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Fiat Money Inflation in France - Chapter I

1. Introduction

2. Foreword By Mr. John Mackay

3. Chapter I

4. Chapter II

5. Chapter III

6. Notes

How It Came, What It Brought, and How It Ended[1]


Early in the year 1789 the French nation found itself in deep
financial embarrassment: there was a heavy debt and a serious deficit.

The vast reforms of that period, though a lasting blessing
politically, were a temporary evil financially. There was a general
want of confidence in business circles; capital had shown its
proverbial timidity by retiring out of sight as far as possible;
throughout the land was stagnation.

Statesmanlike measures, careful watching and wise management would,
doubtless, have ere long led to a return of confidence, a reappearance
of money and a resumption of business; but these involved patience and
self-denial, and, thus far in human history, these are the rarest
products of political wisdom. Few nations have ever been able to
exercise these virtues; and France was not then one of these few.[2]

There was a general search for some short road to prosperity: ere long
the idea was set afloat that the great want of the country was more of
the circulating medium; and this was speedily followed by calls for an
issue of paper money. The Minister of Finance at this period was
Necker. In financial ability he was acknowledged as among the great
bankers of Europe, but his was something more than financial ability:
he had a deep feeling of patriotism and a high sense of personal
honor. The difficulties in his way were great, but he steadily
endeavored to keep France faithful to those principles in monetary
affairs which the general experience of modem times had found the only
path to national safety. As difficulties arose the National Assembly
drew away from him, and soon came among the members renewed
suggestions of paper money: orators in public meetings, at the clubs
and in the Assembly, proclaimed it a panacea--a way of "securing
resources without paying interest." Journalists caught it up and
displayed its beauties, among these men, Marat, who, in his newspaper,
"The Friend of the People," also joined the cries against Necker,
picturing him--a man of sterling honesty, who gave up health and
fortune for the sake of France--as a wretch seeking only to enrich
himself from the public purse.

Against this tendency toward the issue of irredeemable paper Necker
contended as best he might. He knew well to what it always had led,
even when surrounded by the most skillful guarantees. Among those who
struggled to support ideas similar to his was Bergasse, a deputy from
Lyons, whose pamphlets, then and later, against such issues exerted a
wider influence, perhaps, than any others: parts of them seem fairly
inspired. Any one to-day reading his prophecies of the evils sure to
follow such a currency would certainly ascribe to him a miraculous
foresight, were it not so clear that his prophetic power was due
simply to a knowledge of natural laws revealed by history. But this
current in favor of paper money became so strong that an effort was
made to breast it by a compromise: and during the last months of 1789
and the first months of 1790 came discussions in the National Assembly
looking to issues of notes based upon the landed property of the
Church,--which was to be confiscated for that purpose. But care was
to be taken; the issue was to be largely in the shape of notes of
1,000, 300 and 200 _livres_, too large to be used as ordinary
currency, but of convenient size to be used in purchasing the Church
lands; besides this, they were to bear interest and this would tempt
holders to hoard them. The Assembly thus held back from issuing
smaller obligations.

Remembrances of the ruin which had come from the great issues of
smaller currency at an earlier day were still vivid. Yet the pressure
toward a popular currency for universal use grew stronger and
stronger. The finance committee of the Assembly reported that "the
people demand a new circulating medium"; that "the circulation of
paper money is the best of operations"; that "it is the most free
because it reposes on the will of the people"; that "it will bind the
interest of the citizens to the public good."

The report appealed to the patriotism of the French people with the
following exhortation: "Let us show to Europe that we understand our
own resources; let us immediately take the broad road to our
liberation instead of dragging ourselves along the tortuous and
obscure paths of fragmentary loans." It concluded by recommending an
issue of paper money carefully guarded, to the full amount of four
hundred million _livres_, and the argument was pursued until the
objection to smaller notes faded from view. Typical in the debate on
the whole subject, in its various phases, were the declarations of
M. Matrineau. He was loud and long for paper money, his only fear
being that the Committee had not authorized enough of it; he declared
that business was stagnant, and that the sole cause was a want of more
of the circulating medium; that paper money ought to be made a legal
tender; that the Assembly should rise above prejudices which the
failures of John Law's paper money had caused, several decades before.
Like every supporter of irredeemable paper money then or since, he
seemed to think that the laws of Nature had changed since previous
disastrous issues. He said: "Paper money under a despotism is
dangerous; it favors corruption; but in a nation constitutionally
governed, which itself takes care in the emission of its notes, which
determines their number and use, that danger no longer exists." He
insisted that John Law's notes at first restored prosperity, but that
the wretchedness and ruin they caused resulted from their overissue,
and that such an overissue is possible only under a despotism.[3]

M. de la Rochefoucauld gave his opinion that "the _assignats_ will
draw specie out of the coffers where it is now hoarded.[4]

On the other hand Cazalès and Maury showed that the result could only
be disastrous. Never, perhaps, did a political prophecy meet with
more exact fulfillment in every line than the terrible picture drawn
in one of Cazalès' speeches in this debate. Still the current ran
stronger and stronger; Petion made a brilliant oration in favor of the
report, and Necker's influence and experience were gradually worn

Mingled with the financial argument was a strong political plea. The
National Assembly had determined to confiscate the vast real property
of the French Church,--the pious accumulations of fifteen hundred
years. There were princely estates in the country, bishops' palaces
and conventual buildings in the towns; these formed between one-fourth
and one-third of the entire real property of France, and amounted in
value to at least two thousand million _livres_. By a few sweeping
strokes all this became the property of the nation. Never,
apparently, did a government secure a more solid basis for a great
financial future.[5]

There were two special reasons why French statesmen desired speedily
to sell these lands. First, a financial reason,--to obtain money to
relieve the government. Secondly, a political reason,--to get this
land distributed among the thrifty middle-classes, and so commit them
to the Revolution and to the government which gave their title.

It was urged, then, that the issue of four hundred millions of paper,
(not in the shape of interest-bearing bonds, as had at first been
proposed, but in notes small as well as large), would give the
treasury something to pay out immediately, and relieve the national
necessities; that, having been put into circulation, this paper money
would stimulate business; that it would give to all capitalists, large
or small, the means for buying from the nation the ecclesiastical real
estate, and that from the proceeds of this real estate the nation
would pay its debts and also obtain new funds for new necessities:
never was theory more seductive both to financiers and statesmen.

It would be a great mistake to suppose that the statesmen of France,
or the French people, were ignorant of the dangers in issuing
irredeemable paper money. No matter how skillfully the bright side of
such a currency was exhibited, all thoughtful men in France remembered
its dark side. They knew too well, from that ruinous experience,
seventy years before, in John Law's time, the difficulties and dangers
of a currency not well based and controlled. They had then learned
how easy it is to issue it; how difficult it is to check its
overissue; how seductively it leads to the absorption of the means of
the workingmen and men of small fortunes; how heavily it falls on all
those living on fixed incomes, salaries or wages; how securely it
creates on the ruins of the prosperity of all men of meagre means a
class of debauched speculators, the most injurious class that a nation
can harbor,--more injurious, indeed, than professional criminals whom
the law recognizes and can throttle; how it stimulates overproduction
at first and leaves every industry flaccid afterward; how it breaks
down thrift and develops political and social immorality. All this
France had been thoroughly taught by experience. Many then living had
felt the result of such an experiment--the issues of paper money under
John Law, a man who to this day is acknowledged one of the most
ingenious financiers the world has ever known; and there were then
sitting in the National Assembly of France many who owed the poverty
of their families to those issues of paper. Hardly a man in the
country who had not heard those who issued it cursed as the authors of
the most frightful catastrophe France had then experienced.[6]

It was no mere attempt at theatrical display, but a natural impulse,
which led a thoughtful statesman, during the debate, to hold up a
piece of that old paper money and to declare that it was stained with
the blood and tears of their fathers.

And it would also be a mistake to suppose that the National Assembly,
which discussed this matter, was composed of mere wild revolutionists;
no inference could be more wide of the fact. Whatever may have been
the character of the men who legislated for France afterward, no
thoughtful student of history can deny, despite all the arguments and
sneers of reactionary statesmen and historians, that few more
keen-sighted legislative bodies have ever met than this first French
Constitutional Assembly. In it were such men as Sieyès, Bailly,
Necker, Mirabeau, Talleyrand, DuPont de Nemours and a multitude of
others who, in various sciences and in the political world, had
already shown and were destined afterward to show themselves among the
strongest and shrewdest men that Europe has yet seen.

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.

Oratory prevailed over science and experience. In April, 1790, came
the final decree to issue four hundred millions of _livres_ in paper
money, based upon confiscated property of the Church for its security.
The deliberations on this first decree and on the bill carrying it
into effect were most interesting; prominent in the debate being
Necker, Du Pont de Nemours, Maury, Cazalès, Petion, Bailly and many
others hardly inferior. The discussions were certainly very able; no
person can read them at length in the "Moniteur," nor even in the
summaries of the parliamentary history, without feeling that various
modern historians have done wretched injustice to those men who were
then endeavoring to stand between France and ruin.

This sum--four hundred millions, so vast in those days, was issued in
_assignats_, which were notes secured by a pledge of productive real
estate and bearing interest to the holder at three per cent. No
irredeemable currency has ever claimed a more scientific and practical
guarantee for its goodness and for its proper action on public
finances. On the one hand, it had what the world recognized as a most
practical security,--a mortgage an productive real estate of vastly
greater value than the issue. On the other hand, as the notes bore
interest, there seemed cogent reason for their being withdrawn from
circulation whenever they became redundant.[7]

As speedily as possible the notes were put into circulation. Unlike
those issued in John Law's time, they were engraved in the best style
of the art. To stimulate loyalty, the portrait of the king was placed
in the center; to arouse public spirit, patriotic legends and emblems
surrounded it; to stimulate public cupidity, the amount of interest
which the note would yield each day to the holder was printed in the
margin; and the whole was duly garnished with stamps and signatures to
show that it was carefully registered and controlled.[8]

To crown its work the National Assembly, to explain the advantages of
this new currency, issued an address to the French people. In this
address it spoke of the nation as "delivered by this grand means from
all uncertainty and from all ruinous results of the credit system."
It foretold that this issue "would bring back into the public
treasury, into commerce and into all branches of industry strength,
abundance and prosperity."[9]

Some of the arguments in this address are worth recalling, and, among
them, the following:--"Paper money is without inherent value unless it
represents some special property. Without representing some special
property it is inadmissible in trade to compete with a metallic
currency, which has a value real and independent of the public action;
therefore it is that the paper money which has only the public
authority as its basis has always caused ruin where it has been
established; that is the reason why the bank notes of 1720, issued by
John Law, after having caused terrible evils, have left only frightful
memories. Therefore it is that the National Assembly has not wished
to expose you to this danger, but has given this new paper money not
only a value derived from the national authority but a value real and
immutable, a value which permits it to sustain advantageously a
competition with the precious metals themselves."[10]

But the final declaration was, perhaps, the most interesting. It was
as follows:--

"These _assignats_, bearing interest as they do, will soon be
considered better than the coin now hoarded, and will bring it out
again into circulation." The king was also induced to issue a
proclamation recommending that his people receive this new money
without objection.

All this caused great joy. Among the various utterances of this
feeling was the letter of M. Sarot, directed to the editor of the
Journal of the National Assembly, and scattered through France.
M. Sarot is hardly able to contain himself as he anticipates the
prosperity and glory that this issue of paper is to bring to his
country. One thing only vexes him, and that is the pamphlet of
M. Bergasse against the _assignats_; therefore it is after a long
series of arguments and protestations, in order to give a final proof
of his confidence in the paper money and his entire skepticism as to
the evils predicted by Bergasse and others, M. Sarot solemnly lays his
house, garden and furniture upon the altar of his country and offers
to sell them for paper money alone.

There were, indeed, some gainsayers. These especially appeared among
the clergy, who, naturally, abhorred the confiscation of Church
property. Various ecclesiastics made speeches, some of them full of
pithy and weighty arguments, against the proposed issue of paper, and
there is preserved a sermon from one priest threatening all persons
handling the new money with eternal damnation. But the great majority
of the French people, who had suffered ecclesiastical oppression so
long, regarded these utterances as the wriggling of a fish on the
hook, and enjoyed the sport all the better.[11]

The first result of this issue was apparently all that the most
sanguine could desire: the treasury was at once greatly relieved; a
portion of the public debt was paid; creditors were encouraged; credit
revived; ordinary expenses were met, and, a considerable part of this
paper money having thus been passed from the government into the hands
of the people, trade increased and all difficulties seemed to vanish.
The anxieties of Necker, the prophecies of Maury and Cazalès seemed
proven utterly futile. And, indeed, it is quite possible that, if the
national authorities had stopped with this issue, few of the financial
evils which afterwards arose would have been severely felt; the four
hundred millions of paper money then issued would have simply
discharged the function of a similar amount of specie. But soon there
came another result: times grew less easy; by the end of September,
within five months after the issue of the four hundred millions in
_assignats_, the government had spent them and was again in

The old remedy immediately and naturally recurred to the minds of men.
Throughout the country began a cry for another issue of paper;
thoughtful men then began to recall what their fathers had told them
about the seductive path of paper-money issues in John Law's time, and
to remember the prophecies that they themselves had heard in the
debate on the first issue of _assignats_ less than six months before.

At that time the opponents of paper had prophesied that, once on the
downward path of inflation, the nation could not be restrained and
that more issues would follow. The supporters of the first issue had
asserted that this was a calumny; that the people were now in control
and that they could and would check these issues whenever they

The condition of opinion in the Assembly was, therefore, chaotic: a
few schemers and dreamers were loud and outspoken for paper money;
many of the more shallow and easy-going were inclined to yield; the
more thoughtful endeavored to breast the current.

One man there was who could have withstood the pressure: Mirabeau. He
was the popular idol,--the great orator of the Assembly and much more
than a great orator,--he had carried the nation through some of its
worst dangers by a boldness almost godlike; in the various conflicts
he had shown not only oratorical boldness, but amazing foresight. As
to his real opinion on an irredeemable currency there can be no doubt.
It was the opinion which all true statesmen have held, before his time
and since,--in his own country, in England, in America, in every
modern civilized nation. In his letter to Cerutti, written in
January, 1789, hardly six months before, he had spoken of paper money
as "A nursery of tyranny, corruption and delusion; a veritable debauch
of authority in delirium." In one of his early speeches in the
National Assembly he had called such money, when Anson covertly
suggested its issue, "a loan to an armed robber," and said of it:
"that infamous word, paper money, ought to be banished from our
language." In his private letters written at this very time, which
were revealed at a later period, he showed that he was fully aware of
the dangers of inflation. But he yielded to the pressure: partly
because he thought it important to sell the government lands rapidly
to the people, and so develop speedily a large class of small
landholders pledged to stand by the government which gave them their
titles; partly, doubtless, from a love of immediate rather than of
remote applause; and, generally, in a vague hope that the severe,
inexorable laws of finance which had brought heavy punishments upon
governments emitting an irredeemable currency in other lands, at other
times, might in some way at this time, be warded off from France.[13]

The question was brought up by Montesquieu's report on the 27th of
August, 1790. This report favored, with evident reluctance, an
additional issue of paper. It went on to declare that the original
issue of four hundred millions, though opposed at the beginning, had
proved successful; that _assignats_ were economical, though they had
dangers; and, as a climax, came the declaration: "We must save the

Upon this report Mirabeau then made one of his most powerful speeches.
He confessed that he had at first feared the issue of _assignats_, but
that he now dared urge it; that experience had shown the issue of
paper money most serviceable; that the report proved the first issue
of _assignats_ a success; that public affairs had come out of
distress; that ruin had been averted and credit established. He then
argued that there was a difference between paper money of the recent
issue and that from which the nation had suffered so much in John
Law's time; he declared that the French nation had now become
enlightened and he added, "Deceptive subtleties can no longer mislead
patriots and men of sense in this matter." He then went on to say:
"We must accomplish that which we have begun," and declared that there
must be one more large issue of paper, guaranteed by the national
lands and by the good faith of the French nation. To show how
practical the system was he insisted that just as soon as paper money
should become too abundant it would be absorbed in rapid purchases of
national lands; and he made a very striking comparison between this
self- adjusting, self-converting system and the rains descending in
showers upon the earth, then in swelling rivers discharged into the
sea, then drawn up in vapor and finally scattered over the earth again
in rapidly fertilizing showers. He predicted that the members would
be surprised at the astonishing success of this paper money and that
there would be none too much of it.

His theory grew by what it fed upon,--as the paper-money theory has
generally done. Toward the close, in a burst of eloquence, he
suggested that _assignats_ be created to an amount sufficient to cover
the national debt, and that all the national lands be exposed for sale
immediately, predicting that thus prosperity would return to the
nation and that an classes would find this additional issue of paper
money a blessing.[15]

This speech was frequently interrupted by applause; a unanimous vote
ordered it printed, and copies were spread throughout France. The
impulse given by it permeated all subsequent discussion; Gouy arose
and proposed to liquidate the national debt of twenty-four hundred
millions,--to use his own words--"by one single operation, grand,
simple, magnificent."[16] This "operation" was to be the emission of
twenty-four hundred millions in legal tender notes, and a law that
specie should not be accepted in purchasing national lands. His
demagogy bloomed forth magnificently. He advocated an appeal to the
people, who, to use his flattering expression, "ought alone to give
the law in a matter so interesting." The newspapers of the period, in
reporting his speech, noted it with the very significant remark, "This
discourse was loudly applauded."

To him replied Brillat-Savarin. He called attention to the
depreciation of _assignats_ already felt. He tried to make the
Assembly see that natural laws work as inexorably in France as
elsewhere; he predicted that if this new issue were made there would
come a depreciation of thirty per cent. Singular, that the man who so
fearlessly stood against this tide of unreason has left to the world
simply a reputation as the most brilliant cook that ever existed! He
was followed by the Abbe Goutes, who declared,--what seems grotesque
to those who have read the history of an irredeemable paper currency
in any country--that new issues of paper money "will supply a
circulating medium which will protect public morals from

Into this debate was brought a report by Necker. He was not, indeed,
the great statesman whom France especially needed at this time, of all
times. He did not recognize the fact that the nation was entering a
great revolution, but he could and did see that, come what might,
there were simple principles of finance which must be adhered to.
Most earnestly, therefore, he endeavored to dissuade the Assembly from
the proposed issue; suggesting that other means could be found for
accomplishing the result, and he predicted terrible evils. But the
current was running too fast. The only result was that Necker was
spurned as a man of the past; he sent in his resignation and left
France forever.[18] The paper-money demagogues shouted for joy at his
departure; their chorus rang through the journalism of the time. No
words could express their contempt for a man who was unable to see the
advantages of filling the treasury with the issues of a printing
press. Marat, Hébert, Camille Desmoulins and the whole mass of
demagogues so soon to follow them to the guillotine were especially

Continuing the debate, Rewbell attacked Necker, saying that the
_assignats_ were not at par because there were not yet enough of them;
he insisted that payments for public lands be received in _assignats_
alone; and suggested that the church bells of the kingdom be melted
down into small money. Le Brun attacked the whole scheme in the
Assembly, as he had done in the Committee, declaring that the
proposal, instead of relieving the nation, would wreck it. The papers
of the time very significantly say that at this there arose many
murmurs. Chabroud came to the rescue. He said that the issue of
_assignats_ would relieve the distress of the people and he presented
very neatly the new theory of paper money and its basis in the
following words: "The earth is the source of value; you cannot
distribute the earth in a circulating value, but this paper becomes
representative of that value and it is evident that the creditors of
the nation will not be injured by taking it." On the other hand,
appeared in the leading paper, the "Moniteur," a very thoughtful
article against paper money, which sums up all by saying, "It is,
then, evident that all paper which cannot, at the will of the bearer,
be converted into specie cannot discharge the functions of money."
This article goes on to cite Mirabeau's former opinion in his letter
to Cerutti, published in 1789,--the famous opinion of paper money as
"a nursery of tyranny, corruption and delusion; a veritable debauch of
authority in delirium." Lablache, in the Assembly, quoted a saying
that "paper money is the emetic of great states."[20]

Boutidoux, resorting to phrasemaking, called the _assignats_ _"un
papier terre,"_ or "land converted into paper." Boislandry answered
vigorously and foretold evil results. Pamphlets continued to be
issued,--among them, one so pungent that it was brought into the
Assembly and read there,--the truth which it presented with great
clearness being simply that doubling the quantity of money or
substitutes for money in a nation simply increases prices, disturbs
values, alarms capital, diminishes legitimate enterprise, and so
decreases the demand both for products and for labor; that the only
persons to be helped by it are the rich who have large debts to pay.
This pamphlet was signed "A Friend of the People," and was received
with great applause by the thoughtful minority in the Assembly. Du
Pont de Nemours, who had stood by Necker in the debate on the first
issue of _assignats_, arose, avowed the pamphlet to be his, and said
sturdily that he had always voted against the emission of irredeemable
paper and always would.[21]

Far more important than any other argument against inflation was the
speech of Talleyrand. He had been among the boldest and most radical
French statesmen. He it was,--a former bishop,--who, more than any
other, had carried the extreme measure of taking into the possession
of the nation the great landed estates of the, Church, and he had
supported the first issue of four hundred millions. But he now
adopted a judicial tone--attempted to show to the Assembly the very
simple truth that the effect of a second issue of _assignats_ may be
different from that of the first; that the first was evidently needed;
that the second may be as injurious as the first was useful. He
exhibited various weak points in the inflation fallacies and presented
forcibly the trite truth that no laws and no decrees can keep large
issues of irredeemable paper at par with specie.

In his speech occur these words: "You can, indeed, arrange it so that
the people shall be forced to take a thousand _livres_ in paper for a
thousand _livres_ in specie; but you can never arrange it so that a
man shall be obliged to give a thousand _livres_ in specie for a
thousand _livres_ in paper,--in that fact is embedded the entire
question; and on account of that fact the whole system fails."[22]

The nation at large now began to take part in the debate; thoughtful
men saw that here was the turning Point between good and evil, that
the nation stood at the parting of the ways. Most of the great
commercial cities bestirred themselves and sent up remonstrances
against the new emission,--twenty-five being opposed and seven in
favor of it.

But eloquent theorists arose to glorify paper and among these, Royer,
who on September 14, 1790, put forth a pamphlet entitled "Reflections
of a patriotic Citizen on the issue of _Assignats_," in which he gave
many specious reasons of the why the _assignats_ could not be
depressed, and spoke of the argument against them as "vile clamors of
people bribed to affect public opinion." He said to the National
Assembly, "If it is necessary to create five thousand millions, and
more, of the paper, decree such a creation gladly." He, too,
predicted, as many others had done, a time when gold was to lose all
its value, since all exchanges would be made with this admirable,
guaranteed paper, and therefore that coin would come out from the
places where it was hoarded. He foretold prosperous times to France
in case these great issues of paper were continued and declared these
"the only means to insure happiness, glory and liberty to the French
nation." Speeches like this gave courage to a new swarm of
theorists,--it began to be especially noted that men who had never
shown any ability to make or increase fortunes for themselves abounded
in brilliant plans for creating and increasing wealth for the country
at large.

Greatest force of all, on September 27, 1790, came Mirabeau's final
speech. The most sober and conservative of his modern opponents
speaks of its eloquence as "prodigious." In this the great orator
dwelt first on the political necessity involved, declaring that the
most pressing need was to get the government lands into the hands of
the people, and so to commit to the nation and against the old
privileged classes the class of landholders thus created.

Through the whole course of his arguments there is one leading point
enforced with all his eloquence and ingenuity--the excellence of the
proposed currency, its stability and its security. He declares that,
being based on the pledge of public lands and convertible into them,
the notes are better secured than if redeemable in specie; that the
precious metals are only employed in the secondary arts, while the
French paper money represents the first and most real of all property,
the source of all production, the land; that while other nations have
been obliged to emit paper money, none have ever been so fortunate as
the French nation, for the reason that none had ever before been able
to give this landed security; that whoever takes French paper money
has practically a mortgage to secure it,--and on landed property which
can easily be sold to satisfy his claims, while other nations have
been able only to give a vague claim on the entire nation. "And," he
ones, "I would rather have a mortgage on a garden than on a kingdom!"

Other arguments of his are more demagogical. He declares that the
only interests affected will be those of bankers and capitalists, but
that manufacturers will see prosperity restored to them. Some of his
arguments seem almost puerile, as when he says, "If gold has been
hoarded through timidity or malignity, the issue of paper will show
that gold is not necessary, and it will then come forth." But, as a
whole, the speech was brilliant; it was often interrupted by applause;
it settled the question. People did not stop to consider that it was
the dashing speech of an orator and not the matured judgment of a
financial expert; they did not see that calling Mirabeau or Talleyrand
to advise upon a monetary policy, because they had shown boldness in
danger and strength in conflict, was like summoning a prize-fighter to
mend a watch.

In vain did Maury show that, while the first issues of John Law's
paper had brought prosperity, those that followed brought misery; in
vain did he quote from a book published in John Law's time, showing
that Law was at first considered a patriot and friend of humanity; in
vain did he hold up to the Assembly one of Law's bills and appeal to
their memories of the wretchedness brought upon France by them; in
vain did Du Pont present a simple and really wise plan of substituting
notes in the payment of the floating debt which should not form a part
of the ordinary circulating medium; nothing could resist the eloquence
of Mirabeau. Barnave, following, insisted that "Law's paper was based
upon the phantoms of the Mississippi; ours, upon the solid basis of
ecclesiastical lands," and he proved that the _assignats_ could not
depreciate further. Prudhomme's newspaper poured contempt over gold
as security for the currency, extolled real estate as the only true
basis and was fervent in praise of the convertibility and
self-adjusting features of the proposed scheme. In spite of all this
plausibility and eloquence, a large minority stood firm to their
earlier principles; but on the 29th of September, 1790, by a vote of
508 to 423, the deed was done; a bill was passed authorizing the issue
of eight hundred millions of new _assignats_, but solemnly declaring
that in no case should the entire amount put in circulation exceed
twelve hundred millions. To make assurance doubly sure, it also
provided that as fast as the _assignats_ were paid into the treasury
for land they should be burned, and thus a healthful contraction be
constantly maintained. Unlike the first issue, these new notes were
to bear no interest.[23]

Great were the plaudits of the nation at this relief. Among the
multitudes of pamphlets expressing this joy which have come down to us
the "Friend of the Revolution" is the most interesting. It begins as
follows: "Citizens, the deed is done. The _assignats_ are the
keystone of the arch. It has just been happily put in position. Now
I can announce to you that the Revolution is finished and there only
remain one or two important questions. All the rest is but a matter
of detail which cannot deprive us any longer of the pleasure of
admiring this important work in its entirety. The provinces and the
commercial cities which were at first alarmed at the proposal to issue
so much paper money now send expressions of their thanks; specie is
coming out to be joined with paper money. Foreigners come to us from
all parts of Europe to seek their happiness under laws which they
admire; and soon France, enriched by her new property and by the
national industry which is preparing for fruitfulness, will demand
still another creation of paper money."

France was now fully committed to a policy of inflation; and, if there
had been any question of this before, all doubts were removed now by
various acts very significant as show- ing the exceeding difficulty of
stopping a nation once in the full tide of a depreciating currency.
The National Assembly had from the first shown an amazing liberality
to all sorts of enterprises, wise or foolish, which were urged "for
the good of the people." As a result of these and other largesses the
old cry of the "lack of a circulating medium" broke forth again; and
especially loud were the clamors for more small bills. The cheaper
currency had largely driven out the dearer; paper had caused small
silver and copper money mainly to disappear; all sorts of notes of
hand, circulating under the name of "confidence bills," flooded
France--sixty-three kinds in Paris alone. This unguaranteed currency
caused endless confusion and fraud. Different districts of France
began to issue their own _assignats_ in small denominations, and this
action stirred the National Assembly to evade the solemn pledge that
the circulation should not go above twelve hundred millions and that
all _assignats_ returned to the treasury for lands should immediately
be burned.[24] Within a short time there had been received into the
treasury for lands one hundred and sixty million _livres_ in paper.
By the terms of the previous acts this amount of paper ought to have
been retired. Instead of this, under the plea of necessity, the
greater part of it was reissued in the form of small notes.

There was, indeed, much excuse for new issues of small notes, for,
under the theory that an issue of smaller notes would drive silver out
of circulation, the smallest authorized _assignat_ was for fifty
_livres_. To supply silver and copper and hold it in circulation
everything was tried. Citizens had been spurred on by law to send
their silverware and jewels to the mint. Even the king sent his
silver and gold plate, and the churches and convents were required by
law to send to the government melting pot all silver and gold vessels
not absolutely necessary for public worship. For copper money the
church bells were melted down. But silver and even copper continued
to become more and more scarce. In the midst of all this, various
juggleries were tried, and in November, 1790, the Assembly decreed a
single standard of coinage, the chosen metal being silver, and the
ratio between the two precious metals was changed from 15 1/2 to 1, to
14 1/2 to 1--but all in vain. It was found necessary to issue the
dreaded small paper, and a beginning was made by issuing one hundred
millions in notes of five _francs_, and, ere long, obedient to the
universal clamor, there were issued parchment notes for various small
amounts down to a single _sou_.[25]

Yet each of these issues, great or small, was but as a drop of cold
water to a parched throat. Although there was already a rise in
prices which showed that the amount needed for circulation had been
exceeded, the cry for "more circulating medium" was continued. The
pressure for new issues became stronger and stronger. The Parisian
populace and the Jacobin Club were especially loud in their demands
for them; and, a few months later, on June 19, 1791, with few
speeches, in a silence very ominous, a new issue was made of six
hundred millions more;--less than nine months after the former great
issue, with its solemn pledges to keep down the amount in circulation.
With the exception of a few thoughtful men, the whole nation again
sang paeans.[26]

In this comparative ease of new issues is seen the action of a law in
finance as certain as the working of a similar law in natural
philosophy. If a material body fall from a height its velocity is
accelerated, by a well-known law, in a constantly increasing ratio: so
in issues of irredeemable currency, in obedience to the theories of a
legislative body or of the people at large, there is a natural law of
rapidly increasing emission and depreciation. The first inflation
bills were passed with great difficulty, after very sturdy resistance
and by a majority of a few score out of nearly a thousand votes; but
we observe now that new inflation measures were passed more and more
easily and we shall have occasion to see the working of this same law
in a more striking degree as this history develops itself.

During the various stages of this debate there cropped up a doctrine
old and ominous. It was the same which appeared toward the end of the
nineteenth century in the United States during what became known as
the "greenback craze" and the free "silver craze." In France it had
been refuted, a generation before the Revolution, by Turgot, just as
brilliantly as it was met a hundred years later in the United States
by James A. Garfield and his compeers. This was the doctrine that all
currency, whether gold, paper, leather or any other material, derives
its efficiency from the official stamp it bears, and that, this being
the case, a government may relieve itself of its debts and make itself
rich and prosperous simply by means of a printing
press:--fundamentally the theory which underlay the later American
doctrine of "fiat money."

There came mutterings and finally speeches in the Jacobin Club, in the
Assembly and in newspaper articles and pamphlets throughout the
country, taking this doctrine for granted. These could hardly affect
thinking men who bore in mind the calamities brought upon the whole
people, and especially upon the poorer classes, by this same theory as
put in practice by John Law, or as refuted by Turgot, but it served to
swell the popular chorus in favor of the issue of more _assignats_ and
plenty of them.[27]

The great majority of Frenchmen now became desperate optimists,
declaring that inflation is prosperity. Throughout France there came
temporary good feeling. The nation was becoming inebriated with paper
money. The good feeling was that of a drunkard just after his
draught; and it is to be noted as a simple historical fact,
corresponding to a physiological fact, that, as draughts of paper
money came faster the successive periods of good feeling grew shorter.

Various bad signs began to appear. Immediately after each new issue
came a marked depreciation; curious it is to note the general
reluctance to assign the right reason. The decline in the purchasing
power of paper money was in obedience to the simplest laws in
economics, but France had now gone beyond her thoughtful statesmen and
taken refuge in unwavering optimism, giving any explanation of the new
difficulties rather than the right one. A leading member of the
Assembly insisted, in an elaborate speech, that the cause of
depreciation was simply the want of knowledge and of confidence among
the rural population and he suggested means of enlightening them. La
Rochefoucauld proposed to issue an address to the people showing the
goodness of the currency and the absurdity of preferring coin. The
address was unanimously voted. As well might they have attempted to
show that a beverage made by mixing a quart of wine and two quarts of
water would possess all the exhilarating quality of the original,
undiluted liquid.

Attention was aroused by another menacing fact;--specie disappeared
more and more. The explanations of this fact also displayed wonderful
ingenuity in finding false reasons and in evading the true one. A
very common explanation was indicated in Prudhomme's newspaper, "Les
Révolutions de Paris," of January 17, 1791, which declared that coin
"will keep rising until the people shall have hanged a broker."
Another popular theory was that the Bourbon family were, in some
mysterious way, drawing off all solid money to the chief centers of
their intrigues in Germany. Comic and, at the same time, pathetic,
were evidences of the wide-spread idea that if only a goodly number of
people engaged in trade were hanged, the par value of the _assignats_
would be restored.

Still another favorite idea was that British emissaries were in the
midst of the people, instilling notions hostile to paper. Great
efforts were made to find these emissaries and more than one innocent
person experienced the popular wrath under the supposition that he was
engaged in raising gold and depressing paper. Even Talleyrand, shrewd
as he was, insisted that the cause was simply that the imports were
too great and the exports too little.[28] As well might he explain
that fact that, when oil is mingled with water, water sinks to the
bottom, by saying that this is because the oil rises to the top. This
disappearance of specie was the result of a natural law as simple and
as sure in its action as gravitation; the superior currency had been
withdrawn because an inferior currency could be used.[29] Some efforts
were made to remedy this. In the municipality of Quilleboeuf a
considerable amount in specie having been found in the possession of a
citizen, the money was seized and sent to the Assembly. The people of
that town treated this hoarded gold as the result of unpatriotic
wickedness or madness, instead of seeing that it was but the sure
result of a law working in every land and time, when certain causes
are present. Marat followed out this theory by asserting that death
was the proper penalty for persons who thus hid their money.

Still another troublesome fact began now to 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. Mirabeau, in his speech which decided the second great
issue of paper, had insisted that, though bankers might suffer, this
issue would be of great service to manufacturers and restore
prosperity to them and their workmen. The latter were for a time
deluded, but were at last rudely awakened from this delusion. The
plenty of currency had at first stimulated production and created a
great activity in manufactures, but soon the markets were glutted and
the demand was diminished. In spite of the wretched financial policy
of years gone by, and especially in spite of the Revocation of the
Edict of Nantes, by which religious bigotry had driven out of the
kingdom thousands of its most skillful Protestant workmen, the
manufactures of France had before the Revolution come into full bloom.
In the finer woolen goods, in silk and satin fabrics of all sorts, in
choice pottery and porcelain, in manufactures of iron, steel, and
copper, they had again taken their old leading place upon the
Continent. All the previous changes had, at the worst, done no more
than to inflict a momentary check on this highly developed system of
manufactures. But what the bigotry of Louis XIV and the shiftlessness
of Louis XV could not do in nearly a century, was accomplished by this
tampering with the currency in a few months. One manufactory after
another stopped. At one town, Lodève, five thousand workmen were
discharged from the cloth manufactories. Every cause except the right
one was assigned for this. Heavy duties were put upon foreign goods;
everything that tariffs and custom-houses could do was done. Still
the great manufactories of Normandy were closed, those of the rest of
the kingdom speedily followed, and vast numbers of workmen in all
parts of the country were thrown out of employment.[30] Nor was this
the case with the home demand alone. The foreign demand, which at
first had been stimulated, soon fell off. In no way can this be
better stated than by one of the most thoughtful historians of modern
times, who says, "It is true that at first the _assignats_ gave the
same impulse to business in the city as in the country, but the
apparent improvement had no firm foundation, even in the towns.
Whenever a great quantity of paper money is suddenly issued we
invariably see a rapid increase of trade. The great quantity of the
circulating medium sets in motion all the energies of commerce and
manufactures; capital for investment is more easily found than usual
and trade perpetually receives fresh nutriment. If this paper
represents real credit, founded upon order and legal security, from
which it can derive a firm and lasting value, such a movement may be
the starting point of a great and widely-extended prosperity, as, for
instance, a splendid improvement in English agriculture was
undoubtedly owing to the emancipation of the country bankers. If on
the contrary, the new paper is of precarious value, as was clearly
seen to be the case with the French _assignats_ as early as February,
1791, it can confer no lasting benefits. For the moment, perhaps,
business receives an impulse, all the more violent because every one
endeavors to invest his doubtful paper in buildings, machines and
goods, which, under all circumstances, retain some intrinsic value.
Such a movement was witnessed in France in 1791, and from every
quarter there came satisfactory reports of the activity of

"But, for the moment, the French manufacturers derived great advantage
from this state of things. As their products could be so cheaply paid
for, orders poured in from foreign countries to such a degree that it
was often difficult for the manufacturers to satisfy their customers.
It is easy to see that prosperity of this kind must very soon find its
limit. . . . When a further fall in the _assignats_ took place this
prosperity would necessarily collapse, and be succeeded by a crisis
all the more destructive the more deeply men had engaged in
speculation under the influence of the first favorable prospects."[31]

Thus came a collapse in manufacturing and commerce, just as it had
come previously in France: just as it came at various periods in
Austria, Russia, America, and in all countries where men have tried to
build up prosperity on irredeemable paper.[32]

All this breaking down of the manufactures and commerce of the nation
made fearful inroads on the greater fortunes; but upon the lesser, and
upon the little properties of the masses of the nation who relied upon
their labor, it pressed with intense severity. The capitalist could
put his surplus paper money into the government lands and await
results; but the men who needed their money from day to day suffered
the worst of the misery. Still another difficulty appeared. There
had come a complete uncertainty as to the future. Long before the
close of 1791 no one knew whether a piece of paper money representing
a hundred _livres_ would, a month later, have a purchasing power of
ninety or eighty or sixty _livres_. The result was that capitalists
feared to embark their means in business. Enterprise received a
mortal blow. Demand for labor was still further diminished; and here
came a new cause of calamity: for this uncertainty withered all
far-reaching undertakings. The business of France dwindled into a
mere living from hand to mouth. This state of things, too, while it
bore heavily upon the moneyed classes, was still more ruinous to those
in moderate and, most of all, to those in straitened circumstances.
With the masses of the people, the purchase of every article of supply
became a speculation--a speculation in which the professional
speculator had an immense advantage over the ordinary buyer. Says the
most brilliant of apologists for French revolutionary statesmanship,
"Commerce was dead; betting took its place."[33]

Nor was there any compensating advantage to the mercantile classes.
The merchant was forced to add to his ordinary profit a sum sufficient
to cover probable or possible fluctuations in value, and while prices
of products thus went higher, the wages of labor, owing to the number
of workmen who were thrown out of employment, went lower.

But these evils, though great, were small compared to those far more
deep-seated signs of disease which now showed themselves throughout
the country. One of these was the _obliteration of thrift_ from the
minds of the French people. The French are naturally thrifty; but,
with such masses of money and with such uncertainty as to its future
value, the ordinary motives for saving and care diminished, And a
loose luxury spread throughout the country. A still worse outgrowth
was the increase of speculation and gambling. With the plethora of
paper currency in 1791 appeared the first evidences of that cancerous
disease which always follows large issues of irredeemable currency,--a
disease more permanently injurious to a nation than war, pestilence or
famine. For at the great metropolitan centers grew a luxurious,
speculative, stock-gambling body, which, like a malignant tumor,
absorbed into itself the strength of the nation and sent out its
cancerous fibres to the remotest hamlets. At these city centers
abundant wealth seemed to be piled up: in the country at, large there
grew a dislike of steady labor and a contempt for moderate gains and
simple living. In a pamphlet published in May, 1791, we see how, in
regard to this also, public opinion was blinded. The author calls
attention to the increase of gambling in values of all sorts in these
words: "What shall I say of the stock-jobbing, as frightful as it is
scandalous, which goes on in Paris under the very eyes of our
legislators,--a most terrible evil, yet, under the present
circumstances,--necessary?" The author also speaks of these
stock-gamblers as using the most insidious means to influence public
opinion in favor of their measures; and then proposes, seriously, a
change in various matters of detail, thinking that this would prove a
sufficient remedy for an evil which had its roots far down in the
whole system of irredeemable currency. As well might a physician
prescribe a pimple wash for a diseased liver.[34]

Now began to be seen more plainly some of the many ways in which an
inflation policy robs the working class. As these knots of plotting
schemers at the city centers were becoming bloated with sudden wealth,
the producing classes of the country, though having in their
possession more and more currency, grew lean. In the schemes and
speculations put forth by stock-jobbers and stimulated by the printing
of more currency, multitudes of small fortunes were absorbed and lost
while a few swollen fortunes were rapidly aggregated in the larger
cities. This crippled a large class in the country districts, which
had employed a great number of workmen.

In the leading French cities now arose a luxury and license which was
a greater evil even than the plundering which ministered to it. In
the country the gambling spirit spread more and more. Says the same
thoughtful historian whom I have already quoted: "What a prospect for
a country when its rural population was changed into a great band of

Nor was this reckless and corrupt spirit confined to business men; it
began to break out in official circles, and public men who, a few
years before, had been thought above all possibility of taint, became
luxurious, reckless, cynical and finally corrupt. Mirabeau, himself,
who, not many months previous, had risked imprisonment and even death
to establish constitutional government, was now--at this very
time--secretly receiving heavy bribes. When, at the downfall of the
monarchy a few years later, the famous iron chest of the Tuileries was
opened, there were found evidences that, in this carnival of inflation
and corruption, he had been a regularly paid servant of the Royal
court.[36] The artful plundering of the people at large was bad
enough, but worse still was this growing corruption in official and
legislative circles. Out of the speculating and gambling of the
inflation period grew luxury, and, out of this, corruption. It grew
as naturally as a fungus on a muck heap. It was first felt in
business operations, but soon began to be seen in the legislative body
and in journalism. Mirabeau was, by no means, the only example. Such
members of the legislative body as Jullien of Toulouse, Delaunay of
Angers, Fabre d'Eglantine and their disciples, were among the most
noxious of those conspiring by legislative action to raise and depress
securities for stock-jobbing purposes. Bribery of legislators
followed as a matter of course, Delaunay, Jullien and Chabot accepted
a bribe of five hundred thousand _livres_ for aiding legislation
calculated to promote the purposes of certain stock-jobbers. It is
some comfort to know that nearly all concerned were guillotined for

It is true that the number of these corrupt legislators was small, far
less than alarmists led the nation to suppose, but there were enough
to cause wide-spread distrust, cynicism and want of faith in any
patriotism or any virtue.

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