THE CURRENCY OF CURRENCY – PART 3 of 3.
“We only imitate Nature, which watches over the preservation of the race but has no regard for individuals.”
– A French politician speaking of the removal of freedom and individual rights in France in 1792.
This is the last of a 3-part series. The second part is here. The purpose here is to present a warning about the present trends in government to repeat the failed monetary schemes of the past.
I have taken generously herein from a paper written in 1899 called "Paper Money in France" and presented to Congress in an attempt to warn them about profligate printing of paper money.
By 1793, all things economic and industrious in the New France were continuing in their inexorable journey into oblivion – an oblivion that would put new meaning to the word “oblivious”. In an effort to turn things around, the Constitutive and Legislative Assemblies were replaced by a new “National Convention”. In view of the fact that the well-to-do citizens (think “Conservatives”) were thought to be lukewarm in their support of the politicians controlling the country (think Liberal Politicians), various demagogues in the National Convention found ample material for denunciations long and loud. The result outside the Convention was increased use of the guillotine; the results inside were new measures against all who had money, and on June 22, 1793, the Convention determined that there should be a Forced Loan. It appeared that it was more difficult taxing people than originally thought. So many of the rich had fled the country or had concealed their wealth that only a fifth of the sum required could be raised, and therefore a law was soon passed which levied forced loans (another name for “tax”) upon incomes as low as one thousand francs,—or, say, two hundred dollars of American money.
This tax was made progressive. On the smaller proprietors it was fixed at 10% of all income and on the larger, that is, on all incomes above nine thousand francs, it was made 50% of the entire income.
Then, a “demonetization” was ruled wherein certain prior tranches of the issued money were declared illegal for trade and therefore of no value – this was the first 558 Million francs, except those of a hundred francs in face value and less (to protect “the poor”). Property was confiscated from the clergy and any nobility, under arguments that “it really just was being returned to its rightful owners” – (eerily similar to recent political campaign talk about “fairness” and “returning the wealth to its rightful owners”??)
One French politician – in justifying the broad confiscation of property and forced loans -- uttered, “We only imitate Nature, which watches over the preservation of the race but has no regard for individuals.” Hence, with this simple rationale, the rights of the individual were subjugated, shackled, and chained to a wall in the name of the almighty “common good” or “social equity”. One should pay close attention to any government system or program that uses these words as proponents of its necessity or virtue.
The stream of new issuances of currency went on and the fixing of blame on various culprits for the continuing failures of printing of currency (other than the printing of money itself) continued every 2-5 months through the end of 1793.
Even statesmen of the greatest strength, having once been drawn into this flood, were borne into excesses which, a little earlier, would have appalled them. Committees of experts were appointed to study the whole subject of prices, and at last there were adopted the great four rules – “The Maximum” -- which seemed to statesmen of that time a masterly solution of the whole difficulty.
The four rules were:
- prices on all goods were fixed at the prices of 1790, 3 years earlier, plus 33%,
- a premium on each product per mile transported from it’s source,
- a fixed price premium of 5% for the wholesaler, and
a fixed price premium of 10% was set for the retailer.
The Maximum was delivered with great oratory, eloquence, and jubilation. It was stated that, "the needs of the people will no longer be preyed upon in order that the commercial classes may arbitrarily take advantage." The merchant classes had replaced the nobility and landed wealthy as the new culprit in economic inequality. They had been ferreted out, some had been hung or guillotined, and had now been limited in their evil activity of overcharging and withholding goods from the people.
This, however, quickly led to a further scarcity of supply and an increase in rationing. The “social evil” spotlight then moved to the farmer classes who were apparently refusing to bring their products to market for prices that were fixed so low and payable in paper currency of questionable value. Again, the punishment of death was prevalent and so many traders refused to trade at all – even at prices above the Maximum – due to this risk. When the price fell below the cost to plant, fertilize, reaping labor, and storing, the Farmers stopped planting. Manufacturers were generally crippled and frequently destroyed, and agriculture was fearfully depressed. To detect goods concealed by farmers and shopkeepers, a spy system was established with a reward to the informer of one-third of the value of the goods discovered. To spread terror, the Criminal Tribunal at Strassburg was ordered to destroy the dwelling of any one found guilty of selling goods above the price set by law. The farmer often found that he could not raise his products at anything like the price required by the new law, and when he tried to hold back his crops or cattle, alleging that he could not afford to sell them at the prices fixed by law, they were frequently taken from him by force and he was fortunate if paid even in the depreciated fiat money,—fortunate, indeed, if he finally escaped with his life. Prison sentences of 6 to 20 years “in irons” were imposed on anyone refusing to be paid in paper money or sell their products at the designated prices. Rewards were paid to anyone reporting a violator, up to 1/3 the value of any property or products thereby seized. SO, the flow of goods stopped entirely.
To reach the climax of ferocity, the Convention decreed, in May, 1794, that the death penalty should be inflicted on any person convicted of "having asked, before a bargain was concluded, in what money payment was to be made." Nor was this all. The great finance minister, Cambon, soon saw that the worst enemies of his policy were gold and silver. Therefore it was due to this that, under his lead, the Convention closed the Commodity Exchange and finally, on November 13, 1793, under terrifying penalties, suppressed all commerce in the precious metals.
All these efforts failed. About a year later, the abolition of the Maximum itself was ordered.
Whenever any nation entrusts to its legislators the issue of a currency not based on the idea of ready 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 to the level of valuelessness. Louis XIV had claimed that all property in France was his own, and that what private persons held was as much his as if it were in his coffers. But even this condition was exceeded by the confiscating power exercised in the country after the French Revolution, where, instead of leaving values to be measured by a standard common to the whole world, they are left to be depressed or raised at the whim, caprice, or interest of a body of legislators. When this power is given, the power of fixing prices is inevitably included in it and will be used in efforts to maintain the power of the paper currency.
In obedience to those who concurred with the laundry women of Paris, as stated in their famous petition, that "laws should be passed making paper money as good as gold," Couthon, in August, 1793, had proposed and carried a law punishing any person who should sell assignats at less than their nominal value with imprisonment for twenty years in chains, and later carried a law making investments in foreign countries by Frenchmen punishable with death. But to the surprise of the great majority of the French people, the value of the assignats was found, after the momentary spasm of fear had passed, not to have been permanently increased by these measures: on the contrary, this "fiat" paper persisted in obeying the natural laws of finance and, as new issues increased, their value decreased proportionately.
The paper money of the nation seemed to possess a magic power to transmute prosperity into adversity and plenty into famine. Interesting is it to note in the midst of all this the steady action of another simple law in finance. Prisons, guillotines, enactments inflicting twenty years' imprisonment in chains and death were powerless to the basic laws of value.
On August 1, 1795, a gold louis of 25 francs was worth in 920 in paper francs; on September 1st, 1,200 francs; on November 1st, 2,600 francs; on December 1st, 3,050 francs. In February, 1796, it was worth 7,200 francs; that is, 288 francs in paper would buy one gold franc. Prices of all commodities went up nearly in proportion.
IMPORTANT TO NOTE: Everything was enormously inflated in price except the wages of labor.
As manufacturers, farmers, and merchants had closed, thereby increasing unemployment and the value of labor, there were 4 jobs for every 5 workers, then 3 jobs, then 2. Wages had fallen, until all that kept them up seemed to be the fact that many laborers were drafted off into the army and workers were so desperate for food and clothing, the army seemed a good option.
From this state of things came grievous wrong and gross fraud. Men who had foreseen these results and had gone into debt were of course jubilant. He who in 1790 had borrowed 10,000 francs could pay his debts in 1796 for about 35 francs. Laws were made to meet these abuses. To meet cases like this, a law was passed establishing a "scale of proportion" to increase proportionately the debts of those who had the highest debts. This brought new evils, worse, if possible, than the old.
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. The great crushing weight of the loss came finally upon them.
"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." The wild radicals, having sent to the guillotine first all the Royalists and next all the leading Republicans
they could entrap, the various factions then began sending each other to the same destination:—Hébertists, Dantonists, with various other factions and groups, and, finally, the Robespierrists, followed each other in rapid succession to the guillotine.
It was a gluttony of beheadings.
But on the 18th of February, 1796, at nine o'clock in the morning, in the presence of a great crowd, the machinery, plates and paper for printing assignats were brought to the Place Vendome and there, on the spot where the Napoleon Column now stands, these
were solemnly broken and burned.
Shortly afterward, a report by Camus was made to the Assembly that the entire amount of paper money issued in less than six years by the Revolutionary Government of
France had been over forty-five billion francs; that over six thousand millions had been annulled and burned and that at the final catastrophe there were in circulation close to forty thousand millions. It will be readily seen that it was fully time to put an end to the system, for the gold "louis" of twenty-five francs in specie had, in February, 1796, as we have seen, become worth 7,200 francs, and, at the latest quotation of all, no less than 15,000 francs in paper money,—that is, one franc in gold was nominally worth 600 francs in paper.
Such were the results of allowing dreamers, schemers, orators, declaimers and strong men subservient to these to control a government.
So, France entered a new era.
Although the Maximum had been banished and the old currency had been abandoned, the first task of the new “Directory” was to secure a forced loan for 6 Billion francs from the remainder of the wealthier classes – of course when you need money, you need to go to those that still have some left. But, no forced loan could be had. So, a “National Bank” was proposed; but capitalists were loath to embark in banking while the howls of the mob against all who had anything especially to do with money resounded in every city. At last the Directory bethought themselves of another expedient. This was by no
means new. It had been fully tried on the continent twice before that time: and once, since — first, in the French colonial period; next, during the French Confederation; lastly, by the "Southern Confederacy" and here, as elsewhere, always in vain.
But experience yielded to theory — plain business sense to financial metaphysics. It was determined to issue a new paper which should be "fully secured" and "as good as gold."
Pursuant to this decision it was decreed that a new paper money "fully secured and as good as gold" be issued under the name of "mandats", secured, once again, by land. Even before the mandats could be issued from the press they fell to thirty-five per cent of their nominal value; from this they speedily fell to fifteen, and soon after to five per cent, and finally, in August, 1796, six months from their first issue, to three per cent. This plan failed — just as it failed in New England in 1737; just as it failed under the Confederation in 1781; just as it failed under the Southern Confederacy during the American Civil War. The old plan of penal measures was again pressed. Monot led off by proposing penalties against those who shall speak publicly against the mandats; Talot thought the penalties ought to be made especially severe; and finally it was enacted that any persons "who by their discourse or writing shall decry the mandats shall be condemned to a fine of not less than one thousand francs or more than ten thousand; and in case of a repetition of the offence, to four years in irons." It was also decreed that those who refused to receive the mandats should be fined, — the first time, the exact sum which they refuse; the second time, ten times as much; and the third time, punished with two years in prison.
But here, too, came in the action of those natural laws which are alike inexorable in all countries. This attempt proved futile in France just as it had proved futile less than twenty years before in America.
The laws that finally govern finance are not made in conventions or congresses. The public either wants (i.e. values) an asset or they do not --- it cannot be mandated by law or manipulated by threat of penalty.
Endless decrees and threats and beheadings and imprisonments gave way to pamphlets trying to convince people of the unconvincable. Thence, the Directory decreed that 2/3 of the national debt would be paid in bonds which the bearer may use to purchase any of the confiscated real estate and the other 1/3 would be added to the “Great Book” of the national debt to be paid thenceforth as the government should think best.
So the value of the bonds fell in face value because nobody wanted to buy lands that had previously been confiscated. The whole plan was a shallow ruse.
So ended the reign of paper money in France. The twenty-five hundred millions of mandats went into the common heap of refuse with the previous forty-five thousand millions of assignats: the nation in general, rich and poor alike, was plunged into financial ruin from one end of the country to the other. And so, the original dream of equality had been attained – all were poor and destitute, but all were equal.
Indeed, much as the vast majority of the wealthy classes suffered from impoverishment, the laboring classes, salaried employees of all sorts, and people of fixed income and of small means, especially in the cities, underwent yet greater distress. These were found, as a rule, to subsist mainly on daily government rations of bread at the rate of one pound per person. This was frequently unfit for food and was distributed to long lines of people, men, women and children, who were at times obliged to wait their turn even from dawn to dusk. The very rich could, by various means, especially by bribery, obtain better bread, but only at enormous cost.
The death was slow. Perfect fake copies of the currencies popped up everywhere. Further attempts at forced loans were launched. Blame for the false paper money was blamed on “foreign entities meant merely to destabilize the Revolutionary government”.
The recovery was even slower. It took nearly 40 more years for the gold and silver to re-emerge and for commerce to begin again. One French diplomat was quoted as saying, “There will always be money” as the specie began to return to circulation. Finally, like the end of the Great Depression, it took Napoleon to establish a new monarchy on the ruins of the Republic that was set up to replace the old monarchy and it took millions of dead in the Napoleanic Wars after the millions dead during the Revolution and over the following 10 years of economic strife.
In 1799, when the economy was at zero and commerce had virtually ceased, into the vacuum stepped Napoleon. Napoleon staged a coup d'état and installed himself as First Consul; five years later the French Senate proclaimed him emperor. In the first decade of the nineteenth century, the French Empire under Napoleon engaged in a series of conflicts—the Napoleonic Wars—involving every major European power. France dominated Europe with military conquest through 1812 and the Battle of Waterloo in which Napoleon met his final defeat, was banished to the Island of Elba and died there, rumored to have been poisoned to avoid his return to power.
I guess the rule is: When you resort to printing unredeemable currency, i.e. “fiat currency”, eventually everyone involved dies.
“Fiat currency” is any currency the value of which is established by “fiat” or declaration of value by a governing entity…..and has no more value than that.
Disclosure: Long GLD, SLV, physical gold.