IT IS HARD to imagine a 12-inch lump of vinyl bearing a peelable banana sticker on its sleeve and featuring songs about drug abuse and sado-masochism being acclaimed as one of the most influential of all time. But The Velvet Underground and Nico – released 50 years ago – is surely that, and then some.

The musician and producer Brian Eno observed that the album was bought initially by a few thousand people, “but everyone who bought it formed a band”.

The “Banana Album”, its cover designed by Andy Warhol, lives in rock mythology. This ground-breaking album barely broke past the music cognoscenti of London and New York in 1967, yet it was to influence generations of musicians.

Most of us who own it were probably not of an age to be buying records in 1967; some discovered the Velvets only during the later solo career of Lou Reed. For others it was even later. The band – led by Reed and Welsh-born John Cale – was probably the greatest influence on the New York and London punk scenes of the 1970s, as well as global acts such as David Bowie, U2 and REM.

Like most classics it retains its original impact. The Velvet Underground and Nico marries rock poetry to the avant-garde, the strength of Reed’s poetic song-writing under-pinned by Cale’s nerve-jangling arrangements.

Its 11 songs retain remarkable originality. For every gentle ballad (I’ll Be Your Mirror, Sunday Morning) there is a dark reaching into a netherworld of sex and violence (Venus in Furs, Black Angel’s Death Song). Heroin, a song about drug addiction, is delivered deadpan to a backdrop of wailing amplified strings. Lou Reed, weaned on the beat poets, wrote eloquently about life on the street. Cale, who had arrived in New York on a classical scholarship, came under the tutelage of avant garde composers John Cage and La Monte Young. His specialism was the drone, experimentation in repetitive sound. His marriage of that to Reed’s simple three-chord rock, consummated in the bleak East Village apartment they shared, resulted in the Velvet Underground and Nico and its more frenetic sequel, White Light White Heat.

Next Friday, Cale and assorted musicians including The Kills, Gruff Rhys and Nadine Shah will re-create the album live at Liverpool’s Clarence Dock. It will be fascinating to see how loyal he remains to the original, or whether he might be tempted to re-arrange, as he did with the classic Waiting for the Man during the Velvets’ abortive reunion tour of 1993.

Reed and Cale were an unlikely pairing. Reed was a troubled wannabe songwriter working for Pickwick Records, a Tin Pan Alley business which specialised in producing quickie pop albums that imitated whatever was in the charts. By day, Reed was writing and recording pale imitations of current hits. By night, he worked on a raft of songs that formed the backbone of a glittering half-century career. He met Cale, the experimental musician, by accident. Their common interests were music and hard drugs.

Their erstwhile flatmate was one Angus MacLise, known as “The Scotchman” and notable for being the one band member who never appeared either onstage or on any album. The reason, apparently, was that when the Velvets were booked for their first paid gig, drummer MacLise baulked, accusing the others of having “sold out”. He was replaced by Maureen Tucker, who stayed throughout the band’s lifetime.

MacLise, eccentric artist and enthusiastic drugs-experimenter, has had some belated posthumous recognition. Although assumed to have been Scottish, he was born in Connecticut, of Scots’ heritage. A mainstay of the early 1960s alternative scene, he ended up in Kathmandu, were his young son Ossian was hailed as the reincarnation of a Tibetan saint. The child became a celebrated Buddhist monk; his father died of malnutrition, aged 41.

Playing a Greenwich Village tourist trap called Café Bizarre, the Velvets were spotted by a Warhol acolyte in 1965, and invited to the artist’s “Factory”, where they took root. “We're sponsoring a new band called the Velvet Underground. Since I don't really believe in painting any more, we have this chance to combine music and art and films all together,” explained Warhol.

Warhol was hot right then. The rich and famous, actors and rock stars beat a path to the Factory, partying and being filmed with Warhol’s “superstars”, the louche band of junkies, transvestites and alternative actors who would later populate Reed’s biggest chart hit, Walk on the Wild Side.

The Velvets starred in Warhol’s travelling cavalcade, The Exploding Plastic Inevitable, which set out to shock audiences and critics alike. The headlines pushed the band into the public consciousness. They signed a management deal with Warhol’s organisation, a recording contract with MGM and completed that first album in 1966. Warhol persuaded them to hire the German model-actress Nico as “chanteuse”.

But Warhol knew little about the music industry. Eric Emerson, one “superstar” pictured on the album cover, refused to sign a release form, demanding payment. MGM wanted Warhol’s name on the album, but hit production problems with the peelable banana on its sleeve. That, and a decision to airbrush the rear picture rather than pay Emerson, delayed release.

It emerged a year late, around the same time as the Beatles’ Sergeant Pepper, and fluttered near the bottom of the charts, before disappearing. Disillusioned with Warhol, the Velvets jettisoned him and Nico and returned to the studio to produce a second album, the bare-bones White Light White Heat. By 1968, Cale left after a rift with Reed, who departed himself two years later. Both launched solo careers, Cale building a formidable reputation as producer to The Stooges, Patti Smith and The Modern Lovers.

Cale and Reed did collaborate again – most notably live at Le Bataclan in Paris in 1972, and with Songs for Drella, a tribute to Warhol in 1989 – and the original four Velvets reformed in 1993. Fortuitously for all the people in Scotland who had indeed heard that first album and formed a band, their tour opened with two nights at the Edinburgh Playhouse. It was remarkable to see and hear a band so steeped in legend, but who had never actually played in Europe. Thanks to Cale, they sounded true to the original. But Reed’s behaviour – the indulgent solos, his irritated asides to guitarist Sterling Morrison for missing cues – signalled all was not well. The reunion tour ended before an American leg could be added.

Morrison died of cancer two years later. Nico had already passed away, after a cycling accident in Ibiza. Reed died in 2013 after a failed liver transplant, aged 71. Only Cale and Tucker remain of the original line-up. Cale, the musical driving force, had a love-hate, on-off relationship with Reed, a tension that probably helped their intense creativity. He paid warm tribute at the time of Reed’s death. Like many, he pondered what might have been had they collaborated more often.

John Cale, now 75, son of a Welsh-speaking mining family, musical prodigy and an unlikely figure of the New York punk scene, takes the stage in Liverpool well aware of the irony of re-living an early commercial failure that launched a thousand ships in the form of garage bands and stadium filling rock star careers. He will be accompanied by a much younger group of musicians who acknowledge the influence of the Velvet Underground. It is always the survivor who gets to tell the tale of all that went before.

John Cale & special guests The Kills, Gruff Rhys, Clinic, Nadine Shah, Fat White Family and Wild Beasts presents The Velvet Underground & Nico at Liverpool's Clarence Dock on Friday, May 26, as part of Liverpool Sound City.