Wednesday, November 09, 2016

Indebted Western World Governments
Following The Path Of 18th Century France
"Governments have an insatiable appetite for the wealth of their subjects. When governments find it impossible to continue raising taxes or borrowing funds, they have invariably turned to printing paper money to finance their growing expenditures. The resulting inflations have often undermined the social fabric, ruined the economy, and sometimes brought revolution and tyranny in their wake. The political economy of the French Revolution is a tragic example of this. Before the revolution of 1789, royal France was a textbook example of mercantilism. Nothing was produced or sold, imported or exported, without government approval and regulation .. While the French king’s government regulated economic affairs, the royal court consumed the national wealth. Louis XVI’s personal military guard numbered 9,050 soldiers; his civilian household numbered around 4,000—30 servants were required to serve the king his dinner, four of whom had the task of filling his glass with water or wine. He also had at his service 128 musicians, 75 religious officials, 48 doctors, and 198 persons to care for his body .. In an attempt to put the government’s finances in order, in July 1774 the king appointed a brilliant economist, Anne-Robert-Jacques Turgot, to serve as finance minister. Turgot did all in his power to curb government spending and regulation. But every proposed reform increased the opposition from privileged groups, and the king finally dismissed him in May 1776 .. On March 17, 1790, the revolutionary National Assembly voted to issue a new paper currency called the Assignat, and in April, 400 million of them ($80 million) were put into circulation. Short of funds, the government issued another 800 million ($160 million) at the end of the summer. Seymour Harris, in his study of The Assignats (1930), traces the path of the paper currency’s depreciation. By late 1791, 1.8 billion Assignats were circulating and its purchasing power had decreased 14 percent. In August 1793 the number of Assignats had increased to almost 4.9 billion, its value having depreciated 60 percent. In November 1795 the Assignats numbered 19.7 billion, and by then its purchasing power had decreased 99 percent since first issued. In five years the money of revolutionary France had become worth less than the paper it was printed on. The effects of this monetary collapse were fantastic. A huge debtor class was created with a vested interest in the inflation because depreciating Assignats meant debtors repaid in increasingly worthless money. Others had speculated in land, often former Church properties the government had seized and sold off, and their fortunes were now tied to inflationary rises in land values. With money more worthless each day, pleasures of the moment took precedence over long-term planning and investment. Goods were hoarded—and thus became scarcer—because sellers expected higher prices tomorrow."
- Free market economist Richard Ebeling
LINK HERE to the essay

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