EC Plus Ça Change: A French Lesson In Monetary Debauchery

Assembly debate was lively, with strong opinions on both sides of the issue. Those against it understood that printing fiat money failed miserably many times in the past. In fact, the French experience with the Mississippi bubble crisis of 1720 resulted from the over-issuance of paper money. That crisis caused, in White’s words, “the most frightful catastrophe France had then experienced.” History was on the side of those opposed to the new plan.

Those in favor looked beyond history and believed this time would be different. They believed the amount of money printed could be controlled and ultimately pulled back if necessary. It was also argued new money would encourage people to spend, and economic activity would surely pick up. Another popular argument was France would benefit by selling the confiscated lands to its people, and these funds would help pay off its debts. In addition, land ownership by the masses strengthened French patriotism.

Those in favor of printing won the debate. As we have seen many times before and after this event, hope and greed won out over logic, common sense, and most importantly, history. Per White- “But the current toward paper money had become irresistible. It was constantly urged, and with a great show of force, that if any nation could safely issue it, France was now that nation; that she was fully warned by her severe experience under John Law; that she was now a constitutional government, controlled by an enlightened, patriotic people,–not, as in the days of the former issues of paper money, an absolute monarchy controlled by politicians and adventurers; that she was able to secure every livre of her paper money by a virtual mortgage on a landed domain vastly greater in value than the entire issue; that, with men like Bailly, Mirabeau, and Necker at her head, she could not commit the financial mistakes and crimes from which France had suffered under John Law, the Regent Duke of Orleans and Cardinal Dubois.” This time was different in their collective minds!

April 1790

The final decree was passed, and 400 million Assignats, backed by confiscated church property, were issued. The notes were quickly put into circulation and “engraved in the best style of the art,” as shown below.

French, Plus ça change: A French Lesson in Monetary Debauchery

As one might suspect, the church decried the action, but the large majority of the French were in favor. The press and assemblymen extolled the virtues of this new money. They spoke and wrote of future prosperity and an end to the economic oppression. They thought they found a cure for their economic ills.

Upon the issuance of the new money, economic activity picked up almost immediately. As expected, the money allowed for a portion of the national debt to be paid off as well. Confidence and trade expanded. The summer of 1790 proved to be an economic boom time for France.

Fall 1790

The good times were limited. By October, economic activity was back in decline, and with it came a renewed call for more money printing. Per White- “The old remedy immediately and naturally recurred to the minds of men. Throughout the country began a cry for another issue of paper.”  The deliberations regarding money printing were rekindled with many of the same arguments on both sides of the debate re-hashed. A new argument for those in favor of printing was simply that the original 400 million Assignats was not enough.

While those favoring money printing acknowledged the dangers of their actions, they were also dismissive of them at the same time. These Assemblymen believed if a little medicine appeared to work with no side effects, why not take more. Debate this time around was easier for the pro-printing consortium. Of note were a well-respected elder statesman of the Assembly and a national hero named Gabriel Riqueti, Comte de Mirabeau (Mirabeau). During the first round of debates, Mirabeau was firmly against the issuance of the new currency. In fact, he said the following: “A nursery of tyranny, corruption, and delusion; a veritable debauch of authority in delirium” in regards to paper money. He even called the issuance of money “a loan to an armed robber.

While Mirabeau clearly understood the effects of printing money, he was now swayed by the arguments of a stronger economy. He also appreciated the benefits of making a large class of landholders for the first time.  Mirabeau reversed his opinion and joined the ranks of those believing France could control the inflationary side effects. He now argued for one more issue of Assignats. As a precautionary measure, he insisted that as soon as paper became abundant, self-governing laws of economics would ensure the money was retired. Mirabeau went as far as recommending the new amount of printed money should be enough to pay down France’s entire debt – 2,400 million!

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