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Aug. 27, 2009 - Freedomain Radio - Stefan Molyneux
31:16
1444 Fiat Money In France Part 3

A book from 1897 about our future...

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The first new expedient of the Directory was to secure a forced loan of 600 million francs from the wealthier classes, but this was found fruitless.
Ominous it was when persons compelled to take this loan, found for an assignat of 100 francs, only one franc was allowed.
Next, a national bank was proposed, but capitalists were loath to embark in banking, while the howls of the mob against all who had anything especially to do with money resounded in every city.
At last, the Directory bethought themselves of another expedient.
This was by no means new.
It had been fully tried on our continent twice before that time, and once since, first in our colonial period, next during our Confederation, lastly by the Southern Confederacy, And here, as elsewhere, always in vain.
But experience yielded to theory, plain business sense to financial metaphysics.
It was determined to issue a new paper, which should be fully secured and as good as gold.
Pursuant to this decision, it was decreed that a new paper money, fully secured and as good as gold, be issued under the name of amandats.
In order that these new notes should be fully secured, choice public real estate was set apart to an amount fully equal to the nominal value of the issue.
And anyone offering any amount of the mandats could at once take possession of government lands, the price of the lands to be determined by two experts, one named by the government and one by the buyer, and without the formalities and delays previously established in regard to the purchase of lands with assignats. and without the formalities and delays previously established in regard
Perhaps the most whimsical thing in the whole situation was the fact that the government, pressed as it was by demands of all sorts, continued to issue the old assignats at the same time that it was discrediting them by issuing the new mandats.
And yet in order to make the mandats as good as gold, it was planned by forced loans and other means to reduce the quantity of assignats in circulation, so that the value of each assignat should be raised to one-thirtieth of the value of gold, then to make mandats legal tender and to substitute them for assignats at the rate of one for thirty.
Never were great expectations more cruelly disappointed.
Even before the mandats could be issued from the press, they fell to 35% of their nominal value.
From this, they speedily fell to 15%, and soon after to 5%, and finally, in August 1796, six months from their first issue, to 3%.
This plan failed, just as it had failed in New England in 1737, just as it failed under our own Confederation in 1781, just as it failed under the Southern Confederacy during our Civil War.
This is just Steph jumping in to mention that one way that you know the plan is going to fail is that they have an independent expert assigning the value or the price of land rather than supply and demand of the free market.
To continue. To sustain this new currency, the government resorted to every method that ingenuity could devise.
Pamphlets suited to people of every capacity were published explaining its advantages.
Never was there more skillful puffing.
A pamphlet signed Marchand and dedicated to people of good faith was widely circulated, in which Marchand took pains to show the great advantage of the Mandats as compared to the Assignats.
How land could be more easily acquired with them?
How their security was better than with assignats.
How they could not, by any possibility, sink in values as the assignats had done.
But even before the pamphlet was dry from the press, the depreciation of the mandats had refuted his entire argument.
The old plan of penal measures was again pressed.
Monon led off by proposing penalties against those who shall speak publicly against the mandats.
Tellot thought the penalties ought to be made especially severe, and finally it was enacted that any Persians, quote, who by their discourse or writing shall decry the mandats shall be condemned to a fine of not less than one thousand francs or more than ten thousand, and in the case of a repetition of the offence, to four years in irons.
It was also decreed that those who refuse to receive the mandats should be fined, the first time the exact sum which they refuse, the second time ten times as much, and the third time punished with two years in prison.
But here too came in the action of those natural laws which are alike inexorable in all countries.
This attempt proved futile in France, just as it had proved futile less than 20 years before in America.
No enactments could stop the downward tendency of this new paper, fully secured, as good as gold.
The laws that finally govern finance are not made in conventions or congresses.
Amen to that.
From time to time, various new financial juggles were tried, some of them ingenious, most of them drastic.
It was decreed that all assignats above the value of 100 francs should cease to circulate after the beginning of June 1796.
But this only served to destroy the last vestige of confidence in government notes of any kind.
Another expedient was seen in the decree that paper money should be made to accord with their natural and immutable standard of value, and that one franc in paper should thenceforth be worth ten pounds of wheat.
This also failed.
On July 16th, another decree seemed to show that the authorities despaired of regulating the existing currency, and it was decreed that all paper, whether Mandats or Assignats, should be taken at its real value, and that bargains might be made in whatever currency people chose.
The real value of the Mandats speedily sank to about 2% of their nominal value, and the only effect of this legislation seemed to be that both Assignats and Mandats went still lower.
I must say, by the by, that the idea that you can threaten, bully, and use violence to create value in people is a lie that is as old as mankind.
Parents do it to children, priests do it to children, teachers do it to children, adults do it to adults, and adults do it to the elderly.
The idea that the initiation of force can somehow create value is exactly what is going on here.
Then, from February 4th to February 14th, 1797, came decrees and orders that the engraving apparatus for the mandats should be destroyed, as that for the assignats had been, and that neither assignats nor mandats should any longer be a legal tender, and that old debts to the state might be paid for a time with government paper at the rate of 1% of their face value.
Then, less than three months later, it was decreed that the 21 billions of assignats still in circulation should be annulled.
Finally, on September 30th, 1797, as the culmination of these and various other experiments and expedients, And again,
just to note, a currency in this case, this currency, founded upon a theft of the state, cannot create value either.
To continue. As to the bonds which the creditors of the nation were thus forced to take, they sank rapidly, as the assignats and mandats had done, even to 3% of their value.
As to the consolidated third, that was largely paid until the coming of Bonaparte, in paper money which sank gradually to about 6% of its faith value.
Since May 1797, both assignats and mandats had been virtually worth nothing.
And we find a 5% value Shocking!
5% value as shocking, but that's all that's left of the US dollar from about 1913.
So, shocking, but we've seen it.
Well, we've seen the tail end of it.
To continue. So ended the reign of paper money in France.
The 2,500 millions of mandats went into the common heap of refuse, with the previous 45,000 millions of assignats.
The nation, in general, rich and poor alike, was plunged into financial ruin from one end to the other.
On the prices charged for articles of ordinary use, light is thrown by extracts from a table published in 1795 reduced to American coinage.
For a bushel of flour, $17.90, $0.40.
$17.95, $45.
A bushel of oats, $0.18 to $10.
A cartload of wood, $4 to $500.
A bushel of coal, seven cents to two dollars, pound of sugar, eighteen cents to twelve and a half dollars, pound of soap, eighteen cents to eight dollars, pound of candles, eighteen cents to eight dollars.
For one cabbage, eight cents to five and a half dollars, pair of shoes, one dollar to forty dollars.
For twenty-five eggs, twenty-four cents to five dollars.
But these prices about the middle of 17.95 were moderate compared with those which were reached before the close of that year and during the year following.
Perfectly authentic examples were such as the following.
A pound of bread, nine dollars.
A bushel of potatoes, forty dollars.
A pound of candles, forty dollars.
A cartload of wood, two hundred and fifty dollars.
So a pound of candles, 17.90.
18 cents, 17.95, eight dollars.
Following year, $40.
So much for the poorer people.
Typical of those esteemed wealthy may be mentioned a manufacturer of hardware who, having retired from business in 1790 with 321,000 livres, found his property in 1796 worth 14,000 francs.
For this general distress, arising from the development and collapse of fiat money in France, there was indeed one exception.
In Paris, and a few of the other great cities, men like Talien, of the heartless, debauched, luxurious, speculator, contractor, and stock-gambler class, had risen above the ruins of the multitudes of smaller fortunes,
Talien, one of the worst demagogue reformers, and a certain number of men like him had been skillful enough to become millionaires, while their dupes who had clamored for issues of paper money had become paupers.
The luxury and extravagance of the currency gamblers and their families form one of the most significant features in any picture of the social condition of that period.
A few years before this, the leading woman in French society showed a nobility of character and a simplicity in dress worthy of Roman matrons.
Of these were Madame Rollin and Madame Desmoulins, but now all was changed.
At the head of society stood Madame Tallien, and others like her, wild in extravagance, daily seeking new refinements in luxury, and demanding of their husbands and lovers vast sums to array them and to feed their whims.
If such sums could not be had honestly, then they must be gotten dishonestly.
The more closely one examines that period, the more clearly he sees that the pictures given by Thibodeau and Charlemagne and de Goncourt are not at all exaggerated.
The contrast between these gay creatures of the Directory period and the people at large was striking.
Indeed, much as the vast majority of the wealthy classes suffered from impoverishment, the laboring classes, salaried employees of all sorts, and people of fixed income and of small means, especially in the cities, underwent yet greater distress.
These were found as a rule to subsist mainly on daily government rations of bread at the rate of one pound per person.
This was frequently unfit for food and was distributed to long lines of people, men, women and children, who were at times obliged to wait the return even from dawn till dusk.
The very rich could, by various means, especially by bribery, obtain better bread, but only at enormous cost.
In May 1796, the market price of good bread was, in paper, 80 francs, 16 dollars per pound.
And a little later, provisions could not be bought for paper money at any price.
And here it may be worth mentioning that there was another financial trouble, especially vexatious.
While, as we have seen, such enormous sums rising from 20 to 40,000 millions of francs in paper were put in circulation by the successive governments of the revolution, enormous sums had been set afloat in counterfeits by criminals and by the enemies of France.
These came not only from various parts of the French Republic, but from nearly all the surrounding nations, the main source being London.
Thence it was that Count Joseph de Bosoy sent off cargoes of false paper excellently engraved and printed through ports in Brittany and other disaffected parts of France.
One seizure by General Hoch was declared by him to exceed, in nominal value, ten thousand millions of francs.
With the exceptions of a few of these issues, detection was exceedingly difficult even for experts.
For the vast majority of the people it was impossible.
Nor was this all. At various times, the insurgent royalists in Le Vendee and elsewhere put their presses also in operation, issuing notes bearing the Bourbon arms, the Fleur de Lis, the portrait of the Dauphin as Louis XVII,
With the magic legend Depardieu, and large bodies of the population in the insurgent districts were forced to take these, even as later 1799 these notes continued to appear.
The financial agony was prolonged somewhat by attempts to secure funds by still another forced loan and other discredited measures, but when all was over with paper money, specie Gold and silver and copper coins began to reappear, first in sufficient sums to do the small amount of business which remained after the collapse.
Then, as the business demand increased, the amount of specie flowed in from the world at large to meet it, and the nation gradually recovered from that long paper-money debauch.
Thibador, a very thoughtful observer, tells us in his memoirs that great fears were felt as to a want of circulating medium between the time when paper should go out and coin should come in, but that no such want was severely felt, that coin came in gradually as it was wanted.
Just wanted to mention that this is what happens when you stop using force, right?
The market supply even of money, which is just a good and a service, fills in the gap as is necessary, and this would also be the case, of course, if public schools were shut down or anything else.
To continue, nothing could better exemplify the saying of one of the most shrewd of modern statesmen that there will always be money But though there soon came a degree of prosperity as compared with the distress during the paper-money orgy, convalescence was slow.
The acute suffering from the wreck and ruin brought by Assignats, Mondetz, and other paper currency in process of repudiation lasted nearly ten years.
But the period of recovery lasted longer than the generation which followed.
It required fully 40 years to bring capital, industry, commerce and credit up to their condition when the revolution began and demanded a man on horseback this is a reference to Napoleon who established monarchy on the ruins of the Republic and threw away millions of lives for the Empire to be added to the millions which had been sacrificed by the revolution.
Such Briefly sketched in its leading features is the history of the most skillful, vigorous and persistent attempt ever made to substitute for natural laws in finance the ability of legislative bodies and for a standard of value recognized throughout the world a national standard devised by theorists and manipulated by schemers.
Every other attempt of the same kind in human history Under whatever circumstances has reached similar results in kind, if not in degree.
All of them show the existence of financial laws as real in their operation as those which hold the planets in their causes.
For examples of similar effects in Russia, Austria, and Denmark, see Storch, Économique Politique, Volume 4, for similar effects in the US, see Gouget, Paper, Money, and Banking in the United States, also Summoner, History of American Currency.
For working out of the same principles in England depicted in a masterly way, see Macaulay, History of England, Chapter 21, and for curious exhibition of the same causes producing the same results in ancient Greece, see a curious quotation by Macaulay in the same chapter.
I have now presented this history in its chronological order, the order of events.
Let me in conclusion sum it up briefly in its logical order, the order of cause and effect.
And first, in the economic department.
From the early reluctant and careful issues of paper we saw as an immediate result.
Improvement and activity in business.
Then arose the clamour for more paper money.
At first, new issues were made with great difficulty, but the dike once broken, the current of irredeemable currency poured through, and the breach thus enlarging this currency was soon swollen beyond control.
It was urged on by speculators for a rise in values by demagogues who persuaded the mob that a nation by its simple fiat could stamp real value to any amount upon valueless objects.
As a natural consequence, a great debtor class grew rapidly and this class gave its influences to depreciate more and more the currency in which its debts were to be paid.
The government now began and continued by spasms to grind out still more paper.
Commerce was at first stimulated by the difference in exchange, but this cause soon ceased to operate in commerce.
Having been stimulated unhealthily, wasted away.
We may want to recall the tech, commodity, and real estate booms of the past decade or so.
To continue. Manufacturers at first received a great impulse, but ere long, this overproduction and overstimulus proved as fatal to them as to commerce.
From time to time, there was a revival of hope caused by an apparent revival of business.
But this revival of business was at last seen to be caused more and more by the desire of far-seeing and cunning men of affairs to exchange paper money for objects of permanent value.
What he means here is that people bought factories and businesses not because they wanted to revive them, but because they recognized that their money was heading the way of toilet paper.
To continue. As to the people at large, the classes living on fixed incomes and small salaries felt the pressure first, as soon as the purchasing power of their fixed incomes were reduced.
Soon the great class living on wages felt it even more sadly.
Prices of the necessities of life increased.
Merchants were obliged to increase them, not only to cover depreciation of their merchandise, but also to cover their risk of loss from fluctuation.
And while the prices of products thus rose, wages, which had first gone up, under the general stimulus, lagged behind.
Under the universal doubt and discouragement, commerce and manufacturers were checked or destroyed.
As a consequence, the demand for labor was diminished.
Laboring men were thrown out of employment, and under the operation of the simplest law of supply and demand, the price of labor, the daily wages of the laboring class, went down until, at a time when prices of food, clothing, and various articles of consumption were enormous, wages were nearly as low as at the time preceding the first issue of Irredeemable Currency.
The mercantile classes at first thought themselves exempt from the general misfortune.
They were delighted at the apparent advance in the value of the goods upon their shelves.
But they soon found that, as they increased prices to cover the inflation of currency and the risk from fluctuation and uncertainty, purchases became less in amount and payments less sure.
A feeling of insecurity spread throughout the country.
Enterprise was deadened, and stagnation followed.
New issues of paper were then clamoured for as more drams are demanded by a drunkard.
New issues not only increased the evil, capitalists were all the more reluctant to embark their money on such a sea of doubt.
Workmen of all sorts were more and more thrown out of employment.
Issue after issue of currency came, but no relief resulted save a momentary stimulus which aggravated the disease.
The most ingenious evasions of natural laws in finance, which the most subtle theorists could contrive, were tried.
All in vain.
The most brilliant substitutes for those laws were tried.
Self-regulating schemes, inter-converting schemes, all equally vain.
All thoughtful men had lost confidence.
All men were waiting.
The stagnation became worse and worse.
At last came the collapse, and then a return by a fearful shock to a state of things which presented something like certainty of remuneration to capital and labor.
Then, and not till then, came the beginning of a new era of prosperity.
Just as dependent on the law of cause and effect was the moral development.
Out of the inflation of prices grew a speculating class, and in the complete uncertainty as to the future, all business became a game of chance, and all businessmen gamblers.
In city centres came a quick growth of stock jobbers and speculators, and these set a debasing fashion in business which spread to the remotest parts of the country.
Instead of satisfaction with legitimate profits came a passion for inordinate gains.
Think CEO salaries in the modern world.
Then too, as values became more and more uncertain, there was no longer any motive for care or economy, but every motive for immediate expenditure and present enjoyment.
So came upon the nation the obliteration of thrift.
In this mania for yielding to present enjoyment rather than providing for future comfort were the seeds of new growths of wretchedness, luxury, senseless and extravagant set in.
This too spread as a fashion.
To feed it there came cheatery in the nation at large and corruption among officials and persons holding trusts.
While men set such fashions in private and official business, women set fashions of extravagance in dress and living that added to the incentives to corruption.
Faith in moral considerations, or even in good impulses, yielded to general mistrust.
National honor was thought a fiction cherished only by hypocrites.
Patriotism was eaten out by cynicism.
And here, just by the by, we can see the same trends in postmodern philosophy with the depreciation of currencies around the world.
To continue. Thus was the history of France logically developed in obedience to natural laws.
Such has, to a greater or lesser degree, always been the result of irredeemable paper, created according to the whim or interest of legislative assemblies, rather than based upon standards of value permanent in their nature and agreed upon throughout the entire world.
Such, we might fairly expect, will always be the result of them until the fiat of the Almighty shall evolve laws in the universe radically different from those which at present obtain.
And finally, as to the general development of the theory and practice to which all this history records, my subject has been fiat money in France, how it came, what it brought, and how it ended.
It came by seeking a remedy for a comparatively small evil, in an evil infinitely more dangerous.
To cure a disease temporary in its character, a corrosive poison was administered, which ate out the vitals of French prosperity.
It progressed according to a law in social physics, which we may call the law of accelerating issue and depreciation.
It was comparatively easy to refrain from the first issue.
It was exceedingly difficult to refrain from the second, to refrain from the third, and those following.
It was practically impossible.
It brought, as we have seen, commerce and manufacturers, the mercantile interest, the agricultural interest, to ruin the It brought on these the same destruction which would come to a Hollander opening the dikes of the sea to irrigate his garden in a dry summer.
It ended in the complete financial, moral, and political prostration of France.
A prostration from which only a Napoleon could raise it.
Or we may say any kind of modern militarism like Bush or Blair.
To continue. But this history would be incomplete without a brief sequel showing how that great genius profited by all his experience.
When Bonaparte took the consulship, the condition of fiscal affairs was appalling.
The government was bankrupt and immense debt was unpaid.
The further collection of taxes seemed impossible.
The assessments were in hopeless confusion.
War was going on in the East, on the Rhine, and in Italy, and civil war in Le Vendee.
All the armies had long been unpaid, and the largest loan that could for the moment be affected was for a sum hardly meeting the expenses of the government for a single day.
At the first cabinet council, Bonaparte was asked what he intended to do.
He replied, I will pay cash or pay nothing.
From this time, he conducted all his operations on this basis.
He arranged the assessments, funded the debt, and made payments in cash.
And from this time, during all the campaigns in Marengo, Australitz, Jena, Eila, Freiland, down to the Peace of Tilsit in 1807, there was but one suspension of specie payment, and this only for a few days.
When the first great European coalition was formed against the empire, Napoleon was hard-pressed financially, and it was proposed to resort to paper money.
But he wrote to his minister, While I live, I will never resort to irredeemable paper.
He never did. And France, under this determination, commanded all the gold she needed.
When Waterloo came with the invasion of the Allies, with war on her own soil, with a change of dynasty and with heavy expenses for war and indemnities, France, on a specie basis, experienced no severe financial distress.
If we glance at the financial history of France, during the Franco-Prussian War and the communist struggle in which a far more serious pressure was brought upon French finances than our own recent civil war put upon American finance, and yet with no national stagnation or distress, but with a steady progress in prosperity,
We shall see still more clearly the advantage of meeting a financial crisis in an honest and straightforward way, and by methods sanctioned by the world's most costly experience, rather than by yielding to dreamers, theorists, phrase-mongers, declaimers, schemers, speculators, or to that sort of reform which is the last refuge of a scoundrel.
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