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I have been enjoying a wonderful short book called Fiat Money Inflation in France, by Andrew Dickson White. It refers to experiments
with printing press finance that began in 1789. The book was published in
1896.
I will simply provide here some short excerpts. I think they speak for
themselves.
“Still
another troublesome fact began now to appear. Though paper money had
increased in amount, prosperity had steadily diminished. In spite of all the
paper issues, commercial activity grew more and more spasmodic. Enterprise
was chilled and business became more and more stagnant. Mirabeau, in his
speech which decided the second great issue of paper, had insisted that,
though bankers might suffer, this issue would be of great service to
manufacturers and restore prosperity to them and their workmen. The latter
were for a time deluded, but were at last rudely awakened from this
delusion.”
“A still worse outgrowth was the increase of speculation and gambling. With
the plethora of paper currency in 1791 appeared the first evidences of that
cancerous disease which always follows large issues of irredeemable
currency,—a disease more permanently injurious to a nation than war,
pestilence or famine. For at the great metropolitan centers grew a luxurious,
speculative, stock-gambling body, which, like a malignant tumor, absorbed
into itself the strength of the nation and sent out its cancerous fibres to the remotest hamlets. . . . . As these knots of
plotting schemers at the city centers were becoming bloated with sudden
wealth, the producing classes of the country . . . grew lean.”
“The evils which we have already seen arising from the earlier issues were
now aggravated; but the most curious thing evolved out of all this chaos was
a new system of political economy. [Author's emphasis.] In speeches,
newspapers and pamphlets about this time, we begin to find it declared that,
after all, a depreciated currency is a blessing; that gold and silver form an
unsatisfactory standard for measuring values: that it is a good thing to have
a currency that will not go out of the kingdom and which separates France
from other nations: that thus shall manufacturers be encouraged; that
commerce with other nations may be a curse, and hindrance thereto may be a
blessing; that the laws of political economy however applicable in other
times, are not applicable to this particular period, and, however operative
in other nations, are not now so in France; that the ordinary rules of political
economy are perhaps suited to the minions of despotism but not to the free
and enlightened inhabitants of France at the close of the eighteenth century;
that the whole state of present things, so far from being an evil is a
blessing. All these ideas, and others quite as striking, were brought to the
surface in the debates …”
This time it’s different?
Eventually France returned to gold — mostly because paper money fell out of
use entirely by 1797, and bullion coins again became the standard of commerce.
Successive governments attempted several more paper issuances, with little
result except their own increasing unpopularity.
Thus the stage was set for the rise of Napoleon. Napoleon formalized France’s
return to a gold standard system by the establishment of the Bank of France
in 1803. He also refused to engage in any deficit spending, and lowered tax
rates dramatically. The Magic Formula was in action in France. Again, from White:
“But this
history would be incomplete without a brief sequel, showing how that great
genius [Napoleon] profited by all his experience. When Bonaparte took the
consulship the condition of fiscal affairs was appalling. The government was
bankrupt; an immense debt was unpaid. The further collection of taxes seemed
impossible; the assessments were in hopeless confusion. War was going on in
the East, on the Rhine, and in Italy, and civil war, in La Vendee. All the
armies had long been unpaid, and the largest loan that could for the moment
be effected was for a sum hardly meeting the
expenses of the government for a single day. At the first cabinet council
Bonaparte was asked what he intended to do. He replied, “I will pay cash or
pay nothing.” From this time he conducted all his operations on this basis.
He arranged the assessments, funded the debt, and made payments in cash; and
from this time—during all the campaigns of Marengo, Austerlitz, Jena, Eylau, Friedland, down to the
Peace of Tilsit in 1807—there was but one
suspension of specie payment, and this only for a few days. When the first
great European coalition was formed against the Empire, Napoleon was hard
pressed financially, and it was proposed to resort to paper money; but he
wrote to his minister, ‘While I live I will never resort to irredeemable
paper.’ He never did …”
Napoleon was so popular that he declared himself emperor in 1804, and it
stuck. Thus did a great nation rise again from the ashes; although Napoleon
soon returned it to ashes in his own special way, with a side trip to Moscow.
The self-destruction of today’s Keynesians will lead to a new gold standard
system, just as it always has in the past. But, first the Keynesians need to
light themselves on fire, accompanied, as it was in 18th century France, by
widespread cheers and encouragement.
That should be
interesting. Get your popcorn ready!
(This item originally appeared at Forbes.com on March 8, 2013.)
http://www.forbes.com/sites/nathanlewis/2013/...lf-destruction/
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