(1876) Paper-Money Inflation in France: How It Came, What It Brought, and How It Ended

8/9/2019 (1876) Paper-Money Inflation in France: How It Came, What It Brought, and How It Ended

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Cornell University LibraryHG 978.2.W65Paper-money Inflation In France:How It c

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/ PAPER-MON' INFLATION IN PEANCE /'

HOW IT CAME, WHAT rr BROUGHT,AND HOW IT ENDED.

A PAPER BEAD BEFORE SEVEBAl SENATORS AND MEJUBESSOP THE SOUSE OP- REPRESENTATIVES, OF BOTH PO-

LITICAL PARTIES, AT WASHINGTON, APRIL 12, ANDBEFORE THE UNION LEAGUE CLUB, AT

NEW YORK, APRIL 18, 1878.

ANDREW D. WHITE.

DEC 18 19^;N^EW YORK: ^^ ^ ,_D. APPLETON AND COMP/*:^,''^ - -549 AND 551 BEOADWAY. ^ E.Afi+wl..V-

1876. ^'^.C-b.fyi:f-^9^^Si


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PAPER-MONEYINFLATION IN FRANCE:

HOW IT CAME, WHAT IT BROUGHT,AND HOW IT ENDED.

A PAPEB BEAD BEFORE SEVERAL SENATORS AND MEMBERSOF THE EOUSE OF REPRESENTATIVES, OF BOTH PO-

LITICAL PARTIES, AT WASHINGTON, APRIL 12, ANDBEFORE THE UNION LEAGUE CLUB, ATNEW YORK, APRIL 13, 1876.

BYANDREW D. WHITE.

NEW YOEK:D. APPLETON AND COMPANY,

549 AND 551 BEOADWAY.1876.


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Ebiebed, according to Act of Congress, in the yearl8T6,By D. APPLETON & CO.,

In the Office of the Librarian of Congress, at Washington.


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PAPER-MONEY INFLATION IN FRANCE : HOWIT CAME, WHAT IT BROUGHT, AND HOWIT ENDED.'

Neae the end of the year 1789 the French nationfound itself in deep financial embarrassment; therewas a heavy debt and a serious deficit.

The vast reforms of that year, though a , lastingblessing politically, were a temporary evil financially.There was a general,want of confidence in businesscircles; capital had shown its proverbial timidity byretiring out of sight as far as possible ; but little moneywas in circulation ; throughout the land was temporarystagnation.

Statesman-like measures, careful watching,^and wisemanagement, would probably have led, ere long, to areturn of confidence, a reappearance of money, and re-sumption of business ; " but this involved waiting, selfdenial, and self-saci-ifice ; and thus far in human historythose are the rarest products of an improved political

' A paper read before a meeting of Senators and members of the Houseof Representatives of both political parties, at Washington, April 12 ; andbefore the Union League Club, at Nevr York, AprU 13, 1876.

" For proof that the financial situation of France at that time was byno means hopeless, see Storch, " ficonomie Politique," vol. iv., p. 159.


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4 PAPER-MONEY INFLATION IN FRANCE.

condition. Few nations, up to this time, have been ableto exercise these virtues ; and France was not then oneof those few.

There was a general looking about for some shortroad to prosperity, and, ere long, the idea was set afloatthat the great want of the country was more of thecirculating medium ; and this was speedily followed bycalls for an issue of paper-money. The Minister ofFinance at this period was Keeker. In financial abilityhe was acknowledged among the great bankers ofEurope; but he had something more than financialabilityhe had a deep feeling of patriotism and a highsense of personal honor. The difficulties in his waywere great, but he steadily endeavored to keep Francefaithful to those financial principles which the generalexperience of modern times had established as the onlypath to national safety. As difficulties arose, the Na-tional Assembly drew away from him, and soon cameamong the members muttered praises of paper-money

;

members like Allarde and Gouy held it up as a pa-naceaas a way of " securing resources without payinginterest.". This was echoed outside; the journalistLoustalot caught it up and proclaimed its beauties

;

Marat, in his newspaper, also joined the cri^ againstNecker, picturing hima man who gave up health andfortune for the sake of Franceas a wretch seekingonly to enrich himself from the public purse.

Against the tendency to the issue of irredeemablepaper Necker contended as best he might. He knewwell to what it had always led, even when surroundedby the most skillful guarantees. Among those who


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PAPER-MONEY INFLATION IN FRANCE. 5\struggled to aid Nfecker outside the National Assem-bly was ^rgasse, e^ deputy from Lyons. His pam-phlets agaiMt-fliB-ifredeemable paper exerted, perhaps,a wider influence than any others ; parts of them seemfairly inspired. Any one to-day reading his propheciesof the evils sure to follow such a currency would cer-tainly ascribe to him a miraculous foresight, were it notthat we can see that this prophetic power was simplydue to a knowledge of natural laws.' But the currentwas too strong; on the 19th of April, 1790, theFinance Conunittee of the Assembly reported that" the people demand a new circulating medium ;that " the circulation of paper-money is the bestof operations ; " that " it is the most ' free becauseit reposes on the will of the people ; " that " itwill bind the interests of the citizens to the publicgood."The report appealed to the patriotism of the Frenchpeople with the following exhortation : " Let us showto Europe that we understand our own resources ; letus immediately take the broad road to our liberation,instead of dragging ourselves along the tortuous andobscure paths of fragmentary loans ; " it concluded byrecommending an issue of paper-money, carefullyguarded, to the amount of four hundred millionfrancs. The next day the debate begins. M. Mar-tineau is loud and long for paper-money. His only

' See Bucliez and Eoux, " Histoire ParMmentaire de la Revolution Fran-Caiae," vol. iii., pp. 364, 365 ; also p. 405.

For pamphlet itself, see "A. D. W. Collection;" for the effect pro-duced by it, see Ohallamel, "Les Fran^ais sous la E6volution." Also, DeGoncourt, " La Soci6t6 Fran?aise pendant la K6volution."


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6 PAPEE-MONET INFLATION IN FRANCE.fear is, tliat tlie committee has not authorized enough,of it; he declares that business is. stagnant, and thatthe sole cause is a want of more of the circulating me-dium; that paper-money ought to be made a legaltender ; that the Assembly should rise above the preju-dices which the failure of John Law's paper-moneyhad caused. Like every supporter of irredeemablepaper-money, before or since, he thinks that circum-stances are not the same at the time and place of theissue proposed as at previous disastrous issues. Hesays: " Paper-money under a despotism is.dangerous ; itfavors corruption ; but in a nation constitutionally gov-erned, which itself takes care of the emission of itsnotes, which determines their number and use, thatdanger no longer exists." He insists that John Law'snotes at first restored prosperity, but the wretchednessand wrong they caused resulted from their over-issue,and that such an over-issue is possible only under adespotism.'

M. de la Kochefoucauld gives his opinion that " theassignats will draw specie out of the coffers where itis now hoarded."On the other hand, Cazal^s and Maury show thatthe result can only be disastrous. Never, perhaps, dida political prophecy meet with more exact fulfillmentin eveiy line than the terrible picture drawn in one ofCazal^s's speeches in this debate. Still the cuiTentran stronger and stronger; Petion makes a brilliant

' See Mbnitev/r, sitting of April 10, 1T90.' Ibid., sitting of April 15, 1790.


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PAPER-MONET INFLATION IN FRANCE. 7oration in favor of the report, and Necker's influenceand experience are gradually worn away.

But mingled with the financial argument was a verystrong political argument. The nation had just takenas its own the vast real property of the French Church,the pious accumulations of thirteen hundred years.There were princely estates in the country, sumptuouspalaces and conventual buildings in the towns ; theseformed more than one-third of the entire real propertyof France, and amounted in value to about four thou-sand million francs, yielding a yearly income of abouttwo hundred millions.' By one sweeping stroke allthis had become the property of the nation; never,apparently, did a nation secure a more solid basis for agreat financial future.

There were, therefore, two great reasons why Frenchstatesmen desired speedily to sell these lands. First, afinancial reasonto obtain money to relieve the Govern-ment. Secondly, a political reasonto get this landdistributed among a great number of 'the thriftj' middleclass, and so to commit them to the Revolution and tothe Government which gave their title.

It was urged, then, that the issue of four hundredmillions of paper would give the treasury somethingto pay out immediately, and relieve .the national neces-sities ; that, having been put into circulation, this paper-money would stimulate business ; that it would give toall capitalists, large or small, the means for buying ofthe nation the ecclesiastical real estate, and that fromthe proceeds of this real estate the nation would again See De Fervo, "Finances Francaises," vol. ii., p. 236 ; also Alison, vol. i.


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8 PAPER-MONEY INFLATION IN FRANCE. iObtain new fands for new necessities : never was theorymore seductive both to financiers and statesmen.

But it would be a great mistake to suppose that thestatesmen of France, or the French people, were igno-rant of the dangers of issuing irredeemable paper-money.No matter how skillfully the bright side of such a cur-rency was exhibited, all thoughtful men in France knewsomething of its dark side. They knew too well, fromthat fearful experience in John Law's time, tha^difficulties ,and..daiigfira,Qf, a. currency nol_basednpon specie,They had then learned how easy it is to issue ithow difficult it is to check an over-issue ; how seductively it leads to the absorption of the means of the work-ingmen and men of small fortunes ; how surely it im-poverishes all men living on fixed incomes, salaries, orwages ; how it creates on the ruins of the prosperityof all workingmen a small class of debauched specula-tors, the most injurious class that a nation can harbor,more injurious, indeed, than professional criminalswhomthe law recognizes and can throttle ; how it stimulatesover-production at first, and leaves every industry flac-cid afterward ; how it breaks down the idea of thrift,and develops political and social immorality. All thisFrance had been thoroughly taught by experience.Many then living, had seen the experiment fullytried; they had seen that issue of paper-money un-der John Law, a man in his own time, and to thisday, acknowledged one of the most ingenious finan-ciers the world has ever known ; and there were thensitting in the National Assembly of France many whoowed the poverty of their families to those issues of


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PAPEK-MONET INFLATION IN FRANCE. 9paper. Hardly a child in the country had not heardthe men who issued that paper cursed as the authorsof the most frightful catastrophe France had thenknown/ It was no mere attempt at theatrical display,but a natural impulse, which led a thoughtful states-man, during this debate, to hold up in the Assembly apiece of paper-money, and to declare that it was moist-ened with the blood and tears of their fathers. Andit would also be a mistake to suppose that the NationalAssembly which discussed this matter was composedof mere wild revolutionists; no supposition could bemore wide of the fact. Whatever may have been thecharacter of the men who legislated for France after-ward, no thoughtful student of history can deny, de-spite all the arguments and sneers of English Torystatesmen and historians, that few more keen-sightedand patriotic legislative bodies have ever sat upon thisearth than this first French Constituent Assembly. Init were such men as Sieyes, Bailly, Necker, Mirabeau,Talleyrand, Dupont, and a multitude of others who, invarious sciences and in the political world, had alreadyshown, and were destined afterward to show, themselvesamong the keenest and strongest men that Europe hasyet seen.

But the current toward paper-money had becomeirresistible. It was constantly urged, and with a greatshow of force, that if any nation could safely issue pa-

' For striking pictures of tMs feeling among the younger generation ofFrenchmen, see Challamel, " Sur la B6volntion," p. 305. For general historyof John Law's paper-money, see Henri Martin, "Histoirede France;" also,Blanqni, "Histoire de I'fioonomie Politique,'' vol. ii., pp. 65-87; also, "Se-nior on Paper Money," section iii., Part I.


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/ See "Memoirs of Louis XIV." for the instruction of the dauphin.' For a simple exposition of the way in which the exercise of this power

became simply confiscation of all private property in France, see MalletDu Pan's " Memoirs," London, 1852, vol. ii., p. 14.

' See specimens of these tickets in A. D. W. collection.


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48 PAPER-MONEY INFLATION IN FKANCE.

cause of these evils was the old false system of confis-cating the property of an entire nation; keeping allvalues in fluctuation ; discouraging all enterprise ; par-alyzing all energy ; undermining sober habits ; obliter-ating thrift ; promoting extravagance and wild riot, bythe issue of an irredeemable currency.

It has also been argued that the assignats sankin value because they were not well securedthatsecuring them on Government real estate was as futileas if the United States were to secure notes on its realestate 'in distant Territories. This objection is utterlyfallacious. The Government lands of our own countryare remote from the centres of capital, and difficult toexamine : the French national real estate was near thosecentreseven in themand easy to examine. Our na-tional real estate is unimproved and unproductive:theirs was improved and productive ; the average pro-ductiveness of that in market was quite five per cent.,in ordinary times.'

It has also been objected that the attempt to securethe assignats on Government real estate failed becauseof the general want of confidence in the title derived bythe purchasers from the new Government. Everythorough student of that period must know that this isa misleading statement. Everything shows that theFrench people generally had the most unwavering con-fidence in the stability of the new Government duringthe greater part of the Kevolution. There were disbe-

' Louis Blanc calls attention to this very fact in showing the superiorityof the French assignats to onr Continental currency. See Louis Blanc," Histoire de la Edvolution Fransaise," tome xii., p. 98.


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PAPER-MONET INFLATION IN FRANCE. 49lievers in tlie perpetuity of it, just as there were dislbe-lievers in the perpetuity of the United States through-out our recent civil war ; but they were a small minor-ity. Even granting that there was a doubt as to invest-ments in French lands, the French people had certainlyas much confidence in the secure ^possession of Govern-ment lands as any people can ever have in large issuesof Government bonds ; indeed, it is certain that theyhad far more confidence in their lands as a security thanany modem nation can have in large issues of con-vertible bonds obtained by payments of irredeemablepaper. The simple fact, as stated by John Stuart Mill,which made assignats convertible into real estate unsuc-cessful was that the vast majority of people could not \afford to make investments outside their business ; andthis fact is just as fatal to any attempt to contract largeissues of irredeemable paper by making such issues' con-vertible into bonds bearing low interestsave, perhaps,a bold, statesman-like attempt, which seizes the besttime and presses every advantage, eschewing all " in-terconvertibility " devices, and sacrificing everything toregain a sound currency based on standards commonto the entire financial world.

On April 11, 1793, a law was passed to meet thecase of those who bought specie with paper. Nothingcould be more natural than such purchases. Husbandswho wished to make provision for their wives, fatherswho wished to make provision for their children, de-sired to accumulate something of acknowledged value,and enormous prices in paper were paid for gold. Thenew law forbade the sale or exchange of specie for

4


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50 PAPEK-MONET INFLATION IN FRANCE.

more than its nominal value in paper, with a penaltyof six years' imprisonment in irons.'

It will doubtless astonish many to learn that, inspite of these evident results of too much currency, theold cry of a " scarcity of circulating medium " was notstilled ; it_ap.paxed not long after each issue, no matterhow. large, and reappeared now.

But every thoughtful student of financial historyknows that this cry always comes after such issuesnay, that it must comebecause in obedience to anatural law there is a scarcity, or rather msuffioiency,of currency just as soon as prices become adjusted tothe new volume, and there comes some "little revivalof business with the usual increase of credit.

The cry of " insufficient amount of circulating me-dium " was again raised. The needs of the Governmentwere pressing, and within a month after the passage ofthe fearful penal laws made necessary by the old issues,twelve hundred millions more were sent forth."

About ten days after this a law was passed makinga forced loan of one thousand millions from the rich.In August, 1793, appears a report by Cambon. Noone can read it without being struck by its pervertedability.

But while Cambon's plan of dealing with the publicdebt has outlasted all revolutions since, his plan ofdealing with the inflated currency came to speedy andwretched failure.

' See Von Sybel, vol. iii., p. 26 ; also Montgaillard, " Histoire de laK6volution FraiiQaise," p. 196.

For an excellent statement of the action of this law in our own conn-try, see Sumner, p. 220.


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PAPER-MONEY INPLATIOjS^ IN FRANCE. 51Very carefully he had devised a funding scheme

which, taken in connection with his system of issues, was,in effect, what in these days would be called an " inter-convertihHity scheme:'' By various degrees of persua-sion or force, holders of assignats were urged to convertthem into evidences of national debt, bearing interestat five per cent.,' with the understanding that if morepaper were afterward needed, more would be issued.All in vain. The official tables of depreciation showthat the assignats continued to fall ; soon a forced loancalling in a billion of these checked this fall, but for amoment.' The " interconvertibility scheme" betweencurrency and bonds failed as dismally as the " intercon-vertibility scheme" between currency and land hadfailed.

Soon after came a law confiscating the propertyof all Frenchmen who left France before July 14,1789, and who had not returned. This gave new land\to be mortgaged for the security of paper-money.

Month after month, year after year, this went on.Meanwhile every thing possible was done to keep upthe value of paper. In obedience to those who be-lieved, with the market-women of Paris, as stated intheir famous petition, that "laws should be passedmaking paper as good as gold," Couthon, on August 1,1793, proposed and carried a law punishing any personwho should sell assignats at less than their nominal val-

' See Oambon's " Report," August 15, 1753, pp. 49-60 ; also Decree ofAugust 15-24, 1793, 31, chapters zcvi.-ciii.

'' See " Tableau de Depreciation du Papier-Monnaie dans le D6parte-ment de la Seine."


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52 PAPER-MONET INFLATION IN FRANCE.

ue, with imprisonment for twenty years in chains. Twoyears later Coutlion carried a law making investmentsin foreign countries, by Frenchmen, punishable withdeath ; and to make this series of measures complete,to keep up paper at all hazards, on August 15, 1793,the national debt was virtually repudiated.'

But, to the surprise of the great majority of thepeople in France, after the momentary spasm of fear hadpassed, the value of the assignats was found not to havebeen increased by these measures ;_Qn the contrary, thej^persisted in obeying the natural laws of finance, and, asnew issues increased, their value decreased in a cqh:^stant ratio. Nor did the most lavish aid of Natureavail to help matters. The paper-money of the nationseemed to possess a magic power to transmute prosper-ity into adversity. The year 1794 was exceptionallyfruitful ; crops were abundant ; and yet with the au-tumn came scarcity of provisions, and with the wintercame famine. The reason is perfectly simple. The

-^equences in that whole history are absolutely logical.-^irst, the Legislature had inflated the currency andraised prices enormously. Next, it had been forced toestablish an arbitrary maximum price for produce.But this price, large as it seemed, was not equal to thereal value of produce ; many of the farmers, therefore,raised less produce or refrained from bringing what theyhad to market." But, as is usual in such cases, the

P trouble was ascribed to everything rather than the realcause, and the most severe measures were established

' See Von Sybel, vol. iii., p. 172.= Ibid., p. 173.


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PAPER-MONET INFLATION IN PRANCE. 53in all parts of t\e country to force farmers to bringproduce to market, the millers to grind it, and the shop-keepers to sell it.' The issues of paper-money continued.Toward the end of 1794, seven thousand million assi-gnats were m circulation." By the end of May, 1795, thecirculation Avas increased to ten thousand millions; at theend of July to fourteen thousand millions ; at the end ofJuly to sixteen thousand millions ; and the value of onehundred francs in paper fell steadily, first to four francsin gold, then to three, then to two and a half." But,,curiously enough, when this depieciatiomgas-rapidly go-ing on, as at various other periods when depreciation wasrapid, there came an apparent revival of business. Thehopes of many were revived by the fact that, in spiteof the decline of paper, there was an exceedingly brisktrade in all kinds of permanent property. Whateverarticles of permanent value certain people were willingto sell, certain other people were willing to buy andpay largely for in assignats. At this, hope revived fora time in certain quarters. But ere long it was discov-ered that this was one of the most terrible results of anatural law which is sure to come into play under suchcircumstances. It was simply a feverish activity causedby the intense desire of a large number of the moreshrewd class to convert their paper-money into any-thing and everything which they could hold and hoarduntil the collapse which they foresaw should take place.

See Thiers ; also, for curious details of measures taken to compelfarmers and. merchants, see Senior, "Lectures on Results of Paper-Money,"pp. 86, 87.

" See Von Sybel, vol. iv., p. 231.= See Von Sybel, vol. iv., p. 330 ; also, tables of depreciation in Moni-

teur; also, official reports in A. D. W. collection.


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54 PAPEE-MONET INFLATION IN FRANCE.

This very activity in business was simply the result ofdisease. It was simply legal robbery of the more en-

\thusiastic and trusting by the more cold-hearted andTieen. It was the " unloading " of the assignats by thecunning upon the mass of the people.'

But even this could not stop the madness of infla-tion. New issues continued, until at the beginning of1796 over forty-five thousand million francs had beenissued, of which over thirty-six thousand millions werein actual circulation."

It is very interesting to note, in the midst of all this,the steady action of another simple law in finance. TheGovernment, with its prisons and its guillotines, withits laws inflicting twenty years' imprisonment in chainsupon the buyers of gold, and death upon investors inforeign securities, was utterly powerless against thislaw. The louis d'or stood in the market as a mon-itor, noting each day, with unerring fidelity, thedecline in value of the assignat ; a monitor not to bebribed, not to be scared. As well might the NationalConvention try to bribe, or scare away, the polarity ofthe mariner's compass. On August 1, 1795, the goldlouis of 25 francs was worth. 920 francs ; September 1st,1,200 francs; on November 1st, 2,600 francs; on De-cember 1st, 3,050 francs. In February, 1796, it wasworth in market 7,200 francs, or one franc in gold was

' For a life-like sketch of the vigorous way in which these exchanges ofassignats for valuable property went on at periods of the rapid depreciationof paper, see Challamel, " Lea Frangais sous la E6volution," p. 809 ; also,Say, " Eoonomie Politique," septieme 6dition, p. 147.

' See De Nervo, "Finances Franfaises,'' p. 280.


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PAPER-MONEY INFLATION IN FRANCE. 55wortli 288 francs in paper-money. Prices of all com-modities went up in proportion.'

The writings of tlie period give curious' details ofthese prices. Thibaudeau, in his " Memoirs," speaks ofsugar as 500 francs a pound, soap 230 francs, candles140 francs." Mercier, in his life-like pictures of theFrench metropolis at that period, mentions 600 francsas carriage-hire for a single drive, and 6,000 francs foran entire day.' Everything was inflated in aboutthe same proportion, except the wages of labor ; as man-ufactories closed, wages had fallen, until all thatkept them up at all was the fact that so many laborerswere drafted into the army. From this state of thingscame grievous wrong and gross fraud. Men who hadforeseen these results fully, and had gone into debt,were of course jubilant. He who in 1790 had borrowed10,000 francs could pay his debts in 1796 for about 35francs. Laws were made to meet these abuses. As farback as 1794 a plan was devised for publishing official" tables of depreciation " to be used in making equi-ltable settlements of debts, but all such machinery*!proved fatile. On the 18th of May, 1796, a young mancomplained to the National Convention that his elderbrother, who had been acting' as administrator of hisdeceased father's estate, had paid the heirs in assignats,

> For a very complete table of the depreciation from day to day, seeSupplement to the Moniteur, of October 2, 1797. For the market pricesof the louis d'or at the first of each month, as the collapse approached, seeMontgaiUard. See also official lists in the A. D. W. collection.

'' See "M6moires de Thibaudeau," vol. ii., p. 26.= See " Le Nouveau Paris," vol. ii., p. 90.*For curious examples of these "scales of depreciation," see the

A. D. "W. collection.


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and that lie received scarcely one three-Lundredtli partof the real value of Ms share,' To meet cases like this,a law was passed establishing a " scale of proportion."Taking as a standard the value of the assignat whenthere were two billions in circulation, this law declaredthat, in the payment of debts, one quarter should beadded to the amount originally borrowed for everyfive hundred millions added to the circulation. Inobedience to this law a man who borrowed two thou-sand francs when there were two billions in circulationwould have to pay his creditors twenty-five hundredfrancs when half a billion more was added to the cur-rency, and over thirty thousand francs before the emis-sions of paper reached their final amount. This broughtnew evils, worse, if possible, than the old."

But, wide-spread as these evil were, they were smallcompared with the universal distress. The question willnaturally be asked. On whom did this vast depreciationmainly fall, at last ? "When this currency had sunkto about one three-hundredth part of its nominal value,and, after that, to nothing, in whose hands was the bulkof it? The answer is simple. I will give it in theexact words of that thoughtful historian from whom Ihave already quoted : " Before the end of the year 1795the paper-money was almost exclusively in the handsof the working-classes, employes, and men of smallmeans, whose property was not large enough to invest

' For a striking similar case in our own country, see Sumner, " Historyof American Currency,'' p. 47.

' See Villeneuve Bargemont, " Histoire de I'fioonomio Politique," vol. iL,p. 229.


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PAPER-MONEY INFLATION IN FRANCE. 57in stores of goods or national lands/ The financiersand men of large means, ttough they suffered terribly,were shrewd enough to put mucli of their property intoobjects of permanent value. Tbe working-classes had[/no such foresight, or skill, or means. On them finally .'came tke great, crushing weigM of the loss. After tbefirst collapse came up the cries of the starving. Eoadsand bridges were neglected ; manufactures were gener-

j

ally given up in utter helplessness." To continue, inj

the words of the historian already cited : " None feltany confidence in the future in any respect ; none daredto make an investment for any length of time, and itwas accounted a folly to curtail the pleasures of themoment, to accumulate or save for an uncertain future."

While this system was thus running on, a new Gov-ernment had been established. In October, 1795, cameinto power the "Directory." It found the country ut-terly impoverished, and its only resource at first was toprint more paper-money, and issue it even while wetfrom the press.

The next attempt of the Directory was to secure aiforced loan of six hundred million francs from the'wealthier classes ; but this was found fruitless. Nexta National Bank was proposed ; but capital was loathto embark in banking, while the howls of the mobagainst all who had anything to do with money re-sounded in the ears of capitalists. At last the Directory

See Von Sybel, vol. iv., pp. 337, 338. See, also, for confirmation, Ohal-lamel, "Histoire Mus^e," vol. ii., p. 179. For a thoughtful statement ofthe reasons why such paper was not invested in lands by men of moderatemeans, and working-men, see Mill, "Political Economy," vol. ii., pp. 81, 82.

See Von Sybel, vol. iv., p. 222.


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bettouglit themselves of another expedient. It was by-no means new. It was fully tried on our own conti-nent twice before that time, and once sincefirst, in ourcoloni3,l period ; next, during our Confederation ; last,by the recent " Southern Confederacy "and here, aselsewhere, always in vain. But experience yielded totheory^plain business sense to financial metaphysics.It was determined to issue a new paper which shouldbe " fully secured " and " as good as gold."

On February 19, 1796, the copper plates of the as-signats were broken up, and it was decreed that nomore assignats he issued ; instead of them, it was de-creed that a new paper-money, "fully secured, andas good as gold," be issued, under the name of " man-dats.^'' In order that these notes should be " fully se-cured," choice public real estate was set apart toan amount fully equal to the nominal value of theissue, and any one possessing any quantity of themandats could at once take possession of Governmentlands to their full face value ; the price of the landsto be determined according to their actual rental,and without the formalities and delays previously es-tablished in regard to the purchase of lands with as-signats. In order to make the mandats " as good asgold," it was planned by forced loans and other meansto reduce the quantity of assignats in circulation sothat the value of each assignat should be raised to one-thirtieth of the value of gold, then to make mandatslegal tender, and to substitute them for assignats at therate of one for thirty.' Never were great expectations

' For details of this plan very thoroughly given, see Thiers's " History ofthe French Revolution," Bentley's edition, vol. iv., pp. 410-412.


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PAPER-MONEY INFLATION IN FRANCE. 59more cruelly disappointed. Even before they could beissued from the press, the mandats fell to thirty percent, of their nominal value ; from this they speedilyfell to fifteen per cent., and soon after to five per cent.This plan failedjust as it failed in New England in1737 ; just as it failed under our own Confederation in1781; just as it failed under the "Southern vConfed-eracy " within the past few years.'

To sustain this new currency the Government resort-ed to every method that ingenuity could devise. Pam-phlets were published explaining their advantages soas to be understood by people of every capacity. Neverwas there more skillful puflfing of a financial scheme.A pamphlet, signed " Marchant," and , dedicated to" People of Good Faith," was widely circulated. In thisMarchant toot pains to show the great advantage ofthe mandats as compared with the assignats : how landcould be more easily acquired with them than withassignats; how their security was better; how theycould not by any possibility sink in value as the as-signats had done. Even before the pamphlet was dryfrom the press, the depreciation of mandats had re-futed his entire argument." Then, too, we have at workagain the old superstition that there is some way ofkeeping up the value of paper-money other than by hav-ing gold ready to redeem as much of it as may bepresented. The old plan of penal measures is again

' For an account of " new tenor bills " and their failure in 1737, seeSumner, pp. 27-31 ; for their failure in 1781, see Morse, " Life of AlexanderHamilton," vol. i., pp. 86, 87. Tor similar failure in Austria, see Sumner,p. 314.

" See Marchant, " Lettre aux Gens de Bonne Foi."


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60 PAPER-MONET INFLATION IN PEANCE.

pressed. Monot leads off by proposing penalties againstthose who shall 8;peah publicly against the mandats,Talot thinks the penalties ought to be made especiallysevere ; but finally it is agreed that any persons " whoby their discourse or writing shall decry the mandatsshall be condemned to a fine of not less than one thou-sand livres, or more than ten thousand ; and in case ofa repetition of the offense, to four years in irons." Itwas also decreed that those who refase to receive theTnandats be fined the first time the exact sum whichthey refuse ; the second time, ten times as much ; andthe third time, be punished with two years in prison.But here, too, were seen those laws in France whichare alike inexorable in all countries. This attemptproved fatile in France, just as it had proved futile, lessthan twenty years before, in America.' No enactmentscould stop the downward tendency of this new paper,"fally secured," " as good, as -gold: " the laws thatfinally govern finance are not made in conventions orcongresses.

On July 16, 1796, the great blow was struck. Itwas decreed that all paper, mandats and assignats,should be taken at its real value, and that bargainsmight be made in whatever currency the people chose.The real value of the mandats at this time was aboutfive per cent, of their nominal value."

The reign of paper-money in France was over. Thetwenty-five hundred million mandats went into thecommon heap of refuse with the previous thirty-six

' See Sumner, p. 44. See I)e Nervo, " Finances Franpaises," p. 282. /


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PAPllInrONET INFLATION IN FRANCE, Qibillion assignats. The whole vast issue was repu-diated.

The collapse had come at last ; the whole nationwas plunged into financial distress and debaucheryfrom one end to the other.

To this general distress there was, indeed, one ex-ception. In Paris and in a few of the greater cities,men, like Tallien, of the heartless, debauched, luxurious,speculator, contractor, and stock-gambler classes, had'risen above the ruins of the multitudes of smaller for-tunes. Tallien, one of the worst of the demagogue"reformers," and a certain number of men like him,had been skillful enough to become millionaires, whiletheir dupes, who had clamored for issues of irredeem-able paper-money, had become paupers.

The luxury and extravagance of these men andtheir families form one of the most significant featuresin any picture of the social condition of that period.'A few years before this the leading women inFrench society showed a nobleness of character, and asimplicity in dress, worthy of Roman matrons. Ofthese were Madame Eoland and Madame Desmoulins

;

but now all was changed. At the head of society stoodMadame Tallien, and others like her, wild in extrava-gance, seeking, daily, new refinements in luxury, anddemanding of their husbands and lovers vast sums toarray them, and feed their vxii^- If such sums could

' Among the many striking accounts of the debasing effects of " infla-tion " upon. France under the Directory, perhaps the best is that of Lacre-telle vol. xiii., pp. 32-36. For similar effect, produced by same cause inour own country in 1819, see statement from Mles'a Register in Sumnor,p. 80.


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62 PAPEK-MONET INFLATION IN FRANCE.

Inot be obtained honestly, they must be obtained dis-honestly. The more closely one examines that period,the more clearly it is seen that the pictures given byThibaudeau, and Challamel, and De Goncourt, are notat all exaggerated."

But when all was over with paper-money, speciebegan to reappearat first in sufficient sums to do thesmall amount of business which remained after the col-lapse. Then, as the business demand increased, theamount of specie flowed in from the world at large tomeet it, and the nation gradually recovered from herlong paper-money debauch.

Thibaudeau, a very thoughtful observer, tells us inhis " Memoirs " that great fears were felt as to a wantof circulating medium between the time when papershould go out and coin should come in ; but that nosuch want was ever feltthat coin came in as if bymagicthat the nation rapidly recovered from itspaper-money debauch, and, within a year, business en-tered a new current of prosperity."

Nothing could better exemplify the saying of oneof the most shrewd of modern statesmen, that " therewill always be money." '

Such, briefly sketched in its leading features, is thehistory of the most skillful, vigorous, and persistentattempt ever made to substitute for natural laws in

' For Madame Tallien and luxury of the stock-gambler classes, seeOhaUamel, "Les Frangais sous la Revolution,'' pp. 30, 33; also DeGoncourt, "Les Pranfais sous le Directoire."

For similar expectation of a " shock," which did not occur, at the re-sumption of specie payments in Massachusetts, eee Sumner, " History ofAmerican Currency," p. 34.

= See Thiers.


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PAPER-MONET INFLATION IN FEANCE. 63finance the abilijôf .aJegisktiveJbodj, and to substi-tuteôrâ standard of value, recognized throughout the-^"orld, a national standard devised by theorists and ma-nipulated by schemers. Every other attempt of the samekind in human history, under whatever circumstances,has reached similar results in kind if not in degree ; allof them show the existence in the world of financiallaws as sure in their operation as those laws whichhold the planets in their courses.'

I have now presented this history in its chronologi-cal orderthe order of events : let me, in conclusion,sum it up in its logical orderthe order of causes andeffects. '"

And, first, in the economic development. From thefirst careful issues of paper-money, irredeemable butmoderate, we saw, as an immediate result, apparent im-provement and activity in business. Then arose theclamor for more paper-money. At first, new issueswere made with great difficulty; but, the (dike, oncebroken, the current of irredeemable currency pouredthrough ; and, the breach thus enlarging, this currency,was soon swollen beyond control. It was urged on byspeculators for a rise in values ; by a thoughtless mob,who.^thought that a nation, by its simple fiat, couldstamp real value upon a valueless object : as a conse-

' For examples of similar effects in Russia, Austria, and Denmark, teeStoroh, "Economie Politique," vol. iv. ; for similar effects in the UnitedStates see Gouge, "Paper Money and Bankers in the United States;" also,Sumner, " History of American Currency." For working out of the sameprinciples in England, depicted in a masterly way, see Maoaulay, " Historyof England," chapter xxi. ; and for curious exhihition of same causes pro-ducing same results in ancient Greece, see curious quotation by Macaulayin same chapter.


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64: PAPEE-MONET INFLATION IN FRANCE.

quence, a great debtor class grew rapidly and naturally,and this class gave its influence to depreciate more andmore the currency in which its debts were to be paid.'All the energy of the Government was devoted togrinding out still more paper ; commerce was at firststimulated by the difference in exchange; but thiscause soon ceased to operate, and commerce, havingbeen stimulated unhealthfully, wasted away.

Manufactures at first received a great impulse ; but,ere long, this over-production and over-stimulus provedas fatal to them as to commerce. From time to time therewas a revival of hope by an apparent revival of busi-ness ; but this revival of business was at last seen to besimply caused by the desire of the more far-seeing andcunning to exchange paper-money for objects of per-manent value. As to the people at large, the classesliving on fixed incomes or salaries felt the pressurefirst, as soon as the purchasing, power of their fixed in-comes was reduced. Soon the great class living onwages felt it even more sadly.

Prices of the necessities of life increased ; merchantswere obliged to increase them, not only to coverdepreciation of their merchandise, but also to cover

-^ their risk of loss from fluctuation; while the prices ofproducts thus rose, wages, which had gone up at firstunder the general stimulus, fell. Under the universaldoubt and discouragement, commerce and manufactureswere checked or destroyed. As a consequence, the de-mand for labor was stopped ; laboring-men were thrown

' For parallel cases in early history of onr own country, see Sumner, p.21, and elsewhere.


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PAPER-MONEY INFLATION IN FRANCE. 65out of employment, and, under tlie operation of the sim-plest law of supply and demand, the price of labortliedaily wages of the laboring classwent down until, ata time when prices of food, clothing, and various arti-cles of consumption were enormous, wages were as lowas at the time preceding the first issue of irredeemablecurrency.

The mercantile classes at first thought themselvesexempt from the general misfortune. They weredelighted at the apparent advance in the value of thegoods on their shelves. But they soon found that, asthey increased prices to cover the inflation of currencyand the risk from fluctuation and uncertainty, pur-chasers were fewer, purchases less, and payments lesssure; a feeling of insecurity spread throughout thecountry; enterprise was deadened and general stag-nation followed.New issues of paper were clamored for as a new

;

dram is called for by a drunkard. The new issuesonly increased the evil ; capitalists were all the morereluctant to embark their money on such a sea of doubt.Workmen of all sorts were more and more cast out ofemployment. Issue after issue of currency came ; butno relief save a momentary stimulus, which aggra-vated the disease. The most ingenious evasions ofnatural laws in finance which the most subtle theoristscould contrive were triedall in vain ; the most brilliantsubstitutes for those laws were tried; self regulatingschemes, " interconverting " schemesall equally vain."

' For a review of some of these attempts, with eloquent statement oftheir evil resnlts, see "Mgmoires de Durand de Maillane," pp. 166-169.

5


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66 PAPEE-MONEY INFLATION IN FKANCE.

All tliouglitful men had lost confidence. All men werewaiting ; stagnation became worse and worse. Atlast came the collapse, and then a return by a shockto real values and a future which presented some ele-ments of certainty of remuneration to capital and labor.Then, and not until then, came the beginning of a newera of prosperity.

Just as dependent on the law of cause and effectwas the moral development. Out of the. inflation ofprices grew a speculating class; and, in the completeuncertainty as to the future, all business became a gameof chance, and all business-men unintentional gamblers.In city centres came a quick growth of stock-jobbersand speculators; and these set a debasing fashion inbusiness which spread to the remotest parts of thecountry. Instead of satisfaction with legitimate gainscame admiration for cheatery. Then, too, as valuesbecame more and more uncertain, there was no longerany motive for care or economy, but every motive forimmediate expenditure and present enjoyment. Socame upon the nation the dbliteraUon of the idea ofthrift. In this mania for yielding to present enjoyment_rather than providing for future comfort were the seedsof new growths of wretchedness ; and luxury, senselessand extravagant, set in, and this, too, sjDread as a fash-ion. To feed it, there came cheating in the nation atlarge, and corruption among officials and persons hold-ing trusts ; while the men set such fashions in business,private and official, women like Madame Tallien setfashions of extravagance in dress and living that addedto the incentives to corruption. Faith in moral consid-


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PAPER-MONET INFLATION IN FRANCE. 67erations, or even in good impulses, yielded to generaldistrust. National honor was thought a fiction cherisliedonly by enthusiasts. Patriotism was eaten out by cyni-cism.

Such was the history of France as logically de-veloped in obedience to natural laws ; such has, toa greater or less degree, always been the result,of ir-redeemable paper issues, created according to the whimor interest of legislative assemblies rather than basedupon standards of value permanent in their nature andagreed upon throughout the entire commercial world

;

such, we may fairly expect, will be always the resultof them until the fiat of the Almighty shall evolvelaws in the universe radically different from those whichat present obtain.'

And, finally, as to the general development of thetheory and practice which all this history records.My subject has been "Paper-Money Inflation inFrance ; How it came ; What it brought ; and How itended."

It came, as you saw, by seeking a remedy, for acomparatively small evil, in an evil infinitely more dan-gerous. To cure a disease temporary in its character acorrosive poison was administered which ate out thevitals of French prosperity.

It progressed according to a law in social physicswhich we may call the law of accelerating issue and de-preciation. It was comparatively easy to refrain from

For similar effect of an inflated currency in enervating and undermin-ing trade, husbandry, manufactures, and morals, in our own country, in 1779,see Webster, cited in Sumner, pp. 45-50. Eor similar effects in other coun-tries see Senior, Storch, Maeaulay, and others, already eited.


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g8 PAPER-MONEY INFLATION IN FRANCE.

the first issue ; it was exceedingly difficult to refrainfrom the second ; to refrain from the third and thosefollowing was impossible.

It brought, as you have seen, to commerce andmanufactures, the mercantile interest, the agriculturalinterest, utter ruin. It brought on these the same de-struction which would come to a Hollander openingthe dikes of the sea to irrigate his land in a dry sum-mer.

It ended in the complete financial, moral, and politi-cal prostration of Francea prostration from which agreat absolute monarch alone was able to draw it.

But this history would be incomplete without abrief sequel showing how that monarch profited by thisfrightful experience. When Bonaparte took the con-sulship the condition of fiscal affairs was appalling.The Government was bankrupt; an immense debt wasunpaid. The further collection of taxes seemed impos-sible ; the assessments were in hopeless confusion. Warwas going on in the East, on the Rhine, and in Italy,and civil war in La Vendue. All the armies had beenlong unpaid, and the largest loan that could for a mo-ment be effected was for a sum hardly meeting the ex-penses of the Government for a single day. At therfirstcabinet council Bonaparte was asked what he intendedto do. He rej)lied, " I will pay cash or pay nothing."From this time he conducted all his operations on thisbasis. He arranged the assessments, funded the debt,and made every payment in cash ; and from this timeduring all the campaigns of Marengo, Austerlitz, Jena,Eylau, Friedland, down to the Peace of Tilsit in 1807


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PAPER-MONEY INFLATION IN FRANCE. ggthere was but one suspension of specie payment, andthis only for a few days. When the first great Euro-pean coalition was formed against the empire, Napoleonwas hard pressed financially, and it was proposed toresort to paper-money ; but he wrote to his minister," While I live I will never resort to irredeemable paper."He never did, and France under this determinationcommanded all the gold she needed. When Waterloocame, with the invasion of the allies, with war on herown soil, with a change of dynasty, and heavy expensesfor war and indemnities, France, on a specie basis, ex-perienced no severe financial distress.

If we glance at the financial history of France duringthe recent Franco-Prussian War and the Communiststruggle, in which a far more terrible pressure wasbrought upon French finance than our own recent civilwar put upon American finance, and yet with no nationalstagnation or distress, but with a steady progress inprosperity, we shall see still more clearly the advantageof meeting a financial crisis in an honest and manlyway, and by methods sanctioned by the world's mostcostly experience, rather than by yielding to the schemesof speculators, or to the dreams of theorists involved infinancial metaphysics.'

There is a lesson in all this which it behooves everythinking man to ponder.

' For facts regarding Frenoli finance under the emperor, I am indebtedto Hon. David A. Wells. For the recent triumph of financial common-sense in France, see Bonnet's articles, translated by George Walker, Esq.

THE END.


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Documents

(1876) Paper-Money Inflation in France: How It Came, What It Brought, and How It Ended