What German hyperinflation teaches us about today’s money-printing

A few years ago, writes Merryn Somerset Webb, we suggested that everyone worried about the long-term effects of (QE) quantitative easing read Adam Fergusson’s brilliant book about hyperinflation in Weimar Germany, When Money Dies. The book had just been republished and sales were excellent so I suspect many of you did.

A few weeks ago, Adam gave a talk at the Bath Literary Festival. It addresses many of the themes in the book but looks in particular at how money is nothing more than trust – and how when that trust disappears, money can die anywhere. Is he suggesting that we might one day see hyperinflation, or at least very high inflation in the UK?

Perhaps – as he says, “printing money is the way a democratic government normally indulges in unproductive activities such as warfare or welfare. And it is the only way it can wipe out debt without repayment.”

Adam has very kindly agreed to allow us to reprint his talk below. I strongly suggest you read it to the end – the lessons he draws from Europe’s past are vital to anyone trying to navigate the world of currencies today.

Putting your trust in money

by Adam Fergusson

This sterling banknote still carries, though in suspiciously small letters, the promise to pay the bearer on demand the sum of £20. Suppose you tested it. Would you be satisfied with twenty cupro-nickel discs like this one, whose milled edges are an interesting example of sceuomorphism, a decoration with a defunct purpose – in this case to discourage the clipping of gold and silver coins.

Those milled edges were the invention of Sir Isaac Newton, Master of the Mint in 1699, still having bright ideas 33 years after the apple struck him. They meant that people could – on the whole – renew their confidence in the money they handled.

I want to talk about trust, trust in money, trust in those who control its supply, and what happens when that trust is lost.

42 years ago in 1971, Britain adopted her decimal currency, and President Nixon stopped the convertibility of the dollar into gold – which then fetched $35 an ounce (against nearly $1,600 now). Then, a £20 note would buy goods worth £300 today: the pound has since declined by an average of 5% a year: and, since my book When Money Dies first came out, it has lost nine-tenths of its value. And the purchasing power of the dollar has dropped too, but only by three-quarters. 

The accepted definition of hyperinflation is when the price index (however that is calculated) first reaches 50% in a single month. When I was at school, one could still send a letter for each of the 240 pence in a pound. Now, with the penny itself on its way out, from this April a pound will buy exactly two second-class stamps.

Hyperinflation is thus a matter of time – as well as degree. But high inflation and hyperinflation are the same disease, with the same pathology and much the same symptoms.

Anyhow, as Britain and Europe and the United States wrestle with their banking crises and unmeetable debts, and all three are creating or printing new money to get out of difficulties – it is worth reflecting on the unpredictability of ordinary people and what they may do when they lose their trust in their money.

In the early 1920s, Weimar Germany suffered the most extreme and spectacular example of what we now call by the euphemism ‘quantitative easing’ (QE) ever conducted in an advanced economy. In 1913, a year before the First World War broke out, a paper mark and a gold mark were the same thing. Four of them were worth a dollar. Ten years later, one dollar would buy four trillion – four million million – of them.

If I had a simple graph to show this on an arithmetical scale it would go through the roof of this building.

What was it like?

Picture yourself a man in Berlin in the late summer of 1923. You are on a tram with your weekly salary, consisting of a fat bundle of new banknotes – each with a face value of 20 million marks and each worth about a dollar (all your thinking is in dollars). And you are using your lunch-time break to hurry to the bourse to invest them in an industrial share before four o’clock in the afternoon.

You reckon the latest exchange rate announcement then will show them to be worth only half as much. Yes – the office messenger had collected the firm’s cash from the bank that morning in a cart or a barrow.

You are lucky to work for a newspaper. Newspapers are much in demand, because everyone wants to know the latest share prices. If you were, say, a lawyer, or a dentist, or an architect, or a professor, you would find that no one needs your skills enough to pay for them.

You observe that the tram fare, though highly subsidised, has gone up again – to 55,000 marks, say, half a cent. You proffer a note and receive 19,945,000 marks in change. This takes some minutes for the conductor to count out in paper denominations ranging from 200, 500, 1,000, 10,000 marks, right up to ten million.

And because other passengers are waiting, you don’t bother to check your change. Well, in due course you will give every note of up to 100,000 marks to the grateful beggars near the food shops if they are open.

At least the tram, corporation-owned, must take your money. Earlier, your wife queued for two hours to swop three lumps of last winter’s coal for a loaf of bread, and two old candles for half a kilo of sausage and some butter. You were lucky a year ago to give your 19th-century silver canteen to a farmer in exchange for the side of salt beef which still feeds your family on Sundays.

Black markets are open, but farmers’ markets have closed; and food can only be bought (if at all) by barter or with foreign exchange. Milk is available because farmers can’t sensibly sit on it. But thousands of bottles remain unsold. You have some sympathy for the hungry townspeople far from Berlin, who, deprived of food, have simply gone into the countryside to take it.

It is illegal to hold foreign exchange, but everyone does who can. You guard the little you have left against an emergency: dollars, Swiss francs, guilders, perhaps some sterling. The value of your savings, your capital, has long since melted away – like everyone else’s, it was largely held in government or corporate bonds, now worth nothing. Your insurance policy is worthless. Luckily for you, strict rent control at pre-war levels means you live virtually free in a good apartment. Your landlady is destitute.

There has been a gainer for every loser. You have heard the same stories from Austria and Hungary, the other hyperinflating defeated Central Powers.

In Berlin as in other cities, signs of hunger are everywhere – rickets in children, scurvy in adults. Evidence of general desperation is in the crime figures – robbery, burglary, counterfeiting, prostitution, violence, murder – and of course throughout the country in food riots, in the advance of militant parties of left or right, in the threats of secession, in assassinations and attempted putsches.

Now, how had Germany’s finances come to this terrible pass?

In August 1914, just before the First World War broke out, prudent Germans were queuing at the banks to turn their banknotes into gold. An alarmed Reichsbank quickly suspended the promises on those notes. But whereas the Allies paid for their war through borrowing and taxation, the Kaiser’s Germany expected it to be over by Christmas and intended to pay for it with the spoils of victory. Christmas came and went. And the German stock exchange was closed for the duration.

It is bad enough in a financial crisis, which typically reaches a peak on a Friday evening, to have to wait until Monday to find out what the markets have done to your investments. In Germany, that troubling weekend lasted four years. And people awoke to discover for the first time that the German mark had already lost three-quarters of its value against the dollar, the pound, the French franc.
Two million exhausted, disheartened, ill-fed soldiers, whose pay had been pegged at pre-war levels, were demobilised with no work to return to, in a broken, hungry country. The economy had been shot away. It was months before the Allied blockade would be lifted. Here was a political tinder-box.

The peace conference at Versailles, and the question of reparations, delayed and twisted every chance of recovery. Threatened by the danger that the Russian revolution of 1917 would spread to Germany, the new republican government in Weimar could only follow its imperial predecessor’s lead, resorting to the printing press to supply the immediate domestic need for banknotes that taxation could not provide. It had at hand a willing Reichsbank under one Dr Rudolph Havenstein, prepared to discount whatever amounts were called for.

Two years later in 1920, 18 months before hyperinflation properly started, the national debt had been wiped out, and everyone’s savings with it.

On top of that, the peace terms demanded payments of 2,000 million gold marks a year for 66 years (132,000 million in all); handing over annually enormous supplies of coal, steel, iron ore, and other minerals; the loss of Alsace-Lorraine to France, of Upper Silesia to Poland, of all Germany’s African colonies; of her zeppelins, her navy, nine-tenths of her merchant fleet. These crippling forfeits, insisted upon mainly by France, caused bitter resentment which Hitler turned to his good use. 

Down in Bavaria, just before his failed beer-cellar putsch in Munich, he was blaming the Jews – but also the French, and the republican government in Weimar – for capitulating to the Allies in 1918 and so stabbing the German army in the back.

As your tram trundles along the Kurfurstendamm, you recall that fear of unemployment had been among the motives for the economic stimulus of hyper-easy money. And how well it had worked! Post-war Germany needed new shipping to replace her confiscated merchant ships, new railways, new locomotives and rolling stock; new road-building equipment.

This was the opportunity for just the kind of neo-Keynsean economic kick-start with new capital investment to promote growth which is being called for today across the Western world, and which QE is expected to pay for.

Well, in Weimar Germany entrepreneurs had pounced on the opportunities offered by limitless credit to meet domestic demand – no less than to build up highly competitive and profitable exports. Thus arose the phenomenon of vertical conglomerates.

The availability of limitless credit persuaded the biggest iron and steel manufacturers (Thyssen, Siemens, AEG, Kloeckner, Krupp) to buy up not just the mines which supplied their raw material and energy, but the railways which fed them, the dockyards which used their products, and even the ships their dockyards built. They built more dockyards. Some founded their own private banks. The aim was to cut out middlemen, acquire foreign currency, and save huge amounts in back-dated, depreciated tax.

A handful of huge industrial concentrations thus drove the economy manically forward. And the competitiveness of exports, produced so cheaply, started the ruin of parallel industries in France and other trading partners, and later the collapse of the French franc.

But there was full employment! No wonder France, ever suspicious of the Reich, felt Germany was escaping her obligation to pay reparations and could afford to pay more and faster.

One Hugo Stinnes was the most notorious and predatory of all these monopolists. Stinnes at one time acquired over 1,500 principal enterprises and nearly 3,000 secondary firms (many weakened by inflation). He was another passionate, vocal and effective advocate of the Reichsbank’s credit policy. The Stinnes group owned 19% of total production.

The point is that those industrialists who claimed to be rebuilding the state were not: they loved inflation. They were exploiting it: they were bleeding the country white. And they were the hate figures of those times.

Yet here were the reasons for the middle and lower-middle classes to speculate on the stock exchange. For most it had become their only means of making enough money to exist. Industrial shares – in newly-formed joint-stock companies raising new capital – were the first choice as a haven of appreciation. Anyway, any share was better than holding paper money.

That led to an explosion in the number of bank accounts in Germany (up from half a million in 1913 to two-and-a-half million now in 1923), and a similar explosion in new small banks – indeed over 400 more that year alone, many little more than note-issuing institutions.

However, the explosion in bank staff (four times the pre-war figure), though overloaded with buying and selling orders, was mainly due to the time it took to count the banknotes in every transaction.  

In 1922, many new factories were built. But now in 1923, some are making only trinkets to satisfy a home market desperate to buy anything however useless. A rash of unused factories also burgeoned as those profiteering adventurers hustled to turn paper marks into foreign exchange (which they kept abroad) or into material assets.

There has been over-production of coal by 200,000 extra miners. Farms are awash with unneeded machinery. In short, the manufacturing boom has severely upset the balance of supply and demand in the economy – although, incidentally, 12 years later, those unproductive factories and shipyards would give Hitler the spare capacity speedily to rearm the country.

Anyway, we are still in the late summer of 1923, still on the tram, and this short, dubious inflation-driven investment spree is over: in the spring, the French and Belgian armies invaded the Ruhr, intent on seizing material goods – steel, coal, telegraph poles – due as war reparations – and Germany’s biggest industrial area shut down in protest. There was a brief burst of patriotic fervour along with passive resistance in the Ruhr, but dejection had returned when worklessness among the labouring classes began to soar nationwide

Naturally strikes continue in the public sector, all the time, sometimes to prevent dismissals (the post office has twice the staff it needs), but generally strikes are for higher wages in distant pursuit of the cost of living. And the trade unions still have the clout to get what they want, necessitating ever more paper money to pay them. 

However, a week before our notional tram journey, the depreciation was so great that a walk-out was abandoned because the union leaders didn’t know how much to strike for. No one ever strikes for the only thing worth having – a stable currency.

Meanwhile, the civil service has become corrupt, bribable, bribing – something unthinkable before the war. No budget can be balanced, because expenditure each month so vastly exceeds the tax receipts of six months before – and this year, the futile collection of such tiny real sums has ceased. So at least you don’t have a tax problem that can’t be solve with small change.

You do your best not to give way to suspicion that your neighbours are doing better than you, not to believe what the Nazi rabble-rouser in Bavaria is blaming on the Jews, not to resent the way the agricultural community has flourished – you hear that many farmers have paid off their mortgages for the price of postage stamps.

You don’t really know where the enemy is – and you have done your best not to be revolted by the sight of profiteers or tourists, glutted with foreign money, making pigs of themselves in the cafes and restaurants of Unter den Linden – the places where, notoriously, the price of a meal could rise between the courses. A law passed against gluttony had been unenforceable.

However, as a journalist, you have had a notable advantage on this day, August 17 1923. You have just edited for publication an extraordinary speech by the Reichsbank’s president, Dr Havenstein, describing his latest titanic efficiency in supplying a despairing nation with the banknotes it calls for so insistently.

“The Reichsbank”, Havenstein proudly told an unprotesting Council of State, “today issues 20,000 milliard marks of new money daily, of which 5,000 milliards are in large denominations. [A milliard is a thousand million]. In the next week, the bank will have increased this to 46,000 milliards daily, of which 18,000 milliards will be in large denominations… In a few days, we shall therefore be able to issue in one day two-thirds of the total circulation”.

No wonder you have taken the tram rather than risk walking to queue to get rid of your salary in time. (The mark duly fell within 48 hours to Havenstein’s surprise, from 12 to 22 million to the pound.) 

Havenstein was not the last central banker to cause mayhem by declaring publicly and in advance a substantial bout of QE. It is what the central bankers of Britain, the eurozone and the United States have been doing.

Yet, Havenstein’s ignorance – though he was far from alone – of the quantity theory of money (which broadly relates the price of goods to the supply of money available to buy them) was astonishing: he blamed the ceaseless depreciation on speculation, on the admittedly crushing war reparations demands, on the ever-rising dollar (all movement is relative!), on the inefficient tax system – on anything but the printing press. And this man was president-for-life.

Now, in the days before electronic money transfers and universal bank accounts and credit and debit cards, producing enough unforgeable paper money was a challenge. Bigger and bigger denominations was one answer (although each necessitated a new, beautifully engraved design). It helped to print them on one side only. There was such a demand for them that cities, towns, and industries were printing their own emergency money to pay their employees – and the Reichsbank discounted those too.

Havenstein’s patriotic obligations were meanwhile aided by 30 paper mills, 150 printing firms, and 2,000 printing presses toiling away day and night, perpetually adding to the torrent, the cataract, the blizzard of banknotes to meet an insatiable demand.

No less a feat was the distribution of these fantastic sums, always too many, yet never enough. By September 1923, it was calculated that he had paper notes enough to fill 300 ten-ton railway wagons waiting to come to his country’s rescue.

By mid-October 1923, when the paper mark was at 6,000 million to the gold mark, it was unaccepted and unacceptable, and effectually dead. But it was to remain negotiable for some months, though on very different terms.

In November, Havenstein fortunately died. And one Dr Hjalmar Schacht, later to become Hitler’s banker, took over from him. The Reichsbank immediately stopped discounting treasury notes, and the economy, still geared to perpetual inflation, screeched to a halt.

Dr Schacht cleverly allowed the mark to fall to one million-millionth of its former self, and it was then a simple business to strike 12 zeros from every sum to return to accounting sanity. But Schacht simultaneously introduced a currency called the rentenmark, based, it was maintained unconvincingly, not on gold but on land values – for by the previous July, there had not been enough gold left to underwrite a new currency. And, miraculously, it worked.

The rentenmark held sway until the reichsmark could take over at the old gold parity of 1914. People believed in the rentenmark because they needed to believe in it, and wanted to. For money is, literally, a confidence trick – whether it’s gold or paper or coconuts.

Anyway, the conditions were there under which recovery was possible. Stability returned instantly with trust in the currency. So did serious unemployment, not least in all the banks which closed their shutters. The conglomerates unwound.

Encouragingly, the militants of the right and left ceased from troubling. Hitler was put in prison and wrote Mein Kampf. The countryside released food to the cities again (though many could not afford it at any price). And, while a series of huge financial scandals was exposed, the speculators, profiteers, and financiers, who had previously obliterated the economies of Poland, Hungary and Austria, now took off for Paris to attack the ailing franc.

You might think this is the sort of progression feared for the eurozone today if one of the peripheral members in such trouble is allowed to default.

The worst legacy of the inflation was perhaps the ruin of Germany’s rentier or middle classes, their wealth gone, and their disillusion with the post-imperial democracy complete, and (because of France invading the Ruhr) their conviction that re-armament would be a necessity.

The social fabric was destroyed. Stability was the basis on which recovery could be built; but, helped by the Great Depression to come, hyperinflation had created fertile ground for the demagogue waiting in the wings. 

Now may I return to the present? – to emphasise the relevance of this story today, and show how much we have learnt and forgotten, I can’t do better than quote the astounding utterances of our business secretary, Vincent Cable, at a Lib Dem conference in Scotland exactly a year ago.

Quantitative easing, he is reported to have said, is an experiment which the coalition does not fully comprehend nor knows where it may lead. He accepted that in Britain, where the Bank of England has already issued £375bn of new money, with a threat last month of another £25bn to come, QE had driven down lending rates and gilt yields, and undermined pensioners’ savings.

He then said (and I quote), “its wider consequences, whether QE will lead to inflation, the wider impacts on bank lending, these are things which are only very, very imperfectly understood”. I am sure he spoke the truth.

Only last month (7 February), the incoming governor of the Bank of England, Dr Mark Carney, told the Treaury Select Committee that more work needed to be done to establish the “costs and benefits” of QE. For “costs” read ‘harm’.

And I can only suggest that that “very, very imperfect understanding” of this two-edged sword extends to others who are still playing with the same fire:

• The US Federal Reserve, currently issuing $85bn of new money every month with no evidence that its repeated bouts of QE have had their intended effect. Its president, Mr Bernanke, has just predicted a QE4 to follow QEs one, two and three.

• And Mario Draghi of the European Central Bank who in 2011 invented and issued a trillion new euros to Europe’s banks at 1% to get the eurozone out of trouble. Also last summer, he promised unlimited support to eurozone nations that request it.

That loan certainly bought relief and gain for 800 banks; but there is no sign that any of that money, either flowed onto the wider economy where it might do some good.

We must remember – most of all in countries whose debts are so great that no growth will cover them – that printing money (as we may still call the inflation engine) is the way a democratic government normally indulges in unproductive activities like warfare or welfare.

And it is the only way it can wipe out debt, (that is, repudiate its obligations) without repayment. And have we all got debts!

I can’t over-emphasise this: without growth beyond anything credible, how can a state (our own, just for example) maintain high index-linked pensions for a bloated public sector (MPs and all), while we all live longer and retirement age is too low? How apart from by printing more money?

If people know their money is going to lose half its value within a year, or a week, or an afternoon, they do not want to hold it. And the speed of money’s circulation can be a more potent engine of inflation than printing: as Germany found, a hundred mrks going round and round fast enough would do the work of 500, or of 1,000, or of 10,000.

In these days of plastic cards and electronic money, which has no physical form, you don’t need printing presses and the endless felling of pine forests to debase a currency.

But I don’t see much distinction in principle between Havenstein’s giving advance notice of the preposterous feat he would perform and Mario Draghi’s promise of the European Central Bank’s unlimited help to the eurozone, or Mr Bernanke’s prediction of a new round of QE – unleashed entirely for domestic political reasons, but casting its bane over what is the world’s only reserve currency, the dollar in which so much is denominated.

(No wonder the Chinese, holding reserves of three or four trillion dollars have been so angry and are buying gold!). 

Similarly, the £375bn of new credit the Bank of England has so far authorised has, for me, some counterpart in Havenstein’s wagonloads of paper hovering menacingly in the railway sheds. They didn’t even have to be distributed to do the damage.

Allow me to go further back in time – to show that the pathology of inflation doesn’t change much.

The history of the Mississippi Bubble and the enormous paper-fed inflation which ruined so many Frenchmen in 1720 is well enough known. Typically, however, it was forgotten in Paris only 70 years later, in 1791, when the revolutionary government, short of gold money, and confronted with a populace that had thought that revolution meant no more taxes, printed a once-and-for-all issue of paper promises called ‘assignats’ notionally backed by the value of confiscated Church lands.

It was followed – against the horrified warnings of the great statesman Mirabeau – by another once-and-for-all issue, twice as large; then by another, and another. Prices rose and rose. Laws were passed making it obligatory to accept assignats at par – which was much like the assertion on a US dollar bill that “this note is legal tender”. But to no avail. People hoarded metal money. The farmers refused to sell food for paper. Trust had disappeared.

In these past 24 months, as we have contemplated eurozone leaders endlessly discussing what to do next, and knowing it wouldn’t be done, maintaining that a worthy but ideological adventure can be made to work without a lender of last resort, and without fiscal unity, (they are still kicking the can down the road, not ineffectively) we may be reminded of what Mirabeau in 1794 told the Assemblee Nationale: “Bankruptcy, hideous bankruptcy is upon you. It threatens to devour you, your property, your honour – and all you do is sit and talk!”

For France there followed Robespierre, and the Terror, and ruin, and eventually Napoleon, who restored gold and silver coinage and brought stability back to the economy. He paid his soldiers in gold, and conquered most of Europe on the gold standard. It was a long time before the French were prepared to use paper money again.

Slightly less familiar is the episode of the finances of some American states in 1843. The incomparable Sydney Smith (then a Canon of St Paul’s) petitioned the US Congress about Pennsylvania’s repudiation of its public debts at the time.

In subsequent letters to the British and American newspapers, Smith called the pillage perpetrated by the default of the richest state in the Union an act of bad faith without parallel or excuse. Perhaps over-egging it, he said it was a fraud as enormous as ever disgraced the worst king of the most degraded nation in Europe.

He warned all America that, by allowing the bankruptcy of so many, the nation would become one with whom no contract could be made, because none would be kept; a nation unstable in the very foundations of its social life, deficient in the elements of good faith. He professed alarm at Pennsylvania’s total want of shame for the callous immorality with which Europe, where many Pennsylvania bonds were held, had been plundered.

After some further bitter assault on Pennsylvania’s character, he made his famous remark – “There really should be lunatic asylums for nations as well as individuals”. The Americans were furious.

As it happens, Smith’s facts were not quite straight. Other American states had indeed repudiated their debts disgracefully, but Pennsylvania was not one of them. Because of a general lack of gold and the ungoverned printing of paper money by her banks, Pennsylvania was suffering – here we go again – from galloping inflation.

Public wages had to be paid in kind – potatoes, rye – but vegetables were not a practical way to settle what European bond-holders were owed. Had Sydney Smith lived longer, he would have got his money back and the interest on it too.

We have learnt that our business secretary understands the threat of QE to the value of our pensions, our savings, fixed incomes and living standards. We hear the Bank of England’s arguments for creating new money and for keeping interest rates low – so low that it is a disaster for our pension funds. And we know the danger of recession. But we look bleakly at high-street prices, and at the record – both of QE’s effectiveness and the accuracy of inflation measurements.

The cost of an FT rose last year not by the then headline 5.2% but by 10%. And look what’s happening this year to fuel prices. And food. And train fares. And even water.

Something else to think about: according to the Office for National Statistics, the pensioner index (of the items pensioners need most) has been at three times the headline rate.

And of course, with floating curerencies, we can all see that exchange rate risk is another serious related matter. No-one who watched sterling on the slipway again last week against the dollar and the euro cannot have feared for what it means for our foreign holidays, or for all our essential imports, from oil and gas to… horsemeat.

Now, as this is a literary festival, may I strike a cultural note? Polonius’s advice to Laertes was “neither a borrower nor a lender be”. If the 12th-century usury rate in Hamlet’s Denmark were as low as our Bank Rate today and inflation as high as it is growing here, it might have been better advice to have told Laertes to borrow as much as he could – if there were a lender in downtown Elsinore gullible enough to play that game.

I suppose Polonius might have added that, if things went wrong, he could always try to get his overdraft recapitalised or his debt restructured.

But this is 2013, and as a government or central bank you have fewer misgivings than Polonius about borrowing. In Britain, you are already conspiring wilfully to lower your debt through having a target annual inflation rate of 2%. You never adequately explain to the hapless suffering saver the need for such a target – which anyway is always missed.

The extra percentage of inflation contributed by the headline element is simply jam on your bread. And the purchasing power of what you have borrowed – of the bonds you have sold – of your sovereign debt – is slowly melting away.

There is the practical side to this: how much can you depreciate your currency in a sophisticated economy before trust melts away? If 5% inflation is still low enough or slow enough for most people either not to notice or not to care, when does the man in the street, whether or not his capital or wage or salary or pension is index-linked, become disturbed enough to take action? I don’t know, but sooner or later, the dam of his trust in money as a store of wealth will burst; and he won’t want to hold it any more.

That was our experience in the mid-1970s – the first oil shock – when in Britain, the inflation rate would reach over 20%. Outside the public sector, many had nowhere to run. But if you had the bargaining power of a trade union, you struck for higher wages, pushing inflation up further.

Or if you had any savings or stocks and shares, you switched them hopefully into other assets – another currency, or art, or gold, or land, or forestry, or Mars bars – anything to preserve what wealth you had. 

Money is the medium by which wealth is measured, social position maintained, security promised, livelihood supported; which makes possible commerce, travel, enterprise, insurance, and all kinds of civilised interaction. So it is vital to be able to trust those who control the supply of money, who will contrive its stability, who will be true to the otherwise meaningless promise that is still on our banknotes.

I hope the incoming governor of our Bank, Dr Mark Carney, understands that.

Now, what does all this history say to us? History should not preach, but perhaps it can teach.

First, what happened to Germany after both world wars was like a vaccination: it explains why today she won’t risk contracting that disease again, and her deep unwillingness to underwrite the debts of others. It is, however, a little strange that Germany, insisting on a crushing austerity for the Greeks, seems to have forgotten her own experience of her unmeetable reparation obligations in 1923. For that year had disturbing parallels with the terrible unemployment today in Greece and Spain for a start. 

How long can the lid on those kettles be held down, and the eurozone survive in its present form? The opera buffs of this week’s Italian elections suggest the answer: a quarter of all the votes were won by a clown, who holds the balance of power.

Second, printing money is like a drug: an addictive, short-term expedient with long-term consequences more painful than any alternative. Two weeks ago, Sir Mervyn King observed that monetary policy will now only work “in larger and larger doses”.

Third, debauching, debasing, diluting the currency is socially divisive and corruptive. It is a two-edged sword which hurts the helpless while it bales out the reckless. Hence the new cynical aphorism: saving is for losers.

Fourth, when economies become geared to inflation – and which of ours is not? – it develops its own obnoxious lobby of vested interests: those who profit from it at the nation’s expense. 

Their practices impede reform and even cause the exchange fluctuations that occur. It is not hard to find an analogy to the operations of the German industrialists, who saw inflation as a blessing in the activities of some modern hedge funds or mega currency-dealers.

Fifth, the velocity of a currency’s circulation can be more inflationary than raising its quantity, and is harder to control. Velocity increases as trust in it falls. Trust falls as expectations of inflation are allowed to rise.

Sixth, money is, I repeat, in its literal sense, a confidence trick. The first duty of a central bank is therefore to maintain people’s absolute confidence in its integrity. (For me that implies that no bank with a fiduciary mandate should be burdened like the Fed, or in effect the Bank of England, with a political one too – such as safeguarding employment or stimulating economic activity.)

Last, wilful inflation of the money supply, call it what you will (QE, deficit financing, liberal credit policy, printing money), is the creeping repudiation of debt. It is dispossession by stealth. Keynes called it an unfair tax. Worse, and most dangerously, it is the betrayal of trust.

Mr Chairman, in the ten-day course of this festival, I calculate that 5.2 pence will have been clipped off the twenty-pound note I showed you earlier. By this time next year, it will have depreciated by a whole pound.

Havenstein never found a good time to stop the presses. There never is. Better to not begin. He might well have quoted Macbeth: “I am in blood / Stepped in so far that, should I wade no more / Returning were as tedious as go o’er.” But at least Macbeth knew what he’d done wrong.

We have no Isaac Newton to help us – and if we had, we might anyway reflect that he put all his money into the South Sea Bubble. Though I must stop, the remorseless, shameless clipping of our money goes on. And on.