THE CASH NEXUS

Does money make the world go round? While conventional wisdom maintains that economics drives all political change from wars to elections to industrial progress, the author casts a skeptical eye.

In The Pity of War (1999), Ferguson (History/Oxford Univ.) stirred up a hornet’s nest by asserting that histories of WWI got it wrong. Here he makes less spectacular claims, but thoughtful readers will have trouble holding onto cherished ideas nevertheless. The first third of his account is dense with economic arguments, as he reviews the financial history of modern governments. While nearly every nation ran a deficit in most years, it’s surprising how little that mattered. Britain prospered mightily while carrying a huge national debt, and other nations, both weak and powerful, borrowed frantically for centuries and most of their citizens were unaffected. When debts grew overwhelming, governments defaulted, but this rarely caused more than temporary inconvenience and the same governments soon resumed borrowing. The heart of the story is a hard look at the influence of economics on politics. For example, almost everyone agrees that elections hinge on prosperity: incumbents win when times are good and lose when they’re not. But the author insists that this is a fiction, backing his claim with a massive review of two centuries of election results. Likewise, everyone agrees that gold is a dependable hedge against inflation. The author finds this true, but only in unstable countries; in the US and Britain, gold buyers always lose. Many experts insist that economic progress leads to increasingly democratic governments. Others teach the opposite: that prosperity doesn’t happen in the absence of democracy. The author finds only weak evidence for both claims.

Readers who expect a repeat of the author’s lively intellectual romp through WWI are in for a jolt. Packed with charts, graphs, and scholarly economic analysis, this is much heavier going—but those who persist will find a stimulating, well-documented outpouring of controversial ideas.