The Great Degeneration by Niall Ferguson: Summary & Notes

Front cover of The Great Degeneration by Niall Ferguson.

In short

The main thesis of The Great Degeneration is that the western world is in stagnation – and not just in purely economic terms. Growth is slow, social mobility is reduced, (hidden) unemployment is high, social inequality is rising. And those are just some of the factors mentioned in the book.

In examining the stagnation of society Ferguson looks at the laws and institutions of the western world. This includes democracy, capitalism, the rule of law, and civil society. The link between all these factors are a country’s institution – which is where the decline can be investigated.

Overall it’s an interesting book although it does tend to be quite pessimistic, and potentially(?) overstated.

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Book Summary & Notes

All text that is quoted & italicized is taken directly from the book.


  • Stagnation of the West is happening not just in economic terms, but also on a range of social factors such as decline in social mobility, high rates of under- or unemployment, and rising inequality.
  • To reduce leverage, or debts, states essentially have three options:
    1. Increase growth rates above the rate of interest;
    2. Defaulting on debt, or going into bankruptcy;
    3. Reducing debts via inflation and/or currency depreciation .
  • Inflation can be seen as a political phenomenon since it’s based on political decisions, competition in a country, violence, the legal system, and education.
  • Ferguson quotes two passages from Adam Smith on what he called ‘the stationary state’:
    • “Though the wealth of a country should be very great, yet if it has been long stationary, we must not expect to find the wages of labour very high in it… It is in the progressive state, while the society is advancing to the further acquisition, rather than when it has acquired its full complement of riches, that the condition of the labouring poor, of the great body of the people, seems to be the happiest and the most comfortable. It is hard in the stationary, and miserable in the declining state. The progressive state is in reality the cheerful and the hearty state to all the different orders of the society. The stationary is dull; the declining melancholy.” – Adam Smith
    • “In a country too, where, though the rich or the owners of large capitals enjoy a good deal of security, the poor or the owners of small capitals enjoy scarce any, but are liable, under the pretence of justice, to be pillaged and plundered at any time by the inferior mandarins, the quantity of stock employed in all the different branches of business transacted within it can never be equal to what the nature and extent of that business might admit. In every different branch, the oppression of the poor must establish the monopoly of the rich, who, by engrossing the whole trade to themselves, will be able to make very large profits.” – Adam Smith
  • So the stationary state is a state that no longer grows, is socially regressive, where wages are low, and the elite can exploit and use the political and legal system to their advantage. As Ferguson puts it: “I defy the Western reader not to feel an uneasy sense of recognition in contemplating those two passages.”
  • This stagnation, or the stationary state, can best be looked at by investigating the institutions of the western world. Ferguson compares institutions to a beehive: both provide structures in which groups organize and do activities.

Debt and democracy

  • Debt is a way in which a current generation of voters can live at the expense of those not yet born. And it’s not just government debt, that can be found in the statistics, but also unfunded pension schemes and welfare programs. So massive amount of liabilities are hidden from view.
  • As Edmund Burke put it: “Society is indeed a contract … the state … is … a partnership not only between those who are living, but between those who are living, those who are dead, and those who are to be born.”
  • According to Ferguson the biggest issue facing mature democracies today is restoring this contract between different generations.
  • How can this generational debt issue be solved?
    • The first, and unlikely, scenario is by showing leadership and convincing all generations to adopt a better fiscal policy.
    • The second scenario is that western democracies continue with the “fiscal death spiral”: loss of credibility, rising borrowing costs, government cuts and increasing taxes. The end result: inflation and default. This can already be seen in countries such as Greece and Italy.


  • Ferguson argues that the financial crisis had its origins in overly complex regulation. Complexity is preferred over simplicity, rules over discretion, compliance over responsibility. In the crisis the most regulated sectors where the most disaster prone.
  • The financial system is a highly complex system. And every complex system lives “on the edge of chaos”, meaning that small changes can have massive consequences.
  • People will only commit fraud if it’s unlikely they will be detected and/or punished. One of the biggest issues of the financial crisis was that greedy bankers were not prosecuted.
  • “A complex financial world will be made less fragile only by simplicity of regulation and strength of enforcement.”

Rule of lawyers

  • The rule of law, not just laws themselves, are conducive to economic growth. It means that government cannot interfere randomly, and that private property rights can be enforced.
  • Different cultures use different forms of law, and this can have far reaching consequences. If investors do not enjoy some legal protection, they will likely not invest. If governments apply arbitrary or shifting rules then entrepreneurs will best less likely to set up. Et cetera.
  • Ferguson lists four threats to common law systems: erosion of civil liberties under the guise of national security, imposing supranational law (e.g. EU laws), increasing complexity, and rising costs to exercise law (especially in US).
  • According to Michael Porter, economic competitiveness includes things like “the ability of the government to pass effective laws; the protection of physical and intellectual property rights and lack of corruption; the efficiency of the legal framework, including modest costs and swift adjudication; the ease of setting up new businesses; and effective and predictable regulations.” In several surveys the US is losing competitiveness in these areas. The rule of law is becoming the rule of lawyers.
  • China has seen rapid growth without solid legal institutions – some scholars predict that this will limit future growth.

Civil society

  • Can a nation survive and grow without an ongoing civil society? Currently there is a breakdown of this civil society where people stop associating, joining clubs and political parties, and – in general – coming together.
  • The current degeneration shows that true citizenship requires that people organize and try to make their society a better place.


  • Lower growth and greater inequality in the west can be explained by the history and evolution of its institutions. Economic explanations alone, such as globalization, deleveraging, offshoring, or fiscal policy cannot explain this by themselves.
  • Urbanization can be a boon to socioeconomic factors ranging from wages to productivity – but only when the institutional framework works. If institutions do not function properly dense cities are fragile.
  • Coming back to the words of Adam Smith: a stationary state is reached when “‘laws and institutions’ degenerate to the point that elite rent-seeking dominates the economic and political process.” Ferguson’s argument in the book is that many Western countries have reached this state. Public debt has allowed older generations to live of the young and unborn; regulations are dysfunctional; lawyers have become parasites; and civil society is virtually non-existent. This is what he calls the great degeneration.

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