Group.