Last week ended in civilised manner with tea and cake with an old friend at the wonderful cake shop attached to the London Review of Books book shop, around the corner from that other haven of civilisation, the British Museum. Of course, it's impossible to pass through a bookshop (even on the way to a slice of lemon cake) without buying something, and I picked up from a display table When Money Dies by Adam Fergusson. Not until I searched for it this morning did I realise that this is a cult book recommended by Warren Buffet in his annual speech to shareholders earlier this year. Even without knowledge of this imprimatur, it has been a gripping read.

The subject is the hyperinflation in Germany, Austria and Hungary in the early 1920s. Not only does this account confirm Milton Friedman and Anna Schwarz''s famous dictum (in their Monetary History of the United States) that (hyper)inflation is always and everywhere a monetary phenomenon, it augments it: inflation is always and everywhere a social phenomenon. The hyperinflations were made possible by the non-stop rolling of banknotes off the printing presses, but the decision to print was a political one and reflected the social fractures of those terrible years within the affected countries, and the international fractures after the First World War. In none of the hyper-inflation countries were governments able to collect enough taxes or reduce spending enough to close large budget deficits. And their budget nightmare was made all the worse by the reparations demands of the victorious allies. Although Keynes (in his famous Economic Consequences of the Peace) predicted that reparations demands would have disastrous effects, the French in particular but the allies as a group insisted on pressing the financial demands – on broken countries – in full.

When Money Dies was first published in 1975 – and the reissue I picked up seems to be already out of print. Its author started out as a journalist and tells this tale forcefully. He covers the economic issues but the human ones too: the desperation of mothers seeking to feed hungry children, whose growth and health were damaged; the hysterical spending of money on champagne and nightclubs before its value evaporated; the purchase of property and antiques as better stores of value; the luxury of rural life compared to the corrosive loss of status and self-esteem amongst urban professionals and intellectuals.

There is a contemporary message in this history too, as in the US and UK the metaphorical printing presses churn through QE, and the exchange rate slides, and the government struggles to close the chasm of a budget deficit. It is that we shouldn't ever relax our vigilance about inflation. Inflation is just as socially corrosive as unemployment – and affects similar groups of people, the economically powerless, those lacking in skill and dynamism. It's an indicator of a weak sense of cohesiveness in a society, and a creator of social disintegration. And, as Fergusson points out, the financial commentators in Germany in 1921 and 1922 refused to see the flooding of rootless money into the economy as a contributor to rising inflation. Today's circumstances are profoundly different but one thing hasn't changed: the combination of deep social or political friction and loose monetary policy as an economic sticking plaster is a very malign one.