Fiat Money Inflation in France
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Andrew Dickson White >> Fiat Money Inflation in France
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FIAT MONEY INFLATION IN FRANCE
How It Came, What It Brought, and How It Ended
by
Andrew Dickson White, LL.D., Ph.D., D.C.L.
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," etc.
INTRODUCTION
As far back as just before our Civil War I made, in France and
elsewhere, a large collection of documents which had appeared during
the French Revolution, including newspapers, reports, speeches,
pamphlets, illustrative material of every sort, and, especially,
specimens of nearly all the Revolutionary issues of paper money,--from
notes of ten thousand _livres_ to those of one _sou_.
Upon this material, mainly, was based a course of lectures then given
to my students, first at the University of Michigan and later at
Cornell University, and among these lectures, one on "Paper Money
Inflation in France."
This was given simply because it showed one important line of facts in
that great struggle; and I recall, as if it were yesterday, my feeling
of regret at being obliged to bestow so much care and labor upon a
subject to all appearance so utterly devoid of practical value. I am
sure that it never occurred, either to my Michigan students or to
myself, that it could ever have any bearing on our own country. It
certainly never entered into our minds that any such folly as that
exhibited in those French documents of the eighteenth century could
ever find supporters in the United States of the nineteenth.
Some years later, when there began to be demands for large issues of
paper money in the United States, I wrought some of the facts thus
collected into a speech in the Senate of the State of New York,
showing the need of especial care in such dealings with financial
necessities.
In 1876, during the "greenback craze," General Garfield and Mr. S. B.
Crittenden, both members of the House of Representatives at that time,
asked me to read a paper on the same general subject before an
audience of Senators and Representatives of both parties in
Washington. This I did, and also gave it later before an assemblage
of men of business at the Union League Club in New York.
Various editions of the paper were afterward published, among them,
two or three for campaign purposes, in the hope that they might be of
use in showing to what folly, cruelty, wrong and rain the passion for
"fiat money" may lead.
Other editions were issued at a later period, in view of the principle
involved in the proposed unlimited coinage of silver in the United
States, which was, at bottom, the idea which led to that fearful wreck
of public and private prosperity in France.
For these editions there was an added reason in the fact that the
utterances of sundry politicians at that time pointed clearly to
issues of paper money practically unlimited. These men were logical
enough to see that it would be inconsistent to stop at the unlimited
issue of silver dollars which cost really something when they could
issue unlimited paper dollars which virtually cost nothing.
In thus exhibiting facts which Bishop Butler would have recognized as
confirming his theory of "The Possible Insanity of States," it is but
just to acknowledge that the French proposal was vastly more sane than
that made in our own country. Those French issues of paper rested not
merely "on the will of a free people," but on one-third of the entire
landed property of France; on the very choicest of real property in
city and country--the confiscated estates of the Church and of the
fugitive aristocracy--and on the power to use the paper thus issued in
purchasing this real property at very low prices.
I have taken all pains to be exact, revising the whole paper in the
light of the most recent publications and giving my authority for
every important statement, and now leave the whole matter with my
readers.
At the request of a Canadian friend, who has expressed a strong wish
that this work be brought down to date, I have again restudied the
subject in the light of various works which have appeared since my
earlier research,--especially Levasseur's "Histoire des classes
ouvrières et de l'industrie en France,"--one of the really great
books of the twentieth century;--Dewarmin's superb "Cent Ans de
numismatique Française" and sundry special treatises. The result has
been that large additions have been made regarding some important
topics, and that various other parts of my earlier work have been made
more clear by better arrangement and supplementary information.
ANDREW D. WHITE.
Cornell University,
September, 1912.
FOREWORD BY MR. JOHN MACKAY
I am greatly indebted to the generosity of Mr. Andrew D. White, the
distinguished American scholar, author and diplomatist, for permission
to print and to circulate privately a small edition of his exceedingly
valuable account of the great currency-making experiment of the French
Revolutionary Government. The work has been revised and considerably
enlarged by Mr. White for the purpose of the present issue.
The story of "Fiat Money Inflation in France" is one of great interest
to legislators, to economic students, and to all business and thinking
men. It records the most gigantic attempt ever made in the history of
the world by a government to create an inconvertible paper currency,
and to maintain its circulation at various levels of value. It also
records what is perhaps the greatest of all governmental efforts--with
the possible exception of Diocletian's--to enact and enforce a legal
limit of commodity prices. Every fetter that could hinder the will or
thwart the wisdom of democracy had been shattered, and in consequence
every device and expedient that untrammelled power and unrepressed
optimism could conceive were brought to bear. But the attempts
failed. They left behind them a legacy of moral and material
desolation and woe, from which one of the most intellectual and
spirited races of Europe has suffered for a century and a quarter, and
will continue to suffer until the end of time. There are limitations
to the powers of governments and of peoples that inhere in the
constitution of things, and that neither despotisms nor democracies
can overcome.
Legislatures are as powerless to abrogate moral and economic laws as
they are to abrogate physical laws. They cannot convert wrong into
right nor divorce effect from cause, either by parliamentary
majorities, or by unity of supporting public opinion. The penalties
of such legislative folly will always be exacted by inexorable time.
While these propositions may be regarded as mere commonplaces, and
while they are acknowledged in a general way, they are in effect
denied by many of the legislative experiments and the tendencies of
public opinion of the present day. The story, therefore, of the
colossal folly of France in the closing part Of the eighteenth century
and its terrible fruits, is full of instruction for all men who think
upon the problems of our own time.
From among an almost infinite variety, there are four great and
fundamental facts that clearly emerge, namely,--
(1) Notwithstanding the fact that the paper currency issued was the
direct obligation of the State, that much of it was interest bearing,
and that all of it was secured upon the finest real estate in France,
and that penalties in the way of fines, imprisonments and death were
enacted from time to time to maintain its circulation at fixed values,
there was a steady depreciation in value until it reached zero point
and culminated in repudiation. The aggregate of the issues amounted
to no less than the enormous and unthinkable sum of $9,500,000,000,
and in the middle of 1797 when public repudiation took place, there
was no less than $4,200,000,000 in face value of _assignats_ and
_mandats_ outstanding; the loss, as always, falling mostly upon the
poor and the ignorant.
(2) In the attempt to maintain fixed values for the paper currency the
Government became involved in an equally futile attempt to maintain a
tariff of legal prices for commodities. Here again penalties of
fines, of imprisonments and of death were powerless to accomplish the
end in view.
(3) An wholesale demoralisation of society took place under which
thrift, integrity, humanity, and every principle of morality were
thrown into the welter of seething chaos and cruelty.
(4) The real estate upon which the paper currency was secured
represented confiscations by the State of the lands of the Church and
of the Emigrant Noblemen. These lands were appraised, according to
Mr. White's narrative and other authorities, at $1,000,000,000. Here
was a straight addition to the State's resources of $1,000,000,000.
It is ominously significant that within one hundred years under the
"Peace of Frankfort" signed on the 10th May, 1871, the French nation
agreed to pay a war indemnity to victorious Germany of exactly the
same sum, namely, $1,000,000,000 in addition to the surrender of the
province of Alsace and a considerable part of Lorraine. The great
addition to the national wealth, therefore, effected by the immoral
confiscation of the lands in question disappeared with compound
territorial interest added under the visitation of relentless
retribution.
Public opinion in our own country is so far sound on the question of
currency, but signs are not lacking in some lay quarters of an
inclination to sanction dangerous experiments. The doctrine of
governmental regulation of prices, has, however, made its appearance
in embryo. Class dissatisfaction is also on the increase. The
confiscation of property rights under legal forms and processes is apt
to be condoned when directed against unpopular interests and when
limited to amounts that do not revolt the conscience. The wild and
terrible expression given to these insidious principles in the havoc
of the Revolution should be remembered by all. Nor should the fact be
overlooked that, as Mr. White points out on Page 6, the National
Assembly of France which originated and supported these measures
contained in its membership the ablest Frenchmen of the day.
JOHN MACKAY.
Toronto General Trusts Building,
Toronto, 31st March, 1914.
FIAT MONEY INFLATION IN FRANCE
How It Came, What It Brought, and How It Ended[1]
I.
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.[2]
There was a general search for some short road to prosperity: ere long
the idea was set afloat that the great want of the country was more of
the circulating medium; 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
honor. The difficulties in his way were great, but he steadily
endeavored to keep France faithful to those principles in monetary
affairs which the general experience of modem 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 "securing
resources without paying interest." 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 toward the issue of irredeemable paper Necker
contended as best he might. He knew well to what it always had led,
even when surrounded by the most skillful guarantees. Among those who
struggled to support ideas similar to his was Bergasse, a deputy from
Lyons, whose pamphlets, then and later, against such issues exerted a
wider influence, perhaps, than any others: parts of them seem fairly
inspired. Any one to-day 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
1,000, 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. Yet the pressure
toward a popular currency for universal use grew stronger and
stronger. The finance committee of the Assembly reported that "the
people demand a new circulating medium"; that "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 four
hundred 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
M. 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: "Paper money under a despotism is
dangerous; it favors corruption; but in a nation constitutionally
governed, which itself takes care in the emission of its notes, which
determines their number and use, that danger no longer exists." He
insisted that John Law's notes at first restored prosperity, but that
the wretchedness and ruin they caused resulted from their overissue,
and that such an overissue is possible only under a despotism.[3]
M. de la Rochefoucauld gave his opinion that "the _assignats_ will
draw specie out of the coffers where it is now hoarded.[4]
On the other hand Cazalès and Maury showed that the result 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 Cazalès' speeches in this debate. Still the current ran
stronger and stronger; Petion 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 fifteen hundred
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 two thousand million _livres_. By a few sweeping
strokes all this became the property of the nation. Never,
apparently, did a government secure a more solid basis for a great
financial future.[5]
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 was urged, then, that the issue of four hundred millions of paper,
(not in the shape of interest-bearing bonds, as had at first been
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
or small, the means for 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 both to 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 in 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 workingmen and 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 afterward; 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.[6]
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 have ever met than this first French
Constitutional Assembly. In it were such men as Sieyès, Bailly,
Necker, Mirabeau, Talleyrand, DuPont de Nemours and a multitude of
others who, in various sciences and in the political world, had
already shown and were destined afterward to show themselves among the
strongest and shrewdest men that Europe has yet seen.
But the current toward 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 money, 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 a landed domain vastly greater in value than the entire
issue; that, with men like Bailly, Mirabeau 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 Orleans and
Cardinal Dubois.
Oratory prevailed over science and experience. In April, 1790, came
the final decree to issue four hundred 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, Du Pont de Nemours, Maury, Cazalès, Petion, Bailly and many
others hardly inferior. The discussions were certainly very able; no
person can read them at length in the "Moniteur," nor even in the
summaries of the parliamentary history, without feeling that various
modern historians have done wretched injustice to those men who were
then endeavoring to stand between France and ruin.
This sum--four hundred millions, so vast in those days, was issued in
_assignats_, which were notes secured by a pledge of productive real
estate and bearing interest to the holder at three per cent. 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 an 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.[7]
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, the portrait of the king was placed
in the center; 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 whole was duly garnished with stamps and signatures to
show that it was carefully registered and controlled.[8]
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."[9]
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 a 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 bank notes of 1720, issued by
John Law, after having caused terrible evils, have left only frightful
memories. Therefore it is that the 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."[10]
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