Between the Estates General of May 1789 and the proclamation of the Consulate with Napoleon Bonaparte in 1799, several different governments succeeded one another, made up of extremists, speculators, always aspiring to more money. They then proceeded to successive issues of paper money, which revived the economy for a time. These issues led to more and more speculation and more and more depreciation, until paper money was worth nothing and France was ruined.
At the start of the Revolution
At the beginning of 1789, the State debt was enormous, the deficit was immense and business was stagnant. To repay the debt, the government decides to remedy inflation and launch a framed issue of new paper money. This currency would be based on the confiscated properties of the Church representing between a quarter and a third of all French real estate properties. The new government saw three advantages in this: the middle classes buying these lands would be acquired during the Revolution; business would be stimulated; the state could quickly settle its debts.
In April 1790, non-convertible “assignats” were printed for 400 million pounds, generating 3% interest, engraved in the rules of the art, adorned with stamps and signatures in due form, with the portrait of the king. in the center surrounded by patriotic emblems and the amount of interest appearing in the margin. The results are satisfactory, the Public Treasury is bailed out, part of the debt is settled, trade is growing again. Yet after five months the government has already spent everything and many are calling for a new issue, despite the previous problems in 1720.
45,000 million francs issued in six years and their consequences
The government decides on a second issue. Mirabeau, at first, tries to explain to the Assembly, that the people would go to their ruin but bow to the decision of the greatest number by ensuring that the patriots would be wiser and will have better common sense than 1720. Necker insists on the fact that such a mass would lead to a devaluation of 30% of the banknotes. The newspaper Le Moniteur declares "it is obvious that all papers which cannot, at the option of the bearer, be converted into cash, cannot assume the functions of money". Talleyrand believes that the first issue of money is necessary, but that a second would lead to the collapse of the monetary system.
For the government, it is a question of settling the debt of the State by an issue of 2,400 million pounds in assignats. In October 1790, 800 million were issued, the total in circulation not to exceed 1,200 million and the banknotes would be burnt after payment. But quickly, all kinds of banknotes circulate in France, the regions print them and put them back into circulation after use, contrary to the principles of the October law. With the money still lacking, 600 million came out of the presses in June 1791.
As always, trade is revived, but quickly it stagnates, there is a depreciation of values, purchasing power declines and factories are even considering laying off staff. The government wants to reassure the people by invoking various causes such as their inability to understand the workings of the financial system, the injection of banknotes by the English, but without ever admitting that the main cause is the too large number of banknotes in circulation.
While the small workers can no longer take it, the well-to-do and the wealthiest spend lavishly, speculate and gamble, pushing for depreciation in order not to repay all of their debts. It's just bribes and corruption. Therefore, after a new issue of 300 million in December 1791, the value which was 100 pounds before, drops to 80 and then to 68 at the beginning of 1792 to reach 53 pounds in February. Under pressure from the new finance minister, the fifth issue was launched in April 1792 for 300 million and debts above 10,000 francs were eliminated, which should be favorable to the poor. In July 1792, under the Commune, the new issue of 300 million allows the note to rise to 69 pounds for a short time as always, as prices rise and the value of labor falls.
In December 1792 and since the start of the crisis, 3,400 million had been put into circulation, of which only 600 had been burnt, as recommended at the outset, and 2,800 million remained in circulation, not counting the new issue in January 1793 for 200 million.
The new government sections of the Committee of Public Safety, finding this insufficient for their well-being, issue tickets privately. The 400 specially hired workers, working from 6 am to 8 pm, go on strike to obtain a salary increase. Despite or because of these emissions, with steadily increasing basic items, the government opts for a new tax on the rich. Under the leadership of Marat in February 1793, the people revolted, robbed and looted 200 shops in Paris. The Committee of Public Safety then takes measures: donation of 7 million francs to calm the people; guillotine for people working against the government; forced loan in June 1793 with guarantee on the confiscated land taken from married men with incomes of 10,000 francs and 6,000 francs for single men. The gain was to be 1,000 million francs, but the rich had already fled and the forced loan was decreed on all income from 1,000 francs; adoption of the “Maximum” law in September 1793.
This law of the "Maximum" to revive the economy, is applied to basic necessities, the price being established in correspondence to the wages of the workers, from the tariff of 1790 increased by a third, to which are added the cost of transport. , a profit of 5% for the wholesaler and 10% for the retailer. The result does not live up to expectations: the producer is no longer delivering anything; the shortage is there; the government then grants tickets to the people who can buy the products at the official price; he also sends spies to flush out producers and traders refusing to sell at the official price established and they find themselves on the lists of condemned to the guillotine. Finally, to avoid fraud at the level of the currency, the Committee of Public Safety establishes successive fines with setting in irons varying from 6 years to 20 years, and in the event of serious recidivism, the death penalty and the confiscation of property and properties. The speculators are still more numerous, the stock market closes, the trade in precious metals is abolished and the law of the "Maximum" abolished a year later.
The whole economy is flat, savings wiped out, problems unsolved. This government had taken up the good old method of issuing banknotes: during the year 1793, it had issued more than 3,000 million. In September 1793, the value of the note fell under 30 pounds; then thanks to a few fine talkers and a few army victories, the value crosses the 50-pound mark. But the fall in values is inexorable.
At the end of 1794, there were 7,000 million in circulation; at the end of May 1795, there were 10,000 million; prices are still falling: the louis d'or serving as a basis for controlling the value of banknotes undergoes significant fluctuations: on August 1, 1795, it was worth 920 paper francs, on December 1, 1795 it was worth 3,050 paper francs, the franc replaced the pound. The prices are inflated: a measure of flour worth 2 francs in 1790 passes to 225 francs in 1795; a pair of shoes worth 5 francs in 1790 climbs to 200 francs in 1795. All this leads to a movement of fraud: a debt of 10,000 francs in 1790 was only reimbursed for 35 francs in 1795. To limit these abuses, we adopt a law with "scale of proportion" so that the one who had lent, recovers more or less his starting money, increased by a quarter. The results are much worse still: the currency collapses to 1/300 of the face value.
These frauds and these abuses are useful to the financiers, to the wise businessmen, to the wealthy who invest in products of permanent value, while the small workers are ruined, the businesses close, the factories lay off.
The Directory and its measures
The Directory coming to power in October 1795 discovered a dramatic financial situation. The only solution is to issue tickets. At the end of December 1795, the number of banknotes was 35,000 million francs, but practically worthless. He decreed the emission limit at 40,000 million and had the machines, plates and printing paper destroyed in February 1796 at Place Vendôme to limit future printing, realizing that these emissions had to be stopped completely, because the “control” money had made a leap: the gold louis was worth 7,200 francs in paper money before the machines were destroyed, then rose to 15,000 francs at the last price!
After several unsuccessful attempts (forced borrowing, creation of a national bank, creation of a new paper currency "guaranteed and as safe as gold" called mandate), the Management Board continues to issue assignats and new mandates barely. out of the press, lost more than 65% of the value reaching 3% of the nominal value in August 1796. To support the new mandates, he had pamphlets printed explaining all the advantages; he decrees penal measures against those who refuse payment in money orders, with fines of 1,000 to 10,000 francs and in the event of a repeat offense 4 years in irons. He tries to suppress the circulation of old assignats above 100 francs; to counteract the loss of confidence in the currency, it authorizes the payment of trade in any note at their real value: the new money orders collapse to 2% of their value.
However, some speculators and players are doing well, such as the Talliens, thanks to fraud, the issuance of illegal tickets, speculation, counterfeits issued by the enemies of France and in particular of London, tickets issued by the royalists of Vendée carrying the portrait of Louis XVII. These speculators spend without counting, for the pleasure of the moment, without saving, without saving; the women become extravagant in their way of living and of dressing, it is "the law of acceleration of the emission and the depreciation"
In February 1797, the Directory decided to destroy the money order printing machine; from May, all tickets (assignats, mandates) are no longer worth anything; in June 1797, the 21 billion assignats in circulation were to be destroyed; in September 1797, a new law required that the national debts be settled as follows: 2/3 in bonds used to buy real estate and the “consolidated 1/3” entered in the General Ledger as a kind of reserve that the 'State would ask when it saw fit. The bonds plunge to 3% of their value and the “consolidated 1/3” will be settled until Bonaparte's arrival, in paper money. It also lost up to 6% of its face value. It is the end of paper money and financial ruin for all.
When there were no more banknotes in 1799, by dint of destroying them, coins reappeared, business slowly resumed. It took about 10 years; it took 40 years, a whole generation, for capital, industry, commerce and credit to return to their level at the start of the Revolution.
Napoleon Bonaparte, thanks to his military victories, becomes Consul in a France completely prostrate financially, morally and politically, whose debt is appalling, the armies unpaid for a very long time. He knows that it is impossible to create new taxes. During the first advice, to the question asked "what do you plan to do?" Bonaparte replies "I will pay in cash, otherwise I will pay nothing". It finances the debt and makes the cash payments.
Yet when Europe unites against the Empire, Napoleon has to face a big financial problem because he has nothing left. He is obviously offered an issue of paper money that he refuses outright by saying loud and clear "never in my lifetime". And when it was time for Waterloo, France did not experience great financial poverty.
In the face of a financial crisis, governments must exercise patience and wisdom, remain honest, use methods sanctioned by experience and not give in to talkers and speculators, not constantly increase the reserves of money, because the value of money is determined by its quantity.
The French Financial Crisis from 1789 to 1799, by Andrew Dickson White. Timeless, October 2013.