Some time in the early 1970s, I went to interview Harold Wilson at his house in Lord North Street. Jimmy Margach, then political editor of the Sunday Times, came along as my minder. I was nervous and glad he was there. Jimmy was a very sweet man who had reported politics since the time of Ramsay MacDonald and politicians liked and trusted him.

We were soon summoned upstairs to see the great man. He sat surrounded by cuttings from the Daily Mirror. He was writing an account of his years in power, 1964-70. The Sunday Times had bought the book for serialisation. I was there to write a puff piece for the paper on the writer at work.

I can remember nothing about the interview apart from the sight of the newspaper cuttings neatly arranged on his study floor. This was a let-down: I expected diaries, Cabinet papers, some evidence of the inside track - a naïve expectation because Wilson wanted to lead a government again, and soon did so, and the book he eventually produced was a most anodyne account that dug no dirt. The diaries of Richard Crossman, which the Sunday Times also published, breached conventions of Cabinet confidentiality and showed how interesting the political memoir could be. But that had still to happen. Wilson wrote in a previous era, cautiously, to preserve and possibly enhance his political reputation, and for money.

The rumour at the time was that the Sunday Times paid £200,000 for serial rights. That always seemed far too high a figure to me until this week, when I discovered that the Times paid £100,000 for Anthony Eden's memoirs in 1959. The parliamentary register of members' interests shows that last year Robin Cook received £250,000 as an advance against royalties from his publisher and £200,000 from the Sunday Times in serial rights. Even adjusting for his much lower political status and interest, Cook by these historic standards is probably not even keeping up with inflation. But it is still a lot of money. I would guess that few people can now remember what Cook's book contains by way of disclosure, and it has few other merits. So why are publishers and newspapers prepared to pay so much?

A good part of the answer lies in one journalist, the late Sir Denis Hamilton, and a date, September 15 1958. The history of journalism can be written in various ways, and journalists usually prefer to see it in terms of the glories of their craft: scoops, successful campaigns, writing that changed public perception and perhaps even public policy. In this way, the success of the Sunday Times 30 years ago can be attributed to the editorship of Harold Evans, his famous legal battle to publish Crossman, his belief in investigative reporting, the Thalidomide campaign, etc. These certainly and deservedly secured its reputation, but it was the philosophy of Evans's predecessor, Hamilton, which secured the paper's circulation and profit.

Hamilton believed memoirs could sell papers. He had a distinguished war service and knew the hero of Alamein, Viscount Montgomery. In 1954, he reached an agreement with Montgomery that the paper would buy and serialise his memoirs when the field marshall had finished writing them. The price wasn't disclosed to his paper's then proprietor, Lord Kemsley, and as far as I can tell, remains unknown. Four years later, the memoirs were ready. Hamilton allocated £100,000 to marketing and promotion, including the manufacture of "Monty" toby jugs, free in newsagents. More remarkably - a revolution in British newspapers - he decided the Sunday Times would be split into two sections, the second to be called a "magazine section", which could be "kept for leisure reading". It first appeared in that form on September 15 with the general's memoirs fronting the new section, where they ran for 14 weeks. The Sunday Times increased its circulation by 100,000 copies and overtook and outdistanced the Observer, which never again caught up. Hamilton got a £5,000 Christmas bonus. Thereafter the paper bought memoir after memoir (even memoirs in verse, serialising Betjeman's Summoned by Bells ). With William Manchester's book on Kennedy, serialised in 1967, the paper's circulation reached a high-water mark of 1.5 million.

It didn't last. By the time Wilson's memoirs appeared, it was apparent that memoir serialisations had become the equivalent of a recreational drug. They gave the paper a buzz, they put on sales, and then the sales went back to the previous figure, or lower (as the Daily Mirror recently discovered after spending £1m on the royal manservant, Paul Burrell). Now, at a time of bleakly declining newspaper circulations, they could be seen as desperate acts; a hard habit to break, fuelled by some dim tribal memory of Viscount Montgomery.

Without newspapers and their serial money, publishers would never pay out such large advances to political or celebrity memoirists. Even as I write, at least one publisher is talking to newspapers to try to ascertain the likely fee for Clare Short, so that they can quantify their offer to her. But here again the economic logic is hard to follow. The theory is that the publisher spends £500,000 (say on Greg Dyke) and gets back £200,000 of that in serial rights from a newspaper. But where does the other £300,000 come from? British political memoirs usually have short lives, no prospect of overseas sales, no future as films. They are written quickly, often badly, and the juice of any disclosure they contain can be easily squeezed into no more than 10,000 words, to be read in the paper. Cook's memoirs have so far sold 14,475 copies in Britain, according to Nielsen Bookscan figures. Add a little more to include sales in the Republic of Ireland and perhaps a few abroad, and the author's royalties earned on the title are still less than £30,000. Generously assume there will be still be interest in Cook when his paperback comes out later this year, with royalties probably at 7.5 per cent, and his earned royalties might reach a quarter of his £250,000 advance, and a total income to the publisher of about £200,000, to be set against editing, production and marketing costs, overheads, plus the unearned portion of the advance.

This is not an unusual story, nor is there anything new about politicians earning large sums from their writing, nor do I resent it. In 1946, when he started his six-volume history of the second world war, Churchill got $1.15 million for US serial rights from Life magazine and $250,000 as an advance from his American publisher, Houghton Mifflin, so that from America alone he earned the modern equivalent of about £7m.

This calculation comes from Roy Jenkins' excellent 1,000-page biography of Churchill, published in 2001. How much did Jenkins get paid by his publisher? Probably about £150,000 for a book that will go on selling across the world for many decades. How much did Edwina Currie get paid for her diaries (total hardback sale according to Nielsen Bookscan, 7,913)? Safe to imagine a multiple of the Jenkins figure.

Why do publishers do it? I have heard several explanations. The publicity adds glamour to the imprint, it's good to have a politician at your party, and, well, you never know, it might be a good book. However, the most convincing one I have heard is: because we're stupid.

Ian Jack is editor of Granta magazine