Assignats

July 15, 2004

I am writing this on Bastille Day, so a bit of French History, if you please. History does repeat itself, with variations. For several hundred years, the French used the livre as a currency. It may, or may not have been backed by gold, but since all of France was owned by the Catholic Church and the nobility, it didn't really matter. The serfs and groveling peasants got a bit sick of this rule, and by means of protesting, withholding of services, and other means available to everyone back then, as now, gradually a class called the "bourgeoisie" was formed. This became the shopkeeps, factory owners, tradesmen, and what we now call the "middle class." More and more land was transferred into private hands because of strikes, and uprisings. For a hundred years, the government had been running deficits. The bankers would loan livres to government, to pay its bills. Did they create the livres out of thin air, as does the Federal Reserve? Maybe. Government proliferated, and more and more bureaucrats were hired, just like today. The deficit grew astronomically, just like today. Finally, in 1781, the banks told government, "No more money." This caused a huge uproar, because there was no money to pay government's ever increasing expenditures. With government bills unpaid, and great upheaval throughout the land, revolution seemed inevitable.

To quote from paragraph 1, page 34 of a book titled "The French Revolution, 1788-1792," Copyright 1962: "The hoards of inspectors, controllers, inspector-controllers, visitors, assayers, surveyors, supervisors and so forth, which had been increased by Louis XIV and his successors to ludicrous proportions, was an intolerable burden upon every sphere of economic life: In itself unproductive, it lived at the expense of production. These officials encumbered the streets and marketplaces, invaded shops and factories, levied fines to right and left, and held up all technical progress." There were taxes on everything, and the nobility and church paid none. There was the salt tax. Every family had to buy so many pounds of salt for each of its members over seven years of age. The salt was heavily taxed, and the tax collectors could break into any home to check for its salt content. There were 20,000 salt inspectors who stopped people on the road, raided their homes, and were hated. On the eve of the revolution, 2300 men, 2800 women, and 6600 young persons were in jail for the crime of smuggling salt! Finally, on July 14th, 1789, the Bastille was raided, and King Louis XVI was King no more. No more taxes were collected, and government virtually ceased to exist. Violence and murder were everywhere.

It sounds like America might be, if the middle classes, welfare recipients, and other citizens finally got enough of huge government meddling in everyone's business, debasing the currency, fighting foolish wars, and in general becoming so oppressive that it was no longer tolerable.

France is a Catholic land, and the Church owned a great deal of it. When the government ran out of money, it decided to confiscate Church properties, and sell them to finance its deficits. They taxed everything to the extreme, and this wasn't enough. It did this in 1790… but I get ahead of myself. The revolution began in 1789, because the nobility and Church were tax exempt. The burden went to the bourgeoisie, who grew really tired of paying through the nose, while the nobility and Church went tax free. The result was unrest…to put it mildly, and the unrest was headed by Robespierre, who was a real hothead. It became a total revolution, as a matter of fact. The French Revolution didn't have to happen. It resulted from a hundred years of deficits, financed by banks and paper money, plus overwhelming taxes being levied upon the workers and producers. France's helping out with the American Revolution didn't help a bit, as it cost the French a lot of livres to do it.

What began in 1787, when the bankers told the government to find its funds elsewhere, resulted in the Revolution in 1789. It was horrible. Riots, food shortages, violence, and you name it. In early 1789, the government issued 5% bonds to redeem its public debt. These became known as "Assignats." These were similar to US treasury bonds, which are denominated in dollars. These bonds were called "Assignats," and were denominated in livres, the French equivalent then, of dollars today. These were merely pieces of paper, just like the treasury bonds of today, with not a damned thing in back of them. The initial printing was for 400 million livres. In 1790, the assignats became official legal tender, replacing the livre. Also in 1790, the government confiscated Church property, and this didn't exactly sit too well with Catholic France. By this time, the bourgeoisie was in full riot form, as they saw their income being taxed away, and bureaucrats everywhere telling them what to do. Their Church had its property seized, and over-powering government was everywhere. Sort of like today, without church property confiscation, huh?

As a result of the revolution, in 1795, a new type of moderate government was formed called the "Directorate." The assignats became virtually worthless by 1796, so many had been printed. They were worth 1% of their original value. The dollar is also worth about 1% of its original value, only it has taken longer. Inflation had become run-away, thanks to the printing press assignats. Inflation wasn't stopped till May 21, 1797, when all paper money was declared void.

Napoleon Bonaparte distinguished himself as a soldier. When he came back from Egypt in 1799, he became one of three consuls of the new Directorate Government, and eventually became one for life. He was an outstanding leader, and became Emperor in 1804. In 1802, the French Franc was established, and it continues to this day. Napoleon saw to it that bureaucracy was reduced by a huge amount, a constitution was written, relations with the Church were re-established, banking was reformed, courts established, and serfdom abolished. Napoleon was an outstanding administrator. He also declared that only gold and silver would be used as money! From pages 102-103 of a book titled "The Napoleonic Revolution," Copyright 1967, (I have a large library) "Although specie (gold and silver) was in short supply at the time, Bonaparte next declared that only specie would be legal tender. Despite frequent complaints about the lack of specie, its amount was increasing. So was its rate of circulation as hoarding declined. A law of March 27, 1803 established the ratio between gold and silver at 15.5 to 1, and determined what size pieces would be coined. But silver rather than gold was the standard for the franc, at five grains per franc. This law fixed the money charter of France for 125 years. Bonaparte completed this series of currency measures by offering to coin, without cost, the bullion that citizens brought to the government mint. For the first time, France had a clearly defined currency whose real and face values coincided." This quote certainly shows what could happen here if we began again, doesn't it? See why I urge people to get physical gold and silver? Who knows, maybe eventually, they will become the law of the land.

What happened in France at the end of the 18th century, was the natural result of fiscal mismanagement, government spending to the extreme, huge numbers of bureaucrats snooping everywhere, and fining, jailing, and abusing the citizenry. They simply had enough, and took to the streets with anything they could find, to stop the abuse by the government and its nobility. King Louis XVI was out, and a constitutional form of government replaced him. Napoleon had a fifteen year, highly successful Emperorship. What he did for France, cannot be over-stated, but it requires many books to tell the story.

What lessons can be drawn from the French experience? They are many, but first of all, government endlessly printing un-backed paper "money," cannot go on forever, and in 100% of the cases in history, these currencies become worthless. Today, the M3 is growing by a billion a day, if that means anything to you. Secondly, there comes a time in the history of all nations on earth, when governments take too much on themselves, and rule too harshly, tax too much, and become a first rate pain in the posterior. It happened here, when the British, under King George, placed one too many taxes on the Colonists, and they revolted. Thanks to France, we won, but without them, we might not have. The South had a belly full of dishonest Abe and his taxes as well, and decided to secede. 620,000 lives were lost in that revolution, and the freedom the South wanted, was lost forever, with government growing ever since. Both the currencies of the North, South, and American Revolution became worthless, due to endless printing of them to pay for government spending. Those that will not learn from history are doomed to repeat it, said a wise man. Protect yourself.

 

Don Stott has been a precious metals broker since 1977, has written five books, hundreds of columns, and his web site is www.coloradogold.com

Seventy-five percent of all gold in circulation has been extracted since 1910

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