History of Paper Money (the French assignats)
In the last century few things more consistently troubled the conservative mind than the fear of paper money. No doubt this was primarily a matter of pecuniary interest – the fear of the creditor that he would be paid off in money of inferior purchasing power, the preference of the merchant for a widely acceptable coin, the ability of the man of means to look at his pile and know that it would persist, that he did not need a strategy for preservation. But in the minds of some conservatives in this time there must also have been a lingering sense of the singular service the paper money had, in the recent past, rendered to revolution.
Not only was the American Revolution so financed. So also was a socially far more therapeutic eruption in France. If the French citizens had been required to act within the canons of conventional finance, they could not, any more than the Americans, have acted at all. If paper had served revolutionaries before as it would in Russia after 1917 and in China after World War II?
Plausibly too we have here the explanation as to why the revolutionary roll of paper money is so little celebrated. The American Revolution would immediately, and the French Revolution would eventually, acquire great respectability. School books would tell school children of their wonders. But a line had to be drawn. It could not, either in decency or safety, be conceded that anything so wonderful was accomplished by anything so questionable as the Continental Notes of the American Revolution or the assignats of the French Revolution.
As might be expected, the design by which the French brought paper to the support of revolution was, in all respects, more subtle, ingenious and logical than that of the Americans. So plausible, indeed, was the principle that there is a sense of disappointment in the discovery that the result was imperfect. But if the experience was flawed, and the end was still served. Expediency demanded paper money; the success of the People’s revolution was impossible without it. For appreciating the assignats, of predatory word, some of it by way of reminder, is essential.
There is very little in economics that invokes the supernatural. But by one phenomenon many have been tempted. In looking at a rectangular piece of paper, on frequent occasion of in different quality, featuring a national hero or monument or carrying a classic design with overtones of Peter Paul Rubens, Jacque Louis David, or a particularly well-stocked vegetable market and printed in green or brown ink, they have been assailed by the question: why is anything intrinsically so valueless so obviously desirable? What, in contrast to a similar mass of fibers clipped from yesterday’s newspaper, gives it the power to command goods, and enlist service, induce cupidity, promote avarice, invite to crime? Surely some magic is involved; certainly some metaphysical or extraterrestrial explanation of its value is required. The priestly reputation and tendency of people who make a profession of knowing about money have been noted. Partly it is because such people are thought to know why valueless paper has value.
The explanation is wholly secular; nor is magic involved. Writers on money have regularly distinguish between three types of currency: 1) that which owes its value, as to gold or silver, to an inherent desirability derived from a well-established service to pride of possession, prestige of ownership, personal adornment, dinner service board dentistry; 2) that which can readily be exchanged for something of such inherent desirability or which carries the promise, like the early Massachusetts Bay Notes, of eventual exchange; and 3) currency which is intrinsically worthless, carries no promise that it will be redeemed in anything useful or desirable and which is sustained, at most, by the Fiat of the state that it be excepted. In fact, all three versions are variations on a single theme. John Stuart Mill, we have seen, made the value of money dependent on its supply in relation to the supply of things available for purchase. Were the money gold or silver, there was little chance, the plethora of San Luis Potosi and Sutter’s Mill apart, for the amount to increase unduly. This inherent limit on supply was the security that, as money, it would be limited in the amount and so retain its value.
And the same assurance of limited supply held for paper money that was fully convertible into gold and silver. And it held for paper that could not be converted into anything for so long as the supply of such paper was limited. It was the fact of scarcity, not the fact of intrinsic worthlessness, that was important. The problem of paper was that, in the absence of convertibility, there was nothing to restrict its supply. Thus it was open to the unlimited increase that would diminish or destroy its value. The wholeness of the paper is a detail. Rock quarried at random from the earth’s surface and divided into units of a pound and upward would not serve very happily as currency. So great would be the potential supply that the weight of the rock or even a minor transaction would be a burden. But rock quarried on the moon and move to the earth, divided and with the chunks duly certified as to wait in source, though geologically indistinguishable from the earthbound substance, would be a distant and distinct possibility, at least for so long as the trips were few and the moon rock retained the requisite scarcity.
The ingenuity of the assignats lay in the commodity into which they could be exchanged and which by its scarcity gave the value. It was not gold and silver; these were not available in plausible quantity, four, as might be expected, they were principally possessed by those at whom the revolution was directed. Thus they had been seeker did were sent or taken abroad. The supporting and restricting asset was land, the very thing of the revolution was making available – which, in large measure, the revolution was about. Land could not be hidden. And not even the most ingenious crux could take it with them. It was also something that could not be increased in total amount. For this reason it was something that those remained in France were as pleased to possessed as gold itself.
The initial resource was the land not of the aristocracy but of the church. This is usually estimated to have amounted to a fifth of all the land in France in 1789. The estate’s general had been summoned in consequence of the terrible fiscal straits of the realm. No more to be borrowed. There was no central bank which could be commanded to take up loans. All still depended on the existence of willing lenders or those who could be apprehended and impressed with their duty. The third is state could scarcely be expected to vote new or have your levees went its members were principally concerned with regressive harshness of those then being collected. In fact, on June 17, 1789 the national assembly of France declared all taxes easily cool, and a breathtaking step softened by the provision that they might be collected on a temporary basis. Meanwhile memories of John Law Frenchmen acutely suspicious of ordinary paper; during 1788, a proposal for interest-bearing note issue provoked so much opposition that it had to be withdrawn. But I note issue that could be redeemed in actual land was something different. The clerical lands were an endowment by heaven of the revolution.
The decisive action was taken on December 19, 1789. And issue of 400 million livres was authorized; they would, it was promised, pay off the public debt, animate agriculture and industry and have the lands better administered. These notes, the assignats , were to be redeemed within five years from the sale of an equivalent value of the lands of the church and the crown. The first assignats bore interest at 5%; anyone with an appropriate amount could use them directly in exchange for land. In the following summer when the new large issue was authorized, the interest was eliminated. Later still, small denominations were issued. There certainly was misgivings. The memory of Law continued to be invoked. And anonymous American intervened with advice. He warned the assembly against the notes out of the rich recent experience of his own country with the continental notes. However, the initial response to land-based currency was generally favorable.
Had it been possible to stop with the original issue or with that of 1790, the assignats would be celebrated as a remarkably interesting innovation. Here was not a gold, silver or tobacco standard but one based solidly and logically on the good soil of France. Purchasing power in the first years have stood up well. There was admiring talk of how the assignats had put land into circulation. And business had improved, employment had increased in sales of the church and other public lands had been facilitated. On occasion, sales had been too good. In relation to annual income, the prices sat were comparatively modest; speculators clutching large packages of land had arrived to take advantage of the bargains.
However, in France, as earlier in America, the demands of revolution were assistant. Although the land was limited, the claims upon it could be increased. The large issue of 1790 was followed by others- especially after war broke out in 1792. Prices denominated in assignats now rose; their rate of exchange for gold and silver, dealing in which had been authorized by the assembly, declined sharply. In 1793 and 1794, under the convention and the management of Gambon, there was a period of stability. Prices were fixed with some success. What could have been more important, the supply of assignats was curtailed by the righteous device of repudiated those that had been issued under the cane. In these years they retained a value of around 50% of their face amount when exchanged for gold or silver. Soon, however, needy Gannon asserted itself. More and more were printed. In and innovative step in economic warfare, Pitt, after 1793, allowed the royalist folks to manufacture assignats for export to France. This, it was hoped, would hasten the decay. In the end, the French presses or printing one day to supply the needs of the next. Soon the directory halted the exchange of good real state for the now nearly worthless paper – France went off the land standard. Creditors were also protected from having their debts paid in assignats. This to save them from the cane of having (as earlier in America) to hide out from their debtors. A new paper currency, the mandats terrotoriaux, also carrying an entitlement to land, met, not surprisingly, with an adverse response. In February 1797 the directory returned to gold and silver. But by then the revolution was an accomplished fact. It had been financed, and this the assignats had accomplished. They have at least as good a claim on memory as the guillotine.
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