EC Plus Ça Change: A French Lesson In Monetary Debauchery

The naysayers warned of the ills of the proposed second printing. Of note was Necker. If you recall, he was partially responsible for the debt buildup that led to France’s problems. Necker “predicted terrible evils” and offered other means to accomplish economic growth. His opinions were not popular and Necker was “spurned as a man of the past” by the Assembly and ultimately left France forever. An influential pamphlet, written by Du Pont de Nemours was popular amongst the nays and was read to the Assembly. It declared that doubling the money supply would “simply increase prices, disturb values, alarm capital, diminishes legitimate enterprise, and so decreases the demand for both products and for labor. The only persons to be helped by it are the rich who have large debts to pay.

The arguments of Neckar and Du Pont de Nemours fell on deaf ears. Those in favor rebutted with comments that printing more money was “the only means to ensure happiness, glory, and liberty to the French nation”. They took the prior debate a step further and now theorized that the gold and silver Livres would be undesirable as Assignats would be the only currency people demanded.

On the 29th of September, 1790, a bill authorizing the issuance of 800 million Assignats was passed. The bill also decreed that when Assignats were paid back to the government for the land they should be burned. This added measure was thought of as a way to ensure the newly printed money was not inflationary.

White commented: “France was now fully committed to a policy of inflation; and, if there had been any question of this before, all doubts were removed” he went on discussing how “exceedingly difficult it is stopping a nation once in the full tide of a depreciating currency.

It turns out the money returned to the government wasn’t burned but was re-issued in smaller denominations. Within a short period, 160 million was paid to the government for lands and was reissued “under the pleas of necessity.

June 1791

Nine months after the second issue of 800 million Assignats and another cycle of good economic activity followed by bad, pressure grew for more money printing. With little fanfare or debate, a new issue of 600 million was issued. With it, once again came “solemn pledges to keep down the amount in circulation.

Like the previous two, this experience was followed by a brief period of optimism that quickly faded. With each successive printing came currency depreciation and higher prices. Despite the beliefs of those in favor of printing, hoarding of gold and silver-backed coins was occurring. The French people were watching their paper money lose value and becoming more interested in preserving their wealth. The coins were in limited supply while paper money was being printed with increasing frequency. In their minds, gold and silver offered the stability that paper money was rapidly losing.

Still another troublesome fact began to now appear. Though paper money had increased in amount, prosperity had steadily diminished. In spite of all the paper issues, commercial activity grew more and more spasmodic. Enterprise was chilled and business became more and more stagnant.

With each new issue came increased trade and a more robust economy. The problem was the activity wasn’t based on anything but new money. As such, it had very little staying power, and the positive benefits quickly eroded. Businesses were handcuffed. They found it hard to make any decisions in fear the currency would continue to drop in value. Prices continued to rise. Speculation and hoarding were becoming the primary drivers of the economy. “Commerce was dead; betting took its place.” With higher prices, employees were laid off as merchants struggled to cover increasing costs.

The only ones genuinely benefiting were manufacturers producing goods for foreign countries and the stockbrokers. The rapidly declining value of their currency attracted orders from other countries that could now purchase French goods very cheaply. Those businesses and consumers that relied on goods from outside the country were battered by higher prices. With the increased money supply and economic uncertainty, the “ordinary motives for savings and care diminished.” Speculation increased significantly. While some stock investors in the urban regions were exploiting the condition, the onus fell on the working man. Inflation, weakening currency, and lack of jobs was damaging to a large majority of Frenchmen.

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