Fiat Money Inflation in France Part 4

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 cla.s.s--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 currency.

The mercantile cla.s.ses 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 subst.i.tutes 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 cla.s.s; 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 pa.s.sion 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 a.s.semblies 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 d.y.k.es 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 a.s.sessments were in hopeless confusion. War was going on in the East, on the Rhine, and in Italy, and civil war, in La Vendee. 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 a.s.sessments, 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 scoundrel." [88]

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

NOTES

Note: The White Collection at the Cornell University library mentioned in many of the following notes is described here:

http://rmc.library.cornell.edu/collections/subjects/frrev.html

THE BANK OF NEW YORK, established in 1784, was the only Bank in existence in the city of New York at the time of the French experiment with fiat money.

THE BANK OF NEW YORK AND TRUST COMPANY, which celebrates its one-hundred and fiftieth anniversary in March, 1934, considers it a privilege to be able to distribute some copies of this scholarly article of the late Andrew D. White. The article emphasizes the fact that the use of fiat money in France was in its beginning a sincere effort on the part of intelligent members of the National a.s.sembly to stem the tide of misery and wretchedness which had brought about the Revolution in 1789. But the article also shows clearly that once started on a small scale, it became utterly impossible to control the currency inflation and that after some slight indications of improvement in conditions, the situation went from bad to worse. In the long run, those most injured were the people whom it was most desired to help--the laborer, the wage earner and those whose incomes from previous savings were smallest.

ANDREW D. WHITE had a long and distinguished career as educator, historian, economist and diplomat; his description of the events in France that followed the experiment with fiat money is intensely interesting and well Worth the attention of every thinking person in the United States of 1933.

FOOTNOTES:

[Footnote 1: A paper read before a meeting of Senators and Members of the House of Representatives of both political parties, at Washington, April 12th, and before the Union League Club, at New York, April 13th, 1876, and now (1914) revised and extended.]

[Footnote 2: For proof that the financial situation of France at that time was by no means hopeless, see Storch, "Economie Politique," vol.

iv, p. 159.]

[Footnote 3: See Moniteur, sitting of April 10, 1790.]

[Footnote 4: Ibid., sitting of April 15, 1790.]

[Footnote 5: For details of this struggle, see Buchez and Roux, "Histoire Parlementaire de la Revolution Francaise," vol. iii, pp.

364, 365, 404. For the wild utterances of Marat throughout this whole history, see the full set of his "L'ami du peuple" in the President White Collection of the Cornell University. For Berga.s.se's pamphlet and a ma.s.s of similar publications, see the same collection. For the effect produced by them, see Challamel, "Les Francais sous la Revolution"; also De Goncourt, "La Societe Francaise pendant la Revolution," &c.]

For the Report referred to, see Leva.s.seur, "Histoire des cla.s.ses ouvries et de l'industrie en France de 1789 a 1870," Paris, 1903, vol.

i., chap. 6. Leva.s.seur (vol. 1, p. 120), a very strong conservative in such estimates, sets the total value of church property at two thousand millions; other authorities put it as high as twice that sum. See especially Taine, liv. ii, ch. I., who gives the valuation as "about four milliards." Sybel, "Gesch. der Revolutionszeit," gives it as two milliards and Briand, "La separation" &c., agrees with him. See also De Nerve, "Finances Francaises," vol. ii, pp. 236-240; also Alison, "History of Europe," vol. i.]

[Footnote 6: For striking pictures of this feeling among the younger generation of Frenchmen, see Challamel, "Sur la Revolution," p. 305.

For general history of John Law's paper money, see Henri Martin, "Histoire de France"; also Blanqui, "Histoire de l'economie politique,"

vol. ii, pp. 65-87; also Senior on "Paper Money," sec. iii, Pt. I, also Thiers, "Histoire de Law"; also Leva.s.seur, op. cit. Liv. i., chap. VI.

Several specimens of John Law's paper currency are to be found in the White Collection in the Library of Cornell University,--some, numbered with enormous figures.]

[Footnote 7: See Buchez and Roux, "Histoire Parlementaire," vol. v, p.

321, et seq. For an argument to prove that the _a.s.signats_ were, after all, not so well secured as John Law's money, see Storch, "Economie Politique," vol. iv, p. 160.]

[Footnote 8: For specimens of this first issue and of nearly every other issue during the French Revolution, see the extensive collection of originals in the Cornell University Library. For a virtually complete collection of photographic copies, see Dewamin, "Cent ans de numismatique francaise," vol. i, pa.s.sim.]

[Footnote 9: See "Addresse de l'a.s.semblee nationals sur lea emissions _d'a.s.signats_ monnaies," p. 5.]

[Footnote 10: Ibid., p. 10.]

[Footnote 11: For Sarot, see "Lettre de M. Sarot," Paris, April 19, 1790. As to the sermon referred to see Leva.s.seur as above, vol. i, p.

136.]

[Footnote 12: Von Sybel, "History of the French Revolution," vol. i, p.

252; also Leva.s.seur, as above, pp. 137 and following.]

[Footnote 13: For Mirabeau's real opinion on irredeemable paper, see his letter to Cerutti, in a leading article of the "Moniteur"; also "Memoires do Mirabeau," vol. vii, pp. 23, 24 and elsewhere. For his pungent remarks above quoted, see Leva.s.seur, ibid., vol. i, p. 118.]

[Footnote 14: See "Moniteur," August 27, 1790.]

[Footnote 15: "Moniteur," August 28, 1790; also Leva.s.seur, as above, pp.

139 _et seq_.]

[Footnote 16: "Par une seule operation, grande, simple, magnifique."

See "Moniteur." The whole sounds curiously like the proposals of the "Greenbackers," regarding the American debt, some years since.]