An illustration of Adam Fergusson
© Financial Times

As befits a man who has written an acclaimed book about money and prices, Adam Fergusson starts our encounter by eyeing the menu beadily and asking who will be paying the bill. “Milton Friedman said the most efficient way of spending money is to spend your own, and the least efficient way is to spend other people’s,” he says. “If you go out to lunch and have to pay your own bill, you have what you want and can afford. If someone else is paying, you may as well have the lobster.”

As I confirm that the FT will be paying, we scan the menu but, alas, there is no lobster. I am meeting Fergusson at Belvedere, a slightly gloomy restaurant in the middle of Holland Park, close to where he lives in west London. It is a sultry day and we initially consider sitting outside on the terrace, but the closely packed tables are already filling up and it is too noisy. So we settle down, virtually the only diners in the shadowy and rather formal interior.

Fergusson, 78, a former journalist and politician, is enjoying an unexpected literary revival thanks to the republication last month of a book he wrote 35 years ago – a history of the hyperinflation in 1920s Weimar Germany. When Money Dies tells the story of Germany’s economic collapse after the first world war, which culminated in the mind-boggling inflation of late 1923 – a dreadful time when visitors to Berlin saw people starving in the streets and the number of marks to the pound was at one point equivalent to the number of yards from the earth to the sun.

Already a cult text among gold enthusiasts and inflation phobes (old copies of the original hardback were until recently trading at up to £1,800 each on the web), it received a further boost when it was revealed in a Sunday newspaper at the time of the relaunch that the book was admired by the US investor, Warren Buffett, and recommended by him to others. It seemed to confirm Fergusson as the sage to whom the Sage of Omaha himself turned.

The claim guaranteed the book a lot of attention and Fergusson found himself being summoned to give his views about the economic situation on the BBC’s Today programme and the television news. This did not abate even after Buffett told CNN that he had not actually read the book. When Money Dies continues to be well-­reviewed and the sales pile on.

Fergusson is embarrassed and amused by the Buffett story which, it should be said, has never been repeated by him or his publisher to market the book. “My daughters call it Buffettgate, which I like very much,” he says. The claim, he tells me, came from a Dutch hedge fund manager who attended the launch party, having purchased 200 copies, which he said he would give to every member of the Dutch parliament and some top-flight bankers.

“He told me that it was a cult among high-powered financiers,” says Fergusson, who remains mystified how the story found its way into the paper. “Buffett does now have the book and has thanked my publisher for sending it to him,” he adds. “He may now have read it; we can only guess.”

The waiter takes our order. Fergusson has the gazpacho and calves liver (“pink but not too pink”), while I have eggs Benedict and then poached salmon. We agree to have, and choose, two glasses of St Veran.

Fergusson is not an economist and When Money Dies is a social history rather than an economic tract. The younger son of an impecunious Scottish baronet, he became a journalist after reading history at Cambridge, working first for the Glasgow Herald and later for a now defunct magazine with the distinctly unpromising title of the Statist. A competitor to the Economist, it was owned by the otherwise left-leaning publisher of the Daily Mirror, whose boss, Hugh Cudlipp, described it as the company’s intellectual “fig leaf”. Fergusson was the foreign editor until it closed in 1967, when he moved to The Times as a feature writer, specialising in economic affairs.

Fergusson wrote When Money Dies in the early 1970s when the British economy was buckling in the wake of the first oil shock – which killed growth and pushed prices up. “When I started researching it in 1973, inflation was about 10 per cent, and when the book came out in 1975 it was nearly 25 per cent,” he says. “Somebody said, ‘We must go back and look at what happened in the 1920s when prices got out of ­control’.”

It started life as a series of articles in The Times that drew on the Weimar story in order to warn Britain off the inflationary track. But, I interject, weren’t the parallels rather thin? Even at its peak in 1975, British inflation hit an annual rate of only just over 24 per cent. At the climax of the Weimar disaster, prices were doubling every two days.

The quantum was different, Fergusson agrees. But, he says, all periods of high inflation – however harsh – involve the same moral slide. “The corrupting thing about inflation is the way the feelings and jealousies are exactly the same,” he says. “You worry that some people are doing better than you are – people who know what to do about rising prices while you don’t.”

In the Weimar time, this was particularly extreme. High inflation wiped out debts, atomising the savings of the prudent and redistributing wealth to the fortunate or simply unscrupulous.

“Germany’s capital,” Fergusson writes, “had been redistributed in the most cruel way, no longer spread reasonably evenly among millions, but largely in coagulated blobs among the new plutocracy.”

Fergusson’s experiences during British inflation were less harsh, but suggest that he would not have made a Weimar plutocrat. Comfortably off, if not rich, through marriage to the descendant of a South African randlord, he bought Krugerrands and some pictures on the advice of his broker – with mixed success. “We brought two very nice paintings, one of which turned out to be a fake,” he says ruefully. The fake, attributed to the French impressionist, Stanislas Lepine, was only exposed 20 years later when Fergusson sought to sell it. “I was offered a derisory sum so decided to keep it, hoping that one day it might be declared a Lepine again.” Overall, the experience of scurrying around to purchase real assets that would hold their value was one that he found “ridiculous”.

But why does he think the book has struck a chord now? After all, in the wake of the credit crunch, deflation is supposed to be a bigger threat to Britain or the US than a re-run of Weimar. “Inflation may not happen, but things are very uncertain,” says Fergusson. “I read the other day that Mervyn King [the Governor of the Bank of England] said that there will be high inflation for another two years.

“The use of unusual monetary measures during the crisis, such as quantitative easing (“just another way of saying money-printing”), has made the outlook hazy. The price of gold – generally a proxy for concern about inflation – has risen to its highest levels in real terms since the late 1970s. It is hard to tell what effect these measures may have when the economy grows again. “We all keep worrying about deflation but it can turn so fast.”

The Weimar story certainly has relevant lessons. Fergusson shows how the wrong path, once taken, is hard to retreat from. The German government chose to print money after the war to finance huge fiscal deficits because it feared that if it raised taxes and sold bonds, the economy would buckle under the strain, leading to mass unemployment and social unrest that could undermine the young German republic.

While it had an independent central bank (supposedly a defence against monetary madness), this proved a feeble defence. The bank’s president, Rudolf Havenstein, whom Fergusson thinks was unhinged, believed that if the government asked for more bank­notes, his role was to be a compliant printer. At one point in 1923, he even boasted to the Reichstag that his presses were so efficient that he could increase the total circulation of marks in issue at that time by two-thirds in a single day.

As the descent into hyperinflation accelerated, the idea of withdrawal became too painful to contemplate. Lord D’Abernon, the British ambassador in Berlin, wrote in a dispatch to London: “Inflation is like a drug in more ways than one. It is fatal in the end, but it gets its votaries over many difficult moments.”

Germany was not killed, but it had a near-death experience. By late 1923 confidence had collapsed and the entire stock of Reichsmarks in circulation, while denominated in trillions, was worth just over £30m. In 1914, the figure was £300m.

The government could no longer issue sufficient notes – even with Havenstein’s lightening presses – to finance itself. Society started to break up. Farmers refused to sell their produce in return for what they called “Jew confetti” – an ominous portent for the future. Hungry townspeople went on raids into the countryside, slaughtering livestock, which they then carried off. More prosperous regions contemplated secession.

Fergusson shows how central to the social contract is trust in the soundness of money. Without it, the web of transactions upon which we all depend breaks down also. The result is total moral collapse.

This perhaps explains why Fergusson turns out to be a fiscal hawk. He thoroughly approves of the new coalition ­government’s decision to cut the deficit faster than its Labour predecessor wanted to. “This is absolutely the time we have to be cutting the fat,” he says. “We have to crack down on the quangos and the ­unnecessary spending.” Does he think that David Cameron is made of sufficiently stern stuff to sort out Britain’s problems? Fergusson, who knew the new prime minister in his younger days (his elder son was a friend of Cameron’s at Eton and Oxford), is diplomatic. “Too early to say, but I think he has started extremely well.”

Fergusson is a member of that rarest of species – the pro-European Scottish Conservative. After leaving journalism in the late 1970s, he moved into politics, heading the successful 1979 campaign against Scottish devolution and then becoming a European MP in the same year.

He is still sceptical about devolution, which finally occurred in 1999, believing that the failure to answer the “West Lothian” question – the right of Scots MPs to vote on purely English legislation – makes the constitutional settlement fundamentally unstable. A crisis was staved off only in May, he believes, by the Tories’ decision to go into coalition with the Liberal Democrats: “Had David Cameron tried to take power with just one Scottish MP, the Scots would have exploded”.

The coalition has also helped on Europe, shaving off some of the Tories’ rougher edges. After losing his European seat in 1984, Fergusson was an adviser to the ­Foreign Office on European affairs in the 1980s and still regrets the way ­Margaret Thatcher turned the Conservatives against the EU.

“I admired enormously what she did in Britain, sorting out the economy and standing up over the Falklands,” he says. “But her obsession with the idea that Europe was robbing Britain of its identity was very sad.”

Fergusson remains a pro-European, although the Greek crisis has, he believes, shown the limits of solidarity. “I have sympathy for those Germans who are furious at having to bail out the Greeks and other countries that have been less prudent.” The lessons of 1923 are, he thinks, deeply ingrained in German memory.

When Money Dies is not the only Fergusson book being republished. The Sack of Bath – a 1973 tome about the destruction of Bath’s 18th century architecture – is also being re-issued. “So much easier than writing new books,” says Fergusson. “I leave that to my son.” (His son, James Fergusson, also a journalist and writer, has a book on the Taliban coming out this week.)

As we finish our main courses and order coffee, I mention that I have been talking to some of the gold bugs who venerate Fergusson’s book. They do not share his horror of inflation. Rather, they long for a new Weimar, in which paper currencies collapse, leaving gold as the only trusted store of value. This is a world in which we are all forever descending into our cellars, with a shotgun and a mountain of tinned food for company.

Fergusson winces: “If these are my friends, what need have I of enemies?”

Jonathan Ford is the FT’s chief leader writer



Off Abbotsbury Road In Holland Park London, W8 6LU

2-­course menu du jour: eggs benedict and pan-­fried salmon £15.95

Gazpacho £6.95

Grilled calves liver £16.95

4 x glasses St Veran £31.20

2 x filter coffee £7

Total (including service) £87.81


Adam Tooze on the lessons of history: How currencies collapse

Money died many deaths in the 20th century. It was among the casualties of both world wars and the German currency was not the only victim.

Prices in Weimar Germany reached stratospheric levels by the autumn of 1923, but the currencies of Austria, revolutionary Russia and fledgling Poland were ruined as well. After the second world war the Greek currency evaporated. The Belgians, Yugoslavs and Czechs celebrated liberation from Nazi tyranny by replacing discredited currencies. Few tears were shed for the Reichsmark when it was retired in favour of the Deutschmark in June 1948. In the 1950s several digits had to be lopped off depreciated “old francs” and the Italians lived with price tags running into thousands of lire.

Such “big monetary events” are symptoms of profound financial and political disorder. A producer cartel such as Opec can hike the price of a single commodity, like oil. But as petrol prices increase, the price of cars should tend to fall. For all prices to increase at once there must be “give” in the monetary system. Either a greater volume of money must be chasing the same quantity of goods, or the same quantity of money must be circulating with greater velocity. In really bad inflations both things happen, as panic-stricken consumers rush to spend wheelbarrows of money.

Behind any inflationary disaster lies a series of political decisions, or non-decisions, moments at which the tidal wave of money might have been dammed by a determined effort to raise taxes and cut spending. Britain and America were also swept up in the inflationary surge of the Great War. By early 1920 their prices peaked at more than twice the levels of 1914. At that point they initiated a drastic policy of deflation. Their aim was to return as far as possible to the pre-war status quo even if this imposed huge costs on debtors to the benefit of their creditors. This was not a strategy that the weak democracy of the Weimar Republic was able to sustain.

The problems of the Weimar Republic were particularly severe because it also had reparations to pay – in gold. France and Britain were not about to be fobbed off with a large cheque from Germany in its own currency. In the last resort, to get their hands on the gold, the Weimar authorities simply printed bundles of paper marks.

Perhaps more cooperation between the interest groups might have spared Germany the slide into disaster. But what is beyond question is that when the German economy was brought back to life in 1924 it took international co-operation in the form of loans from Britain and America, far-sighted political leadership and the willingness to impose losses on every group in German society. That at least is a lesson that still has relevance today.

Adam Tooze is a professor of history at Yale University

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