Inflation during the French Revolution

The French Revolution brought with it a massive inflation of the paper money called assignats. It was nominally backed by confiscated lands, when introduced in 1789. But eventually it was printed to finance all government's expenses and has lost most of its value by 1796 when its production has stopped.

The French Revolution

When Louis XVI became king in 1774, reforms were badly needed. The minister of finances Turgot began to institute some reforms, lower taxes and reducing special privileges. To support trade and manufacture was founded the "La Caisse d'Escompte", which would later become Banque de France. Turgot's reforms found many enemies and he was deposed after only a year and a half. The intervention of France in the American Revolutionary War only brought more debt.

In 1786 was the state income 357 million livres, the expenses 555 million, so a deficit of almost 200 million. The credit of the state was exhausted, the exchange of the banknotes of the Caisse for specie had to be limited and its rate fixed. The state finances were not to be saved. The decision was made to call the Estates-General after more than 200 years and rarely had a bad fiscal situation such fateful consequences.

It would be relatively easy for the Estates to get the necessary means; the debt was in May 1789 550 million livres. But the financial issues were at first ignored, the main question was, whether the Estates should negotiate and vote together or separately. To avert the ever-threatening state bankruptcy, an income tax was introduced. The church has offered its properties as collateral for the state debt, its value 2 billion livres. These were eventually declared property of the nation, to the chagrin of the church. The conflicts led to the formation of the National Assembly, while the state's income collapsed.

The Revolution has completely halted the economical life of France. The working population of Paris and the provinces, all stopped working, believing they could live off the state, that took all the properties of the church and nobility. The National Assembly and later the National Convention made the most expensive promises it couldn't keep. France, with its fine soil and good climate, had to start importing grain and other foods, the exports shrunk to a minimum. The population of Paris had to be fed by the state. Regulating the food production and the setting of maximum prices has not helped the situation.

In November 1789 was the debt at 950 million livres. 400 million worth of church properties should be sold. The first Assignats were created in this amount, at 10.000 livre apiece, they were state obligations with a 5% interest rate, to be used as payment for the church goods and burned afterwards (this also happened for some time).

In March 1790 were more assignats issued, with a 3% rate, in values 1000, 300 and 200 livres. In September was a new issue announced and the assignats turned into actual money, without an interest rate. The total volume was limited to 120 million, the nominal values were 2000, 500, 100, 90, 80, 70, 60 and 50 livres.

The budget for 1791 planned expenses of 640 million. Some unpopular taxes were repealed, with few income sources to replace them; 300 million had to come from elsewhere. Even these numbers were too optimistic. Small denominations have been missing, the silver coins have vanished from circulation and much silver and gold has left the land. In May were 5-livre assignats created. In June were printed 600 millions of new assignats and more issues followed. The metal money has completely vanished. As most of the church properties were sold off, the forests should be sold as well.

The War in 1792 was completely financed from issues of assignats. France was at war with England, Germany, Austria, Netherlands, Spain and other countries; the economic ties were broken, contact with their banks was forbidden. The assignats were also printed in the hostile countries, especially England. The war was accompanied by uprisings and civil wars in various parts of France. The Commune has begun its rule and revoked all land and feudal titles, dispossessing properties in value of 6 billion livres. Export of gold and silver was forbidden. The emissions of new assignats continued, until the top limit was not set anymore from 1793.

The exchange rate of assignats for specie kept sinking, despite orders and spies of the Jacobins - reportedly as many as 500.000. The sinking value of the assignats was at first seen by the (forbidden) agio on gold and silver coins. Later was any trading with them forbidden; refusing to accept assignats was severely punished, even with a death penalty. The government allowed usurious prices for the supplies and metal money it had to buy. The costs of war were 180-200 million livres per month, buying of grain 100-120 million. For other branches of government were the expenses cut down to a minimum.

By end of May 1795 were 10 billion assignats in circulation, the exchange rate with specie fell to 7%. The clerks and old debtors were paid in nominal values, but the army, workers and suppliers had to be paid according to the market rate. That led to always increasing emissions. 10.000 livre notes were printed as the lowest denominations to cover the needs of the state, but it was still not enough.

In August 1795 was the livre renamed into the franc, equal to 100 centimos, introducing the decimal system into the currency. The 5- and 1-centime pieces were bronze coins. By autumn was the lack of money palpable, there was not even enough to pay the couriers to the armies. 18 billion assignats were backed by only 1 billion worth of properties. On January 1st 1796 it was 27 1/2 billion, the exchange rate fell to 1/2%.

For 20 francs in gold were paid 4200 livres assignats. Other attempts were made to raise money to little effect. The expenses were limited to the extreme, only the ministers and selected high officials were paid. All other payments were refused and 12.000 clerks were dismissed. The attempts to stop paying for the food supplies for the people of Paris has failed.

On February 21st was the printing of assignats stopped and the presses were destroyed in a great celebration. Since all money was exhausted, more properties should be sold, and another form of paper money was introduced, "territorial mandates", that could be used to pay for the properties. But the mandates failed within a year, only some made money from the speculation.

It took Napoleon to restore hard money to France. As First Consul (1801), he introduced the 20 franc gold piece and insisted that from thenceforth soldiers, contractors, and merchants would be paid only in gold, or its equivalent. The paper blizzard was over. As the Bank of England had suspended specie payments in 1797, the English government was thrown into consternation. Napoleon would go on to conquer most of the Continent while on the gold standard.

External links

• see the French Revolution and Assignats on Wikipedia
• Fiat Money Inflation in France (pdf) by Andrew Dickson White, 1933
• Going the Way of France (1790) by C.J. Maloney, December 2008
• Choice in Currency: A Way to Stop Inflation by F.A. Hayek, September 1975
• Bank Notes of the French Revolution (pdf) by John E. Sandrock, history with pictures of the banknotes