If the financial system has a defect, it is that it reflects and magnifies what we human beings are like. Money amplifies our tendency to overreact, to swing from exuberance when things are going well to deep depression when they go wrong. Booms and busts are products, at root, of our emotional volatility.
Interpretation
The financial system highlights our emotional responses, leading to economic highs and lows.
Niall Ferguson's quote emphasizes that flaws within the financial system are rooted in human emotions. It suggests that money acts as a magnifying glass, amplifying our natural inclinations to react strongly to both success and failure, causing cycles of economic boom and bust that reflect human volatility.
In practice
This quote can be used in a discussion on economic policy at a financial conference.
It's all very well for us to sit here in the west with our high incomes and cushy lives, and say it's immoral to violate the sovereignty of another state. But if the effect of that is to bring people in that country economic and political freedom, to raise their standard of living, to increase their life expectancy, then don't rule it out.
Civilisation is partly about restraining the male of the species from engaging in the violence of the hunter-gatherer period. But it doesn't take an awful lot to unleash it.
For 500 years the West patented six killer applications that set it apart. The first to download them was Japan. Over the last century, one Asian country after another has downloaded these killer apps- competition, modern science, the rule of law and private property rights, modern medicine, the consumer society and the work ethic. Those six things are the secret sauce of Western civilization.
The West may collapse very suddenly. Complex civilizations do that, because they operate, most of the time, on the edge of chaos.
Over time, the welfare state has become dysfunctional in a surprising way. But in a way it became a victim of its own success: It became so successful at prolonging life, that it becomes financially unsustainable, unless you make major changes to things like retirement ages.
Today, the average Korean works a thousand hours more a year than the average German. A thousand. ... That is the end of the Great Divergence.
By adoption of these principles, the long-felt want for a uniform medium will be satisfied. The taxpayers will be saved immense sums of interest, discounts, and exchanges. The financing of all public enterprises, the maintenance of stable government and ordered progress, and the conduct of the Treasury will become matters of practical administration. The people can and will be furnished with a currency as safe as their own government.
The Fed was largely responsible for converting what might have been a garden-variety recession, although perhaps a fairly severe one, into a major catastrophe. Instead of using its powers to offset the depression, it presided over a decline in the quantity of money by one-third from 1929 to 1933 ... Far from the depression being a failure of the free-enterprise system, it was a tragic failure of government.
After the 1929 crash, the Federal Reserve mistakenly focused its policies on preserving the gold value of the dollar rather than on stabilizing the domestic economy.
Addressing the weaknesses of capitalism will require us, above all, to do two things: first, to take a long-term perspective, and second, to re-set the priorities of business.
Landlords grow rich in their sleep without working, risking or economising
Those who advocate devaluation are calling for a reduction in the wage levels and the real wage standards of every member of the working class.
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