CHAPTER XI
SUMMARY

THE Assignats were primarily a financial resource :  the nominal amounts issued, reduced to the values of 1790 by a table of depreciation, were equivalent to seven years of ordinary revenues of the pre-Revolutionary era.  The Assignats were freely disbursed for the payment of the Government’s obligations in the early years of the Revolution ;  and they contributed most of the public revenue during its later years.  Taxation contributed a small but not negligible proportion of the total revenues, and, it is to be emphasized, this proportion varied, increasing notably in 1792.  Both the value of the later issues of paper money, and the importance of tax receipts suffered because of the depreciation.  Only the system of price control saved the country.

The maintenance of the land security unimpaired was an indispensable condition for the retention of confidence in the paper money.  Regardless of the validity of the contention that the Assignat and a parcel of land of equivalent value were identities, the general assent to that contention did help to instill confidence in the paper money.  The people believed in the land security ;  it transformed the Assignat in their eyes into circulating land.  Redemption was a reality.  Land sales absorbed large quantities of Assignats, especially in the first three years of their history.  A more provident policy on the part of the Government — a policy of security, of protection to purchasers of lands instead of a policy of terrorism for all with visible means of wealth, and of non-interference with agricultural prices — would doubtless have resulted in larger and more profitable sales of lands.  But, of course, the system of price control is justified on other grounds.

The undiscriminating use that has been made of the various measures of depreciation, is lamentable.  We ought not only to be aware of the attributes of the measures we employ, but also to be wary of unconscious shifting from one measure to another.  The movement of the prices of commodities provides us with the most acceptable of all measures, in spite of weighty theoretical objections.  The prices of the foreign exchanges and of gold and silver were affected by independent forces, with the result that they deviated appreciably from the corresponding values for the prices of commodities.  Insufficient attention has been given to the problem of the selection of the most appropriate measure of depreciation.  The depreciation of the Assignat in 1790-1791 that writers discuss, probably did not occur.  A premium on the price of gold and of the foreign exchanges emerged, but the general price level remained undisturbed.

The differences in the value of the paper money between the eighty or more departments of France constitute a curious aspect of the history of the Assignat.¹  The variations (according to the local tables of depreciation) attained large proportions :  the Assignats in circulation were depreciated from 20 to 80 per cent in different places at the same time.  Part of these differences was genuine :  thus one section of the country suffered from the lack of supplies, especially of subsistence ;  in another section, the Assignat had to compete with metallic money ;  one section of the country had more confidence in the paper money than another.  The wide discretion allowed to local officials in the construction of the tables, no doubt, accounted for some part of the vast differences :  the apparent discrepancies were in part fictitious.  The extremely high values of the Assignats circulating in Vendée, the center of the anti-Revolutionary agitation — in almost every month of the paper money period, an Assignat circulated there that apparently maintained a value above its value in any other department — a noticeable scattering (geographically) of extreme values (both high and low), the large proportion of the discrepancies accounted for by the two extreme deciles — all of these facts substantiate the contention that part of the difference was fictitious.  A more gradual tapering off to extreme values might be expected if the variations were wholly genuine.  But real differences of large proportions were present ;  the wide scattering (geographically) of a few sporadic variables, which may be attributed to idiosyncrasies of construction, is not inconsistent with the presence of genuine differences evident from an examination of the geographical concentration of similar values.

The radical members of the Convention, refuting the doctrines of the Economists and borrowing largely from the doctrines of Rousseau, carried through a system of price control and rationing in May, 1793 that endured until December, 1794.  The result of the system was that the purchasing power of the Assignats at the disposal of the Government was greatly increased.  But with diminished supplies on the markets as a result of the Revolution and wars, as well as of this artificial reduction of the price levels, the buying propensities of the public had to be curbed.  The public was prevented from disbursing all of its Assignats ;  hence it is an error to assume that the value of the Assignat increased during this period merely because maximum prices were depressed.  Since a large proportion of all of the Assignats at the disposal of the public were hoarded, it is probably nearer to the truth to say that the value of the average Assignat fell.  No writer on the Assignats has observed that the increase in the value of the Assignats during this period was in the main a fictitious one.  No writer (with the possible exception of Marion and Hawtrey) has even considered the system of maximum prices in relation to the changes in the value of the Assignats ;  writers have merely observed and commented on the increased value of the Assignat, which was evident in the Treasury figures.  Hawtrey advances further than other writers in pointing out that the price of gold was artificially depressed during this period, and, therefore, that the gain of the Assignat was not as great as appeared on the surface.  But he is in error to concentrate his attention on the price of gold ;  and he unknowingly quotes the price of the exchanges and not of gold.  Marion attempts to demonstrate that the Maximum was ineffective and hence could not affect the value of the Assignat.

The system of maximum prices encountered innumerable obstacles of an administrative nature ;  but at least for one year of its existence — notably during the Terror — the maximum was tolerably effective in spite of many violations.  The system prevented the farmers from profiting from the curtailed supplies at the expense of the Government and the residents of the cities.  The benefits derived by the Government and the urban elements by the increased purchasing power of the Assignats expended, were, without doubt, in part offset by the reduced supplies sent to the markets by the farmers.  At any rate, the system enabled the Government to issue additional supplies of paper money without paying the penalty of higher prices, and thus enabled the Government to support fourteen armies, as well as Paris.

Depreciation cannot be understood without a consideration of the many forces at work.  The condition of the subsistence market was of fundamental significance.  Periods of scarcity were accompanied by depreciation.  With the fear of starvation ever present, any deficiency in the normal supplies might cause a wholesale dumping of Assignats.  Periods of inadequate subsistence synchronized closely with periods of depreciation.

The Revolution was a period of curtailed production, and, therefore, of reduced supplies.  Not only did the Revolution witness increased issues of paper money, but it was accompanied also by a reduced demand for money.  The latter factor in itself would have caused a very large fall in the value of the livre.  Especially during the latter part of the Revolution, when the cumulative effects of the Revolution, of the extensive warfare, and of maximum prices began to be felt, are the reduced supplies to be considered.  An explanation of depreciation without a consideration of the curtailment of production and circulation of products, is of doubtful value.  Although the demand for money decreased during the Revolution, in at least one direction the demand increased.  Speculation was rampant, which tended to keep prices down when no turnover of commodities and bills was involved.

Gold and silver were in circulation in varying amounts during the Revolution.  Before the terrorist policies were successfully enforced, the Assignats had to compete with gold and silver to an appreciable extent.  With the weakening of these policies, and finally with the repeal of the discriminatory legislation against gold and silver, the metals offered renewed competition to the Assignats.  No final significance is to be attached to the statistics of paper money in circulation so long as an unknown quantity of gold and silver circulated in addition to the paper money.

Four factors that influenced the value of the paper money have been outlined above, viz., the land security, the state of the subsistence market, the supplies of commodities, and the competition of gold and silver.  But I considered several other factors in Chapters VII and VIII :  political, military and financial conditions, public discussions of depreciation, demonetisation practices (including “au cours” payments with its increased demands on the currency and the loss of confidence resulting from an official recognition of depreciation), and counterfeiting.

Three problems that owed their origin to the introduction of Assignats have been discussed — the problem of coping with depreciated exchanges, of adjusting creditor-debtor relations after and during the period of extreme depreciation, and of bringing back gold and silver.  The movement of the exchanges, however, was not exclusively an effect of the issues of the Assignats ;  for such factors as capital movements, public control of gold movements, trade and the exchanges, and the inelastic demand for necessities on the part of the Government, all had independent effects.  Of much interest today are the attempts of the Government to support the exchanges :  control of imports and exports, the confiscation of all foreign credits, payment abroad with gold, silver and precious stones instead of by the purchase of foreign exchange, borrowing from foreign banks, payment abroad in Assignats, and requisitioning of luxuries for export purposes.

The Assignats were replaced first by gold and silver, then by the Mandats, and finally by gold and silver again.  The attempt of the French Government to revise the contracts made during the period of paper money, forms a fascinating chapter in paper money history.  Two problems were involved :  first, the Government had to prevent attempts (during the periods of rapid depreciation) to repay in a worthless paper money for debts contracted in a more valuable money ;  and, second, it had to save debtors who had incurred obligations during the paper money regime from the unfair demands for metallic reimbursements.  Payments to the Government, farm leases and the like also had to be revised.

The third problem was how to return to a metallic standard.  A protracted period of hardships resulted from the failure of the precious metals to return from abroad and from private hoards as quickly as was expected.  The stable value of the paper money fell to approximately one hundred million livres at the end of 1795.  The more rapid consumption of monetary balances, the partial return of gold and silver, and a reduced demand for money scarcely offset this reduction of the pre-Revolutionary circulating media by 95 per cent.  Prices fell ;  the Government found it difficult to collect its revenues ;  and a heterogeneous collection of new paper substitutes appeared.

1 A. Wagner observed similar discrepancies in Russia in the sixties of the last century ;  and Subercaseaux observes them in South American experiences.  See G. Subercaseaux, op. cit., pp. 204-205.

CAUSES OF DEPRECIATION

The Convention, occupied in the summer and early fall with the new constitution, devoted comparatively little time to the pressing needs of finance.  There is no evidence of a single significant success for the many plans put into operation in 1795.  The administrative machinery of the Government was weak.  The Convention relied on Assignats more than ever, with some aid from continued requisitions.  Legislation against the evil speculators, responsible for this depreciation in the opinion of many, was enacted repeatedly during the second half of 1795.  The Convention attempted to dispose of the houses in Paris owned by the Government, requiring payment within a few weeks.  On October 25 the Convention approved an extraordinary war tax of twenty livres for each livre of assessment for the Foncière.  The Legislature approved several other extraordinary measures on November 15 :  some taxes to be collected in numeraire ;  a pronouncement once more in favor of the collection of public receipts “au cours”;  a 3 per cent loan to be paid, principal and interest in numeraire ;  a milliard of Cedules d’hypothèque for extraordinary expenses ;  and a sale of forests and “mobilier” in metals or “au cours”.  The Government soon recognized the folly of issuing a loan, payable in gold and silver, but receivable in Assignats of a market value of 1 per cent of their nominal value.  The final decree on the Cédules, voted on November 25, authorized the conversion of Assignats into Cédules at the market value of the Assignats and the expropriation of the Government from any parcel of land at any offer to pay the “prix d’estimation” in Cédules.

When the value of the Assignat was reduced to less than 1 per cent of its nominal value, proposals to demonetise were made almost daily.  Lafon-Ladébat suggested that all notes lose their monetary values in four months, for the announcement of such a program would cause people to hurry to pay off their debts, and hence the value of the Assignat would increases He did not divulge whether the demonetisation was to be in effect only temporarily.  De Valence proposed virtually a complete demonetisation in suggesting a compulsory exchange for a government bond which was to yield 1½ per cent.

A measure, enacted on November 20, to suspend the sale of lands, “to assure the holders of the Assignats that they will invariably have the portion of security which is legitimately due them”, helped to impart the final blow.  I have considered elsewhere the forced loan of six hundred millions that was voted at this juncture.  It was not a striking success.  Who can doubt, after considering the nature of these many attempts to resuscitate the Assignats, that they only accelerated their depreciation ?

The political situation — especially on the frontiers — did not warrant this unprecedented loss of confidence in the Assignat.  The increase of speculation was not a negligible factor in helping it to retain its value longer.  The state of the subsistence market, the disorganization of the productive processes, the deplorable financial conditions resulting from the lax administration and the inability to concur on a definite program, the reduction of and loss of confidence in the security, the proposals to demonetise, and, finally, the renewed competition of gold and silver, all detracted from the confidence in the Assignat and contributed to the headlong depreciation.  Depreciation proceeded much more rapidly than would be expected from a mere consideration of the issues :  the depreciation by the end of this period was at least twelve times as great as might be expected from a survey of quantities in circulation.  The lack of confidence in the paper money, as evidenced by the desire to be rid of it, reflected the composite effect of all of these forces, and is of much greater significance than mere quantities.

SUMMARY

No comprehensive and systematic treatment of the depreciation of the Assignat has yet been made.  Many writers on the subject take depreciation for granted.  Why stop to explain the depreciation of a paper money issued to excess ?  An uninterrupted fall, in the opinion of some, was inevitable.  Hawtrey’s emphasis on speculation is helpful, although he does not consider speculation in all its ramifications.  The most serious deficiency in Hawtrey’s treatment — to be expected in a brief essay — is his failure to consider the many forces that affected depreciation.  Falkner makes a brilliant contribution in pointing out the necessity of considering the availability or unavailability of the metals for satisfying the demand for money.

One explanation of the depreciation was and is fully appreciated.  The economists, the writers on public finance, and the monetary theorists have all expressed (or implied) an adherence to the quantity theory.  Their allegiance to that theory often explains a neglect to inquire further into the process of depreciation.  As has been indicated, however, the writers and thinkers of the Revolution found much that was not explicable in terms of quantity.  Lavoisier, for example, considered the moral effects of additional issues ;  Johannot commented on the depreciation, incomprehensible on a consideration of quantities alone, when Doumouriez betrayed his country.  A brilliant essayist, Boislandry, formulated a comprehensive list of the causes of depreciation that a writer of today, better versed in monetary theory, might well be proud of.  The man in the street did not miss an opportunity to scoff at the quantity theory ;  he pointed out, for example, that in May, 1796, the price of the louis was 9000 livres, whereas when the money in circulation had been three times as great, the price was but 2000-4000 livres.  A police reporter made note not only of the fact that prices fell with the capture of Amsterdam early in 1795, but that the populace expected that a fall in prices would follow a great victory.

Wagner and Mitchell have made familiar the thesis that changes in the value of money are caused in large part by changing political fortunes.  But Ferraris, whose treatise on paper money still remains one of the great works in the field, was critical of Wagner’s position.  Mises observes that military success was accompanied by final depreciation during both the French and American revolutions.

Wagner and Mitchell employed exchange and gold quotations as measures of depreciation.  These markets are speculative and reflect the changing military and political situation well ;  in fact, one is easily misled by appreciable movements that are not easily explained by changes in fundamental conditions.  But perhaps the most important explanation of the differences between Wagner and Mitchell, on the one hand, and Ferraris and Mises on the other, is that the former dealt with periods in which the depreciation was moderate, or at least not extreme.  They did not have in mind periods in which the financial strain was so great that the creation of artificial purchasing power became the dominating factor in the situation.  I agree with Wagner and Mitchell that a favorable political event would have an advantageous effect ;  but Wagner, and especially Mitchell were inclined to overemphasise the effects of the changing political situation.

What has been neglected in the explanations of the depreciation of the Assignat ?  There has been unquestionably a failure to consider adequately the problem of the supply of commodities, or, more comprehensively, of the demand for money.  War, internal insecurity, and misguided public policies, all contributed to the reduction of supplies.  But the effects of these forces varied so that the demand for money was not constant during this period.  A careful consideration of the demand for money is indispensable for an estimate of the residue of damage caused directly by the Assignat.

Closely related, and yet a problem that requires special analysis, is the problem of subsistence.  The Economic Federalism, the disorganized conditions of transportation, the effects of the public control and of the warfare, all require analysis.  The singular synchronization of the periods of rapid depreciation and of lack of subsistence, forces the writer to the conclusion that the unhappy state of the subsistence market was a factor of fundamental importance for the value of the Assignat.  An Assignat that could not buy bread was indeed worthless and the holder was willing to offer an increasing number of paper livres until he could procure the necessary subsistence.  That the French expended perhaps two-thirds of their incomes on bread, is significant.

The purchase of subsistence required a large proportion of the resources of the Treasury.  A writer estimated the monthly cost of the distribution of bread at 546 million livres in 1794-95.  The cost of feeding Paris in 1795 equalled one-tenth of the total expenditures of the Government.  Dubois Crancé, a well informed contemporary, estimated that two-thirds of the daily expenditures of the Government in the spring of 1795 were consumed in the purchase of subsistence, and by that time the circulation had been enriched by 6 milliards (more than one-half of the total) as a result of governmental expenditures for subsistence.

Thirdly, consider the effect of the land security, which received some attention in Chapter III.  The study of the Assignats demands more than an acquaintance with present-day monetary theory :  it requires an insight into the conditions during the Revolution.  A study of the daily life of the Revolution confirms the impression that the fundamental source of the confidence in the Assignat lay in the land security that strongly supported it.  The man in the street believed that the waste of these resources was equivalent to a demonetisation of the Assignat.  Does any one suppose that the crafty legislators of the Revolution persistently advertised the abundance of the land security for the mere joy of the computation ?  We may not go all the way with D’Ivnerois who said that “ The confiscations in 1793-94 kept the Assignat at its high value during the Terror”, but we cannot doubt either the purpose of the confiscations of the possessions of the Émigrés and of the condemned, or the aid rendered the Assignat by these additions to the security.  A minute study of all the specifics, suggested or carried through from 1794 to 1796, reveals that very few of them were not proposals to increase the receipts from the sale of lands.  Can we give full confidence to the many writers on the Assignats who either neglect or dogmatically dismiss the very important influence of the land security on the value of the Assignats ?  So much for the more important sins of omission.

I have not intended to make this chapter on depreciation either a refutation of the quantity theory, or an encomium of it.  I hold only that a discussion merely on the basis of quantities leads us nowhere.  Subsistence, supplies, security, taxation, and the other factors at work, all finally affect the value of money through changes in the quantity of paper money thrown on the market or through any of the other variables in the equation of exchange.  Quantities issued are of little significance without a consideration of the varying haste with which they are disbursed.  The most effective way of paying homage to the quantity theory is to disregard it in its superficial form ;  but in apparently disregarding it, to study the forces at work — forces that finally become effective through changes in the supplies of and demand for money.

Criticisms of the quantity theory have been numerous in recent years.  One of the by-products of this criticism has been a change in emphasis from quantities to balances.  Aftalion points out that large variations in prices in the war and post-war period were accompanied by small variations in the supplies of money issued.  Gide observes that the countries of the greatest inflation were not those of the highest prices.  Bonnet observes that inflation remained inoperative because the public was unable to dispose of its large balances.  Hahn points out that individuals who received additional cash were more likely to save than spend.  They are all seeking for an explanation of the failure of the rigid quantity theory.  Herrmann expresses the difficulty well :  depreciation does not necessarily follow inflation, for inflation may be latent.