A nation's currency, like its language, is an abstraction. There is a cultural agreement as to its meaning - in the case of money, an agreement that it represents a unit of wealth.

Inflation is an assault on that assumption. When the assumption no longer holds, the social contract is broken and a civilization begins to cleave at the seams. As Calvin Coolidge once said, "Inflation is repudiation."

In The Penniless Billionaires, Max Shapiro studies four periods of extreme inflation in the past and, from there, proceeds to a sobering examination of the present inflation-prone milieu.

Governments fell as a result of three of the bouts of hyperinflation that Mr. Shapiro surveys - in Imperial Rome, Revolutionary France and Weimar Germany. His fourth case was a tamer strain of inflation, during Civil War America, and it was eventually snuffed out by stopping the flood of greenbacks into the economy.

This is history through the monetary prism, laced with anecdote, for the layman - an engaging narrative. Mr. Shapiro has limned the history books, accounts of archaeological digs and Government reports, but presents his subject as a tale, not a text.

In a preliminary treatment of inflation in antiquity, for instance, we learn that Alexander the Great, the controversy about his drinking habits notwithstanding, pursued a monetary policy of considerable restraint. At least he did until near the end of his reign when, largely to pay for his military exploits, he threw a flood of coins into circulation. A wild inflation broke out, one that was still raging when Alexander died of fever and exhaustion in 323 B.C.

To illustrate the mind-numbing inflation of Weimar Germany, Mr. Shapiro presents the example of Lotte Hendlich, a German widow who returned to her homeland in the autumn of 1923 after a few years in Switzerland recovering from tuberculosis.

In history's eras of rampant inflation, Mr. Shapiro writes, the details differ with time and place, but the basic script is the same. In each episode, the government was well aware of the danger of inflation. Yet faced with some emergency, usually a war or social unrest, the government sped up the economy; its spending far exceeded its revenues (tax increases were shunned), while the money stock was swelled enormously.

Each time, the first decision to inflate the economy made sense: the prospect of inflation was preferable to the present danger of war or revolution. However, once the printing presses are set rolling, it becomes difficult to slow them. A principal reason, Mr. Shapiro contends, is that there is inevitably a ''net of vested interests'' that amass great wealth, thanks to inflation, and exercise their influence to keep it going.

The net of vested interests is made up of industrialists, entrepreneurs, professional investors and bankers. Simply put, they can obtain credit to buy assets -- real estate, factories, gold -- with currency and then pay off their loans later with vastly depreciated paper money. They have the ante to play the wealth-grabbing game, while the middle class is ''stretched daily on the rack of inflation,'' as the Austrian author Stefan Zweig wrote of Weimar.

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© 2009 Steve Lohr

ABOUT THE AUTHOR

Steve Lohr reports on technology, business and economics. He was a foreign correspondent for the Times for a decade and served brief stints as an editor, before covering technology, starting in the early 1990s. He has written for magazines including The New York Times Magazine, The Atlantic Monthly and The Washington Monthly.

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