Inflation during the French Revolution

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

The French Revolution

When Louis XVI became king in 1774, reforms were badly needed. The minister of finances, Anne Robert Jacques Turgot, began to institute some reforms which included lowering taxes and reducing special privileges. To support trade and manufacture, the "Caisse d'Escompte" was founded, 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, the state income was 357 million livres and the expenses were 555 million, creating a deficit of almost 200 million. The credit of the state was exhausted. The exchange of the Caisse's banknotes for specie had to be limited and the rate of exchange had to be fixed. State finances could not be saved. The decision was made to call the Estates-General after more than 200 years and rarely had so poor a fiscal situation such fateful consequences.

With the debt in May 1789 at 550 million livres, it would be relatively easy for the Estates to get the necessary means through taxes and loans; however, 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 had offered its properties, with a value of 2 billion livres, as collateral for the state debt. These properties were eventually declared possessions of the nation, to the chagrin of the church. The conflicts led to the formation of the National Assembly, a break-away government for "the People" which attempted to conduct the nation's affairs during the chaos of revolution.

The Revolution had completely halted the economic life of France. The working population of Paris and the provinces all stopped working, believing they could live off the state, which was now funded by the properties of the church and nobility. The National Assembly, and later the National Convention, made the most expensive promises that couldn't be kept. The state's income had collapsed. France, with its fine soil and good climate, had to start importing grain and other foods while its 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 had not helped the situation.

In November 1789, the debt was at 950 million livres. 400 million worth of church properties should have been sold to raise money. The selling of the properties would take a long time, necessitating the creation of assignats in the amount of 400 million. The first assignats were state obligations, or bonds, with a 5% interest rate at 10,000 livre apiece. These were to be used as payment for the church goods and then burned afterwards. At first, this practice was followed but later given up.

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

The budget for 1791 was planned with expenses of 640 million. Some unpopular taxes were repealed, with few income sources to replace them; 300 million had to come from other sources. Even these numbers were too optimistic. Small denominations had been missing, the silver livres had vanished from circulation and large amounts of silver and gold had left the land. In May 1791, 5-livre assignats were created. In June, 600 million in new assignats were printed and more issues followed. The metal money had completely vanished.

The War in 1792 was completely financed from the issue of assignats. The countries that France was at war with included: England, Germany, Austria, Netherlands, and Spain. Economic ties with these countries were broken and contact with their banks was forbidden. As a war strategy, assignats were printed in the hostile countries, especially England, to increase inflation in France. The war was also accompanied by uprisings and civil wars in various parts of France. The Paris Commune had begun its rule and revoked all land and feudal titles, dispossessing properties in the value of 6 billion livres. Export of gold and silver was forbidden. The issue of new assignats continued, until the top limit was no longer set from 1793 onward.

The exchange rate of assignats for specie kept sinking despite attempts to fix the rate. The sinking value of the assignats was at first seen by the illegal agio on gold and silver coins. Later, any trading with the metal coins was forbidden and refusing to accept assignats was severely punished, with the worst penalty being death. These restrictions were enforced by the government in order to pay the cost of war, which at that time had risen to 180-200 million livres per month. A very large expense was the purchase of grain amounting to 100-120 million per month. The expenses of the other branches of government were cut down to a minimum.

By end of May 1795, 10 billion assignats were in circulation and 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 ever-increasing issues of assignats. By this time, 10,000 livre notes were printed as the lowest denominations in order to cover the needs of the state; but it was still not enough.

In August 1795, the livre was officially renamed the Franc, equal to 100 centimos, introducing the decimal system into the currency. The 5- and 1-centime pieces were bronze coins. By autumn, the lack of money was palpable; there was not even enough to pay the couriers of the armies. 18 billion assignats were backed by only 1 billion worth of properties. On January 1, 1796, there were 27.5 billion assignats in circulation and the exchange rate fell to 0.5%. 20 francs in gold were worth 4,200 livres assignats. Other attempts to raise money to pay the state's expenses had little effect. The state expenses were cut down to the bare minimum, only the ministers and selected high officials were paid. All other payments were refused and 12,000 clerks were dismissed.

On February 21st, 1796, the printing of assignats was stopped and the presses were destroyed in a great celebration. Since all money was exhausted, more properties were to be sold, and another form of paper money introduced, "territorial mandates", that could be used to pay for these properties. However, the mandates failed within a year and only some speculators made money from them.

As a historian has noted: "The attitude of the Jacobins about finances can be quite simply stated as an utter exhaustion of the present at the expense of the future. They never worried about the morrow, handling all their affairs as though each day were the last. That approach distinguished all actions undertaken during the Revolution. What permitted it to survive as long as it did was the fact that the day-to-day depletion of the resources accumulated by a rich and powerful natio allowed unexpectedly large resources to come to surface. The assignats, as long as they had any value at all, little as it might be, flooded the country in ever increasing quantities. The prospects of impeding bankruptcy never stopped their being issued even for a moment. Only when the public absolutely refused to accept paper money of any kind, did the issue of new notes come to a halt."

The 'land-warrants' sank to zero in the year they were introduced. Nobody any longer traded anything but silver. This money, which had apparently been hidden away or exported abroad, took over the circulation. Whatever was hidden came into the open, whatever had left France returned. The southern provinces were overflowing with piasters which had come in from Spain because they were in demand. Gold and silver, like all commodities, moved to where demand attracted them, their price became higher and stayed at that level until the supply was adequate and the demand was satisfied. Only silver and gold were to be seen on all the markets and people's wages were paid in the same manner. One might have said that no paper money existed in France. Warrants were to be found only in the hands of speculators, who received them from the government and resold them to buyers of national assets. Thus the financial crisis continued to exist for the state but almost ceased to exist for individuals.

It took Napoleon to restore hard money to France. As First Consul in 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. Napoleon would go on to conquer most of the Continent while on the gold standard.

Inflation in numbers

Date	livres in circulation:
June 1st 1791	912 000 000
October 1st 1791	1 151 500 000
September 22nd 1792	1 972 000 000
January 1st 1793	2 825 906 618
August 1st 1793	3 775 846 053
May 1st 1794	5 891 479 201
July 1st 1794	6 082 051 800
October 1st 1794	6 618 297 170
January 1st 1795	7 228 819 063
April 1st 1795	8 326 945 681
July 1st 1795	12 338 143 861
October 1st 1795	17 879 337 898
January 1st 1796	27 565 237 396
April 1st 1796	36 671 761 762
September 1st 1796	45 578 810 040

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
• The Great French Inflation by Richard M. Ebeling, July 2007
• Bank Notes of the French Revolution (pdf) by John E. Sandrock, history with pictures of the banknotes
• "Revolutionary France’s Road to Hyperinflation" by Frank Hollenbeck, December 2013