Basement of a bank full of banknotes, at the time of the Mark devaluation, during the economic crisis, Weimar Republic (Germany), 1923. (Photo by Albert Harlingue/Roger Viollet/Getty Images)

    Is inflation really a thing of the past?

    26 September 2015

    I first met Adam Fergusson about six years ago at a neighbour’s house. In the course of our conversation he told me that he had written a book in 1975 and that it seemed to have become remarkably popular again. I looked it up later. The book was When Money Dies: The Nightmare of the Weimar Hyper-Inflation and, judging by the price of a secondhand copy on Amazon, it was very popular indeed. Think £1,000 plus. The book was reissued in 2010 and another new edition is on the way.

    When Money Dies is now firmly established as a cult classic, and you can see why it sold well in 1975. When Fergusson started writing, inflation in the UK was 13 per cent. When he finished it was past 20 per cent. His tale of how money-printing and hyperinflation turned early-1920s Germany into a barter economy — where city dwellers semi-starved, change came in paper bags stuffed with notes and the price of a cup of coffee could rise from 5,000 marks to 8,000 marks ‘by the time it was drunk’ — resonated with book buyers.

    You can also see why When Money Dies found a new audience in 2010. We didn’t know much about QE then, but we did know that it was money-printing on a grand scale. So every smart fund manager in London became an overnight goldbug — investment specialists devoted themselves to thinking about how we could all protect ourselves from very high inflation and, with the -Consumer Price Index hitting 5.6 per cent in 2011, that didn’t seem remotely nuts. Today, most people will tell you it was. Common wisdom maintains that inflation is a thing of the past. Fergusson’s story of the implosion of Germany might be an interesting read, but there’s no longer anything in it that relates to our situation today.

    This is dangerous thinking. In fact, When Money Dies is more relevant than ever. Why? Two reasons. The first is that we aren’t safe from general price inflation. Germany’s troubles started, says Fergusson, when its authorities decided to deficit-finance the first world war, imagining they’d pay for it with the ‘spoils of victory’. That didn’t work out. There were also two million demoralised soldiers in need of jobs when it was over. Printing money was the only solution. It dealt with national debt and, via a system of cheap credit and subsidies, it created full employment. That must sound familiar to western ears. We have the debt. We use cheap credit to keep employment up. And we need inflation. Hyperinflation won’t happen here (our central bankers aren’t that stupid). But 14 to 15 per cent? That’s ‘entirely possible’, according to Fergusson.

    However, the real reason to read When Money Dies is because loose monetary policy, while it hasn’t hit CPI (yet), has given us a different kind of inflation — asset price inflation. Fergusson tells us that even though most people lose out from inflation, there are winners. The professional classes in Germany lost everything. Pensioners, bondholders and anyone else on a fixed income ended up destitute, their ‘wealth shot away by war’. But speculators triumphed, as did farmers (who refused to sell their goods to city-dwellers for worthless paper). Foreign students did particularly well, buying up ‘whole rows of houses out of their allowances’, and members of state unions were able to strike until they got what they needed.

    But those who did best were the industrialists who borrowed money for nothing, built up their businesses and used the collapse of the currency to funnel cheap exports abroad. This lot were passionately in favour of printing money. Why? It turned them into Europe’s super-rich. At one point, says Fergusson, one group — Stinnes — controlled 19 per cent of Germany’s production.

    The polarisation of German society, with a few big winners at one end and a mass of losers at the other, had obvious nasty consequences. Today, we have our own winners and losers. As before, anyone on a fixed income has suffered and anyone with assets has benefited (the City loves QE and low interest rates). QE — and the asset inflation it has caused — has redistributed Britain’s wealth, but not in a good way. Bankers and non-doms are today’s hate figures and the rise of hard-left politicians such as Jeremy Corbyn suggests that public anger at perceived inequality is growing. This is a more dangerous time than most people think. It is worth rereading When Money Dies to remind us just why that is.