The French Revolution
My lovely wife, Puddy, accompanied me to France last June. We went to Normandy for a conference then onto Paris for a week. Our daughter and a guest met us in Paris, and we encamped in an apartment one block from the Louvre.
One day we all went to Versailles and toured the palace and the grounds. I tried to explain to my daughter how the grandeur we were admiring came to be. I showed her where the peasants stormed the palace and entered the queen’s bedroom. Can you imagine what the emaciated peasants of Paris must have thought upon seeing the gilded excesses at the Palace of Versailles? A rich aristocracy was living in the most lavish circumstances while regular French citizens starved.
As usual, the circumstance leading to the French Revolution made more sense when viewed through the lens of money or, to be more exact, money mischief.
In 1715 after the death of King Louis XIV, the Sun King, his five year old great-grandson was named King Louis XV. The boy’s adult first cousin, the Duke of Orleans, was appointed to be regent, running the country’s affairs until the young king reached the age of majority.
Many people are familiar with the Scotsman John Law, who was a mathematical genius and gambler, but not everyone is familiar with is hand in the revolution. One year into the regency of the Duke of Orleans, John Law established Banque Generale, the first central bank of France. I am sure that John Law told the Duke that the coffers of France would overflow with paper money and that the people would not have to pay extra taxes.
In 1718, after a rocky start, the central bank was renamed Banque Royale, which allowed it to act under royal decree. As you might imagine, things started out quite well for everyone. The bank’s new designation meant that there was more money for the Duke to spend, and the economy got quite a boost. However, after a while, inflation soared, as it will do when a government prints lots of money. With the Duke’s permission John Law implemented all sorts of laws to fight this inflation of his paper money.
First, Law banned ownership of gold and silver over a token amount (equal to about 5.5 ounces of gold or 78 ounces of silver).
Next, Law ordered all payments over 100 livres (about one ounce of gold or 15 ounces of silver) to be paid only with his banknotes.
As citizens’ faith in paper money plummeted even further and wealth started to flow out of the country, Law implemented currency controls and banned the export of all gold and silver bullion. When, to his dismay, the situation became even worse, he offered generous rewards for people who turned in neighbors who violated the aforementioned laws.
Finally, Law’s banknotes depreciated so much that he decreed that if a merchant even asked if the customer intended to pay in gold or in banknotes prior to quoting a price, the merchant was to be put to death. The logic was that the merchant doubted the value of the King’s chartered bank’s notes and was therefore guilty of treason to his king. Of course, the penalty for a merchant not to ask was bankruptcy.
The final scene in this farce was predictable. In 1720, in spite of all the decrees by Law, there was a run on Banque Royal that could not be stopped. The Duke dismissed John Law, and he promptly fled the country, leaving its banking system and economy in shambles.
In 1723, King Louis XV reached his thirteenth birthday, the age of majority, and he took control of France. A large portion of the citizens had lost their savings and had developed a hatred for paper money that would exist for generations.
In 1774, King Louis XV died, and his grandson became King Louis XVI at the age of 20. Fifty-four years had passed since the run on the Banque Royale. Most people with any direct memory of the bank were long dead. However, France was fighting several expensive wars, draining its treasury. The grand Palace of Versailles, which had been under construction since the reign of Louis XIV, was still being expanded during Louis XVI’s reign. France was arguably the greatest power in the world, and it was spending itself into bankruptcy in grand style. To make matters worse, Louis XVI held himself aloof from the general population, which literally was starving while he was secreted several miles outside of Paris, living in high style in one of the greatest palaces ever built for a sovereign.
In 1789, Frenchmen had had enough. In July, violent mob overtook the Bastille, a penitentiary in Paris, to protest despotism (and in the hope of making off with valuable gunpowder that was stored there). In October, six thousand mothers armed with pitchforks, scythes, muskets and whatever other weapons they could find marched all the way from Paris to the palace at Versailles. Pushing through the gates, they demanded bread to feed their starving children and for the price of bread, which made up half a typical Frenchman’s diet, to be brought down to affordable levels. The stunned king agreed to their demands.
The French Revolution, begun in 1789 with these dramatic events, threw the country into chaos.
In 1790, the National Assembly confiscated church properties. Shortly thereafter, it issued a bond representing the value of the confiscated church properties. The bond, known as the assignat, became a currency. The bonds were overissued, and hyperinflation, representing a loss of confidence, resulted. By 1792, they were virtually worthless. More paper money schemes were tried; all failed. Food riots broke out because there was no stable money, and the economy collapsed.
In 1792, King Louis XVI was deposed and the monarchy abolished. In 1793, he and Marie Antoinette were convicted of treason and beheaded in Paris as the government scrambled to get the economy under control.
The National Assembly passed the Maximum Price Act of 1793, declaring price controls that only caused even greater shortages. After all, a merchant could not expect to sell something for less than he paid for it. Farmers refused to plant and sell crops at a loss. Goods simply disappeared as stores shut down or were sold on the black market. As a result of the price controls and the resultant shortages, even more food riots broke out.
Napoleon became First Consul after a coup d’état in 1799. During the coup of 1799, no one seemed to care who came into power as long as he could ease their suffering. French citizens were tired after 10 years of revolution and chaos, and they simply wanted a stable government.
Napoleon appointed a senate that rubber-stamped his decrees. In 1803, Napoleon sold Louisiana to the U.S. for a mere $15 million dollars ($.03/acre) in order to generate cash for his debt-ridden country. The following year, after five years of political and military maneuvering, Napoleon became Emperor of the French, thereby assuming total power.
Just before ascending as Emperor, Napoleon finally put an end to the paper money experiment that plagued France for decades by introducing the germinal franc as the new currency. (Germinal was a month in the new revolutionary calendar. The new calendar had 12 months. Each month had 3 weeks, and each week had 10 days. Year 1 was the year of the revolution.) The new franc contained 0.29032 grams of gold. The 20 franc coin had 0.1867 troy ounces of gold and was minted for more than 100 years, until 1915. The 20 franc gold coin provided a welcome monetary stability in France, a stability that had been lacking since John Law appeared on the scene.
As we have seen, in the French Revolution, it took a dictator or emperor who seized power through a coup to restore order to the economy by going back to gold as a stable form of money. I wonder what it will take in today’s modern world, and in the U.S.? How long will we suffer inflation (and then hyperinflation) until we agree to cede political power to anyone who will fix the problem by throwing out the bankers and re-establishing a gold standard? Whom will we willingly surrender the republic to in exchange for a promise to end the bankers’ fractional reserve currency chaos and money mischief?
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