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Inflation and the French Revolution: The Story of a Monetary Catastrophe / mises

verfasst von - Elli -, 30.04.2004, 15:20

-->Ich hoffe, dottore muss das nicht zurechtrücken.

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http://www.mises.org/fullstory.asp?control=1504
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Inflation and the French Revolution: The Story of a Monetary Catastrophe
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By H.A. Scott Trask

[Posted April 30, 2004]

<img alt src="http://www.mises.org/images3/assignat2.gif" align="right" border="0" width="242" height="175">As
in so much else, the French revolutionary regime (1789-94) was the precursor
of the centralized, totalitarian, managerial, pseudo-democratic despotisms
that now reign over the West. It is also reminder that mass democracy and
inflation go together, as surely as thunder and lightning. Let us revisit the
Revolution, from a free-market, hard-money perspective.

After two centuries, there remains no better analysis of the
first two years of the French Revolution than Edmund Burke's Reflections
on the Revolution in France (1790). Astute, penetrating, prescient—Burke,
an Anglo-Irish MP and a liberal Whig, was of a rare type: both practical
statesman and political philosopher. Had the English ministry and his fellow
Parliamentarians followed his advice in the 1770s, they would never have
driven the Americans to revolt and hence lost their most valuable colonies in
the world. Had the French, they would have been spared the Terror, total war,
and Napoleon. Burke continues to be accused by clueless academics and ignorant
pundits either of inconsistency or deviationism for his very different
reactions to the American and French Revolutions.

Burke was both a liberal and a man of the Right. He believed
in religious toleration but supported an established church, the Anglican
Communion. A friend and admirer of Adam Smith, he defended commercial liberty,
but he also believed that civilization depended on the perpetuation of a
landed aristocracy with its own separate political representation. While he
denied that a king could tax his subjects without their consent, he was a
fierce opponent of democracy and universal suffrage. Burke denied that liberty
could be achieved by revolution or intellectual endeavor. For him, it was the
product of tradition and history, and its victories had to be embodied in
institutions.

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Did the assignat"save" the Revolution?
On the contrary, it helped bring on the Terror and set French
progress back a generation.

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Burke thought the French Revolution, rather than being a
necessary if needlessly bloody hill on the path of progress and freedom, was a
catastrophe for <ST1:COUNTRY-REGION>
<ST1:PLACE>
France</ST1:PLACE>
</ST1:COUNTRY-REGION>
, for western civilization, and for ordered, hierarchical
liberty. Before the Revolution, French royal absolutism, and the stifling
mercantilism that was its handmaiden, was on the wane. Already its rigors and
severities were considerably softened from the reign of the Sun King, Louis
XIV; and his grandson possessed a reformist ethos that was liberalizing the
economy and resurrecting the representative institutions of medieval liberty—provincial
assemblies and the Estates General. Burke called the modern French monarchy
"a despotism rather in appearance than in reality" in which, if
anything,"rather too much countenance was given to the spirit of
innovation," rather than too little.

The power of the French king was checked by public opinion,
by an independent clergy, and by the parlements of the judicial
nobility. The nobility itself was filled with admiration for the mixed
constitution of <ST1:COUNTRY-REGION>
<ST1:PLACE>
England</ST1:PLACE>
</ST1:COUNTRY-REGION>
, with its limited monarch, its Parliament, its bills of rights,
its toleration of religious dissent, its freer economy, and they wished to
find a French approximation, and they were well on the road to doing so.

As Burke noted, the noble cahiers and instructions
for their delegates to the Estates General"breathe with the spirit of
liberty as warmly, and they recommend reformation as strongly as any other
order." Maybe more. The spirit of laissez faire, mixed constitutionalism,
and civil libertarianism was stronger in the nobility than among the
bourgeoisie, and certainly stronger than among the urban artisans and
peasantry.

The political argument in the Estates General in May-June
1789 that led to the outbreak of the Revolution was over voting. The question
at issue was whether the three estates should vote by order (the traditional
practice) or by head. The monarchy rightly sided with the first two estates on
the question, but the Third Estate eventually grew tired of the controversy
and declared itself to be the National Assembly, the other two orders be
damned. They were only following the logic of their position to its logical
conclusion, but they were also fulfilling the visionary and naive expectation
of the French masses that the ancient social orders be erased so they could
live lives of greater abundance and freedom. Many"conservative" and
"liberal" historians have applauded the Third Estate's seizure of
power and argued that the Revolution went wrong later with the
ascendancy of Robespierre and the Mountain. Burke knew better.

By its arrogant usurpation, the Third Estate expressed its
rash"preference for a despotic democracy to a government of reciprocal
control." Big mistake, thought Burke."I cannot help concurring"
with the opinion of Aristotle and other ancient critics of democracy,"that
an absolute democracy, no more than an absolute monarchy, is [not] to be
reckoned among the legitimate forms of government. They think it rather the
corruption and degeneracy than the sound constitution of a republic."

Aristotle pointed out that"a democracy has many
striking points of resemblance with a tyranny." Burke translates:"Their
ethical character is the same; both exercise despotism over the better class
of citizens; … the demagogue, too, and the court favorite are not
unfrequently the same identical men, and always bear a close analogy; and
these have the principal power, each in their respective forms of government,
favorites with the absolute monarch, and demagogues with a people such as I
have described."

Burke was not so naïve as to believe that <ST1:COUNTRY-REGION>
<ST1:PLACE>
France</ST1:PLACE>
</ST1:COUNTRY-REGION>
with its 26 million people, its wide extent of territory, its
diverse interests, could ever be a genuine democracy. He expected effective
power to be wielded by"an ignoble oligarchy," in alliance with
"the monied interest" of <ST1:CITY>
<ST1:PLACE>
Paris</ST1:PLACE>
</ST1:CITY>
, fattening on government bonds and rioting in feverish
speculations in the confiscated estates of the clergy and nobility. As far as
the braying mob,"the swinish multitude," they would prove a very
effective instrument in the hands of the elite, especially when shouting down
free market economic reform. Burke foresaw a government that would combine the
vices of democracy with those of oligarchy and that would substitute a
despotism of lawyers and sycophants for a government of laws and social orders.
How right he was.

 Burke
finished his Reflections soon after this second emission. As many of
the French paper advocates had cited the notes of the Bank of England as a
source of English prosperity and proof that paper money was safe, Burke drew
an invidious contrast between his country's redeemable bank currency and the
French assignats. In contrast to the latter, English bank notes have their
"origin in cash actually deposited," are"convertible at
pleasure, in an instant and without the slightest loss, into cash again,"
and not one shilling"is received but of choice." The French
inflationists mistakenly assume that"our flourishing state in <ST1:COUNTRY-REGION>
<ST1:PLACE>
England</ST1:PLACE>
</ST1:COUNTRY-REGION>
is owing to that bank paper, and not the bank paper to the
flourishing of our commerce, the solidity of our credit, and to the total
exclusion of all idea of power from any part of the transaction." How
different was the government currency of <ST1:COUNTRY-REGION>
<ST1:PLACE>
France</ST1:PLACE>
</ST1:COUNTRY-REGION>
—coercive, inconvertible, and without limit, its quantity
subject to the needs or whims of the revolutionary assembly. Burke denounced
its legal tender quality and the harsh measures adopted to enforce it as an
"outrage upon credit, property, and liberty." Referring to their
theft of the property of the <ST1:PLACE>
<ST1:PLACENAME>
French</ST1:PLACENAME>
<ST1:PLACETYPE>
Church</ST1:PLACETYPE>
</ST1:PLACE>
and using it to back their fictitious but coercive currency, he
wrote:"They rob only to enable them to cheat." Having erected a
deadly"apparatus of force and deception," they order the once free
people of <ST1:COUNTRY-REGION>
<ST1:PLACE>
France</ST1:PLACE>
</ST1:COUNTRY-REGION>
, at the point of a bayonet,"to swallow down paper
pills by thirty-four millions sterling at a dose." Liberte, egalite,
fraternite, indeed!

The consequences of the second issue were just as the
unpopular economists had foretold: depreciation in their value, rising prices,
feverish speculation, complaints about a shortage of money, calls for more
assignats, the prostration of commerce and industry, inordinate consumption,
and declining savings. Economic calculation became impossible, but speculation
quite profitable (or ruinous). Burke should get credit for a remarkably
accurate and precise prediction. He believed that the rise of prices,
consequent to assignat inflation, would render it unprofitable for farmers to
take their crops to market. They would stay home and produce only for
themselves or for barter with their neighbors. The government would then send
troops into the countryside to confiscate grain and other foodstuffs. It
happened exactly as he foretold.

The revolutionary government first decided to cure the evils
generated by inflation with more inflation. Instead of destroying assignats
received for the national properties, they reissued them in the form of
smaller notes. In June 1791, they issued another 600 million assignats (the
previous promise not to issue more was conveniently and predictably forgotten),
and in December an additional 300 million. By the end of the year, its market
value had fallen to 66 percent of its face value. In 1792, they issued 600
million more. In April of the same year, they confiscated the estates of the
Ã©migrÃ©s (those who fled <ST1:COUNTRY-REGION>
<ST1:PLACE>
France</ST1:PLACE>
</ST1:COUNTRY-REGION>
to avoid being arrested or murdered) and added them to the
national properties. Then came 1793—Year One; the year of la Terreur.
Having tried inflation and legal coercion, they would try terrorizing the
population into accepting the plunging assignat at par, and producing and
selling at a patriotic loss.

In March, the National Convention created the
Orwellian-named Committee of Public Safety (another unfortunate American
precedent), which was a kind of committee of terror, dedicated to
expropriating and murdering those deemed to be"traitors" to France
or enemies of la Revolution. In May, they passed le Maximum,
imposing price ceilings on grain. It worsened the grain shortage. In June,
they passed the Forced Loan, a progressive income tax, whose progressivity was
progressively lowered to reach more and more citizens. They also passed
increasingly draconian and deadly laws designed to force people to accept the
assignats at par and forbidding them from exchanging them for anything less
than their face value. In July, the Convention repudiated the first issue of
interest-bearing assignats.

In August, trading (i.e. buying or selling) specie was
prohibited. In September, the Convention passed the General Maximum, extending
price ceilings to all foodstuffs, as well as firewood, coal, and other
essentials. In that month, despite the deadly coercion, the assignat fell to
30 percent against gold. During 1793, the Convention issued 1,200 million
assignats; in 1794, 3,000 million. Next came the deluge. In 1795, 33,000
million were printed, and in October, when a new government—the Directory—assumed
power, the assignats' purchasing power had fallen to almost nothing. On the
black market, 600 francs of assignats traded for one gold franc.

The Directory was done with the assignat, but it was not
done with inflation. In February 1796, it issued a new paper currency, the mandat,
and made it exchangeable for assignats at the rate of 30 to 1. By August,
after 2,500 million had been issued, the mandat had fallen to three
percent of its face value. In 1796, the Directory had had enough, finally, and
it withdrew the legal tender character of both the assignat and the mandat.
Thereupon, their remaining meager exchangeable value disappeared altogether.

It took Napoleon to restore hard money to <ST1:COUNTRY-REGION>
<ST1:PLACE>
France</ST1:PLACE>
</ST1:COUNTRY-REGION>
. As First Consul (1801), he introduced the 20 franc gold piece
and insisted that from thenceforth soldiers, contractors, and merchants would
be paid only in gold, or its equivalent. The paper blizzard was over. As the
Bank of England had suspended specie payments in 1797, the English government
was thrown into consternation. Napoleon would go on to conquer most of the
Continent while on the gold standard. His success gives the lie to generations
of scholarly and academic excuse making that for all its pitfalls the <a id="OLE_LINK1" name="OLE_LINK1">assignat
"saved" the Revolution. On the contrary, it helped bring on the
Terror and set French progress back a generation.</a> Will
the fiat dollar one day do the same to America?

___________________________

Historian Scott Trask is an adjunct scholar of the Mises
Institute. hstrask@highstream.net.
See his article
archive. Discuss
this article on the blog.

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Inflation and the French Revolution: The Story of a Monetary Catastrophe / mises - - Elli -, 30.04.2004, 15:20