- White, Andrew Dickson.
Fiat Money Inflation in France.
Bayonne, NJ: Blackbird Books, [1876, 1896, 1912, 1914] 2011.
ISBN 978-1-61053-004-0.
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One of the most sure ways to destroy the economy, wealth, and
morals of a society is monetary inflation: an inexorable and
accelerating increase in the supply of money, which inevitably
(if not always immediately) leads to ever-rising prices, collapse in
saving and productive investment, and pauperisation of the working
classes in favour of speculators and those with connections to the
regime issuing the money.
In ancient times, debasement of the currency was accomplished
by clipping coins or reducing their content of precious metal.
Ever since Marco Polo
returned from China
with news of the
tremendous innovation of paper money, unbacked paper currency
(or
fiat money)
has been the vehicle of choice for states to loot their
productive and thrifty citizens.
Between 1789 and 1796, a period encompassing the French
Revolution, the French National Assembly issued
assignats,
paper putatively backed by the value of public lands
seized from the Roman Catholic Church in the revolution.
Assignats could theoretically be used to purchase these
lands, and initially paid interest—they were thus a
hybrid between a currency and a bond. The initial issue
revived the French economy and rescued the state from
bankruptcy but, as always happens, was followed by a
second, third, and then a multitude of subsequent issues
totally decoupled from the value of the land which
was supposed to back them. This sparked an inflationary
and eventually hyperinflationary spiral with savers wiped out,
manufacturing and commerce grinding to a halt (due to uncertainty,
inability to invest, and supply shortages) which caused wages
to stagnate even as prices were running away to the upside,
an enormous transfer of wealth from the general citizenry to
speculators and well-connected bankers, and rampant corruption
within the political class. The sequelæ of monetary
debasement all played out as they always have and always
will: wage and price controls, shortages, rationing, a rush to
convert paper money into tangible assets as quickly as possible,
capital and foreign exchange controls, prohibition on the
ownership of precious metals and their confiscation, and a one-off
“wealth tax” until the second, and the third, and so
on. Then there was the inevitable replacement of the discredited
assignats with a new paper currency, the
mandats,
which rapidly blew up. Then came Napoleon, who restored
precious metal currency; hyperinflation so often ends up with a
dictator in power.
What is remarkable about this episode is that it happened
in a country which had experienced the disastrous
John Law
paper money bubble in 1716–1718, within the living memory
of some in the assignat era and certainly in the minds of the
geniuses who decided to try paper money again because “this
time is different”. When it comes to paper money, this
time is never different.
This short book
(or long pamphlet—the 1896 edition is just 92 pages)
was originally written in 1876 by the author, a president
of Cornell University, as a cautionary tale against advocates of
paper money and
free silver
in the United States.
It was subsequently revised and republished on each occasion the
U.S. veered further toward unbacked or “elastic”
paper money. It remains one of the most straightforward
accounts of a hyperinflationary episode ever written, with
extensive citations of original sources. For a more detailed
account of the Weimar Republic inflation in 1920s Germany, see
When Money Dies (May 2011);
although the circumstances were very different, the similarities
will be apparent, confirming that the laws of economics manifest
here are natural laws just as much as gravitation and electromagnetism,
and ignoring them never ends well.
If you are looking for a Kindle edition of this book, be sure to download
a free sample of the book before purchasing. As the original editions
of this work are in the public domain, anybody is free to produce an
electronic edition, and there are some hideous ones available; look
before you buy.
April 2013 