A new and improved version of fiat money creation
called for the issuance of what were termed “assignats”. These were notes
secured by the real estate recently confiscated from the Catholic Church. In
addition, the notes carried an interest rate of 3%. To make them even more
believable, they were beautifully engraved with a portrait of King Louis XVI.
It was said that the issuance of the assignats would do amazing things such as
stimulate business, give everyone buying power and that the debts of the nation
could be repaid.
It was also specified that no more than 400 million
would be printed. If they had lived up to the promise not to exceed 400
million, some of the positive outcomes might have come true. They did not. In
the end, 26 billion were printed, as well as a new version called “mandats”.
The “mandats” were said to be “good as gold”. In the end, both the assignats
and the “mandats” were worthless.
This new fiat money scheme did not end well. The
best job in France was probably working at the print shop cranking out billions
of new paper money. While there was an initial boost to business and exports in
general, it soon ran out of gas and France’s manufacturers shuttered their
plants and massive unemployment ensued.
The country was flooded with paper currency. The
value of the currency dropped precipitously. In an amazing display of ignorance
and propaganda, the government attributed the declining value of the currency to
a failure to print more paper money. Desperate people will say and do desperate
things. Many forms of outright tyranny ensued. One of the manifestations of
this tyranny was a policy of “Forced Loans” to the government inflicted upon
those who still had any remaining wealth.
What makes this episode in monetary history so
critically important to us today was not that the French in fact did this. The
first important lesson for us was the speed with which it went from issuance to
complete economic and social devastation. This was not a long drawn out
affair.
The second lesson comes from not only listening to
the assurances of those who set this tragedy in motion, but the assurances and
explanations along the way. History says that once set in motion, fiat money
schemes cannot be reversed. Tragedy and collapse are the terminal destinations
for this “train”. So just 70 years later, the French went down the same path
that was so disastrous for their ancestors.
The world is now repeating the same process, despite
the knowledge of so many failed and tragic dalliances with currency depreciation
in the past. One almost gets the sense that this oft-repeated story is simply
part of the cycle of human existence."
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