Fiat Inflation in France

Editor’s Note: The course of current financial affairs in the United States, as in most of the world in 1966, calls for reviewing once again andrew Dickson White’s classic analysis of fiat money inflation in France at the time of the French Revolution. The noted historian and diplomat was serving as the founder and first president of Cornell University when he first delivered the paper as a lec­ture in 1876. He revised and en­larged it in 1912.

In an introduction to a 1959 edi­tion of White’s essay, Henry Hazlitt notes that "what chiefly strikes to­day’s reader is the astonishing simi­larity of the arguments put forward by our own contemporary inflation­ists to those of the inflationists of eighteenth-century France. Not less striking, of course, is the similarity in the actual consequences of paper money inflation in revolutionary France and inflation everywhere in the modern world….

"But just as the French of 1790 had failed to learn the lessons of the inflation of seventy years before, in John Law’s time, so the present-day world has failed to learn the lesson of the assignats."

The following excerpts from Fiat Money Inflation in France are but samplings. The full story is avail­able in the 124-page booklet from the Foundation for Economic Education, Irvington-on-Hudson, New York, 10533. $1.25 paper; $2.00 cloth.

Whenever any nation entrusts to its legislators the issue of a currency not based on the idea of redemption in standard coin rec­ognized in the commerce of civil­ized nations, it entrusts to them the power to raise or depress the value of every article in the pos­session of every citizen….

The question will naturally be asked: On whom did this vast de­preciation mainly fall at last? When this currency had sunk to about one three-hundredth part of its nominal value and, after that, to nothing, in whose hands was the bulk of it? The answer is sim­ple. I shall give it in the exact words of that thoughtful historian from whom I have already quoted: "Before the end of the year 1795, the paper money was almost exclu­sively in the hands of the working classes, employees and men of small means, whose property was not large enough to invest in stores of goods or national lands. Finan­ciers and men of large means were shrewd enough to put as much of their property as possible into ob­jects of permanent value. The working classes had no such fore­sight or skill or means. On them finally came the great crushing weight of the loss. After the first collapse came up the cries of the starving. Roads and bridges were neglected; many manufactures were given up in utter helpless­ness." To continue, in the words of the historian already cited: "None felt any confidence in the future in any respect; few dared to make a business investment for any length of time, and it was ac­counted a folly to curtail the pleas­ures of the moment, to accumulate or save for so uncertain a future." (Von Sybel, History of the French Revolution, vol. iv, pp. 222-338)….

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 businessmen, gamblers. In city centers came a quick growth of stockjobbers 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….

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.