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

by Andrew Dickson White

At that time the opponents of paper had prophesied that, once on the downward path of inflation, the nation could not be restrained and that more issues would follow. The supporters of the first issue had asserted that this was a calumny; that the people were now in control and that they could and would check these issues whenever they desired.

The condition of opinion in the Assembly was, therefore, chaotic: a few schemers and dreamers were loud and outspoken for paper money; many of the more shallow and easy-going were inclined to yield; the more thoughtful endeavored to breast the current.

One man there was who could have withstood the pressure: Mirabeau. He was the popular idol,—the great orator of the Assembly and much more than a great orator,—he had carried the nation through some of its worst dangers by a boldness almost godlike; in the various conflicts he had shown not only oratorical boldness, but amazing foresight. As to his real opinion on an irredeemable currency there can be no doubt. It was the opinion which all true statesmen have held, before his time and since,—in his own country, in England, in America, in every modern civilized nation. In his letter to Cerutti, written in January, 1789, hardly six months before, he had spoken of paper money as "A nursery of tyranny, corruption and delusion; a veritable debauch of authority in delirium." In one of his early speeches in the National Assembly he had called such money, when Anson covertly suggested its issue, "a loan to an armed robber," and said of it: "that infamous word, paper money, ought to be banished from our language." In his private letters written at this very time, which were revealed at a later period, he showed that he was fully aware of the dangers of inflation. But he yielded to the pressure: partly because he thought it important to sell the government lands rapidly to the people, and so develop speedily a large class of small landholders pledged to stand by the government which gave them their titles; partly, doubtless, from a love of immediate rather than of remote applause; and, generally, in a vague hope that the severe, inexorable laws of finance which had brought heavy punishments upon governments emitting an irredeemable currency in other lands, at other times, might in some way at this time, be warded off from France. [13]

The question was brought up by Montesquieu's report on the 27th of August, 1790. This report favored, with evident reluctance, an additional issue of paper. It went on to declare that the original issue of four hundred millions, though opposed at the beginning, had proved successful; that assignats were economical, though they had dangers; and, as a climax, came the declaration: "We must save the country." [14]

Upon this report Mirabeau then made one of his most powerful speeches. He confessed that he had at first feared the issue of assignats, but that he now dared urge it; that experience had shown the issue of paper money most serviceable; that the report proved the first issue of assignats a success; that public affairs had come out of distress; that ruin had been averted and credit established. He then argued that there was a difference between paper money of the recent issue and that from which the nation had suffered so much in John Law's time; he declared that the French nation had now become enlightened and he added, "Deceptive subtleties can no longer mislead patriots and men of sense in this matter." He then went on to say: "We must accomplish that which we have begun," and declared that there must be one more large issue of paper, guaranteed by the national lands and by the good faith of the French nation. To show how practical the system was he insisted that just as soon as paper money should become too abundant it would be absorbed in rapid purchases of national lands; and he made a very striking comparison between this self-adjusting, self-converting system and the rains descending in showers upon the earth, then in swelling rivers discharged into the sea, then drawn up in vapor and finally scattered over the earth again in rapidly fertilizing showers. He predicted that the members would be surprised at the astonishing success of this paper money and that there would be none too much of it.

His theory grew by what it fed upon,—as the paper-money theory has generally done. Toward the close, in a burst of eloquence, he suggested that assignats be created to an amount sufficient to cover the national debt, and that all the national lands be exposed for sale immediately, predicting that thus prosperity would return to the nation and that an classes would find this additional issue of paper money a blessing. [15]

This speech was frequently interrupted by applause; a unanimous vote ordered it printed, and copies were spread throughout France. The impulse given by it permeated all subsequent discussion; Gouy arose and proposed to liquidate the national debt of twenty-four hundred millions,—to use his own words—"by one single operation, grand, simple, magnificent." [16] This "operation" was to be the emission of twenty-four hundred millions in legal tender notes, and a law that specie should not be accepted in purchasing national lands. His demagogy bloomed forth magnificently. He advocated an appeal to the people, who, to use his flattering expression, "ought alone to give the law in a matter so interesting." The newspapers of the period, in reporting his speech, noted it with the very significant remark, "This discourse was loudly applauded."

To him replied Brillat-Savarin. He called attention to the depreciation of assignats already felt. He tried to make the Assembly see that natural laws work as inexorably in France as elsewhere; he predicted that if this new issue were made there would come a depreciation of thirty per cent. Singular, that the man who so fearlessly stood against this tide of unreason has left to the world simply a reputation as the most brilliant cook that ever existed! He was followed by the Abbe Goutes, who declared,—what seems grotesque to those who have read the history of an irredeemable paper currency in any country—that new issues of paper money "will supply a circulating medium which will protect public morals from corruption." [17]

Into this debate was brought a report by Necker. He was not, indeed, the great statesman whom France especially needed at this time, of all times. He did not recognize the fact that the nation was entering a great revolution, but he could and did see that, come what might, there were simple principles of finance which must be adhered to. Most earnestly, therefore, he endeavored to dissuade the Assembly from the proposed issue; suggesting that other means could be found for accomplishing the result, and he predicted terrible evils. But the current was running too fast. The only result was that Necker was spurned as a man of the past; he sent in his resignation and left France forever. [18] The paper-money demagogues shouted for joy at his departure; their chorus rang through the journalism of the time. No words could express their contempt for a man who was unable to see the advantages of filling the treasury with the issues of a printing press. Marat, Hébert, Camille Desmoulins and the whole mass of demagogues so soon to follow them to the guillotine were especially jubilant. [19]

Continuing the debate, Rewbell attacked Necker, saying that the assignats were not at par because there were not yet enough of them; he insisted that payments for public lands be received in assignats alone; and suggested that the church bells of the kingdom be melted down into small money. Le Brun attacked the whole scheme in the Assembly, as he had done in the Committee, declaring that the proposal, instead of relieving the nation, would wreck it. The papers of the time very significantly say that at this there arose many murmurs. Chabroud came to the rescue. He said that the issue of assignats would relieve the distress of the people and he presented very neatly the new theory of paper money and its basis in the following words: "The earth is the source of value; you cannot distribute the earth in a circulating value, but this paper becomes representative of that value and it is evident that the creditors of the nation will not be injured by taking it." On the other hand, appeared in the leading paper, the "Moniteur," a very thoughtful article against paper money, which sums up all by saying, "It is, then, evident that all paper which cannot, at the will of the bearer, be converted into specie cannot discharge the functions of money." This article goes on to cite Mirabeau's former opinion in his letter to Cerutti, published in 1789,—the famous opinion of paper money as "a nursery of tyranny, corruption and delusion; a veritable debauch of authority in delirium." Lablache, in the Assembly, quoted a saying that "paper money is the emetic of great states." [20]