Home » Opinion » Book review
How we won the war: with trade, finance
By Wan Lixin |
August 1, 2009, Saturday
|
Print Edition
Print Edition
THIS is a book that purports to look beyond economic determinism for factors that shape the course of the world.
In his "The Cash Nexus: Money and Power in the Modern World, 1700-2000" Niall Ferguson tries to explicate the bond between power and money.
On the basis of his findings Ferguson advises the US government how to better harness its economic power to seed "democracy" and "stability" throughout the world. According to Ferguson, the US should invest more to maximize its influence so as to make the world safer for free trade, capitalism and democracy.
To say the least, this book of 552 pages affords a glimpse into the mind of an American historian fired with evangelical aspirations.
Ferguson believes that the power of economics to determine the course of world events is exaggerated.
Historically war drives the development of financial systems and institutions, and it is still the main engine of political and social evolution.
"It has been political events -- above all, wars -- that have shaped the institutions of modern economic life: tax-collecting bureaucracies, central banks, bond markets, stock exchanges," the author believes.
In other words, Ferguson believes the history of finance is the story of government efforts to close the gap between the funds needed for war and the funds on hand.
"It goes without saying that money at the immediate disposal of the state treasury is usually more limited than the costs of war; and the history of finance is largely the history of attempts to close that gap," the author observes.
This novel explanation turns out to be quite mundane if we consider some case studies.
Take the example of the Opium Wars (1840-1842) waged by the British on China.
Prior to the wars, the self-sufficient Chinese civilization centered on agriculture showed little inclination to engage in commerce with the outside world.
But industrialized Britain badly need overseas markets for its products.
Before the 19th century, major Western powers purchased tea and luxuries like silk from China, and paid in gold and silver (not paper money), resulting in huge outflow of precious metals, and trade imbalances.
After suffering repeated setbacks in forcing open the China market through diplomatic channels, the British espied an ideal product: opium.
This product bountifully grown in colonial India had the magic power of at once creating steadily increasing demand and huge profits, siphoning gold and silver back to Britain.
China's attempt to crack down the trade of vice led to opium wars, failures, and a series of humiliating treaties.
In the light of the Opium Wars, we can see that although the expenses of waging war would temporarily exacerbate British Empire's financial circumstances, it appeared to be a small price to pay in hindsight. As a matter of fact, the war had been started with the explicit intention to remedy the Empire's trade imbalances.
War and trade have always been mutually enhancing.
Modern wars have even strong economic implications.
As the author suggests, the US and Britain had responded to the heavy loss of lives by industrializing war itself.
Thus teaching a lesson to "rogue countries" increasingly looks like investments that have a crucial bearing on production lines, logistics, and buttons.
Often it may be found that the real "roguishness" lies in some countries' possession in abundance of some vitally important resources, such as oil.
Some countries can reap good profits without actual participating in war, by selling weapons to hostile parties.
Hence the futility of drawing a line between war and economics.
The state of stability the author has been talking of glowingly has more to do with the fact that the global trade today can be more profitable, for some countries, than waging war.
In his "The Cash Nexus: Money and Power in the Modern World, 1700-2000" Niall Ferguson tries to explicate the bond between power and money.
On the basis of his findings Ferguson advises the US government how to better harness its economic power to seed "democracy" and "stability" throughout the world. According to Ferguson, the US should invest more to maximize its influence so as to make the world safer for free trade, capitalism and democracy.
To say the least, this book of 552 pages affords a glimpse into the mind of an American historian fired with evangelical aspirations.
Ferguson believes that the power of economics to determine the course of world events is exaggerated.
Historically war drives the development of financial systems and institutions, and it is still the main engine of political and social evolution.
"It has been political events -- above all, wars -- that have shaped the institutions of modern economic life: tax-collecting bureaucracies, central banks, bond markets, stock exchanges," the author believes.
In other words, Ferguson believes the history of finance is the story of government efforts to close the gap between the funds needed for war and the funds on hand.
"It goes without saying that money at the immediate disposal of the state treasury is usually more limited than the costs of war; and the history of finance is largely the history of attempts to close that gap," the author observes.
This novel explanation turns out to be quite mundane if we consider some case studies.
Take the example of the Opium Wars (1840-1842) waged by the British on China.
Prior to the wars, the self-sufficient Chinese civilization centered on agriculture showed little inclination to engage in commerce with the outside world.
But industrialized Britain badly need overseas markets for its products.
Before the 19th century, major Western powers purchased tea and luxuries like silk from China, and paid in gold and silver (not paper money), resulting in huge outflow of precious metals, and trade imbalances.
After suffering repeated setbacks in forcing open the China market through diplomatic channels, the British espied an ideal product: opium.
This product bountifully grown in colonial India had the magic power of at once creating steadily increasing demand and huge profits, siphoning gold and silver back to Britain.
China's attempt to crack down the trade of vice led to opium wars, failures, and a series of humiliating treaties.
In the light of the Opium Wars, we can see that although the expenses of waging war would temporarily exacerbate British Empire's financial circumstances, it appeared to be a small price to pay in hindsight. As a matter of fact, the war had been started with the explicit intention to remedy the Empire's trade imbalances.
War and trade have always been mutually enhancing.
Modern wars have even strong economic implications.
As the author suggests, the US and Britain had responded to the heavy loss of lives by industrializing war itself.
Thus teaching a lesson to "rogue countries" increasingly looks like investments that have a crucial bearing on production lines, logistics, and buttons.
Often it may be found that the real "roguishness" lies in some countries' possession in abundance of some vitally important resources, such as oil.
Some countries can reap good profits without actual participating in war, by selling weapons to hostile parties.
Hence the futility of drawing a line between war and economics.
The state of stability the author has been talking of glowingly has more to do with the fact that the global trade today can be more profitable, for some countries, than waging war.
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