The Assignat
Max Keiser: 1789. France is in turmoil as the Ancien regime is overturned and the Assemblée Nationale abolishes feudalism and the privileges of nobility and clergy, declares the Rights of Man, the Bastille is stormed and the King is forced to accept a constitutional monarchy. A feeling of freedom and enlightenment sweeps the nation. The country’s best minds come here to the Assemblée to make impassioned speeches. But the crushing debt is a problem. Some suggest the issuance of notes to bring liquidity and prosperity.
Max Keiser: Resistance is fierce. Jacques Necker, finance minister, argues passionately that printing money would lead down a dangerous path and reminds the Assemblée of the Mississipi Bubble and John Law, still in living memory for many. Necker was savagely attacked by the proponents of the assignats. You see, they had a cunning plan: They would confiscate property from the church and they would do a one time issuance of 400 million livres. This was the Collateralised Mortgage Obligation of its day. Limited, one time, backed by property… What could possibly go wrong?
Max Keiser: The debt crisis escalated. Silver disappeared from the markets. There was an outcry for paper money, but the defenders of sound money were eloquent. They remembered John Law and the Mississippi company.. names like Necker, DuPont, Maury… For a whole year the debate raged between Paper money and Hard Money. The paper money crowd said.. “it’s gonna be one time deal, fully collateralised” ..And in the end, by just a handful of votes, 400 million livres of Assignats was approved.
James Turk: Pierre, help me understand something... in 1720, the Mississippi Bubble collapsed bringing devastation to France and to its people. Seventy years later France again turned to paper currency. How could this happen?
Pierre Jovanovic: To keep the revolution going, Talleyrand had this genius idea. He said “we are going to steal, to take everything which belongs to the Vatican” As you know the Vatican at the time was extremely powerful.. just the Pope owned almost half of Europe. So they invented this extraordinary thing which they called “la caisse de l’extraordinare”… The “extraordinary cash register”. You can’t make this up. This extraordinary cash register was made to sell everything which they take from the Vatican.
James Turk: They confiscated the land…
Pierre Jovanovic: Everything! Buildings, people, cattle...
James Turk: ..And they issued these assignats in order to sell all this property and raise money to pay for the deficit.
Pierre Jovanovic: It was not a paper currency in the beginning, because they paid interest on it. The French government paid interest… before realising that it was such a good idea that they just transformed it into paper money… and we started all over again.
Max Keiser: The second time was easier. The issue was a wonder. The government paid off their expenses. People got their shiny new assignats, commerce was stimulated and liquidity increased.
Max Keiser: However after just five months the government had spent the money and since it continued to run a deficit, soon cries were raised for another assignat issue. The second assignat issue only took three months to approve and it was passed by a large majority. 503 to 423 votes. 800 million livres were to be issued. Necker resigned. The Royal family fled the Tuilleries Palace in servant’s clothes and was arrested at Varennes.
Max Keiser: The assignats had already started to lose value. Gold, silver, copper were all driven out of circulation. But the people wanted more. The government issued another 100 million livres in assignats.. Prices kept going higher, but people wanted more. It was a vicious cycle… prices higher, more assignats. Foreigners, exiled nobles, shopkeepers, the Church… all were blamed for rising prices…
Max Keiser: …but not the assignats. Speculation was rampant as people tried to protect themselves against a depreciating currency. A new speculator class emerged who wanted more of this funny money and they pressured government to keep the printing presses rolling. In December 1791 a new issue was authorised: Another 800 million livres. Meanwhile the value of the first issue continued to drop, from 100 livres nominal to 53 livres. In March Clavière became Minister of Finance, promising to speed up printing. In April came the fifth largest issue: 500 million livres. Many smaller issues and reissues were simultaneously being carried out. Issue after issue followed through 1792, every couple of months, up to a total of three-and-a-half billion livres. Food prices continued to rise. In August of 1792 food riots lead to an end of the constitutional monarchy, the Paris Commune insurgency, the assault on the Tuilleries Palace, the arrest of the royal family and the Jacobin takeover of the Assemblée. The guillotine started to work overtime.
James Turk: So they broke their promise and instead of limiting the amount in circulation, they increased the amount in circulation. So maybe after the first year they did another one and after six months…
Pierre Jovanovic: Exactly. Like the John Law stuff. Exactly the same thing. It’s always very easy for the government to use the printing press and print money.
Max Keiser: King Louis XVI was guillotined on January 1793. War intensified and the Reign of Terror really got going. War and money printing really got prices skyrocketing. The Jacobins introduced the “Law of the Maximum” to put a ceiling on prices. This only led to shopkeepers and shops disappearing because the penalty for violating the law was death. Dragoons went into the countryside looking for food and the shops in Paris were attacked by mobs. Meanwhile assignats kept rolling off the printing press and all efforts to prop up their value failed. In 1794 total assignats issued reached 7,000 million livres, in May of 1795 they totalled 10,000 million livres, in July of 1795 14,000 million… Creditors were wiped out. Debtors rejoiced.
James Turk: So the Maximum was essentially a form of price controls, shopkeepers could only charge so much…
Pierre Jovanovic: Yes, but it never worked, just as it never worked in Rome.
James Turk: They’d be forced to accept currency which was worth less than the goods, so the shopkeeper closed up shop rather than accept the worthless currency…
Pierre Jovanovic: Exactly as it was during Nero and the roman emperors (see Diocletian’s “Edict on Maximum Prices”) who started mixing silver and copper.
James Turk: …and that destroyed the economy even worse than the currency collapse itself.
Pierre Jovanovic: Exactly, history keeps on repeating.
Max Keiser: In October of 1795, the Convention fell and was replaced by the Directory, by then the guillotine had become a standard part of governmental succession. The Directory tried to replace the, by now almost worthless, assignat with a new issue by a different name, “Mandat” which was short lived. assignats continued to circulate, but were increasingly worthless.
James Turk: So ultimately when the assignat collapsed we went to what was called the “Mandat”...
Pierre Jovanovic: “Mandat National” if I remember correctly.
James Turk: it lasted one year.
Pierre Jovanovic: one year
James Turk: And it was also a paper currency.
Pierre Jovanovic: Definitely, just plain paper. You didn’t even have the church properties to back the money. It’s amazing… just the trust o the revolutionary government, which nobody trusted anymore.
Max Keiser: The Directory marks the end of the French Revolution. Bone crunching poverty gripped the nation. They feared the rise of the army. And they were right. In 1799 Napoleon’s coup brought in The Consulate and later the Empire.
Napoleon: “While I live I will never resort to irredeemable paper”
Max Keiser: He never did. The gold franc held until World War 1.
James Turk: The bottom line is that sometimes people and particularly politicians don’t learn from monetary history.
Pierre Jovanovic: Certainly, history is repeating itself, especially right now. We can see exactly the same thing. What we are seeing today is what the French people have seen 200 years ago with John Law.
James Turk: I think that people should get their history books out and see what’s happened before.
Pierre Jovanovic: People are too lazy to open their schoolbooks.
James Turk: Hopefully they’ll be watching this video.
Max Keiser: Seem like when anyone, anywhere fools with fiat money, catastrophe follows. James.. is anyone going to learn from this history?
James Turk: Lets hope this time we learn from history so we don’t have to relive it.
Max Keiser:Let’s go to the Café… and buy some gold!
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