Fiat Money Inflation in France: How it Came, What it Brought, and How it Ended

by Andrew Dickson White

France was now fully committed to a policy of inflation; and, if there had been any question of this before, all doubts were removed now by various acts very significant as showing the exceeding difficulty of stopping a nation once in the full tide of a depreciating currency. The National Assembly had from the first shown an amazing liberality to all sorts of enterprises, wise or foolish, which were urged "for the good of the people." As a result of these and other largesses the old cry of the "lack of a circulating medium" broke forth again; and especially loud were the clamors for more small bills. The cheaper currency had largely driven out the dearer; paper had caused small silver and copper money mainly to disappear; all sorts of notes of hand, circulating under the name of "confidence bills," flooded France—sixty-three kinds in Paris alone. This unguaranteed currency caused endless confusion and fraud. Different districts of France began to issue their own assignats in small denominations, and this action stirred the National Assembly to evade the solemn pledge that the circulation should not go above twelve hundred millions and that all assignats returned to the treasury for lands should immediately be burned. [24] Within a short time there had been received into the treasury for lands one hundred and sixty million livres in paper. By the terms of the previous acts this amount of paper ought to have been retired. Instead of this, under the plea of necessity, the greater part of it was reissued in the form of small notes.

There was, indeed, much excuse for new issues of small notes, for, under the theory that an issue of smaller notes would drive silver out of circulation, the smallest authorized assignat was for fifty livres. To supply silver and copper and hold it in circulation everything was tried. Citizens had been spurred on by law to send their silverware and jewels to the mint. Even the king sent his silver and gold plate, and the churches and convents were required by law to send to the government melting pot all silver and gold vessels not absolutely necessary for public worship. For copper money the church bells were melted down. But silver and even copper continued to become more and more scarce. In the midst of all this, various juggleries were tried, and in November, 1790, the Assembly decreed a single standard of coinage, the chosen metal being silver, and the ratio between the two precious metals was changed from 15 1/2 to 1, to 14 1/2 to 1—but all in vain. It was found necessary to issue the dreaded small paper, and a beginning was made by issuing one hundred millions in notes of five francs, and, ere long, obedient to the universal clamor, there were issued parchment notes for various small amounts down to a single sou. [25]

Yet each of these issues, great or small, was but as a drop of cold water to a parched throat. Although there was already a rise in prices which showed that the amount needed for circulation had been exceeded, the cry for "more circulating medium" was continued. The pressure for new issues became stronger and stronger. The Parisian populace and the Jacobin Club were especially loud in their demands for them; and, a few months later, on June 19, 1791, with few speeches, in a silence very ominous, a new issue was made of six hundred millions more;—less than nine months after the former great issue, with its solemn pledges to keep down the amount in circulation. With the exception of a few thoughtful men, the whole nation again sang paeans. [26]

In this comparative ease of new issues is seen the action of a law in finance as certain as the working of a similar law in natural philosophy. If a material body fall from a height its velocity is accelerated, by a well-known law, in a constantly increasing ratio: so in issues of irredeemable currency, in obedience to the theories of a legislative body or of the people at large, there is a natural law of rapidly increasing emission and depreciation. The first inflation bills were passed with great difficulty, after very sturdy resistance and by a majority of a few score out of nearly a thousand votes; but we observe now that new inflation measures were passed more and more easily and we shall have occasion to see the working of this same law in a more striking degree as this history develops itself.

During the various stages of this debate there cropped up a doctrine old and ominous. It was the same which appeared toward the end of the nineteenth century in the United States during what became known as the "greenback craze" and the free "silver craze." In France it had been refuted, a generation before the Revolution, by Turgot, just as brilliantly as it was met a hundred years later in the United States by James A. Garfield and his compeers. This was the doctrine that all currency, whether gold, paper, leather or any other material, derives its efficiency from the official stamp it bears, and that, this being the case, a government may relieve itself of its debts and make itself rich and prosperous simply by means of a printing press:—fundamentally the theory which underlay the later American doctrine of "fiat money."

There came mutterings and finally speeches in the Jacobin Club, in the Assembly and in newspaper articles and pamphlets throughout the country, taking this doctrine for granted. These could hardly affect thinking men who bore in mind the calamities brought upon the whole people, and especially upon the poorer classes, by this same theory as put in practice by John Law, or as refuted by Turgot, but it served to swell the popular chorus in favor of the issue of more assignats and plenty of them. [27]

The great majority of Frenchmen now became desperate optimists, declaring that inflation is prosperity. Throughout France there came temporary good feeling. The nation was becoming inebriated with paper money. The good feeling was that of a drunkard just after his draught; and it is to be noted as a simple historical fact, corresponding to a physiological fact, that, as draughts of paper money came faster the successive periods of good feeling grew shorter.

Various bad signs began to appear. Immediately after each new issue came a marked depreciation; curious it is to note the general reluctance to assign the right reason. The decline in the purchasing power of paper money was in obedience to the simplest laws in economics, but France had now gone beyond her thoughtful statesmen and taken refuge in unwavering optimism, giving any explanation of the new difficulties rather than the right one. A leading member of the Assembly insisted, in an elaborate speech, that the cause of depreciation was simply the want of knowledge and of confidence among the rural population and he suggested means of enlightening them. La Rochefoucauld proposed to issue an address to the people showing the goodness of the currency and the absurdity of preferring coin. The address was unanimously voted. As well might they have attempted to show that a beverage made by mixing a quart of wine and two quarts of water would possess all the exhilarating quality of the original, undiluted liquid.

Attention was aroused by another menacing fact;—specie disappeared more and more. The explanations of this fact also displayed wonderful ingenuity in finding false reasons and in evading the true one. A very common explanation was indicated in Prudhomme's newspaper, "Les Révolutions de Paris," of January 17, 1791, which declared that coin "will keep rising until the people shall have hanged a broker." Another popular theory was that the Bourbon family were, in some mysterious way, drawing off all solid money to the chief centers of their intrigues in Germany. Comic and, at the same time, pathetic, were evidences of the wide-spread idea that if only a goodly number of people engaged in trade were hanged, the par value of the assignats would be restored.

Still another favorite idea was that British emissaries were in the midst of the people, instilling notions hostile to paper. Great efforts were made to find these emissaries and more than one innocent person experienced the popular wrath under the supposition that he was engaged in raising gold and depressing paper. Even Talleyrand, shrewd as he was, insisted that the cause was simply that the imports were too great and the exports too little. [28] As well might he explain that fact that, when oil is mingled with water, water sinks to the bottom, by saying that this is because the oil rises to the top. This disappearance of specie was the result of a natural law as simple and as sure in its action as gravitation; the superior currency had been withdrawn because an inferior currency could be used. [29] Some efforts were made to remedy this. In the municipality of Quilleboeuf a considerable amount in specie having been found in the possession of a citizen, the money was seized and sent to the Assembly. The people of that town treated this hoarded gold as the result of unpatriotic wickedness or madness, instead of seeing that it was but the sure result of a law working in every land and time, when certain causes are present. Marat followed out this theory by asserting that death was the proper penalty for persons who thus hid their money.