home | authors | books | about

Home -> Andrew Dickson White -> Fiat Money Inflation in France -> Chapter III

Fiat Money Inflation in France - Chapter III

1. Introduction

2. Foreword By Mr. John Mackay

3. Chapter I

4. Chapter II

5. Chapter III

6. Notes


The first new expedient of the Directory was to secure a forced loan
of six hundred million _francs_ from the wealthier classes; but this
was found fruitless. Ominous it was when persons compelled to take
this loan found for an _assignat_ of one hundred _francs_ only one
franc was allowed. Next a National Bank of France was proposed; but capitalists
were loath to embark in banking while the howls of the mob against all
who had anything especially to do with money resounded in every city.
At last the Directory bethought themselves of another expedient. This
was by no means new. It had been fully tried on our continent twice
before that time: and once, since--first, in our colonial period;
next, during our Confederation; lastly, by the "Southern Confederacy"
and here, as elsewhere, always in vain. But experience yielded to
theory--plain business sense to financial metaphysics. It was
determined to issue a new paper which should be "fully secured" and
"as good as gold."

Pursuant to this decision it was decreed that a new paper money "fully
secured and as good as gold" be issued under the name of "_mandats_."
In order that these new notes should be "fully secured," choice public
real estate was set apart to an amount fully equal to the nominal
value of the issue, and any one offering any amount of the _mandats_
could at once take possession of government lands; the price of the
lands to be determined by two experts, one named by the government and
one by the buyer, and without the formalities and delays previously
established in regard to the purchase of lands with _assignats_.

Perhaps the most whimsical thing in the whole situation was the fact
that the government, pressed as it was by demands of all sorts,
continued to issue the old _assignats_ at the same time that it was
discrediting them by issuing the new _mandats_. And yet in order to
make the _mandats_ "as good as gold" it was planned by forced loans
and other means to reduce the quantity of _assignats_ in circulation,
so that the value of each _assignat_ should be raised to one-thirtieth
of the value of gold, then to make _mandats_ legal tender and to
substitute them for _assignats_ at the rate of one for thirty. Never
were great expectations more cruelly disappointed. Even before the
_mandats_ could be issued from the press they fell to thirty-five per
cent of their nominal value; from this they speedily fell to fifteen,
and soon after to five per cent, and finally, in August, 1796, six
months from their first issue, to three per cent. This plan
failed--just as it failed in New England in 1737; just as it failed
under our own Confederation in 1781; just as it failed under the
Southern Confederacy during our Civil War.[72]

To sustain this new currency the government resorted to every method
that ingenuity could devise. Pamphlets suited to people of every
capacity were published explaining its advantages. Never was there
more skillful puffing. A pamphlet signed "Marchant" and dedicated to
"People of Good Faith" was widely circulated, in which Marchant took
pains to show the great advantage of the _mandats_ as compared with
_assignats_,--how land could be more easily acquired with them; how
their security was better than with _assignats_; how they could not,
by any possibility, sink in values as the _assignats_ had done. But
even before the pamphlet was dry from the press the depreciation of
the _mandats_ had refuted his entire argument.[73]

The old plan of penal measures was again pressed. Monot led off by
proposing penalties against those who shall speak publicly against the
_mandats_; Talot thought the penalties ought to be made especially
severe; and finally it was enacted that any persons "who by their
discourse or writing shall decry the _mandats_ shall be condemned to a
fine of not less than one thousand _francs_ or more than ten thousand;
and in case of a repetition of the offence, to four years in irons."
It was also decreed that those who refused to receive the _mandats_
should be fined,--the first time, the exact sum which they refuse; the
second time, ten times as much; and the third time, punished with two
years in prison. But here, too, came in the action of those natural
laws which are alike inexorable in all countries. This attempt proved
futile in France just as it had proved futile less than twenty years
before in America. No enactments could stop the downward tendency of
this new paper "fully secured," "as good as gold"; the laws that
finally govern finance are not made in conventions or congresses.[74]

From time to time various new financial juggles were tried, some of
them ingenious, most of them drastic. It was decreed that all
_assignats_ above the value of one hundred _francs_ should cease to
circulate after the beginning of June, 1796. But this only served to
destroy the last vestige of, confidence in government notes of any
kind. Another expedient was seen in the decree that paper money
should be made to accord with a natural and immutable standard of
value and that one franc in paper should thenceforth be worth ten
pounds of wheat. This also failed. On July 16th another decree
seemed to show that the authorities despaired of regulating the
existing currency and it was decreed that all paper, whether _mandats_
or _assignats_, should be taken at its real value, and that bargains
might be made in whatever currency people chose. The real value of
the _mandats_ speedily sank to about two per cent of their nominal
value and the only effect of this legislation seemed to be that both
_assignats_ and _mandats_ went still lower. Then from February 4 to
February 14, 1797, came decrees and orders that the engraving
apparatus for the _mandats_ should be destroyed as that for the
_assignats_ had been, that neither _assignats_ nor _mandats_ should
longer be a legal tender and that old debts to the state might be paid
for a time with government paper at the rate of one per cent of their
face value.[75] Then, less than three months later, it was decreed
that the twenty-one billions of _assignats_ still in circulation
should be annulled. Finally, on September 30, 1797, as the
culmination of these and various other experiments and expedients,
came an order of the Directory that the national debts should be paid
two-thirds in bonds which might be used in purchasing confiscated real
estate, and the remaining "Consolidated Third," as it was called, was
to be placed on the "Great Book" of the national debt to be paid
thenceforth as the government should think best.

As to the bonds which the creditors of the nation were thus forced to
take, they sank rapidly, as the _assignats_ and _mandats_ had done,
even to three per cent of their value. As to the "Consolidated
Third," that was largely paid, until the coming of Bonaparte, in paper
money which sank gradually to about six per cent of its face value.
Since May, 1797, both _assignats_ and _mandats_ had been virtually
worth nothing.

So ended the reign of paper money in France. The twenty-five hundred
millions of _mandats_ went into the common heap of refuse with the
previous forty-five thousand millions of _assignats_: the nation in
general, rich and poor alike, was plunged into financial ruin from one
end to the other.

On the prices charged for articles of ordinary use light is thrown by
extracts from a table published in 1795, reduced to American coinage.

1790 1795
For a bushel of flour 40 cents 45 dollars
For a bushel of oats 18 cents 10 dollars
For a cartload of wood 4 dollars 500 dollars
For a bushel of coal 7 cents 2 dollars
For a pound of sugar 18 cents 12 1/2 dollars
For a pound of soap 18 cents 8 dollars
For a pound of candles 18 cents 8 dollars
For one cabbage 8 cents 5 1/2 dollars
For a pair of shoes 1 dollar 40 dollars
For twenty-five eggs 24 cents 5 dollars

But these prices about the middle of 1795 were moderate compared with
those which were reached before the close of that year and during the
year following. Perfectly authentic examples were such as the

A pound of bread 9 dollars
A bushel of potatoes 40 dollars
A pound of candles 40 dollars
A cartload of wood 250 dollars

So much for the poorer people. Typical of those esteemed wealthy may
be mentioned a manufacturer of hardware who, having retired from
business in 1790 with 321,000 _livres_, found his property in 1796
worth 14,000 _francs_.[76]

For this general distress arising from the development and collapse of
"fiat" money in France, there was, indeed, one exception. In Paris
and a few of the other great cities, men like Tallien, of the
heartless, debauched, luxurious, speculator, contractor and
stock-gambler class, had risen above the ruins of the multitudes of
smaller fortunes. Tallien, one of the worst demagogue "reformers,"
and a certain number of men like him, had been skillful enough to
become millionaires, while their dupes, who had clamored for issues of
paper money, had become paupers.

The luxury and extravagance of the currency gamblers and their
families form one of the most significant features in any picture of
the social condition of that period.[77]

A few years before this the leading women in French society showed a
nobility of character and a simplicity in dress worthy of Roman
matrons. Of these were Madame Boland and Madame Desmoulins; but now
all was changed. At the head of society stood Madame Tallien and
others like her, wild in extravagance, daily seeking new refinements
in luxury, and demanding of their husbands and lovers vast sums to
array them and to feed their whims. If such sums could not be
obtained honestly they must be had dishonestly. The more closely one
examines that period, the more clearly he sees that the pictures,
given by Thibaudeau and Challamel and De Goncourt are not at all

The contrast between these gay creatures of the Directory period and
the people at large was striking. Indeed much as the vast majority of
the wealthy classes suffered from impoverishment, the laboring
classes, salaried employees of all sorts, and people of fixed income
and of small means, especially in the cities, underwent yet greater
distress. These were found, as a rule, to subsist mainly on daily
government rations of bread at the rate of one pound per person. This
was frequently unfit for food and was distributed to long lines of
people, men, women and children, who were at times obliged to wait
their turn even from dawn to dusk. The very rich could, by various
means, especially by bribery, obtain better bread, but only at
enormous cost. In May, 1796, the market price of good bread was, in
paper, 80 _francs_ (16 dollars) per pound and a little later
provisions could not be bought for paper money at any price.[79]

And here it may be worth mentioning that there was another financial
trouble especially vexatious. While, as we have seen, such enormous
sums, rising from twenty to forty thousand millions of _francs_ in
paper, were put in circulation by the successive governments of the
Revolution, enormous sums had been set afloat in counterfeits by
criminals and by the enemies of France. These came not only from
various parts of the French Republic but from nearly all the
surrounding nations, the main source being London. Thence it was that
Count Joseph de Puisaye sent off cargoes of false paper, excellently
engraved and printed, through ports in Brittany and other disaffected
parts of France. One seizure by General Hoche was declared by him to
exceed in nominal value ten thousand millions of _francs_. With the
exception of a few of these issues, detection was exceedingly
difficult, even for experts; for the vast majority of the people it
was impossible.

Nor was this all. At various times the insurgent royalists in La
Vendee and elsewhere put _their_ presses also in operation, issuing
notes bearing the Bourbon arms,--the _fleur-de-lis_, the portrait of
the Dauphin (as Louis XVII) with the magic legend "_De Par le Roi_,"
and large bodies of the population in the insurgent districts were
_forced_ to take these. Even as late as 1799 these notes continued to

The financial agony was prolonged somewhat by attempts to secure funds
by still another "forced loan," and other discredited measures, but
when all was over with paper money, specie began to reappear--first in
sufficient sums to do the small amount of business which remained
after the collapse. Then as the business demand increased, the amount
of specie flowed in from the world at large to meet it and the nation
gradually recovered from that long paper-money debauch.

Thibaudeau, a very thoughtful observer, tells us in his Memoirs that
great fears were felt as to a want of circulating medium between the
time when paper should go out and coin should come in; but that no
such want was severely felt--that coin came in gradually as it was

Nothing could better exemplify the saying of one of the most shrewd of
modern statesmen that "There will always be money."[82]

But though there soon came a degree of prosperity--as compared with
the distress during the paper-money orgy, convalescence was slow. The
acute suffering from the wreck and rain brought by _assignats_,
_mandats_ and other paper currency in process of repudiation lasted
nearly ten years, but the period of recovery lasted longer than the
generation which followed. It required fully forty years to bring
capital, industry, commerce and credit up to their condition when the
Revolution began, and demanded a "man on horseback," who established
monarchy on the ruins of the Republic and thew away millions of lives
for the Empire, to be added to the millions which had been sacrificed
by the Revolution.[83]

Such, briefly sketched in its leading features, is the history of the
most skillful, vigorous and persistent attempt ever made to substitute
for natural laws in finance the ability of legislative bodies, and,
for a standard of value recognized throughout the world, a national
standard devised by theorists and manipulated by schemers. Every
other attempt of the same kind in human history, under whatever
circumstances, has reached similar results in kind if not in degree;
all of them show the existence of financial laws as real in their
operation as those which hold the planets in their courses.[84]

I have now presented this history in its chronological order--the
order of events: let me, in conclusion, sum it up, briefly, in its
_logical_ order,--the order of cause and effect.

And, first, in the economic department. From the early reluctant and
careful issues of paper we saw, as an immediate result, improvement
and activity in business. Then arose the clamor for more paper money.
At first, new issues were made with great difficulty; but, the dyke
once broken, the current of irredeemable currency poured through; and,
the breach thus enlarging, this currency was soon swollen beyond
control. It was urged on by speculators for a rise in values; by
demagogues who persuaded the mob that a nation, by its simple fiat,
could stamp real value to any amount upon valueless objects. As a
natural consequence a great debtor class grew rapidly, and this class
gave its influence to depreciate more and more the currency in which
its debts were to be paid.[85]

The government now began, and continued by spasms to grind out still
more paper; commerce was at first stimulated by the difference in
exchange; but this cause soon ceased to operate, and commerce, having
been stimulated unhealthfully, wasted away.

Manufactures at first received a great impulse; but, ere long, this
overproduction and overstimulus proved as fatal to them as to
commerce. From time to time there was a revival of hope caused by an
apparent revival of business; but this revival of business was at last
seen to be caused more and more by the desire of far-seeing and
cunning men of affairs to exchange paper money for objects of
permanent value. As to the people at large, the classes living on
fixed incomes and small salaries felt the pressure first, as soon as
the purchasing power of their fixed incomes was reduced. Soon the
great class living on wages felt it even more sadly.

Prices of the necessities of life increased: merchants were obliged to
increase them, not only to cover depreciation of their merchandise,
but also to cover their risk of loss from fluctuation; and, while the
prices of products thus rose, wages, which had at first gone up, under
the general stimulus, lagged behind. Under the universal doubt and
discouragement, commerce and manufactures were checked or destroyed.
As a consequence the demand for labor was diminished; laboring men
were thrown out of employment, and, under the operation of the
simplest law of supply and demand, the price of labor--the daily wages
of the laboring class--went down until, at a time when prices of food,
clothing and various articles of consumption were enormous, wages were
nearly as low as at the time preceding the first issue of irredeemable

The mercantile classes at first thought themselves exempt from the
general misfortune. They were delighted at the apparent advance in
the value of the goods upon their shelves. But they soon found that,
as they increased prices to cover the inflation of currency and the
risk from fluctuation and uncertainty, purchases became less in amount
and payments less sure; a feeling of insecurity spread throughout the
country; enterprise was deadened and stagnation followed.

New issues of paper were then clamored for as more drams are demanded
by a drunkard. New issues only increased the evil; capitalists were
all the more reluctant to embark their money on such a sea of doubt.
Workmen of all sorts were more and more thrown out of employment.
Issue after issue of currency came; but no relief resulted save a
momentary stimulus, which aggravated the disease. The most ingenious
evasions of natural laws in finance which the most subtle theorists
could contrive were tried--all in vain; the most brilliant substitutes
for those laws were tried; "self-regulating" schemes,
"interconverting" schemes--all equally vain.[86] All thoughtful men
had lost confidence. All men were _waiting_; stagnation became worse
and worse. At last came the collapse and then a return, by a fearful
shock, to a state of things which presented something like certainty
of remuneration to capital and labor. Then, and not till then, came
the beginning of a new era of prosperity.

Just as dependent on the law of cause and effect was the _moral_
development. Out of the inflation of prices grew a speculating class;
and, in the complete uncertainty as to the future, all business became
a game of chance, and all business men, gamblers. In city centers
came a quick growth of stock-jobbers and speculators; and these set a
debasing fashion in business which spread to the remotest parts of the
country. Instead of satisfaction with legitimate profits, came a
passion for inordinate gains. Then, too, as values became more and
more uncertain, there was no longer any motive for care or economy,
but every motive for immediate expenditure and present enjoyment. So
came upon the nation the _obliteration of thrift_. In this mania for
yielding to present enjoyment rather than providing for future comfort
were the seeds of new growths of wretchedness: luxury, senseless and
extravagant, set in: this, too, spread as a fashion. To feed it,
there came cheatery in the nation at large and corruption among
officials and persons holding trusts. While men set such fashions in
private and official business, women set fashions of extravagance in
dress and living that added to the incentives to corruption. Faith in
moral considerations, or even in good impulses, yielded to general
distrust. National honor was thought a fiction cherished only by
hypocrites. Patriotism was eaten out by cynicism.

Thus was the history of France logically developed in obedience to
natural laws; such has, to a greater or less degree, always been the
result of irredeemable paper, created according to the whim or
interest of legislative assemblies rather than based upon standards of
value permanent in their nature and agreed upon throughout the entire
world. Such, we may fairly expect, will always be the result of them
until the fiat of the Almighty shall evolve laws in the universe
radically different from those which at present obtain.[87]

And, finally, as to the general development of the theory and practice
which all this history records: my subject has been Fiat Money in
France; How it came; What it brought; and How it ended.

It came by seeking a remedy for a comparatively small evil in an evil
infinitely more dangerous. To cure a disease temporary in its
character, a corrosive poison was administered, which ate out the
vitals of French prosperity.

It progressed according to a law in social physics which we may call
the "_law of accelerating issue and depreciation._" It was
comparatively easy to refrain from the first issue; it was exceedingly
difficult to refrain from the second; to refrain from the third and
those following was practically impossible.

It brought, as we have seen, commerce and manufactures, the mercantile
interest, the agricultural interest, to ruin. It brought on these the
same destruction which would come to a Hollander opening the dykes of
the sea to irrigate his garden in a dry summer.

It ended in the complete financial, moral and political prostration of
France-a prostration from which only a Napoleon could raise it.

But this history would be incomplete without a brief sequel, showing
how that great genius profited by all his experience. When Bonaparte
took the consulship the condition of fiscal affairs was appalling.
The government was bankrupt; an immense debt was unpaid. The further
collection of taxes seemed impossible; the assessments were in
hopeless confusion. War was going on in the East, on the Rhine, and
in Italy, and civil war, in La Vendée. All the armies had long been
unpaid, and the largest loan that could for the moment be effected was
for a sum hardly meeting the expenses of the government for a single
day. At the first cabinet council Bonaparte was asked what he
intended to do. He replied, "I will pay cash or pay nothing." From
this time he conducted all his operations on this basis. He arranged
the assessments, funded the debt, and made payments in cash; and from
this time--during all the campaigns of Marengo, Austerlitz, Jena,
Eylau, Friedland, down to the Peace of Tilsit in 1807--there was but
one suspension of specie payment, and this only for a few days. When
the first great European coalition was formed against the Empire,
Napoleon was hard pressed financially, and it was proposed to resort
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 determination, commanded all the gold she needed. When Waterloo
came, with the invasion of the Allies, with war on her own soil, with
a change of dynasty, and with heavy expenses for war and indemnities,
France, on a specie basis, experienced no severe financial distress.

If we glance at the financial history of France during the
Franco-Prussian War and the Communist struggle, in which a far more
serious pressure was brought upon French finances than our own recent
Civil War put upon American finance, and yet with no national
stagnation or distress, but with a steady progress in prosperity, we
shall see still more clearly the advantage of meeting a financial
crisis in an honest and straightforward way, and by methods sanctioned
by the world's most costly experience, rather than by yielding to
dreamers, theorists, phrase-mongers, declaimers, schemers, speculators
or to that sort of, "Reform" which is "the last refuge of a

There is a lesson in all this which it behooves every thinking man to

© Art Branch Inc. | English Dictionary