Fiat Money Inflation in France

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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

An excerpt on Page 29 states ...
"Even worse than this was the breaking down of the morals of the country at large, resulting from the sudden building up of ostentatious wealth in a few large cities, and from the gambling, speculative spirit spreading from these to the small towns and rural districts. From this was developed an even more disgraceful result,--the decay of a true sense of national good faith. The patriotism which the fear of the absolute monarchy, the machinations of the court party, the menaces of the army and the threats of all monarchical Europe had been unable to shake was gradually disintegrated by this same speculative, stock-jobbing habit fostered by the superabundant currency. At the outset, in the discussions preliminary to the first issue of paper money, Mirabeau and others who had favored it had insisted that patriotism as well as an enlightened self-interest, would lead the people to keep up the value of paper money. The very opposite of this was now revealed, for there appeared, as another outgrowth of this disease, what has always been seen under similar circumstances. It is a result of previous, and a cause of future evils. This outgrowth was a vast debtor class in the nation, directly interested in the depreciation of the currency in which they were to pay their debts. The nucleus of this class was formed by those who had purchased the church lands from the government. Only small payments down had been required and the remainder was to be paid in deferred installments: an indebtedness of a multitude of people had thus been created to the amount of hundreds of millions. This body of debtors soon saw, of course, that their interest was to depreciate the currency in which their debts were to be paid; and these were speedily joined by a far more influential class;--by that class whose speculative tendencies had been stimulated by the abundance of paper money, and who had gone largely into debt, looking for a rise in nominal values. Soon demagogues [EDIT by J: http://www.achamchen.com/greenspan.htm ] of the viler sort in the political clubs began to pander to it; a little later important persons in this debtor class were to be found intriguing in the Assembly--first in its seats and later in more conspicuous places of public trust. Before long, the debtor class became a powerful body extending through all ranks of society. From the stock-gambler who sat in the Assembly to the small land speculator in the rural districts; from the sleek inventor of _canards_ on the Paris Exchange to the lying stock-jobber in the market town, all pressed vigorously for new issues of paper; all were apparently able to demonstrate to the people that in new issues of paper lay the only chance for national prosperity."