Tales of Soft Money — French Assignats


In his 'Fiat Money Inflation in France', Cornell University co-founder Andrew Dickson White has given a detailed, chronological account of the rise and fall of the assignat paper money experiment in Revolutionary France. This experiment is not to be confused with the monetary mismanagement caused by John Law less than a century prior. It should also not be purely attributed to the notion that humanity never learns from its history; John Law's work was commissioned by Phillipe II, Duke of Orleans and regent for the young king, Louis XV, and so parts of the French public associated the downfall of Law's paper money with the fact that France at that time was ruled by despots. Under a constitutional republic indirectly governed by the people, they argued, surely the new paper money would get the struggling French economy on its feet.

And so, in the later years of 18th century, the National Assembly started advocating for this second implementation of a national paper money. At first, various French officials resisted, where Minister of Finance Necker were arguably the most influential. Another famous attempt to resist the coming degeneracy came from Nicolas Bergasse, a lawyer from Lyon who distributed pamphlets warning of things to come. The attempts proved futile, and from the National Assembly came soon suggestions to issue assignats and subsequently confiscate Church property that would back the new money. The plan was to repay bond holders with assignats, which then could be used by them to acquire government land or specie (gold or silver livres). In April 1790 came the first issue of assignats, to the large sum of four hundred million livres. 'Secured' by the newly confiscated Church property, they were also to deliver a 3% annual interest to holders - a move to lure hoarded livres from deep coffers.

The initial results of France's new money seemed at first positive. Even the country's debt could be partially paid off. Within five months, however, the state had spent all of its assignats, which were now circulating among the public. Renewed voices were raised in support for a second wave of money printing, given that the first one at a glance seemed so successful. Even early skeptics like the popular Mirabeau, who earlier in disdain had called for the banishment of the words 'paper money' from the French language, started to slowly come around to what looked like the cure to all financial ills. His earlier private correspondence, in which he had written that paper money was:

[...] a nursery of tyranny, corruption and delusion; a veritable debauch of authority in delirium.

, was promptly forgotten, as if the words belonged to a whole other man. Dickson White, after noticing the ever increasing theorizing about the wealth and happiness that the second issue of assignats were to bring, wrote:

It began to be especially noted that men who had never shown any ability to make or increase fortunes for themselves abounded in brilliant plans for creating and increasing wealth for the country at large.

Mirabeau, utterly convinced of the assignats' superiority in September, 1790, convinced both himself and many colleagues in the National Assembly that this new money was in fact even more sound than specie as it was backed by the source of all production - land - and not precious metal that at best had its limited use in jewelry.

On the 29th September, 1790, a new, larger issue of eight hundred million assignats was authorized. Unlike the first issue, these assignats carried no interest. A promise was made to the public that no more than these twelve hundred million assignats were ever to be printed, and that any assignat that was returned to the treasury for the payment of land would be burned. At first, according to Dickson White, the first promise was held in a way. Instead of having more assignats being minted by the central government, the scheme was bypassed by instead letting local authorities print their own assignats; this caused confusion, and as the number of different assignats in France skyrocketed, it also came accompanied with a high degree of fraudulent notes. Furthermore, as Church land for one hundred sixty million livres were eventually sold, the incoming assignat notes were in fact burned, but later re-issued as smaller notes under the guise of necessity.

For all the theorizing and promises that hoarded specie were to loosen up and revitalize the economy by circulating, it became apparent that not enough of if actually did. Laws were passed that forced the public, the Church and even the King to deposit gold, silver and copper to central mints in order to produce more coins. No amount of monetary tinkering and lawmaking could however get the results people had hoped for, and the successes of the first assignats issue seemed more and more as an aberration.

Radical currents were still strong, and so a new issue of six hundred million assignats was authorized on 19th of June, 1791, in spite of earlier promises. And then more issues followed; each and everyone of them saw the paper money depreciate in value, and while proponents of the assignat saw this as a problem, they did not have the mental fortitude to assign the right reason for this depreciation. Dickson White mentions one member of the National Assembly coming with a proposal to educate the rural population in order to restore full faith in the new money. Few connected the depreciation of the money with an increase in the supply of it.

Sure enough, the factories of France closed one by one, as factory owners realized that the purchasing power of their customers decreased with an alarming rate. Meanwhile, the same capitalists could get rid of their assignat money in return for government land, with which they could get some breathing room. Regular Frenchmen on the other hand, having no legal way of storing wealth, suffered the worst consequences. Dickson White also reports on a significant increase in gambling during this period, seeing as no one had any incentives to save and be thrifty. There was, however, incentives to take out loans and then inflate them away. It seems a debtor class rose from this activity; the demagogues pushing for more money printing suddenly had a new mass of people to pander to.

In 1792, the assignat depreciation accelerated. By the beginning of February that year, assignats nominally worth 100 livres had fallen to about 60 livres. At the end of the month, the price was 53 livres. 1792 saw further issuance of new assignats, and it was done under the pretense that public land was worth more than total assignat supply. Confiscation of property continued as well, mainly of estates from members of the upper class that had fled the country. With this extra collateral, more assignats were issued. Around this time a shift in the printing process occurred; from being public, assignats started to be printed in secret. The price of assignats nominally worth 100 livres fell to 30 livres, with some fluctuations on the way down.

On the 31st of July, 1793, the first wave of assignats were suddenly demonetized by the anti-monarchist legislators who did not look fondly on their royal marks and stamps - something which assignats issued later lacked. This demonetization was 'balanced' with the issue of many more new assignats, not to be given to the owners of the old ones. In September the same year, The Law of the Maximum was adopted, setting a roof over which prices of certain products were not allowed to go. This resulted in farmers bringing as little produce as possible to the markets, in order not to have to sell it all with losses. Shopkeepers went bankrupt en masse.

France, now a highly disorganized and malfunctioning society, went further down the road towards monetary ruin. It was made illegal, on pain of death, to not accept assignats at par with silver or gold. The same punishment awaited those who demanded any kind of discount for payment in assignats. Informants were to be rewarded. In 1794, these laws became even more cruel, establishing the death penalty for even asking in which currency a trade should be settled. All commerce in precious metals were suppressed. By 1795, assignats nominally worth 100 livres had fallen to 4, then 3, then 2.5 livres. Dickson White writes:

On August 1, 1795, this gold louis of 25 francs was worth in paper, 920 francs; on September 1, 1200 francs; on November 1, 2600 francs; on December 1, 3050 francs. In February 1796, it was worth 7200 francs or one franc in gold was worth 288 francs in paper. Prices of all commodities went up nearly in proportion.

By the end of 1795, when the assignats were worth virtually nothing, a vast majority of them were in the hands of poor Frenchmen, while the rich and politically connected had already parked wealth in assets that obviously did not experience the same depreciation. Assignats continued to circulate while the government began issuing a new paper currency called mandats. These, like the initial assignats, were nominally exchangeable for government land, but failed to create enough trust. Not long after printing, the value of mandats fell to close to zero, just as their assignat cousins. In 1796, the printing machinery were brought out for public display and then burned.

Only after the fall of this second paper money were the French paper money experiments temporarily over, and as business picked up over the coming decade, specie flowed in to France to meet market demands for sound money. Napoleon, after taking power in a coup shortly after the French Revolution, vowed to never introduce paper money again.

[1] Dickson White, A. (1959). Fiat Money Inflation in France. New York: The Foundation for Economic Education, Inc., p.36.

[2] Ibid., p.44.

[3] Ibid., pp.88-89.