All Episodes
Previous Next
Aug. 24, 2009 - Freedomain Radio - Stefan Molyneux
01:09:46
1442 Fiat Money In France Part 1
| Copy link to current segment

Time Text
This is a reading of the article Fiat Money Inflation in France.
This pamphlet was originally written in 1896 by Andrew Dixon White, who was late president and professor of history at Cornell University, sometime United States minister to Russia and ambassador to Germany, author of A History of the Warfare of Science with Theology, and so on. And to me, it is an absolutely fascinating read and an example of exactly how things stay the same throughout history.
And that absolutely the dictum is true that those who do not learn from their history are forced to repeat it.
You will be stunned at the degree of similarity of what is occurring at this time in France and what is occurring now in the modern West.
And refers to the creation of fiat currency after the revolution in France, starting in 1789.
So the revolution had occurred, and a new, more secular, more materialist democracy had come into being, which was specifically socialist in intent and origin, and had a significant hostility towards the church, which we will see being played out.
This is a very interesting article because it is exciting and shocking and depressing to see the degree to which these mistakes are continually reenacted throughout history.
So I think this is very well worth having a listen to.
And the language is beautiful.
You don't get this kind of writing very much anymore.
So without any further ado, and I'll throw in a few historical asides from time to time here, but this will mostly be the article itself.
Fiat money inflation in France, how it came, what it brought, and how it ended.
Early in the year 1789, the French nation found itself in deep financial embarrassment.
There was a heavy debt and a serious deficit.
The vast reforms of that period, though a lasting blessing politically, were a temporary evil financially.
There was a general want of confidence in business circles.
Capital had shown its proverbial timidity by retiring out of sight as far as possible.
Throughout the land was stagnation.
Statesmanlike measures, careful watching, and wise management would doubtless have ere long led to a return of confidence, a reappearance of money, and a resumption of business.
But these involved patience and self-denial.
And thus far in human history, these are the rarest products of political wisdom.
Few nations have ever been able to exercise these virtues.
And France was not then one of these few.
There was a general search for some short road to prosperity.
Erlang, the idea was set afloat that the great want of the country was more of the circulating medium.
And by that is meant fiat currency.
And this was speedily followed by calls for an issue of paper money.
The Minister of Finance at this period was Necker.
In financial ability he was acknowledged as among the great bankers of Europe.
But his was something more than financial ability.
He had a deep feeling of patriotism and a high sense of personal honour.
The difficulties in his way were great, but he steadily endeavoured to keep France faithful to those principles in monetary affairs which the general experience of modern times had found the only path to national safety.
As difficulties arose, the National Assembly drew away from him, and soon came among the members renewed suggestions of paper money.
Orators in public meetings at the clubs and in the Assembly proclaimed it a panacea, a way of, quote, Journalists caught it up and displayed its beauties.
Among these men, Marat, who, in his newspaper The Friend of the People, also joined the cries against Necker, picturing him, a man of sterling honesty who gave up health and fortune for the sake of France, as a wretch, seeking only to enrich himself from the public purse.
Against this tendency towards the issue of irredeemable paper, Necker continued as best he might.
He knew well to what it always had led, even when surrounded by the most skilled guarantees.
Among those who struggled to support ideas similar to his was Bergaz, a deputy from Lyon, whose pamphlets, then and later, against such issues, exerted a wider influence, perhaps, than any others.
Parts of them seem fairly inspired.
Anyone today reading his prophecies of the evils sure to follow such a currency would certainly ascribe to him a miraculous foresight, were it not so clear that his prophetic power was due simply to a knowledge of natural laws revealed by history.
But this current in favor of paper money became so strong that an effort was made to breast it by a compromise, and during the last months of 1789 and the first months of 1790 came discussions in the National Assembly looking to issues of notes based upon the landed property of the Church, which was to be confiscated for that purpose.
But care was to be taken.
The issue was to be largely in the shape of notes of 1,300 and 200 livres, Too large to be used as ordinary currency, but of convenient size to be used in purchasing the church lands.
Besides this, they were to bear interest, and this would tempt holders to hoard them.
The assembly thus held back from issuing smaller obligations.
Remembrances of the ruin which had come from the great issues of smaller currency at an earlier day were still vivid.
And, Steph, by the by, this refers to John Law, a Scottish financier who was responsible for the Mississippi bubble when France still owned Louisiana in the early parts of the 18th century, who issued ruinous paper notes and created many millionaires, destroyed an economy. He was actually a murderer.
He had murdered a man in a duel, and I guess had turned later in life to murdering currencies as a more efficient way of bringing ruin to people.
And so the experience that French people had in memory of John Law's currency is referred to several times in this article.
And it was 80 years previously, which meant that people remembered their fathers being ruined by this kind of fiat currency.
So that's what he's referring to here.
And we will continue.
Yet the pressure toward a popular currency for universal use grew stronger and stronger.
The Finance Committee of the Assembly reported that, quote, the people demand a new circulating medium, that, quote, the circulation of paper money is the best of operations, that it is the most free because it reposes on the will of the people, that it will bind the interest of the citizens to the public good.
The report appealed to the patriotism of the French people with the following exhortation.
Let us show to Europe that we understand our own resources.
Let us immediately take the broad road to our liberation, instead of dragging ourselves along the tortuous and obscure paths of fragmentary loans.
It concluded by recommending an issue of paper money carefully guarded to the full amount of 400 million livres.
And the argument was pursued until the objection to smaller notes faded from view.
Typical in the debate on the whole subject, in its various phases, were the declarations of Monsieur Matrineau.
He was loud and long for paper money, his only fear being that the committee had not authorized enough of it.
He declared that business was stagnant, and that the sole cause was a want of more of the circulating medium, that paper money ought to be made a legal tender, that the assembly should rise above prejudices, which the failures of John Law's paper money had caused several decades before.
Like every supporter of irredeemable paper money then or since, he seemed to think that the laws of nature had changed since previous disastrous issues.
He said, He insisted that John Law's notes at first restored prosperity, He insisted that John Law's notes at first restored prosperity, but that the wretchedness and ruin they caused restored prosperity, but that the wretchedness and ruin they caused resulted from their over-issue, Thank you.
Thank you.
M. de la Rache-Foucault gave his opinion that, quote, the Assignats will draw specie out of the coffers where it is now hoarded.
On the other hand, Casalet and Marie showed that the results could only be disastrous.
Never, perhaps, did a political prophecy meet with more exact fulfillment in every line than the terrible picture drawn in one of Casalet's speeches in this debate.
Still, the current ran stronger and stronger.
Pessian made a brilliant oration in favor of the report, and Necker's influence and experience were gradually worn away.
Mingled with the financial argument was a strong political plea.
The National Assembly had determined to confiscate the vast real property of the French Church, the pious accumulations of 1500 years.
There were princely estates in the country, bishops' palaces and conventual buildings in the towns.
These formed between one-fourth and one-third of the entire real property of France, and amounted in value to at least 2,000 million livres.
By a few sweeping strokes, all this became the property of the nation.
Never, apparently, did a government secure a more solid base for a great financial future.
There were two special reasons why French statesmen desired speedily to sell these lands.
First, a financial reason to obtain money to relieve the government.
Secondly, a political reason to get this land distributed among the thrifty middle classes and so commit them to the revolution and to the government which gave their title.
It's a step this would be equivalent to the welfare warfare state of modern times.
To continue. It was urged, then, that the issue of 400 millions of paper, not in the shape of interest-bearing bonds as had been first proposed, but in notes small as well as large, would give the Treasury something to pay out immediately and relieve the national necessities.
That having been put into circulation, this paper money would stimulate business.
That it would give to all capitalists, large and small, the means of buying from the nation the ecclesiastical real estate.
And that from the proceeds of this real estate, the nation would pay its debts and also obtain new funds for new necessities.
Never was theory more seductive to both financiers and statesmen.
It would be a great mistake to suppose that the statesmen of France, or the French people, were ignorant of the dangers of issuing irredeemable paper money.
No matter how skillfully the bright side of such a currency was exhibited, all thoughtful men in France remembered its dark side.
They knew too well from that ruinous experience seventy years before in John Law's time, the difficulties and dangers of a currency not well based and controlled.
They had then learned how easy it is to issue it, how difficult it is to check its overissue, how seductively it leads to the absorption of the means of the working men and the men of small fortunes.
How heavily it falls on all those living on fixed incomes, salaries, or wages.
How securely it creates on the ruins of the prosperity of all men of meagre means a class of debauched speculators, the most injurious class that a nation can harbor, more injurious indeed than professional criminals whom the law recognizes and can throttle.
How it stimulates overproduction at first and leaves every industry flaccid afterwards.
How it breaks down thrift and develops political and social immorality.
All this France had been thoroughly taught by experience.
Many then living had felt the result of such an experiment, the issues of paper money under John Law, a man who to this day is acknowledged one of the most ingenious financiers the world has ever known.
And there were then sitting in the National Assembly of France many who owed the poverty of their families to those issues of paper.
Hardly a man in the country who had not heard those who issued it cursed, as the authors of the most frightful catastrophe France had then experienced.
It was no mere attempt at theatrical display, but a natural impulse which led a thoughtful statesman, during the debate, to hold up a piece of that old paper money, and to declare that it was stained with the blood and tears of their fathers.
And it would also be a mistake to suppose that the National Assembly which discussed this matter was composed of mere wild revolutionists.
No inference could be more wide of the fact.
Whatever may have been the character of the men who legislated for France afterward, no thoughtful student of history can deny, despite all the arguments and sneers of reactionary statesmen and historians, that few more keen-sighted legislative bodies could ever have met than this first French Constitutional Assembly.
In it were such men as Sayez, Baez, Necker, Mirabeau, Talleyrand, Dupont, Delemur, and a multitude of others who, in various sciences and in the political world, had already shown and were destined afterwards to show themselves among the strongest and shrewdest men that Europe has yet seen.
But the current towards paper money had become irresistible.
It was constantly urged, and with a great show of force, that if any nation could safely issue it, France was now that nation.
That she was fully warned by her severe experience under John Law.
That she was now a constitutional government controlled by an enlightened, patriotic people.
Not, as in the days of the former issues of paper currency, an absolute monarchy controlled by politicians and adventurers.
That she was able to secure every livre of her paper money by a virtual mortgage on the landed domain, vastly greater in value than the entire issue, i.e.
the church. That with men like Bayer, Mirabou, and Necker at her head, she could not commit the financial mistakes and crimes from which France had suffered under John Law, the Regent Duke of Orléans, and Cardinal Dubois.
Oratory prevailed over science and experience.
In April 1790 came the final decree to issue 400 millions of livres in paper money, based upon confiscated property of the Church for its security.
The deliberations on this first decree and on the bill carrying it into effect were most interesting.
Prominent in the debate being Necker, Dupont de Demour, Marie, Cazalet, Pétion, Bayer, and many others hardly inferior.
The discussions were certainly very able.
No person can read them at length in the monitor, nor even in the summaries of the parliamentary history, without feeling that various modern historians have done wretched injustice to these men, who were endeavouring to stand between France and ruin.
This sum, 400 millions so vast in those days, was issued in Assignat, which were notes secured by a pledge of productive real estate and bearing interest to the holder at 3%.
No irredeemable currency has ever claimed a more scientific and practical guarantee for its goodness and for its proper action on public finances.
On the one hand, it had what the world recognized as a most practical security, a mortgage on productive real estate of vastly greater value than the issue.
On the other hand, as the notes bore interest, there seemed cogent reason for their being withdrawn from circulation whenever they became redundant.
And the reason that this is important, it's Steph, the reason this is important is if you keep issuing new paper and old paper does not get retired, you end up with inflation.
You want the old paper or the old paper currency to be retired from use, to be hoarded, to be put away, to not be used for commerce, otherwise you get rampant inflation.
So the fact that it bears interest means it's not going to be spent as common currency, and that was the idea.
To continue with the article.
As speedily as possible, the notes were put into circulation.
Unlike those issued in John Law's time, they were engraved in the best style of the art.
To stimulate loyalty, a portrait of the king was placed in the centre.
To arouse public spirit, patriotic legends and emblems surrounded it.
To stimulate public cupidity, the amount of interest which the note would yield each day to the holder was printed in the margin.
And the hole was duly garnished with stamps and signatures to show that it was carefully registered and controlled.
To crown its work, the National Assembly, to explain the advantages of this new currency, issued an address to the French people.
In this address, it spoke of the nation as delivered by this grand means from all uncertainty and from all ruinous results of the credit system.
It foretold that this issue would bring back into the public treasury, into commerce, and into all branches of industry strength, abundance, and prosperity.
Some of the arguments in this address are worth recalling, and among them the following.
Paper money is without inherent value, unless it represents some special property.
Without representing some special property, it is inadmissible in trade to compete with the metallic currency, which has a value real and independent of the public action.
Therefore, it is that the paper money, which has only the public authority as its basis, has always caused ruin where it has been established.
That is the reason why the banknotes of 1720 issued by John Law, after having caused terrible evils, have left only frightful memories.
Therefore, it is that this National Assembly has not wished to expose you to this danger, but has given this new paper money not only a value derived from the National Authority, but a value real and immutable, a value which permits it to sustain, advantageously, a competition with the precious metals themselves.
But the final declaration was perhaps the most interesting.
It was as follows.
Those assignats, bearing interest as they do, will soon be considered better than the coin now hoarded and will bring it out again into circulation.
The king was also induced to issue a proclamation recommending that his people receive this new money without objection.
Now, it's stuff again. I just wanted to make a comment here.
There's a fundamental flaw, of course, in this whole process, the whole process that went on, and it's a flaw that is the same as what occurs in the modern world under taxation.
The money that was circulating in France after the revolution was money that represented already and included the productive value of the church lands, as they say, between a quarter and a third of French land.
So on the French lands things were grown and they were sold and people rented and houses were built and canals were dug and so on.
And the money that circulated already represented this economic value.
And so to have the state steal the land of the church and then issue currency based upon that...
was as artificial as printing currency without a basis, because the money circulating already took into account all of that economic activity.
Having it change hands does not add value to the economy.
Like, if I sell you a house that I live in and I move, we don't have a new house, right?
I mean, it's useful to you and it's useful to me, otherwise we wouldn't do it, but we don't have a new house.
Simply transferring ownership, particularly by force, does not create any new value.
So stripping the church of its land and then issuing notes based upon it was as inflationary as if they had just printed money themselves.
And this is the danger of having very eloquent and persuasive people doing evil things or pursuing evil actions.
So this is why what happens or what is going to happen in this story ended up happening.
It's one of the reasons. And the reason that this is important relative to what happens in the modern world is that governments claim that their paper currency is valuable because of the economic productivity of the citizens and, in particular, the interest that they pay on the debt is valuable because they can steal money from people through taxation in the future.
Which is exactly the same as stealing the church lands.
It doesn't add any economic activity for you to have 30, 40, 50% of your money taken through force.
All it does is enrich the criminals.
And it does not add to any economic activity.
In fact, it detracts from it. And this is why this theft of the church lands is analogous to the theft of taxation.
Without getting into all the moral complications of how the church got its land throughout French history, I just want to point out that theft does not create value but rather destroys it.
And any paper currency based on theft, which is all paper currency, that is issued by the state, is inherently inflationary, and to say that there's any real value behind it is a complete misnomer, even if we say, well, there's taxation, or the theft of the church lands, or whatever.
So, to continue.
All this caused great joy, i.e., the issuance of the money and the justifications.
Among the various utterances of this feeling was the letter of Monsieur Sarrault, directed to the editor of the journal of the National Assembly and scattered throughout France.
Monsieur Sarrault is hardly able to contain himself as he anticipates the prosperity and glory that this issue of paper is to bring to his country.
One thing only vexes him.
And that is the pamphlet of Monsieur Bergasse against the Assignats.
Therefore, it is after a long series of arguments and protestations, in order to give the final proof of his confidence in the paper money and his entire skepticism as to the evils predicted by Bergasse and others, Monsieur Sarrault solemnly lays his house, garden, and furniture upon the altar of his country and offers to sell them for paper money alone.
There were indeed some gainsayers.
These especially appeared among the clergy who naturally abhorred the confiscation of church property.
Various ecclesiastics made speeches, some of them full of pithy and weighty arguments against the proposed issue of paper, and there is preserved a sermon from one priest threatening all persons handling the new money with eternal damnation.
But the great majority of the French people who had suffered ecclesiastical oppression so long regarded these utterances as the wriggling of a fish on the hook, and enjoyed the sport all the better.
Continue. The first result of this issue was apparently all that the most sanguine could desire.
The Treasury was at once greatly relieved.
A portion of the public debt was paid.
Creditors were encouraged, credit revived.
Ordinary expenses were met, and a considerable part of this paper money having thus been passed from the government into the hands of the people, trade increased, and all difficulties seemed to vanish.
The anxieties of Necker and the prophecies of Marais and Cazalet seemed proven utterly futile.
And indeed, it is quite possible that if the national authorities had stopped with this issue, few of the financial evils which afterwards arose would have been severely felt.
The 400 millions of paper money then issued would have simply discharged the function of a similar amount of specie, i.e.
currency based on copper, gold, or silver.
But soon there came another result.
Times grew less easy.
By the end of September, within five months after the issue of the 400 millions in Assignat, the government had spent them and was again in distress.
What a shock!
The old remedy immediately naturally recurred to the minds of men.
Throughout the country began a cry for another issue of paper.
Thoughtful men then began to recall what their fathers had told them about the seductive path of paper money issues in John Law's time, and to remember the prophecies that they themselves had heard in the debate on the first issue of SNS less than six months before.
At that time, the opponents of paper had prophesied that, once on the downward path of inflation, the nation could not be restrained, and that more issues would follow.
The supporters of the first issue had asserted that this was a calumny, that the people were now in control, and that they could and would check these issues whenever they desired.
The condition of opinion in the assembly was therefore chaotic.
A few schemers and dreamers were loud and outspoken for paper money.
Many of the more shallow and easy-going were inclined to yield.
The more thoughtful endeavoured to breast the current.
One man there was who could have withstood the pressure.
Mirabeau. He was the popular idol, the great orator of the assembly.
And much more than a great orator, he had carried the nation through some of its worst dangers by a boldness almost godlike.
In the various conflicts he had shown not only oratorical boldness, but amazing foresight.
As to his real opinion on an irredeemable currency, there can be no doubt.
It was the opinion which all true statesmen have held before his time and since, in his own country, in England, in America, in every modern civilized nation.
In his letter to Saruti, written in January 1789, hardly six months before, Mirabeau had spoken of paper money as, quote, a nursery of tyranny, corruption and delusion, a veritable debauch of authority in delirium.
In one of his early speeches in the National Assembly, he had called such money when Assange covertly suggested its issue, quote, a loan to an armed robber, and said of it, quote, that infamous word, paper money, ought to be banished from our language.
In his private letters written at this very time, which were revealed at a later period, he showed that he was fully aware of the dangers of inflation.
But Mirabeau yielded to the pressure.
Partly because he thought it important to sell the government lands rapidly to the people, and so developed speedily a large class of small landholders, pledged to stand by the government which gave them their titles, partly doubtless from a love of immediate rather than of remote applause, and generally in a vague hope that the severe inexorable laws of finance, which had brought heavy punishments upon governments emitting an irredeemable currency in other lands at other times, Might in some way be warded off from France.
The question was brought up by Montesquieu's report on the 27th of August 1790.
This report favoured with evident reluctance an additional issue of paper.
It went on to declare that the original issue of 400 millions, though opposed at the beginning, had proved successful, that assignats were economical, though they had dangerous, and, as a climax, came the declaration, quote, We must save the country!
Upon this report, Mirabeau then made one of his most powerful speeches.
He confessed that he had at first feared the issue of assignats, but now he dared urge it.
That experience had shown the issue of paper money most serviceable, that the report proved, the first issue of Assignats a success, that public affairs had come out of distress, that ruin had been averted and credit established.
He then argued that there was a difference between paper money of the recent issue and that from which the nations had suffered so much in John Law's time.
He declared that the French nation had now become enlightened, and he added, quote, Deceptive subtleties can no longer mislead patriots and men of sense in this matter.
He then went on to say, We must accomplish that which we have begun, and declared that there must be one more large issue of paper money, guaranteed by the national lands and by the good faith of the French nation.
To show how practical the system was, he insisted that just as soon as paper money should become too abundant, it would be absorbed in rapid purchases of national lands.
And he made a very striking comparison between this self-adjusting, self-converting system and the rains descending in showers upon the earth, then in swelling rivers discharged into the sea, then drawn up in vapor, and finally scattered over the earth again in rapidly fertilizing showers.
Ah, the Barack Obama of his time proving once more that there is nothing more dangerous than eloquent corruption.
To continue. He predicted that the members would be surprised at the astonishing success of this paper money and that there would be none too much of it.
His theory grew by what it fed upon, as the paper money theory has generally done.
Toward the close, in a burst of eloquence, he suggested that the assignats be created to an amount sufficient to cover the national debt, and that all the national lands be exposed for sale immediately, predicting that thus prosperity would return to the nation, and that all classes would find this additional issue of paper money a blessing.
This speech was frequently interrupted by applause.
A unanimous vote ordered it printed, and copies were spread throughout France.
discussion.
Gué arose and proposed to liquidate the national debt of 2,400 millions, to use his own words, by one simple operation, grand, simple, magnificent.
This, quote, operation was to be the emission of 2,400 millions in legal tender notes, and a law that specie should not be accepted in purchasing national lands.
His oratory bloomed forth magnificently.
He advocated an appeal to the people who, to use his flattering expression, The newspapers of the period, in reporting his speech, noted it with the very significant remark, This discourse was loudly applauded.
To him replied, He called attention to the depreciation of assignats already felt.
He tried to make the assembly see that natural laws work as inexorably in France as elsewhere.
He predicted that, if this new issue were made, there would come a depreciation of 30%.
Singular that the man who so fearlessly stood against this tide of unreason has left to the world simply a reputation as the most brilliant cook that ever existed.
He was followed by the Abbe Gouthay, who declared, what seems grotesque to those who have read the history of an irredeemable paper currency in any country, that new issues of paper money, quote, will supply a circulating medium which will protect public morals from corruption.
Into this debate was brought a report by Necker.
He was not, indeed, the great statesman whom France especially needed, at this time, of all times.
He did not recognize the fact that the nation was entering a great revolution, but he could and did see that come what might.
There were simple principles of finance which must be adhered to.
Most earnestly, therefore, he endeavored to dissuade the assembly from the proposed issue, suggesting that other means could be found for accomplishing the result, and he predicted terrible evils.
But the current was running too fast.
The only result was that Necker was spurned as a man of the past.
He sent in his resignation and left France forever.
The paper-money demagogues shouted for joy at his departure.
Their chorus rang through the journalism of the time.
No words could express their contempt for a man who was unable to see the advantages of filling the treasury with the issues of a printing press.
Marais, Herbé, Camille Desmoulins, and the whole mass of demagogues so soon to follow them to the guillotine were especially jubilant.
Continuing the debate, Rubel attacked Necker, saying that the Assignats were not at par because there were not yet enough of them.
He insisted that payments for public lands be received in Assignats alone, and suggested that the church bells of the kingdom be melted down into small money.
Le Brun attacked the whole scheme in the assembly, as he had done in the committee, declaring that the proposal, instead of relieving the nation, would wreck it.
The papers of the time very significantly say that at this there arose many murmurs.
Chaperu came to the rescue.
He said that the issue of assignats would relieve the distress of the people, and he presented very neatly the new theory of paper money and its basis in the following words.
The earth is the source of value.
You cannot distribute the earth in a circulating value, but this paper becomes representative of that value, and it is evident that the creditors of the nation will not be injured by taking it.
On the other hand, appeared in the leading paper, The Moniteur, a very thoughtful article against paper money, which sums up all by saying, quote, It is then evident that all paper which cannot, at the will of the bearer, be converted into specie, cannot discharge the functions of money.
This article goes on to cite Mirabeau's former opinion in his letter to Saruti, published in 1789, the famous opinion of paper money as, quote, a nursery of tyranny, corruption, and delusion, a veritable debauch of authority and delirium.
Le Blachet, in the Assembly, quoted a saying that, quote, paper money is the emetic of great states.
Bottideau, resorting to phrase-making, called the assignats un papier terre, or land converted into paper.
Paul André answered vigorously and foretold evil results.
Pamphlets continued to be issued, among them one so pungent that it was brought into the assembly and read there.
The truth which it presented with great clearness, being simply that doubling the quantity of money, or substitutes for money, in a nation simply increases prices, disturbs values, alarms capital, diminishes legitimate enterprise, and so decreases the demand both for products and for labor.
That the only persons to be helped by it are the rich who have large debts to pay.
This pamphlet was signed, a friend of the people, and was received with great applause by the thoughtful minority in the assembly.
Dupont de Demont, who had stood by Necker in the debate on this first issue of Assignats, arose, avowed the pamphlet to be his, and said sturdily that he had always voted against the omission of irredeemable paper, and always would.
How things stay the same.
Far more important than any other argument against inflation was the speech of Talleyrand.
He had been among the boldest and most radical French statesmen.
He, it was, a former bishop, who more than any other had carried the extreme measure of taking into the possession of the nation the great landed estates of the church.
And he had supported the first issue of 400 millions.
But he now adopted a judicial tone, attempted to show to the assembly the very simple truth that the effect of a second issue of assignats may be different from that of the first.
That the first was evidently needed, that the second may be as injurious as the first was useful.
He exhibited various weak points in the inflation fallacies and presented forcibly the trite truth that no laws and no decrees can keep large issues of irredeemable paper at par with specie, In his speech occur these words,
quote, You can indeed arrange it so that the people shall be forced to take a thousand livres in paper for a thousand livres in specie, but you can never arrange it so that a man shall be obliged to give a thousand livres in specie for a thousand livres in paper.
And that fact is embedded the entire question.
And on account of that fact, the whole system fails.
The nation at large now began to take part in the debate.
Thoughtful men saw that here was the turning point between good and evil, that the nation stood at the parting of the ways.
Most of the great commercial cities bestowed themselves and sent up remonstrances against the new emission, 25 being imposed and 7 in favor of it.
But eloquent theorists arose to glorify paper, and among these Royer, who on September 14, 1790, put forward a pamphlet entitled Reflections of a Patriotic Citizen on the Issue of Assignats, in which he gave many specious reasons why the Assignats could not be depressed, and spoke of the argument against them as the vile clamours of people bribed to affect public opinion.
He said to the National Assembly, quote, If it is necessary to create five thousand millions and more of the paper, decree such a creation gladly.
He too predicted, as many others have done, a time when gold was to lose all its value, since all exchanges would be made with this admirable, guaranteed paper, and therefore that coin would come out from the places where it was hoarded, He foretold prosperous times to France, in case these great issues of paper were continued, and declared these, quote, The only means to ensure happiness, glory, and liberty to the French nation.
Speeches like this gave courage to a new swarm of theorists.
It began to be especially noted that men who had never shown any ability to make or increase fortunes for themselves abounded in brilliant plans for creating and increasing wealth for the country at large.
Greatest force of all, on September 27, 1790, came Mirabeau's final speech.
The most sober and conservative of his modern opponents speaks of its eloquence as prodigious.
In this the great orator dwelt first on the political necessity involved, declaring that the most pressing need was to get the government lands into the hands of the people, and so to commit to the nation and against the old privileged classes, the class of landholders thus created.
Through the whole course of his arguments, there is one leading point enforced with all his eloquence and ingenuity, the excellence of the proposed currency, its stability and its security.
He declares that being based upon the pledge of public lands and convertible into them, the notes are better secured than if redeemable in specie, that the precious metals are only employed in the secondary arts, while the French paper money represents the first and most real of all property, the source of all production, the land. That while other nations have been obliged to admit paper money, none have ever been so fortunate as the French nation, for the reason that none had ever before been able to give this landed security.
That whoever takes French paper money has practically a mortgage to secure it, and on landed property, which can easily be sold to satisfy his claims, while other nations have been able only to give a vague claim on the entire nation.
And, he cries, I would rather have a mortgage on a garden than on a kingdom.
Other arguments of his are more demagogical.
He declares that the only interests affected will be those of bankers and capitalists, but that manufacturers will see prosperity restored to them.
Some of his arguments seem almost puerile, as when he says, if gold has been hoarded through timidity or malignity, the issue of paper will show that gold is not necessary, and it will then come forth.
But, as a whole, the speech was brilliant.
It was often interrupted by applause.
It settled the question.
People did not stop to consider that it was the dashing speech of an orator and not the mature judgment of a financial expert.
They did not see that calling Mirabeau or Talleyrand to advise upon a moment monetary policy, because they had shown boldness in danger and strength in conflict, was like summoning a prizefighter to mend a watch.
In vain did Maurice show that while the first issues of John Law's paper had brought prosperity, those that followed brought misery.
In vain did he quote from a book published in John Law's time, showing that Law was at first considered a patriot and a friend of humanity.
In vain did he hold up the assembly one of Law's bills and appeal to their memories of the wretchedness brought upon France by them.
In vain did Dupont present a simple and really wise plan of substituting notes in the payment of the floating debt, which should not then form a part of the ordinary circulating medium.
Nothing could resist the eloquence of Mirabeau, Barneve, following, insisted that, quote, Law's paper was based upon the phantoms of the Mississippi, ours upon the solid basis of ecclesiastical lands.
And he proved that the Assignettes could not depreciate further.
Prudhomme's newspaper poured contempt over gold as security for the currency, extolled real estate as the only true basis, and was fervent in praise of the convertibility and self-adjusting features of the proposed scheme.
In spite of all this plausibility and eloquence, a large minority stood firm to their earlier principles, but on the 29th of September 1790, by a vote of 508 to 423, the deed was done.
A bill was passed authorizing the issue of 800 millions of new assignats, but solemnly declaring that in no case should the entire amount be put in circulation exceed 1,200 millions.
To make assurances doubly sure.
It also provided that as fast as the assignats were paid into the treasury for land, they should be burned, and thus a healthful contraction be constantly maintained.
Unlike the first issue, these new notes were to bear no interest.
Great were the plaudits of the nation at this relief.
Among the multitudes of pamphlets expressing this joy which have come down to us, the friend of the revolution is the most interesting.
It begins as follows.
Citizens, the deed is done.
The assignats are the keystone of the arch.
It has just been happily put in position.
Now I can announce to you that the revolution is finished, and there only remains one or two important questions.
All the rest is but a matter of detail which cannot deprive us any longer of the pleasure of admiring this important work in its entirety.
The provinces and the commercial elites, which were at first alarmed at the proposal to issue so much paper money, now send expressions of their thanks.
Specie is coming out to be joined with paper money.
Foreigners come to us from all parts of Europe to seek their happiness under laws which they admire.
And soon France, enriched by her new property and by the national industry which is preparing for fruitfulness, will demand still another creation of paper money.
France was now fully committed to a policy of inflation.
And if there had been any question of this before, all doubts were removed now by various acts very significant, as showing the exceeding difficulty of stopping a nation once in the full tide of a depreciating currency.
The National Assembly had from the first shown an amazing liberality to all sorts of enterprises, wise or foolish, which were urged for the good of the people.
As a result of these and other largeses, the old cry of the lack of a circulating medium broke forth again, and especially loud were the clamors for more small bills.
The cheaper currency had largely driven out the dira.
Paper had caused small silver and copper money mainly to disappear.
All sorts of notes of hand circulating under the name of confidence bills flooded France.
Sixty-three kinds in Paris alone.
This unguaranteed currency caused endless confusion and fraud.
Different districts of France began to issue their own assignats in small denominations.
And this action stirred the National Assembly to evade the solemn pledge that the circulation should not go above twelve hundred millions, and that all assignats returned to the treasury for lands should immediately be burned.
Within a short time there had been received into the treasury for lands 160 million livres in paper.
By the terms of the previous acts this amount of paper ought to have been retired.
Instead of this, under the plea of necessity, the greater part of it was reissued in the form of small notes.
There was indeed much excuse for new issues of small notes, for under the theory that an issue of smaller notes would drive silver out of circulation, the smallest authorized assignat was for 50 livres.
To supply silver and copper and hold it in circulation, everything was tried.
Citizens had been spurred on by law to send their silverware and jewels to the mint.
Even the king sent his silver and gold plate, and the churches and convents were required by law to send to the government melting pot all silver and gold vessels not absolutely required for public worship.
For copper money the church bells were melted down.
But silver and even copper continued to become even more and more scarce.
By the way, this is occurring because everybody recognizes that inflation in paper is inevitable and they hold on to that, which actually has some more objective and real value, i.e.
copper, silver, gold, currency, to continue.
In the midst of all this, various juggleries were tried, and in November 1790 the assembly decreed a single standard of coinage, the chosen metal being silver, and the ratio between the two precious metals was changed from fifteen and a half to one to fourteen and a half to one.
But all in vain.
It was found necessary to issue the dreaded small paper, and a beginning was made by issuing one hundred millions in notes of five francs, and ere long, obedient to the universal clamor, There were issued parchment notes for various small amounts, down to a single sou, which is, I think, about a nickel or so.
Yet each of these issues, great or small, was but as a drop of cold water to a parched throat.
Although there was already a rise in prices which showed that the amount needed for circulation had been exceeded, the cry for more circulating medium was continued.
The pressure for new issues became stronger and stronger.
The Parisian populace and the Jacobin Club were especially loud in the demands for them, and a few months later, on June 19, 1791, with few speeches and in a silence very ominous, A new issue was made of six hundred millions more, less than nine months after the former great issue with its solemn pledges to keep down the amount in circulation.
With the exception of a few thoughtful men, the whole nation again sang hymns of praise.
In this comparative ease of new issue is seen the action of a law in finance as certain as the workings of a similar law in science.
If a material body fell from a height, its velocity is accelerated by a well-known law in a constantly increasing ratio.
So in issues of irredeemable currency, in obedience to the theories of a legislative body, or of the people at large, there is a natural law of rapidly increasing emission and depreciation.
The first inflation bills were passed with great difficulty, after very sturdy resistance, and by a majority of a few score out of nearly a thousand votes.
But we observe now that new inflation measures were passed more and more easily, and we shall have occasion to see the working of this same law in a more striking degree as this history develops itself.
During the various stages of this debate, there cropped up a doctrine old and ominous.
It was the same which appeared towards the end of the 19th century in the United States during what became known as the Greenback Craze and the Free Silver Craze.
By France, it had been refuted a generation before the revolution by Turcot just as brilliantly as it was met a hundred years later in the United States by James A. Garfield and his compeers.
This was the doctrine that all currency, whether gold, paper, leather, or any other material, derives its efficiency from the official stamp it bears, and that this being the case, a government may relieve itself of its debts and make itself rich and prosperous, simply by means of a printing press, fundamentally the simply by means of a printing press, fundamentally the theory which underlay the later American doctrine of fiat money.
There came mutterings and finally speeches in the Jacobin Club, in the Assembly, and in newspaper articles and pamphlets throughout the country, taking this doctrine for granted.
it.
These could hardly affect thinking men who bore in mind the calamities brought upon the whole people, and especially upon the poorer classes, by the same theory as put in practice by John Law, or as refuted by Turcot, but it served to swell the popular chorus in favor of the issue of more assignats, and plenty of them.
The great majority of Frenchmen now became desperate optimists, declaring that inflation is prosperity.
Throughout France there came temporary good feeling.
The nation was becoming inebriated with paper money.
The good feeling was that of a drunkard just after his draft, and it is to be noted, as a simple historical fact corresponding to a physiological fact, that as drafts of paper money came faster, successive periods of good feeling grew shorter.
Various bad signs began to appear.
Immediately after each new issue came a marked depreciation.
Curious, it is to note, the general reluctance to assign the right reason.
The decline in the purchasing power of paper money was in obedience to the simplest laws in economics, but France had now gone beyond her thoughtful statesman and had taken refuge in unwavering optimism, giving any explanation of the new difficulties rather than the right one.
A leading member of the assembly assisted in an elaborate speech that the cause of depreciation was simply the want of knowledge and of confidence among the rural population and, he suggested, means of enlightening them.
La Rochefoucault proposed to issue an address to the people showing the goodness of the currency and the absurdity of preferring coin.
The address was unanimously voted.
It might well have been attempted to show that a beverage made by mixing a quart of wine and two quarts of water would possess all the exhilarating quality of the original undiluted liquid.
Attention was aroused by another menacing fact.
Specie disappeared more and more.
The explanations of this fact also displayed wonderful ingenuity in finding false reasons and in evading the true one.
A very common explanation was indicated in Prudhomme's newspaper, Les Révolutions de Paris, of January 17, 1791, which declared that Coyne, quote,"...will keep rising until the people shall have hanged a broker." Another popular theory was that the Bourbon family were, in some mysterious way, drawing off all solid money to the chief centers of their intrigues in Germany.
Comic, and at the same time pathetic, were evidences of the widespread idea that if only a goodly number of people engaged in trade were hanged, the par value of the assignats would be restored.
It's the same here now, I'm just saying, when we get mad at the people in Wall Street rather than the Fed.
To continue. Still another favourite idea was that British emissaries were in the midst of the people, instilling notions hostile to paper.
Great efforts were made to find these emissaries, and more than one innocent person experienced the popular wrath under the supposition that he was engaged in raising gold and depressing paper.
Even Talleyrand, shrewd as he was, insisted that the cause was simply that the imports were too great and the exports too little.
As well might he explain the fact that when oil is mingled with water, water sinks to the bottom by saying that this is because the oil rises to the top.
This disappearance of specie was the result of a natural law as simple and as sure in its action as gravitation.
The superior currency had been withdrawn because an inferior currency could be used.
I would also add that the paper currency, since it was losing value every day, had to be spent quickly rather than the coins, which kept their value and in fact increased it relative to the fiat currency.
To continue. Some efforts were made to remedy this.
In the municipality of Kiabuf, a considerable amount in specie having been found in the possession of a citizen, the money was seized and sent to the assembly.
The people of that town treated this hoarded gold as the result of unpatriotic wickedness or madness, instead of seeing that it was but the sure result of a law working in every land and time, when certain causes are present.
Marat followed out this theory by asserting that death was the proper penalty for persons who thus hid their money.
Still another troublesome fact began now to appear.
Though paper money had increased in amount, prosperity had steadily diminished.
Which is, of course, as I'm just inserting here, the same as in the USA since the 1960s.
To continue, in spite of all the paper issues, commercial activity grew more and more spasmodic.
Enterprise was chilled and business became more and more stagnant.
Mirabeau, in his speech, which decided the second great issue of paper, had insisted that though bankers might suffer, this issue would be of great service to manufacturers and restore prosperity to them and their workmen.
The latter were, for a time, deluded, but were at last rudely awakened from this delusion.
The plenty of currency had at first stimulated production and created a great activity in manufacturers.
But soon the markets were glutted and the demand was diminished.
In spite of the wretched financial policy of years gone by, and especially in spite of the revocation of the Edict of Nantes, by which religious bigotry had driven out of the kingdom thousands of its most skillful Protestant workmen, the manufacturers of France had before the revolution come into full bloom.
In the finer woolen goods, in silk and satin fabric of all sorts, in choice pottery and porcelain, in manufacturers of iron, steel and copper they had again taken their old leading place upon the continent, All the previous changes had at the worst done no more than to inflict a momentary check on this highly developed system of manufacturing.
But what the bigotry of Louis XIV and the shiftlessness of Louis XV could not do in nearly a century was accomplished by this tampering with the currency in a few months.
One factory after another stopped.
Just to jump in, this is partly because of the business cycle as described by the Austrian economists.
And also, it's called stuffing the pipe in some ways, like if you stimulate a bunch of economic activity by...
The issuing of paper currency, what happens is people go out and buy a whole bunch of stuff, like they go out and buy five pairs of shoes, and all that means is that next year they don't need any shoes.
So you get this massive over-investment in shoe production, then next year you get a depression in the shoe industry, because people don't have infinite needs.
And if they buy something now, they're not going to buy it tomorrow or next month.
So stimulating production and consumption in the moment takes away the organic growth of an economy and gives it this horrible up-and-down spikiness, which of course we've been seeing consistently as well.
So, to continue. At one town, Ledeve, 5,000 workers were discharged from cloth manufacturers.
Every cause except the right one was assigned for this.
Heavy duties were put upon foreign goods.
Everything the tariffs and customs houses could do was done.
Still the great manufactories of Normandy were closed.
Those of the rest of the kingdom speedily followed, and vast numbers of workers in all parts of the country were thrown out of employment.
Nor was this the case with the home demand alone.
The foreign demand, which at first had been stimulated soon, fell off.
In no way can this be better stated than by one of the most thoughtful historians of modern times, who says, quote, It is true that the first Asenjats gave the same impulse to business, in the city as in the country, but the apparent improvement had no firm foundation, even in the towns.
Whenever great quantity of paper money is suddenly issued we invariably see a rapid increase of trade.
The great quantity of the circulating medium sets in motion all the energies of commerce and manufacturers.
Capital for investment is more easily found than usual and trade perpetually receives fresh nutrients.
If this paper represents real credit founded upon order and legal security from which it can derive a firm and lasting value, such a movement may be the starting point of a great and widely extended prosperity, as, for instance, a splendid improvement in English agriculture was undoubtedly owing to the emancipation of the country bankers.
If, on the contrary, the new paper is of precarious value, as was clearly seen to be the case with the French assignats as early as February 1791, it can confer no lasting benefits.
For the moment, perhaps, business receives an impulse, all the more violent, because everyone endeavors to invest his doubtful paper in buildings, machines, and goods, which, under all circumstances, retain some intrinsic value.
Such a movement was witnessed in France in 1791, and from every quarter there came satisfactory reports of the activity of manufacturers.
But for the moment the French manufacturers derived great advantage from this state of things, as their products could be so cheaply paid for, orders poured in from foreign countries to such a degree that it was often difficult for the manufacturers to satisfy their customers.
It is easy to see that prosperity of this kind must very soon find its limit.
When a further fall in the Asenats took place, this prosperity would necessarily collapse and be succeeded by a crisis all the more destructive the more deeply men had engaged in speculation under the influence of the first favorable prospects.
Thus came a collapse in manufacturing and commerce, just as it had come previously in France, just as it came at various periods in Austria, Russia, America, and in all countries where men have tried to build up prosperity on irredeemable paper.
All this breaking down of the manufacturers and commerce of the nation made fearful inroads on the greater fortunes.
But upon the lesser and upon the little properties of the masses of the nation who relied upon their labor, it pressed with intense severity.
The capitalist could put his surplus paper money into the government lands and await results.
But the men who needed their money from day to day suffered the worst of the misery.
Still another difficulty appeared.
There had come a complete uncertainty as to the future.
Long before the close of 1791, no one knew whether a piece of paper money representing a hundred livres would a month later have a purchasing power of 90 or 80 or 60 livres.
The result was that capitalists feared to embark their means in business.
Enterprise received a mortal blow.
Demand for labour was still further diminished, and here came a new cause of calamity, for this uncertainty withered all far-reaching undertakings.
The business of France dwindled into a mere living from hand to hand.
This state of things too, while it bore heavily upon the moneyed classes, was still more ruinous to those in moderate and most of all to those in straitened circumstances.
With the masses of people, the purchase of every article of supply became a speculation.
A speculation in which the professional speculator had an immense advantage over the ordinary buyer.
Says the most brilliant of apologists for French revolutionary statesmanship, quote, Commerce was dead.
Betting took its place.
And surely we can find all of that very familiar to our current circumstances.
Say aye. Nor was there any compensating advantage to the mercantile classes.
The merchant was forced to add to his ordinary profit as some sufficient to cover probable or possible fluctuations in value.
While the prices of products thus went higher, the wages of labor owing to the number of workmen who were thrown out of employment went lower.
But these evils, though great, were small compared to those far more deep-seated signs of disease which now showed themselves throughout the country.
One of these was the obliteration of thrift from the minds of the French people.
And by the by, this is why the savings rates in the United States have gone down so catastrophically over the past few decades.
To continue. The French are naturally thrifty, but with such masses of money and with such uncertainty as to its future value, the ordinary motives for saving and care diminished, and a loose luxury spread throughout the country.
A still worse outgrowth was the increase of speculation and gambling.
With the plethora of paper currency in 1791 appeared the first evidences of that cancerous disease which always follows large issues of irredeemable currency.
A disease more permanently injurious to a nation than war, pestilence or famine.
For at the great metropolitan centres grew a luxurious, speculative, stock-gambling body, which, like a malignant tumour, absorbed into itself the strength of the nation and sent out its cancerous fibres to the remotest hamlets.
At these city centres abundant wealth seemed to be piled up.
In the country at large they grew a dislike of steady labour and a contempt for moderate gains and simple living.
In a pamphlet published in May 1791, we see how, in regard to this also, public opinion was blinded.
The author calls attention to this increase of gambling in values, of all sorts, in these words.
What shall I say of the stock-jobbing, as frightful as it is scandalous, which goes on in Paris under the very eyes of our legislatures?
A most terrible evil, yet, under the present circumstances, necessary?
The author also speaks of these stock gamblers as using the most insidious means to influence public opinion in favor of their measures, and then proposes a change in various matters of detail, thinking that this would prove a sufficient remedy for an evil which had its roots far down in the whole system of irredeemable currency.
As well might a physician prescribe a pimple wash for a diseased liver.
And again, don't think any comment needs to be made about how similar this is to modern Wall Street.
Now began to be seen more plainly some of the many ways in which an inflation policy robs the working class.
As these knots of plotting schemers at the city centres were becoming bloated with sudden wealth, the producing classes of the country, though having in their possession more and more currency, grew lean.
In the schemes and speculations put forth by stock jobbers and stimulated by the printing of more currency, multitudes of small fortunes were absorbed and lost, while a few swollen fortunes were rapidly aggregated in the larger cities.
This crippled a large class, In the country districts which had employed a great number of workmen.
In the leading French cities now arose a luxury and a license, which was a greater evil even than the plundering which ministered to it.
In the country the gambling spirit spread more and more, says the same thoughtful historian whom I've already quoted.
What a prospect for a country when its rural population was changed into a great band of gamblers.
Nor was this reckless and corrupt spirit confined to businessmen, it began to break out in official circles, and public men who a few years before had been thought above all possibility of taint became luxurious, reckless, cynical, and finally, corrupt. Mirabeau himself, who not many months previous had risked imprisonment and even death to establish constitutional government, was now, at this very time, secretly receiving heavy bribes.
When, at the downfall of the monarchy a few years later, the famous iron chest of the Tulleries was opened, there were found evidences that, in this carnival of inflation and corruption, he had been a regularly paid servant of the royal court.
The artful plundering of the people at large was bad enough, but worse still was this growing corruption in official and legislative circles.
Out of the speculating and gambling of the inflation period grew luxury, and out of this, corruption.
It grew as naturally as fungus on a muck heap.
It was first felt in business operations, but soon began to be seen in the legislative body and in journalism.
We can all see this with Enron and WorldCom and all these other things, just by the by, to continue.
Mirabeau was by no means the only example.
Such members of the legislative body as Julien of Toulouse, de l'année avant Ré, Fabré d'Elegantine, and their disciples were among the most noxious of those conspiring by legislative action to raise and depress securities for stock-jobbing purposes.
Bribery of legislators followed as a matter of course.
Delaunay, Julien et Chabot accepted a bribe of 500,000 livres for aging legislation calculated to promote the purposes of certain stock jobbers.
It is some comfort to know that nearly all concerned were guillotined for it.
It is true that the number of these corrupt legislators was small, far less than alarmists led the nation to suppose.
But there were enough to cause widespread distrust, cynicism, and want of faith in any patriotism or any virtue.
This is the end of the first part of this.
▲
Export Selection