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Niall Ferguson. The Cash Nexus: Money and Power in the Modern World 1700-2000. New York: Basic Books, 2001.

In The Cash Nexus, published in early 2001, historian Niall Ferguson endeavors to undermine approaches to history based on economic determinism, replacing them with an interpretation that instead privileges "political events." This approach enables him to dispense with academic pretensions to providing the kind of reductionist hypotheses that are the stock and trade of the academics whom he will to task later in the book (Paul Kennedy and Francis Fukuyama, for example). For "the human world we know as history has hardly any linear causal relationships" and "any attempt to reduce [these relationships] to a model with reliable predictive power seems doomed to fail." While such intellectual modesty is admirable, it also seems to allow Ferguson’s work a nearly limitless extension in scope. Unburdened by the limitations imposed by the need to expound a reductionist thesis, The Cash Nexus sometimes ranges into territory only tangentially related to the concerns the author sketches in his introduction. It should also be noted, however, that Ferguson does not fully adhere to his own warning against the kind of academic hubris implied by reductive frameworks, and does indeed provide various compelling explanatory, if not predictive, models for the relationships between financial and political power throughout the modern period that he examines. He furthermore, as we shall see, bases upon his analysis some questionable policy recommendations.

Perhaps the most fruitful aspect of Ferguson’s approach is his notion that the "exigencies of war finance" have been the principal determinants of the structure of international financial institutions. The massive economic resources required to wage war in the modern era led to the need for innovation in financing such undertakings: "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." Ultimately British engagement in this process led to the emergence of four fundamental institutions which would eventually spread to other countries and form the basis for the international financial order: a tax bureacracy which rationalized the collection of revenues, making it more efficient than previous tax collection methods; a parliament which provided political representation and therefore popular legitimacy for governments; a national debt to allow war expenses to be spread over time; and a central bank to manage debt and monetary matters.

Much of roughly the first half of the book is devoted to sketching the details of the evolution of these complementary institutions, which would culminate in the transition from the "warfare state" to the "welfare state," in which military expenditures pale in comparison with spending on social programs. This gradual shift would be characterized by the kinds of social conflicts Ferguson outlines in one of the most illuminating chapters of the book. In his chapter on the "social history of finance," an emerging rentier class of bondholders, often criticized as "parasitical" drains on the economy, would find itself clashing with businessmen as well as workers in a conflict of interests revolving around fiscal matters such as inflation and taxation. While the application in the mid-20th century of Keynesian policies aimed at producing a more egalitarian distribution of wealth would result in an alleged "euthanasia of the rentier," the increased debt incurred by countries through social spending with the rise of the welfare state would lead to a resurgence of this figure, though the importance of the resulting conflict is no longer so great as the importance of the "generational" conflicts that occur when debts are left to future generations, as seems to be increasingly the case in the present.

Ferguson’s efforts to fill in the details of his four-part institutional model are often enlightening, but the book frequently ventures into territory irrelevant to any of the matters outlined at the outset of the book, as in the chapter on "electoral economics" (which, having been written with a co-author, seems rather out of place in the context of the rest of the book).

In the final chapters, Ferguson turns to the implications of his study for some important debates in contemporary international relations, including the "the view that democracy and economic progress are mutually reinforcing," a "new orthodoxy" popularized by Francis Fukuyama, among others. Marshalling considerable amounts of quantitative as well as historical data, as in the rest of the book, he shows that there is no sound basis for declaring a link between economic performance and type of regime (whether democratic or authoritarian). He furthermore suggests that stable regimes that demonstrate a respect for the "rule of law" and property rights are those most likely to experience economic success, regardless of regime type.

In what is certainly the most controversial aspect of the book, Ferguson concludes with an refutation of the Paul Kennedy’s well-known "overstretch" thesis, which holds that historically empires have tended to fall as a result of overextension of resources in maintaining its overseas commitments. After providing an analysis of why autocratic regimes are often capable of defeating democratic regimes in military conflicts even when those regimes are more economically well-endowed ("provided the immediate benefits of war flow to the ruling elites and the costs are borne by the unenfranchised masses"), and dismissing Kantian "democratic peace theory" along the way, he demonstrates that Britain may well have held onto its imperial influence through greater, not lesser, military expenditure.

Seemingly embracing hegemonic stability theory, Ferguson argues that the United States, as the inheritor of the imperial mantle formerly borne by Great Britain, ought not fall victim to "understretch"–failure to invest sufficient resources in its overseas interests to help maintain a stable global order. He fears, however, that the Americans will not rise to this challenge due primarily to their "ideological embarrassment" about the imperial implications of such interventions, and to their aversion to military casualties in the post-Vietnam era. In making "a precautionary assertion of American power to impose democracy and the market economy on ‘rogue’ states, while the going is good," Ferguson writes that the United States "should be devoting a larger percentage of its vast resources to making the world safe for capitalism and democracy." Ferguson’s financial historical expertise furthermore enables him to make the claim that such intervention "would not push the US defense budget much above 5 per cent of GDP," a low proportion by historical standards. But in view of the fact that the author had just deconstructed the notion that democracy even matters in promoting strong economies, one wonders why the U.S. should bother.

The Cash Nexus was published before the terrorist attacks of September 2001 in the United States. Subsequent to that event, the Bush administration would discard the isolationist orientation that helped put it in office in favor of a new interventionism in the form of military action in Afghanistan and Iraq. In subsequent writings (see, for example, "The unconscious colossus: limits of (& alternatives to) American empire" in the Spring 2005 edition of Daedalus), Ferguson, consistent with his statements in The Cash Nexus, appears to have welcomed this development, but reasonably raises concerns about the obvious lack of American legitimacy in these interventions, particularly in the administration’s latest adventure, the second Gulf War. He also echoes the concerns about the will of the American people to support such interventions in the long term. What Ferguson seems not to acknowledge is the possibility that the wars in which the United States is now involved may not be winnable. This discrepancy is all the more curious given that Ferguson himself, in The Cash Nexus, adduces Vietnam and Afghanistan (i.e., the Soviet intervention in that country) as examples of small, weak states defeating superpowers without the benefit of economic superiority. However, Ferguson’s analysis seems to be informed only by an historical knowledge of the political behavior of authoritarian regimes, and not by a knowledge of the effects of asymmetric war, and particularly the guerilla strategies which were employed in the examples he himself gives. When such variables are introduced, both the enormous economic advantage the United States enjoys over its "rogue state" enemies and the prospects for domestic support of its contemporary military interventions lose significance.

The Cash Nexus is a fascinating, informative, and technically accomplished work. But the reader is left to wonder if Ferguson himself is not guilty of "overstretch" in applying the lessons of his historical analysis in the book’s concluding chapters.