Politics & Policy

Reflections on the Revolution in France

What happens when you cut off heads instead of credit.

Andrew Dickson White (1832–1918) was a great American all-rounder: LL.D., Ph.D., D.C.L., co-founder of Cornell University, president of the American Historical Association, ambassador to Russia and Germany. He had a number of curious obsessions, as testified to by the many volumes in his extensive personal library on three not entirely unrelated subjects: the Reformation, witchcraft, and the monetary policy of revolutionary France — a trio of faith-based initiatives.

Witches and Lutherans today stand on equal footing, at least under the law (the law is a ass), since nobody much thinks that sort of thing is terribly important anymore, and in his own time Mr. White believed that his interest in the economics of the French revolution was a mere scholar’s indulgence: “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 appearances so utterly devoid of practical value,” he wrote, a sentiment that endured until the Greenback debates and the rise of the Free Silver movement in the United States.

#ad#Recognizing an episode of history threatening to repeat itself, Mr. White began to conduct public lectures on the subject of inflation. In 1876 he addressed a bipartisan panel of representatives and senators at the invitation of Rep. James A. Garfield (20 years later, Mr. White would still be referring to him as General Garfield), whose congressional speeches, read today, make Rep. Ron Paul sound like Alan Greenspan. Garfield was a sworn enemy of the Legal Tender Acts and the Greenback: another one of those 19th-century Republicans who are starting to look pretty good in retrospect.

Mr. White related the monitory French experience to whatever politicians and businessmen would listen, and later published his thoughts in Fiat Money Inflation in France: How It Came, What It Brought, and How It Ended, a book that I read not long ago on the sage advice of investor Victor Sperandeo, a.k.a. Trader Vic. Sperandeo recently gave a talk on the subject of contemporary inflation dangers at the Union League Club in New York, where Mr. White had delivered his own lecture 135 years earlier.

Some of Mr. White’s chronicle will sound familiar.

It was a new dawn, a day of hope and change, the ancien régime and the theocrats and the plutocracy having been supplanted by fresh new faces dedicated to Reason and promising to fundamentally change France. That turned out to be an expensive proposition, and the new government found itself in a bind: It was unwilling to cut spending or to raise taxes. The country, Mr. White writes, “found itself in deep financial embarrassment: There was a heavy debt and a serious deficit. . . . 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.” A source of particular annoyance to the Jacobins and the rest of the Left was the fact that businesses and investors were sitting on a great deal of cash but refusing to spend or to invest, and many were sheltering their capital abroad.

The government decided upon a stimulus package — to flood the economy with fresh money in order to encourage new business through the magic of l’effet multiplicateur. The problem was that the Jacobins were, perforce, marginally less irresponsible than, say, the present government of the United States: They could not just go borrow the money. And they faced a real limitation: Their money was made out of gold, not good wishes. It was not a faith-based currency, or even a faith-and-credit-based currency.

But the revolutionary government had heard about paper money — had, in fact, seen in it action recently among its revolutionary comrades in the United States. So they decided to issue some paper currency — just the one time, to get some liquidity into the system and spur aggregate demand. But they did not have a Ben Bernanke to magic money into existence for them. And while they may have been raving radicals who would soon enough be sending a goodly portion of the nation to the guillotine, the idea of creating money based on nothing but confidence and a firm handshake did not occur to them — who could possibly take such a notion seriously?


As students of Edmund Burke will know (which is to say, as conservatives will know), the revolutionary government had already taken beady-eyed note of the fact that about a third of the land in France — some of the best land, at that — was owned by religious institutions. That land was expropriated, and a new kind of currency, called the assignat, was born. It was a cross between a modern paper currency and a government bond: It paid interest (originally 3 percent, about the same as a U.S. Treasury bond today) and was secured by the value of the stolen church lands, for which it could be exchanged as legal tender.

It wasn’t really meant to be a workaday currency at first, and only large notes were to be issued. You didn’t use assignats to buy a loaf of bread; you used them to buy tracts of formerly ecclesiastical land or pay large debts to the state or make big investments. So confident were the French authorities in the effects of this stimulatory pump-priming that M. de la Rochefoucauld predicted all of that gold sitting in businesses’ coffers and offshore enterprises would soon come online and start making business happen. The revolution was shovel-ready.

#ad#What followed was a boom — a short one. Maybe it was a vengeful God cheesed off about getting the boot from His real estate like some subprime deity. Maybe it was that those titles were 1,500 years old, and any country — France or Zimbabwe or Cuba — that interferes with legal titles to property is doomed to reap the whirlwind. Monetizing the debt did not help, and the French should have known, because they already had firsthand experience with shady currency.

Some of the graybeards in the investing world of 18th-century France remembered John Law, the Scottish economist/card-sharp/crook who had served as French finance minister under Louis XV and established the Banque Générale, a nominally private bank that administered government assets and issued paper currency — i.e., your basic Federal Reserve–type setup. Law helped fan the irrational exuberance that led to a bubble in the share price of the Mississippi Company, France’s New World government-sponsored enterprise. The bubble was so big and so hot that the Banque Générale had to keep issuing new notes just to keep up with share-buyers’ demands, and did so far in excess of its gold and silver holdings. When the note-holders came to redeem, the cupboard was bare, and in 1720 Law high-tailed it to Belgium, because there wasn’t a Kennedy School of Government in those days.

Decades later, the smart money had an inkling that some of this newfangled paper might depreciate the way John Law’s funny money had, so French investors immediately put that new money into anything and everything they could. There was a building boom, a stock boom, a trade boom. Commodities prices started to rise as investors, suspicious of the weak currency and high levels of government debt, put their money into assets with tangible value. (Did gold prices hit record highs? You bet they did, soon enough.) When it came to non-core inflation — all that food and fuel that economists are committed to ignoring — rising prices were a worrisome development indeed to the revolutionary government; when bread prices rose, they started hearing the words “Let them eat cake” in their sleep. Not good. Bad revolutionary mojo.

The good news was that wages went up, too — until they didn’t. The bubbles started to play out, the real-estate market contracted when everybody discovered that cheap money led to overbuilding, and the French rediscovered Gresham’s law: Bad money drives out good. The paper-money stimulus was supposed to help get the gold flowing again, to get the real stuff back in the game, but it had the opposite effect: Everybody spent their paper money as fast as they could, but held onto their gold. Prices started to diverge — 100 livres of paper money was supposed to be worth the same as 100 livres of gold: That’s what the law said. But the market said otherwise. Foreign trading partners, in particular, weren’t crazy about getting paid in what amounted to government-backed French mortgage derivatives (“papier-terre,” they called it, meaning “land paper”). Precious metals became increasingly scarce. Having stolen the church’s land, the government next stole the church bells and melted them down into small change.

Boom turned to bust, business stagnated, wages dropped — but prices continued to rise.

#page#So the government embarked on QE2: another dose of paper money injected into the economy. This was especially attractive to the French government in 1790, inasmuch as it had already spent all of the money it had raised from QE1, and it wanted to raise more without paying market rates to lenders. (Did I mention this would sound familiar?) The first assignat issue hadn’t accounted for all of the value of the seized church lands, and the government eventually set about seizing other lands, too: from the aristocracy, emigrants, and sundry political enemies. In the newspapers, the Matt Taibbis of the day began to call — in all seriousness — for the hanging of shopkeepers, while the Paul Krugmans complained that the first round of stimulus hadn’t been big enough.

Talleyrand was the first to see the flaw in the assignat system: “You can, indeed, arrange it so that the people shall be forced to take a thousand livres in paper for a thousand livres in specie; but you can never arrange it so that a man shall be obliged to give a thousand livres in specie for a thousand livres in paper,—in that fact is embedded the entire question; and on account of that fact the whole system fails.” He was accused of being in the pocket of the financiers and Big Specie. The Left said that the only people who would be hurt by QE2 were bankers and speculators, while people who worked hard and played by the rules, and businesses that kept French manufacturing jobs in France, would benefit. So QE2 passed, 508–423. (The French got to vote on their currency devaluation: liberté, égalité, faire faillite.)

#ad#As Burke irritably put it:

These gentlemen perhaps do not believe a great deal in the miracles of piety; but it cannot be questioned that they have an undoubting faith in the prodigies of sacrilege. Is there a debt which presses them? Issue assignats. Are compensations to be made or a maintenance decreed to those whom they have robbed of their freehold in their office or expelled from their profession? Assignats. Is a fleet to be fitted out? Assignats. If sixteen millions sterling of these assignats forced on the people leave the wants of the state as urgent as ever, Issue, says one, thirty millions sterling of assignats,—says another, Issue fourscore millions more of assignats. The only difference among their financial factions is on the greater or the lesser quantity of assignats to be imposed on the public sufferance. They are all professors of assignats. Even those whose natural good sense and knowledge of commerce, not obliterated by philosophy, furnish decisive arguments against this delusion, conclude their arguments by proposing the emission of assignats. I suppose they must talk of assignats, as no other language would be understood. All experience of their inefficacy does not in the least discourage them. Are the old assignats depreciated at market? What is the remedy? Issue new assignats.

The first issue of paper money was for 400 million livres. There came a second issue, and after the second issue came a third, a fourth, a fifth, with the government promising each time that one more round of stimulus would do the trick. When prices shot up, the government started whispering darkly about gougers and profiteers. When food subsequently disappeared from the marketplace, the army was dispatched to the farms and fields to bring produce to market. That worked — for one harvest. The next year’s harvest was too small even to feed Paris, much less all of France: Gaul went Galt.


Refusing to sell products at the same price whether the payer was offering paper or gold became a criminal offense — punished first with a fine, then with decades in irons, and finally with death. By the time the inflation was at its worst, it became a capital offense even to ask whether a buyer was offering paper or gold. The altar vessels were taken from the churches and melted into money; as with Franklin Roosevelt’s infamous Executive Order 6102, private gold holdings were seized by the government (the old patrician FDR offered a jewelry exemption; the French did not). The penalty for hiding assets: death. (FDR handed down only ten years in prison.)

Still, the overstimulated economy acted terribly understimulated. Bread was scarce, so the Jacobins called for a new tax on the rich to fund bread subsidies. Prices continued to climb, and the assignats continued to depreciate. Public finances were a mess, too: The government pumped up its balance sheet by including enormous tribute payments that France believed it would receive after defeating all its international rivals in future wars — they actually put “Win the Future” on the ledger as if it were an asset. (“As patriotism, it was sublime,” Mr. White writes. “As finance it was deadly.”) The only new jobs were the 400 positions added at the presses where the money was printed. Being French, those workers staged a strike in 1793, demanding higher pay and benefits. (They won.)

#ad#The newspapers began to denounce “monarchical commerce which only sought wealth,” as opposed to “republican commerce — a commerce of moderate profits.” Price-fixing laws were duly enacted, and a domestic espionage system set up for enforcing them. The penalty for breaking the price-fixing rules: death. The penalty for making foreign investments: death. The penalty for criticizing the mandats, the new currency created to replace the assignats: death. And still the paper currencies continued to decline, in the face of death itself; soon they had lost 97 percent of their original value. Eventually, they would lose even the 3 percent that remained.

What that all means is this: Between 1790 and 1795, the price of a pound of sugar in France went from the equivalent of $2.28 in modern U.S. dollars to $158.16. Wages stayed the same. A bag of flour went from two francs to 225 francs. The original 400 million in quantitative easing became 45 billion over the course of six years.

According to Cambridge Modern History: French Revolution, the compte rendu of 1788, the final budget presented to Louis XVI — the one that sparked the crisis that ultimately unleashed the revolution and all that came after — featured a deficit of about 30 percent of government spending. Barack Obama’s last one was 46 percent. In May, Paul Krugman began calling for QE3 — “both larger and broader-based than QE2.” Napoleon put France back on gold and vowed that he’d die before he saw paper money being issued again, but he also wore funny hats and wasn’t nearly as enlightened as us.

— Kevin D. Williamson is a deputy managing editor of National Review and author of The Politically Incorrect Guide to Socialism, published by Regnery. You can buy an autographed copy through National Review Online here.

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