The French Revolution was caused by the fiscal irresponsibility of the monarchy. Nobles and the Clergy paid no taxes, and when a title was given, that person was tax exempt for life. France was suffering from the costs of the Seven Years War, and helping America with its own revolution against the Brits. On top of that, there had been extremely bad weather and poor harvests. Starvation was common, and the government was broke. Unrest was everywhere, and innocents had been imprisoned. Finally, on July 14th, 1789, came the storming of the Bastille, and ever since, “Bastille Day,” has been celebrated in France. France had heavy debts and huge deficits. (Gee Dad, isn’t that what we seem to suffer from now?) Nine months later, in April, 1790, the inflating began.
There was a shortage of prosperity and money. (There’s always a government ’shortage’ of money!). Patience, and self denial, two things no government has ever been able to master, would have solved the problems of the new republic, just as those two items would solve America’s problems now. Naturally, politicians, then as now, want instant prosperity and voter approval, no matter how absurd. France was on the gold standard, as was America, partially anyway, until 1971. There had been talk of a paper money scheme for some time, but the finance minister, Necker, was dead set against it. Other newly elected politicians, realized that the path to re-election and popularity, would be to make everyone happy, and to hell with the future. Exactly like politicians in America today, in both parties. The French did an additional dastardly deed to ’back’ their paper money. They confiscated all church property. The paper ’assignat’ was a new term for money linked to seized church property, which was going to be sold to the public. The assignat seemed to have value, and since only 400,000 of them were to be printed, all would be just fine. The King even issued a proclamation recommending that his people receive this new money without objection. There would never be any more printed. 400,000 assignats was the one and only time paper money would be issued and printed.
There was great joy throughout France, because the secret of prosperity had been discovered. The treasury was relieved, a portion of the public debt was repaid; creditors were encouraged; credit revived, ordinary expenses met, trade increased, a lot of the assignats were passed on to the hands of the populace, and difficulties seemed to have vanished. As is usual with the United States Government, and even France’s 220 years ago, within five months, they had spent it all and needed more. Mirabeau, a popular idol at the time, had vociferously protested against the assignats in no uncertain terms. In January of 1789, he ranted that paper money is, “a nursery of tyranny, corruption, and delusion; a veritable debauch of authority in delirium. A loan to an armed robber. That infamous word, paper money, ought to be banished from our language.” By August 27th, he decided that the first issue was so beneficial, that he was in favor of just one, single, additional issue. The chain of events reads like a comic opera by Gilbert and Sullivan. In a speech, Mirabeau said that, “Deceptive subtleties can no longer mislead patriots and men of sense in this matter. We must accomplish what we have begun.” In a burst of enthusiasm, he concluded by suggesting that assignats be created to pay off all of the national debt of twenty four hundred million. His speech was loudly applauded. Get this now. In a very few months, Mirabeau’s paper money trail would go from 400,000 assignats to 2,400,000,000,000. It didn’t happen quite that way.
Necker, who loudly protested it at the beginning, sent in his resignation and left the country for good. His opponents shouted for joy at the disappearance of a man who was so shortsighted as not to realize the value of filling the treasury with printing press money. Talleyrand, a fierce opponent of paper money, said in a speech that, “You can, indeed, arrange it so that the people shall be forced to take a thousand livres, (the real French currency at the time), in paper for a thousand livres in specie (gold), but you can never arrange it so that a man shall be obliged to give a thousand livres in specie (gold) for a thousand livres in paper. In that fact is embedded the entire question; and on account of that fact the whole system fails.” On September 29th, 1790, by a vote of 508 to 423, 800,000,000 new assignats were issued, making the total, 1,200,000,000. A promise was made that as fast as they were turned into the treasury to pay for church seized land, that they would be burned. Politicians are always full of B.S. promises, aren’t they? On June 19, 1791, it was discovered that none had been burned, and another issue of 600,000,000 was printed.
As each new issue was printed, their value decreased, prices went up, prosperity didn’t increase, and gold and silver disappeared. The blame went to the rich classes, hoarding, and stupidity by those who would rather have gold and silver rather than assignats with the imprimatur of the French Government. Prosperity decreased radically, as a matter of fact. Trade with other nations evaporated, factories closed, unemployment increased, and saving evaporated. Why save in assignats, (dollars, francs, yen, etc. today), when they lost value every day? On December 17, 1791, there was a new issue of 2,100,000,000,000 assignats. By February 1792, the French livre had fallen from the 100 before assignats, to 53 on foreign markets. On July 31st, 300,000,000 more were issued. More and more issues came forth, and on December 14, 1792, an official statement said that 3,400,000,000 had been issued, 600,000,000 had been burned, leaving 2,800,000,000.
Government employment had grown greatly, and thousands were hired to disburse the assignats and prosecute those who had been selfish, or greedy. By this time, the wealthy classes had left the country, realizing the futility of the paper money scheme, and fearing violence and property seizure. They weren’t wrong. New issues continued, and the government’s next act was to seize these estates, back the assignats with their value, and sell them. By September, 1793, the livre had sunk to 30 on foreign markets. The masses were encouraged to blame the wealthy, manufacturers, and business people for their misery, and on February 28, 1793, a mob began plundering the shops of Paris. Everything was tried. Price controls, property seizures, endless new legal tender and myriad other laws were passed, and nothing worked.
When it all came to a gruesome end, guess who had the paper money? A historian wrote: “Before the end of the year 1795, the paper money was almost exclusively in the hands of the working classes, employees, and men of small means, whose property was not large enough to invest in stores of goods or national lands. Financiers and men of large means were shrewd enough to put as much of their property as possible into objects of permanent value. The working classes had no such foresight, means, or skill.” The guillotine was the reward for objectors, pamphleteers, or those opposed to the government and paper money system. France was impoverished, glum, miserable, poor, and out of work. On February 18, 1796 at 9AM, in the presence of a great crowd, the machinery, plates, and paper for printing the assignats were solemnly broken and burned. In six years, the Revolutionary Government had destroyed what it had promised to save. Daniel Webster said that, “Of all the contrivances for cheating the laboring classes of mankind, none has been more effective than that which deludes them with paper money.”
What happened then? More foolishness. The government decided to issue more paper money which was to be “as good as gold,” and called the ’mandat.’ Not backed by gold of course, and it instantly went to virtual zero, in spite of threats, and punishment to those who refused to go along or protested. It was solved, when Napoleon took control, and gold and silver became once again the money with which to trade. The above is very brief, but true. What happened in France quickly, is happening slower in America, but the pace is quickening. The working class and stupid will keep those dollars, just like they did in France, and the thoughtful, wealthy, and smart will place their surplus assets in tangibles. 220 years ago in France, and 2,000 years ago in Egypt, gold and silver were real, tangible money, and still are. They are the result of geologic exploration, machinery, risk, capital, and labor. Their amounts are not endless, but minimal, and those who save in them will always be rewarded.
My train trip is this Friday, not last. I’ll be gone this Friday, but Melissa and David will always be here. Use them not just Friday, but every day, unless you prefer me, which I take as a great compliment, but get to know them too! Taking another trip in late May for a family wedding too. It’s really nice to be able to leave my desk and know my kids are taking care of you perfectly.