All Episodes
Previous Next
Aug. 25, 2009 - Freedomain Radio - Stefan Molyneux
53:59
1443 Fiat Money In France Part 2

A book from 1897 about our future...

| Copy link to current segment

Time Text
Fiat money inflation in France, part two.
Even worse than this was the breaking down of the morals of the country at large, resulting from the sudden building up of ostentatious wealth in a few large cities, and from the gambling speculative spirit spreading from these to the small towns and rural districts.
From this was developed an even more disgraceful result, the decay of a true sense of national good faith.
The patriotism, which the fear of the absolute monarchy, the machinations of the court party, the menaces of the army, and the threats of all monarchical Europe had been unable to shake, was gradually disintegrated by this same speculative stock-jobbing habit fostered by the superabundant currency.
At the outset, in the discussions preliminary to the first issue of Paper Money, Mirabeau and others who had favoured it had insisted that patriotism, as well as an enlightened self-interest, would lead the people to keep up the value of paper money.
The very opposite of this was now revealed, for there appeared, as another outgrowth of this disease, what has always been seen under similar circumstances.
It is a result of previous and a cause of future evils.
This outgrowth was a vast debtor class in the nation, directly interested in the depreciation of the currency in which they were to pay their debts.
The nucleus of this class was formed by those who had purchased the church lands from the government.
And just to interrupt, then, as in now, it shows up in the realm of real estate.
To continue. Only small payments down had been required, and the remainder was to be paid in deferred installments.
An indebtedness of a multitude of people had thus been created to the amount of hundreds of millions of This body of debtors soon saw, of course, that their interest was to depreciate the currency in which their debts were to be paid, and these were speedily joined by a far more influential class, by that class whose speculative tendencies had been stimulated by the abundance of paper money, and who had gone largely into debt, looking for a rise in nominal values.
Soon, demagogues of the vile assort in the political clubs began to pander to it, A little later, important persons in this debtor class were to be found intriguing in the assembly, first in its seats and later in more conspicuous places of public trust.
Before long, the debtor class became a powerful body, extending through all ranks of society.
From the stock gambler who sat in the assembly to the small land speculator in the rural districts, from the sleek inventor of canards on the Paris exchange to the lying stock jobber in the market town, all pressed vigorously for new issues of paper.
All were apparently able to demonstrate to the people that in new issues of paper lay the only chance for national prosperity.
This great debtor class, relying on the multitude who could be approached by superficial arguments, soon gained control.
Strange as it might seem to those who have not watched the same causes at work at a previous period in France and at various times in other countries, while every issue of paper money really made matters worse, a superstition gained ground among the people at large that if only enough paper money were issued and were more cunningly handled, the poor would be made rich.
Henceforth, all opposition was futile.
In December 1791, a report was made in the Legislative Assembly in favor of yet another great issue of 300 millions more of paper money.
In regard to this report, Cambon said that more money was needed, but asked, quote, Will you, in a moment when stock-jobbing is carried on with such fury, give it new power by adding so much more to the circulation?
But such high considerations were now little regarded.
Dorécy declared, There is not enough money yet in circulation.
If there were more, the sales of national lands would be more rapid.
And the official report of his speech states that these words were applauded.
Dorécy then went on to insist that the government lands were worth at least 3,500 million livres, and said, quote, Why should members ascend the tribunal and disquiet France?
Fear nothing! Your currency reposes upon a sound mortgage.
Then followed a glorification of the patriotism of the French Republic, which he asserted would carry the nation through all its difficulties.
Vachouet, speaking next, declared that the circulation is becoming more rare every day.
On December 17, 1791, a new issue was ordered, making, in all, 2100 millions authorized.
Coupled with this was the declaration that the total amount in actual circulation should never reach more than 1600 millions.
Before this issue, the value of the 100 livres note had fallen at Paris to about 80 livres.
Immediately afterward, it fell to about 68 livres.
What limitations of the currency were worth may be judged from the fact that not only had the declaration made hardly a year before limiting the amount in circulation to 1200 millions been violated, But in the Declaration, made hardly a month previous, in which the Assembly, had as solemnly limited the amount of circulation to 1,400 millions, had also been repudiated.
The evils which we have already seen arising from the earlier issues were now aggravated.
But the most curious thing evolved out of all of this chaos, which was a new system of political economy.
In speeches, newspapers and pamphlets about this time, we begin to find it declared that after all, a depreciated currency is a blessing.
That gold and silver form an unsatisfactory standard for measuring values.
That it is a good thing to have a currency that will not go out of the kingdom and which separates France from other nations.
That thus shall manufacturers be encouraged.
That commerce with other nations may be a curse and hindrance thereto may be a blessing.
That the laws of political economy, however applicable in other times, are not applicable to this particular period, and however operative in other nations, are not now so in France.
That the ordinary rules of political economy are perhaps suited to the minions of despotism, but not to the free and enlightened inhabitants of France at the close of the eighteenth century.
That the whole state of present things, so far from being an evil, is a blessing.
All these ideas, and others quite as striking, were brought to the surface in the debates on the various new issues.
And by the by, this conforms to a theory that I have, which is that what is called morality, or virtue, is invented after a crime to cover it up.
To continue. Within four months came another report to the Assembly as ingenious as those preceding.
It declared, Your committee are thoroughly persuaded that the amount of the circulating medium before the revolution was greater than that of the assignats today.
But at that time the money circulated slowly and now it passes rapidly so that one thousand million assignats do the work of two thousand millions of specie.
The report foretells further increases in prices but by some curious jugglery reaches a conclusion favorable to further inflation.
Despite these encouragements, the Assignats' nominally worth 100 livres had fallen at the beginning of February 1792 to about 60 livres, and during that month fell to 53 livres.
In March, Clavier became Minister of Finance.
He was especially proud of his share in the invention and advocacy of the Assignats.
And now pressed their creation more vigorously than ever, and on April the 30th of the same year, came a fifth great issue of paper money amounting to 300 millions.
At about the same time, Cambon sneered ominously at public creditors as rich people, old financiers, and bankers.
Soon payment was suspended on dues to public creditors for all amounts exceeding 10,000 francs.
This is people who've lent money to the government.
To continue. This was hailed by many as a measure in the interest of the poorer classes of people.
But the result was that it injured them most of all.
Henceforward, until the end of this history, capital was quietly taken from labor and locked up in all the ways that financial ingenuity could devise.
All that saved thousands of laborers in France from starvation was that they were drafted off into the army and sent to be killed on foreign battlefields.
The parallels to modern Iraq and Afghanistan are clear.
To continue. On the last day of July, 1792, came another brilliant report from Fouquet, showing that the total amount of currency already issued was about 2,400 millions, but claiming that the national lands were worth a little more than this sum.
A decree was now passed issuing 300 millions more.
By this, the prices of everything were again enhanced, save one thing.
And that one thing was?
Labour. Strange as it may first appear, while the depreciation of the currency had raised all products enormously in price, the stoppage of so many manufactories and the withdrawal of capital caused wages in the summer of 1792, after all the inflation, to be as small as they had been four years before, about 15 sous per day.
I think a sous is 1 20th of a franc.
It's very small. No more striking example can be seen of the truth uttered by Daniel Webster, that, of all the contrivances for cheating the laboring classes of mankind, none has been more effective than that which deludes them with paper money.
Issue after issue followed at intervals of a few months, until on December 14, 1792, we have an official statement to the effect of That 3,500 millions had been put forth, of which 600 millions had been burned, leaving in circulation 2,800 millions.
When it is remembered that there was little business to do, and that the purchasing power of the livre, or franc, when judged by the staple products of the country, was equal to about half the present purchasing power of her own dollar, it will be seen into what evils France had drifted.
As the mania for paper money ran its course, even the Sioux, obtained by melting down the church bells, were more and more driven out of circulation, and more and more parchment notes from twenty-four to five were issued.
And at last, pieces of one Sioux or half a Sioux and even one quarter of a Sioux were put into circulation.
But now, another source of wealth was opened to the nation.
There came a confiscation of the large estates of landed proprietors who had fled the country.
An estimate in 1793 made the value of these estates three billions of francs.
As a consequence, the issues of paper money were continued in increased amounts on the old theory that they were guaranteed by the solemn pledge of these lands belonging to the state.
Under the Legislative Assembly, through the year 1792, new issues were made virtually every month, so that at the end of January 1793, it was more and more realized that the paper money actually in circulation amounted close to upon three thousand millions of francs.
All this had been issued publicly in open sessions of the national and legislative assemblies, but now, under the national convention, the two committees of public safety and of finance began to decree new issues privately, in secret session.
The modern equivalent of this is the Federal Reserve, which no longer tells anyone how much money it's printing.
To continue. As a result of this secrecy, the issues became larger still, and 400 workmen were added to those previously engaged in furnishing this paper money.
And these were so pressed with work from 6 o'clock in the morning until 8 in the evening that they struck for higher wages, and were successful.
The consequences of these over-issues now began to be more painfully evident to the people at large.
Articles of common consumption became enormously expensive, and prices were constantly rising.
Orators in the legislative assembly, clubs, local meetings, and elsewhere now endeavored to enlighten people by assigning every reason for this depreciation save the true one.
They declaimed against the corruption of the ministry, the want of patriotism among the moderates, the intrigues of the emigrant nobles, the hard-heartedness of the rich, the monopolizing spirit of the merchants, the perversity of the shopkeepers, each and all of these as causes of difficulty.
Just to interrupt, when the economy begins to collapse, you need much better orators to distract the people, which is why we now have Barack Obama instead of George Bush, but to continue.
This decline in the government paper was at first somewhat masked by fluctuations, for at various times the value of the currency rose.
The victory of Germap and the general success of the French army against the invaders, with the additional security offered by new confiscations of land caused in November 1792, An appreciation in the value of the currency.
The franc had stood at 57, and it rose to about 69.
But the downward tendency was soon resumed, and in September 1793, the assignats had sunk below 30.
Then sundry new victories and corrosations of oratory gave momentary confidence, so that in December 1793, they rose above 50.
But despite these fluctuations, the downward tendency soon became more rapid than ever.
The washerwomen of Paris, finding soap so expensive that they could hardly purchase it, insisted that all the merchants who were endeavouring to save something of their little property by refusing to sell their goods for the wretched currency with which France was flooded should be punished with death.
The women of the markets and the hangers-on of the Jacobin Club called loudly for a law to equalize the value of paper money and silver coin.
It was also demanded that a tax be laid especially on the rich, to the amount of 400 million francs, to buy bread.
Meret declared loudly that the people, by hanging shopkeepers and plundering stores, could easily remove the trouble.
The result was that, on the 28th of February, 1793, at 8 o'clock in the evening, a mob of men and women in disguise began plundering the stores and shops of Paris.
At first, they demanded only bread.
Soon, they insisted on coffee and rice and sugar.
At last, they seized everything on which they could lay their hands—cloth, clothing, groceries, and luxuries of every kind.
Two hundred such stores were plundered.
This was endured for six hours, and finally order was restored only by a grant of seven million francs to buy off the mob.
The new political economy was beginning to bear its fruits luxuriantly.
A gaudy growth of it appeared in the city hall of Paris when, in response to the complaints of the plundered merchants, Rue declared in the midst of great applause that shopkeepers were only giving back to the people what they had hitherto robbed them of.
The mob, having been thus bought off by concessions and appeased by oratory, the government gained time to think.
And now came a series of amazing expedients, and yet all perfectly logical.
Just to interrupt, this is one of the reasons why statism in a quasi-free market economy is so dangerous, because you have...
The capitalist class, the shopkeeper class, and even the banking classes, which is the people that the general mob actually interacts with.
So when inflation caused by central government over printing of money hits the store, the shopkeeper is the one who appears bad to the customer because it appears that the shopkeeper is raising his prices when in fact it's the government.
And so what happens is because people deal with the immediate rather than the theoretical and generally they get mad at the shopkeepers and demand more Power for the government, which is the cause of their problems to begin with, which is a very, very important aspect of why statism does not work.
So, these are the amazing expedients we will continue that the government comes up with.
Three of these have gained in French history an evil pre-eminence, and the first of the three was the forced loan.
In view of the fact that the well-to-do citizens were thought to be lukewarm in their support of the politicians controlling the country, Various demagogues in the National Convention, which had now succeeded the National, Constituent and Legislative Assemblies, found ample matter for denunciations long and hard.
The result outside the Convention was increased activity of the guillotine.
The results inside were new measures against all who had money.
And on June 22, 1793, the Convention determined that there should be a forced loan.
Secured on the confiscated lands of the emigrants and levied upon all married men with incomes of 10,000 francs and upon all unmarried men with incomes of 6,000 francs.
It was calculated that these would bring into the treasury a thousand millions of francs.
Alas, a difficulty was found.
So many of the rich had fled, or had concealed their wealth, that only a fifth of the sum required could be raised, and therefore a law was soon passed which levied forced loans upon incomes as low as 1,000 francs, or say $200 of American money.
This tax was made progressive.
On the smaller proprietors, it was fixed at one-tenth, and on the larger, that is, on all incomes above 9,000 francs, it was made one-half of the entire income.
Little, if any, provision was made for the repayment of this, quote, loan, but the certificates might be used for purchasing the confiscated real estate of the church and of the nobility.
But if this first expedient shows how naturally a fiat money system runs into despotism, the next is no less instructive in showing how easily it becomes repudiation and dishonor.
As we have seen, the first issue of the Assignats, made by the National Assembly, bore a portrait of the king.
But on the various issues after the establishment of a republic, this emblem had been discarded.
This change led to a difference in value between the earlier and the later paper money.
The wild follies of fanatics and demagogues had led to an increasing belief that the existing state of things could not last.
That the Bourbons, the monarchy, must err long return.
That in such case, while a new monarch would repudiate all the vast mass of the later paper issued by the Republic, he would recognize that first issue bearing the face, and therefore the guarantee, of the king.
So it was that this first issue came to bear a higher value than those of a later date.
To meet this condition of things, it was now proposed to repudiate all that earlier issue.
In vain did sundry more thoughtful members of the convention plead that this paper money amounting to 558 millions of francs bore the solemn guarantee of the nation as well as of the king.
The current was irresistible.
All that Cambon, the great leader of finance at the time, could secure was a clause claiming to protect the poor to the effect that this demonetization should not exceed or extend to notes below 100 francs in value.
And it was also agreed that any of the notes, large or small, might be received in payment of taxes and for the confiscated property of the clergy and nobility.
To all the arguments advanced against this breach of the national faith, Danton, then at the height of his power, simply declared that only aristocrats could favor notes bearing the royal portrait, and gave forth his famous utterance.
Imitate nature which watches over the preservations of the race, but has no regard for individuals.
I don't know what that means.
Let's continue. The decree was passed on the 31st of July 1793, yet its futility was apparent in less than two months, when the convention decreed that there should be issued 2,000 millions of francs more in assignats, between the values of 10 sous and 400 francs, and when, before the end of the year, 500 millions more were authorized.
The third outgrowth of the vast issue of fiat money was the maximum, As far back as November 1792, the terrorist associate of Robespierre Saint-Just, in view of the steady rise in prices of the necessaries of life, had proposed a scheme by which these prices should be established by law, at a rate proportionate to the wages of the working classes.
This plan lingered in men's minds, taking shape in various resolutions and decrees.
Until the whole culminated on September 29th, 1793, in the law of the maximum.
And what this means, just by the by, is price capping, right?
You can't charge more than X amount of dollars, which will inevitably result in shortages and so on.
So we can continue. While all this legislation was high-handed, it was not careless.
Even statesmen of the greatest strength, having once been drawn into this flood, were borne on into excesses which a little earlier would have appalled them.
Committees of experts were appointed to study the whole subject of prices, and at last there were adopted the great Four Rules, which seemed to statesmen of that time a masterly solution of the whole difficulty.
First, the price of each article of necessity was to be fixed at one and one-third its price in 1790.
Secondly, all transportation was to be added at a fixed rate per league.
Thirdly, 5% was to be added for the profit of the wholesaler.
Fourthly, 10% was to be added for the profit of the retailer.
Nothing could look more reasonable.
Great was the jubilation.
The report was presented and supported by Barrer, the tiger monkey, then in all the glory of his great orations, now best known from his portrait by Macaulay.
Nothing could withstand Barrer's eloquence.
He insisted that France had been suffering from a monarchical commerce which only sought wealth, while what she needed and what she was now to receive was a republican commerce, a commerce of moderate profits and virtuous.
He exulted in the fact that France alone enjoys such a commerce that it exists in no other nation.
He poured contempt over political economy as that science which quacks have corrupted, which pedants have obscured, and which academics have depreciated.
France, he said, has something better, and he declared in conclusion,"...the needs of the people will no longer be spied upon in order that the commercial classes may arbitrarily take advantage." This is what the government always does.
The producer is your enemy.
The guy with the gun in the state is your friend.
To continue. The first result of the maximum was that every means was taken to evade the fixed price imposed.
And the farmers brought in as little produce as they possibly could.
This increased the scarcity and the people of the large cities were put on an allowance.
Tickets were issued authorizing the bearer to obtain at the official prices a certain amount of bread or sugar or soap or wood or coal to cover immediate necessities.
But it was found that the maximum, with its divinely revealed four rules, could not be made to work well, even by the shrewdest devices.
In the greater part of France, it could not be enforced.
As to merchandise of foreign origin, or merchandise into which any foreign product entered, the war had raised it far above the price allowed under the first rule, namely the prices of 1790, with the addition of one-third.
Shopkeepers therefore could not sell such goods without ruin.
The result was that very many went out of business, and the remainder forced buyers to pay enormous charges under the very natural excuse that the seller risked his life in trading at all.
That this excuse was valid is easily seen by the daily list of those condemned to the guillotine, in which not infrequently figure the names of men charged with violating the maximum laws.
Manufacturers were very generally crippled and frequently destroyed, and agriculture was fearfully depressed.
To detect goods concealed by farmers and shopkeepers, a spy system was established with a reward to the informer of one-third of the value of the goods discovered.
To spread terror, the criminal tribunal at Strasbourg was ordered to destroy the dwelling of anyone found guilty of selling goods above the price set by law.
The farmer often found that he could not raise his products at anything like the price required by the new law, and when he tried to hold back his crops or cattle, alleging that he could not afford to sell them at the prices fixed by law, They were frequently taken from him by force, and he was fortunate, if paid even in the depreciated fiat money, fortunate indeed, if he finally escaped with his life.
Involved in all these perplexities, the convention tried to cut the Gordian knot.
It decreed that any person selling gold or silver coin or making any difference in any transaction between paper and specie should be imprisoned in irons for six years.
That anyone who refused to accept a payment in assignats, or accepted assignats at a discount, should pay a fine of 3,000 francs.
And that anyone committing this crime a second time should pay a fine of 6,000 francs and suffer imprisonment 20 years in irons.
Later, on the 8th of September 1793, the penalty for such offences was made death.
With confiscation of the criminal's property and a reward, was offered to any person informing the authorities regarding any such criminal transactions.
To reach the climax of ferocity the Convention decreed in May 1794, that the death penalty should be inflicted on any person convicted of, quote, having asked before a bargain was concluded in what money payment was to be made.
Nor was this all. The great finance minister, Camon, soon saw that the worst enemies of his policy were gold and silver.
Therefore it was that under his lead, the convention closed the exchange, and finally on November 13, 1793, under terrifying penalties, suppressed all commerce in the precious metals.
About a year later came the abolition of the maximum itself.
It is easily seen that these maximum laws were perfectly logical.
Whenever any nation entrusts to its legislators the issue of a currency not based on the idea of redemption in standard coin recognized in the commerce of civilized nations, it entrusts to them the power to raise or depress the value of every article in the possession of every citizen.
Louis XIV had claimed that all property in France was his own, and that what private persons held was as much his as if it were in his coffers.
But even this assumption is exceeded by the confiscating power exercised in a country where instead of leaving values to be measured by a standard common to the whole world, they are left to be depressed or raised at the whim, caprice, or interest of a body of legislators.
When this power is given, the power of fixing prices is inevitably included in it.
Of course, this is why you didn't get minimum wages until after fiat currency was adopted in the United States or inflicted.
To continue. It may be said that these measures were made necessary by the war then going on.
Nothing could be more baseless than such an objection.
In this war, the French soon became generally successful.
It was quickly pushed mainly upon foreign soil.
Numerous contributions were levied upon the subjugated countries to support the French armies.
The war was one of those in which the loss, falling apparently on future generations, first stimulates, in a sad way, trade and production.
The main cause of these evils was tampering with the circulating medium of an entire nation.
Keeping all values in fluctuation, discouraging enterprise, paralyzing energy, undermining sobriety, obliterating thrift, promoting extravagance and exciting riot by the issue of an irredeemable currency.
The true business way of meeting the enormous demands on France during the first years of the revolution had been stated by a true statesman and sound financier, Dupont de Nemours, At the very beginning, he had shown that using the same paper as a circulating medium and as a means for selling the national real estate was like using the same implement for an oyster knife and a razor.
It has been argued that the assenats sank in value because they were not well secured, that securing them on government real estate was as futile as if the United States had, in the financial troubles of its early days, secured notes on its real estate.
This objection is utterly fallacious.
The government lands of our country, the United States, were remote from the centers of capital and difficult to examine.
The French national real estate was near these sentences, even in them, and easy to examine.
Our national real estate was unimproved and unproductive.
Theirs was improved and productive.
Its average productiveness in market in ordinary times being from 4-5%.
It has also been objected that the attempt to secure the assignats on government real estate failed because of the general want of confidence in the title derived by the purchases from the new government.
Every thorough student of that period must know that this is a misleading statement.
Everything shows that the vast majority of the French people had a fanatical confidence in the stability of the new government during the greater part of the revolution.
There were disbelievers in the security of the Assignats, just as there were disbelievers in the paper money of the United States throughout our civil war, but they were usually a small minority.
Even granting that there was a doubt as to investment in French lands, the French people certainly had as much confidence in the secure possession of government lands as any people can ever have in large issues of government bonds.
Indeed, it is certain that they had far more confidence in their lands as a security than modern nations can usually have in large issues of bonds obtained by payments of irredeemable paper.
One simple fact, as stated by John Stuart Mill, which made Assignats difficult to convert into real estate Was that the vast majority of people could not afford to make investments outside their business.
And this fact is no less fatal to any attempt to contract large issues of irredeemable paper, save perhaps a bold, statesmanlike attempt, which seizes the best time and presses every advantage, eschewing all juggling devices and sacrificing everything to maintain a sound currency, based on standards common to the entire financial world.
And now was seen taking possession of the nation.
That idea which developed so easily out of the fiat money system.
The idea that the ordinary needs of government may be legitimately met wholly by the means of paper currency.
That taxes may be dispensed with.
As a result, it was found that the Assignat printing press was the one resource left to the government.
And the increase in the volume of paper money became every day more appalling.
It will doubtless surprise many to learn that in spite of these evident results of too much currency, the old cry of a scarcity of circulating medium was not stilled.
It appeared not long after each issue, no matter how large.
But every thoughtful student of financial history knows that this cry always comes after such issues.
Nay, that it must come, because in obedience to a natural law, the former scarcity, or rather insufficiency of currency, recurs just as soon as prices become adjusted to the new volume.
And there comes some little revival of business with the usual increase of credit.
So, because the new issues are not creating any real wealth, it does seem that we're short of currency, because the currency immediately becomes depreciated.
That's what he's saying here. To continue.
In August 1793 appeared a new report by Cambon.
No one can read it without being struck by its mingled ability and folly.
His final plan of dealing with the public debt has outlasted all revolutions since.
But his disposition of the inflated currency came to a wretched failure.
Against Dupont, who showed conclusively that the wild increase of paper money was leading straight to ruin, Cambon carried the majority in the great assemblies and clubs by sheer audacity.
The audacity of desperation.
Zeal in supporting the assignats became his religion.
The National Convention but succeeded the Legislative Assembly issued in 1793 over 3,000 millions of assignats.
And of these, over 1,200 millions were poured into the circulation.
And yet, Cambon steadily insisted that the security for the assignat currency was perfect.
The climax of his zeal was reached when he counted as assets in the National Treasury The indemnities which he declared France was sure to receive after future victories over the Allied nations, with which she was then waging a desperate war.
As patriotism, it was sublime.
As finance, it was deadly.
Everything was tried.
Very elaborately, he devised a funding scheme which, taken in connection with his system of issues, was in effect what in these days would be called an intra-convertibility scheme.
By various degrees of persuasion, or force, the guillotine looming up in the background, Holders of assignats were urged to convert them into evidence of national debt, bearing interest at 5%, with the understanding that if more paper were afterward needed, more would be issued.
All in vain.
The official tables of depreciation show that the assignats continued to fall.
A forced loan calling in a billion of these checked this fall, but only for a moment.
The interconvertibility scheme between currency and bonds failed as dismally as the interconvertibility scheme between currency and land had failed.
A more effective expedient was a law confiscating the property of all Frenchmen who left France after July 14, 1789 and who had not returned.
This gave new land to be mortgaged for the security of paper money.
All this vast chapter in financial folly is sometimes referred to as if it resulted from the direct action of men utterly unskilled in finance.
This is a grave error.
That wild schemers and dreamers took a leading part in setting the fiat money system going is true.
That speculation and interested financiers made it worse is also true.
But the men who had charge of French finance during the reign of terror, and who made these experiments, which seemed to us so monstrous, in order to rescue themselves and their country from the flood which was sweeping everything to financial ruin, were universally recognized as among the most skillful and honest financiers in Europe.
Cambon especially ranked then and ranks now as among the most expert in any period.
The disastrous results of all his courage and ability in the attempt to stand against the deluge of paper money show how powerless are the most skilled and skillful masters of finance to stem the tide of fiat money calamity when once it is fairly under headway, and how useless are all enactments which they can devise against the underlying laws of nature.
Month after month, year after year, new issues went on.
Meanwhile, everything possible was done to keep up the value of money.
The city authorities of Metz took a solemn oath that the assignats should bear the same price, whether in paper or specie, and whether in buying or selling, and various other official bodies throughout the nation followed this example.
In obedience to those who believed, with the market women of Paris, as stated in their famous petition, that laws should be passed making paper money as good as gold, Couthon, in August 1793, had proposed and carried a law punishing any persons who should sell assignats at less than their nominal value with imprisonment for 20 years in chains, and later carried a law making investments in foreign countries by Frenchmen punishable with death.
But to the surprise of the great majority of the French people, the value of the assignats was found after the momentary spasm of fear had passed, not to have been permanently increased by these measures.
On the contrary, this fiat paper persisted in obeying the natural laws of finance, and as new issues increased, their value decreased.
Nor did the most lavish aid of nature avail.
The paper money of the nation seemed to possess a magic power to transmute prosperity into adversity and plenty into famine.
The year 1794 was exceptionally fruitful, and yet with the autumn came scarcity of provisions, and with the winter came distress.
The reason is perfectly simple.
The sequences in that whole history are absolutely logical.
First, the assembly had inflated the currency and raised prices enormously.
Next, it had been forced to establish an arbitrary maximum price for produce.
But this price, large as it seemed, soon fell below the real value of produce.
Many of the farmers therefore raised less produce or refrained from bringing what they had to market.
But as is usual in such cases, the trouble was ascribed to everything but the real cause.
And the most severe measures were established in all parts of the country to force farmers to bring produce to market, millers to grind, and shopkeepers to sell it.
The issues of paper money continue.
Toward the end of 1794, 7,000 millions in assignats were in circulation.
By the end of May 1795, the circulation was increased to 10,000 millions.
The end of July, to 14,000 millions.
And the value of 100 francs in paper fell steadily, first to 4 francs in gold, then to 3, then to 2 and a half.
But curiously enough, while this depreciation was rapidly going on, as at various other periods when depreciation was rapid, there came an apparent revival Of business.
The hopes of many were revived by the fact that in spite of the decline of paper, there was an exceedingly brisk trade in all kinds of permanent property.
Whatever articles of permanent value certain needy people were willing to sell, certain cunning people were willing to buy, and to pay good prices for in Assignats.
At this, hope revived for a time in certain quarters.
But before long it was discovered that this was one of the most distressing results of a natural law which is sure to come into play under such circumstances.
It was simply a feverish activity caused by the intense desire of a large number of the Schroeder classes to convert their paper money into anything and everything which they could hold and hoard until the collapse which they foresaw should take place.
This very activity in business simply indicated the disease.
It was simply legal robbery of the more enthusiastic and trusting by the more cold-hearted and keen.
It was the unloading of the assignats upon the mass of the people.
Interesting it is to note, in the midst of all this, the steady action of another simple law in finances.
Prisons, guillotines, enactments inflicting 20 years imprisonment in chains upon persons twice convicted of buying or selling paper money at less than its normal value, and death upon investors in foreign securities, were powerless.
The National Convention fighting a world in arms and with an armed revolt on its own soil showed titanic power, but in its struggle to circumvent one simple law of nature, its weakness was pitiable.
The Louis d'Or stood in the market as a monitor, noting each day with unerring fidelity the decline in the value of the assignat.
This is a gold coin.
A monitor not to be bribed, not to be scared.
As well might the National Convention try to bribe or scare away the polarity of the Mariner's compass.
On August 1st, 1795.
This gold Louis of 25 francs was worth, in paper, 920 francs.
September 1st, 1200 francs.
November 1st, 2600 francs.
December 1st, 3050.
In February 1796, it was worth 7200 francs.
Or one franc in gold was worth 288 francs in paper.
Prices of all commodities went up nearly in proportion.
The writings of this period give curious details.
Thibodeau, in his memoirs, speaks of sugar as 500 francs a pound, soap 230 francs, candles 140 francs.
Mercier, in his lifelike picture of the French metropolis at that period, mentions 600 francs as carriage hire for a single drive and 6,000 for an entire day.
Examples from other sources are such as the following.
A measure of flour advanced from 2 francs in 1790 to 225 francs in 1795.
A pair of shoes from 5 francs to 200.
A hat from 14 francs to 500.
Butter to 580 francs a pound.
A turkey to 900 francs.
Everything was enormously inflated in price except the wages of labor.
As manufacturers had closed, wages had fallen until all that kept them up seemed to be the fact that so many laborers were drafted off into the army.
From this state of things came grievous wrong and gross fraud.
Men who had foreseen these results and had gone into debt were of course jubilant.
He who in 1790 had borrowed 10,000 francs could repay his debts in 1796 for about 35 francs.
Laws were made to meet these abuses.
As far back as 1794, a plan was devised for publishing official tables of depreciation to be used in making equitable settlements of debts.
But all such machinery proved futile.
On the 18th of May, 1796, a young man complained to the National Convention that his elder brother, who had been acting as administrator of his deceased father's estate, had paid the heirs in assignats, and that he had received scarcely one three-hundredth part of the real value of his share.
To meet cases like this, a law was passed establishing a scale of proportion.
Taking as a standard the value of the assignat when there were two billions in circulation, this law declared that in payment of debts, one quarter should be added to the amount originally borrowed for every 500 millions added to the circulation.
In obedience to this law, a man who borrowed 2,000 francs when there were two billions in circulation would have to pay his creditors 2,500 francs when half a billion more were added to the currency, and over 35,000 francs before the emissions of paper reached their final amount.
This brought new evils, worse if possible, than the old.
The question will naturally be asked.
On whom did this vast depreciation mainly fall at last?
When this currency had sunk to about one three-hundredth part of its nominal value, and after that, to nothing, in whose hands was the bulk of it?
The answer is simple.
I shall give it in the exact words of that thoughtful historian from whom I have already quoted.
Before the end of the year 1795, the paper money was almost exclusively in the hands of the working classes, employees and men of small means, whose property was not large enough to invest in stores of goods or national lands.
Financiers and men of large means were shrewd enough to put as much of their property as possible into objects of permanent value.
The working classes had no such foresight or skill or means.
On them, finally, came the great crushing weight of the loss.
After the first collapse came up the cries of the starving.
Roads and bridges were neglected.
Many factories were given up in utter helplessness.
To continue, in the words of the historian already cited, none felt any confidence in the future in any respect.
Few dared to make a business investment for any length of time, and it was accounted a folly to curtail the pleasures of the moment, to accumulate or save for so uncertain a future.
This system in finance was accompanied by a system in politics no less startling, and each system tended to aggravate the other.
The wild radicals having sent to the guillotine first all the royalists, and next all the leading republicans they could entrap, the various factions began sending each other to the same destination.
Hébertis, D'Antonis, with various other factions and groups, and finally the robed Pieris, following each other in rapid succession.
After these declaimers and phrase-mongers had thus disappeared, they came to power In October 1795, a new government, mainly a survival of the more scoundrelly, the Directory.
It found the country utterly impoverished, and its only resource at first was to print more paper and to issue even while wet from the press.
These new issues were made at last by the two great committees with or without warrant of law and in greater sums than ever.
Complaints were made that the army of engravers and printers at the Mint could not meet the demand for assignats, that they could produce only from 60 to 70 millions per day and that the government was spending daily from 80 to 90 millions.
4,000 millions of francs were issued during one month, a little later 3,000 millions, a little later 4,000 millions, until there had been put forth over 35,000 millions.
The purchasing power of this paper having now become almost nothing, it was decreed on the 22nd of December 1795 that the whole amount issued should be limited to 40,000 millions, including all that had been previously set forth, and that, when this had been done, the copper plates should be broken.
Even in spite of this, additional issues were made amounting to about 10,000 millions.
But on the 18th of February, 1796, at 9 o'clock in the morning, in the presence of a great crowd, the machinery, plates, and paper for printing as a gnaz were brought to the Place Vendôme, and there, on the spot where the Napoleon column now stands, these were solemnly broken and burned.
Shortly afterward, a report by Camus was made to the Assembly that the entire amount of paper money issued in less than six years by the revolutionary government of France had been over 45,000 millions of francs, that over 6,000 millions had been annulled and burned, and that at the final catastrophe there were in circulation close to 40,000 millions.
It will be readily seen that it was fully time to put an end to the system.
For the gold Louis of 25 francs in specie had, in February 1796, as we have seen, become worth 7,200 francs.
And, at the latest quotation of all, no less than 15,000 francs in paper money, that is, one franc in gold, was nominally worth 6,000 francs in paper.
▲
Export Selection