Inflation and the French Revolution: The Story of a Monetary Catastrophe

by H.A. Scott Trask

As in so much else, the French revolutionary regime (1789-94) was the precursor of the centralized, totalitarian, managerial, pseudo-democratic despotisms that now reign over the West. It is also reminder that mass democracy and inflation go together, as surely as thunder and lightning. Let us revisit the Revolution, from a free-market, hard-money perspective.

After two centuries, there remains no better analysis of the first two years of the French Revolution than Edmund Burke's Reflections on the Revolution in France (1790). Astute, penetrating, prescient—Burke, an Anglo-Irish MP and a liberal Whig, was of a rare type: both practical statesman and political philosopher. Had the English ministry and his fellow Parliamentarians followed his advice in the 1770s, they would never have driven the Americans to revolt and hence lost their most valuable colonies in the world. Had the French, they would have been spared the Terror, total war, and Napoleon. Burke continues to be accused by clueless academics and ignorant pundits either of inconsistency or deviationism for his very different reactions to the American and French Revolutions.

Burke was both a liberal and a man of the Right. He believed in religious toleration but supported an established church, the Anglican Communion. A friend and admirer of Adam Smith, he defended commercial liberty, but he also believed that civilization depended on the perpetuation of a landed aristocracy with its own separate political representation. While he denied that a king could tax his subjects without their consent, he was a fierce opponent of democracy and universal suffrage. Burke denied that liberty could be achieved by revolution or intellectual endeavor. For him, it was the product of tradition and history, and its victories had to be embodied in institutions.

Did the assignat "save" the Revolution? On the contrary, it helped bring on the Terror and set French progress back a generation.

Burke thought the French Revolution, rather than being a necessary if needlessly bloody hill on the path of progress and freedom, was a catastrophe for France, for western civilization, and for ordered, hierarchical liberty. Before the Revolution, French royal absolutism, and the stifling mercantilism that was its handmaiden, was on the wane. Already its rigors and severities were considerably softened from the reign of the Sun King, Louis XIV; and his great-great grandson possessed a reformist ethos that was liberalizing the economy and resurrecting the representative institutions of medieval liberty—provincial assemblies and the Estates General. Burke called the modern French monarchy "a despotism rather in appearance than in reality" in which, if anything, "rather too much countenance was given to the spirit of innovation," rather than too little.

The power of the French king was checked by public opinion, by an independent clergy, and by the parlements of the judicial nobility. The nobility itself was filled with admiration for the mixed constitution of England, with its limited monarch, its Parliament, its bills of rights, its toleration of religious dissent, its freer economy, and they wished to find a French approximation, and they were well on the road to doing so.

As Burke noted, the noble cahiers and instructions for their delegates to the Estates General "breathe with the spirit of liberty as warmly, and they recommend reformation as strongly as any other order." Maybe more. The spirit of laissez faire, mixed constitutionalism, and civil libertarianism was stronger in the nobility than among the bourgeoisie, and certainly stronger than among the urban artisans and peasantry.

The political argument in the Estates General in May–June 1789 that led to the outbreak of the Revolution was over voting. The question at issue was whether the three estates should vote by order (the traditional practice) or by head. The monarchy rightly sided with the first two estates on the question, but the Third Estate eventually grew tired of the controversy and declared itself to be the National Assembly, the other two orders be damned. They were only following the logic of their position to its logical conclusion, but they were also fulfilling the visionary and naive expectation of the French masses that the ancient social orders be erased so they could live lives of greater abundance and freedom. Many "conservative" and "liberal" historians have applauded the Third Estate's seizure of power and argued that the Revolution went wrong later with the ascendancy of Robespierre and the Mountain. Burke knew better.

By its arrogant usurpation, the Third Estate expressed its rash "preference for a despotic democracy to a government of reciprocal control." Big mistake, thought Burke. "I cannot help concurring" with the opinion of Aristotle and other ancient critics of democracy, "that an absolute democracy, no more than an absolute monarchy, is [not] to be reckoned among the legitimate forms of government. They think it rather the corruption and degeneracy than the sound constitution of a republic."

Aristotle pointed out that "a democracy has many striking points of resemblance with a tyranny." Burke translates: "Their ethical character is the same; both exercise despotism over the better class of citizens; … the demagogue, too, and the court favorite are not unfrequently the same identical men, and always bear a close analogy; and these have the principal power, each in their respective forms of government, favorites with the absolute monarch, and demagogues with a people such as I have described."

Burke was not so naïve as to believe that France with its 26 million people, its wide extent of territory, its diverse interests, could ever be a genuine democracy. He expected effective power to be wielded by "an ignoble oligarchy," in alliance with "the monied interest" of Paris, fattening on government bonds and rioting in feverish speculations in the confiscated estates of the clergy and nobility. As far as the braying mob, "the swinish multitude," they would prove a very effective instrument in the hands of the elite, especially when shouting down free market economic reform. Burke foresaw a government that would combine the vices of democracy with those of oligarchy and that would substitute a despotism of lawyers and sycophants for a government of laws and social orders. How right he was.

An exasperated Burke wondered why the French seemed to lunge from one extreme of government to another, as if there were no third option. "Have they never heard of a monarchy directed by laws, controlled and balanced by the great hereditary wealth and hereditary dignity of a nation, and both again controlled by a judicious check from the reason and feeling of the people at large acting by a suitable and permanent organ?" Nay, instead of retaining the Estates General as "a permanent assembly in which the commons had their share of power," they thrust total power upon the politically inexperienced and rash masses. Overnight, the whole fabric of the ancient constitutional order of France had been "pulled down and the area cleared for the erection of a theoretic, experimental edifice in its place."

Was this wise? What check remained on the power of the Assembly, the power of Paris? Burke thought that none remained. The National Assembly, claiming to be the nation incarnate, had erased the ancient provinces of France (substituting the unnatural departments), abolished the Parlement of Paris and its provincial counterparts, destroyed the first estate by confiscating its property and stripping it of its functions, rendered the nobility politically powerless, and concentrated all political power in a revolutionary assembly. He compared Paris under the new regime with ancient Rome. "As long as Paris stands in the relation of ancient Rome, so long will she be supported by the subject provinces. It is an evil inevitably attendant on the dominion of sovereign democratic republics. As it happened in Rome, it may survive that republican domination which gave rise to it. In that case despotism itself must submit to the vices of popularity. Rome, under her emperors, united the evils of both systems." So would Paris, so would Washington. Once all independent social authorities, legal institutions, and constitutional checks on the sovereign and divine people were destroyed, the way was prepared for le levee in masse, for les assignats and les papiers-monnaies, for the Maximum, for le Comite de Salut Public, for la Terreur, for la guerre totale, … for Napoleon.

The Assignat Inflation

The National Assembly that took de facto control of political power in France in the summer of 1789 found itself facing an even worse fiscal crisis than that faced by the now defunct monarchy just months earlier. The Assembly was spending enormous sums on public works projects in Paris and for bread subsidies. Having just thrown off the shackles of royal authority, the people were in no mood to resume paying taxes, much less pay more. Many of them, no doubt, interpreted the Revolution to mean the cessation of taxes, and the obliteration of the oppressive and coercive collecting apparatus. Desperate for revenue, the Assembly actually refrained from abolishing the hated gabelle (the salt tax), but no one paid it anymore anyway.

Meanwhile, the interest and principal was falling due on the national debt. What to do? The logical and just thing was to repudiate the enormous debt incurred by the monarchy. After all, the people of France, voiceless and unrepresented for centuries, had never approved nor sanctioned it; and if the monarchy had been as oppressive and iniquitous as the revolutionaries claimed, then surely the liberated masses should not be burdened with the responsibility of paying its extravagant debts?

Jean Baptiste Say recalled with disgust that "the moment there was any question in the National Assembly of commerce or finances, violent invectives could be heard against the economists."


Well, justice is one thing when one is out of power, and another when one possesses it. The Assembly rejected repudiation because they feared antagonizing the moneylenders of Paris, Amsterdam, Hamburg, and Geneva. They had already incurred the enmity of the royal houses of Europe, why add that of the bankers? Besides, the new government would need to borrow funds too. A formidable republican army would be needed to defend the revolution from its enemies, at home and abroad. Thus, they decided to honor the debts of the monarchy, but how?

The Assembly knew that it was politically inconceivable to lay new taxes and expect them to be paid without sending an army into the countryside to shake down the peasants, but who would pay the army? And further borrowing was out of the question until new taxes could be laid. That left one resource—plundering the privileged orders. In November 1789, the Assembly expropriated the vast lands and estates of the French church and declared them to be "national properties." From thenceforth, they would be "at the disposal of the Nation" (meaning the state). Burke observed sardonically that the government, still in its infancy, had grasped at "one of the poorest resources of doting despotism."

Burke angrily rejected the notion that the rights of property applied only to individuals. They also applied to corporate bodies, such as the Gallican Church, whose property titles were over 1,000 years standing. Not so, according to the leaders of the Revolution. For them, the church "had no right to the possessions which they held under law, usage, the decisions of courts, and the accumulated prescription of a thousand years."

Burke denied that the church was a parasitic body attached to the French nation. It was not exempt from all taxes, and it provided essential social services, such as free primary schools, classical academies, hospitals, and orphanages. Although we might prefer a purely private provision, can we doubt that France was better off with its eleemosynary and educational institutions under the control of a Christian establishment that was independent of government and under the necessity of practicing economy? Burke considered the expropriation of its lands to be a tyrannical act which he compared with the seizure of church properties by the "tyrant" Henry VIII of England250 years before.

Burke ranked the confiscation of the church lands, along with a "compulsory paper currency" with which it was linked, as the first layer of the "cement" by which the revolutionary government would rule over a unified and servile France, which they were treating as a conquered country. The second cement would be "the supreme power of the city of Paris" and the third "the general army of the State," thus joining economic power with political and military power in an impious trinity of oppression and expropriation.

He believed the confiscation served the new government in three ways. First, it all but destroyed a rival social authority that could check its moral and political power. Second, it placated the powerful "monied interest" of Paris and abroad by providing a means for funding the immense debt of the monarchy. How unjust to do so by pillaging the church, an institution that was neither responsible for contracting the debt nor had benefited from the deficit expenditures. "It is to the property of the citizen, and not to the demands of the creditor of the state, that the first and original faith of civil society is pledged," wrote Burke. Third, it created a new class of landowners whose loyalty would be to the revolutionary state, upon whose authority and survival their property titles depended.

It was not long before the Assembly realized that the sale of church lands alone would not be the fiscal bonanza they had envisioned. For one thing, throwing all those properties on the market would diminish their selling price. Second, there was just not enough floating capital (i.e. specie) in France to make large scale purchases. What to do? It was time for "the last remedy" for fiscal insolvency—government fiat paper currency. Here, the American Revolution furnished a pernicious precedent. In March 1790, the Assembly authorized the printing of 400 million livres of paper assignats of denomination of 200, 300, and 1,000 livres, bearing three percent interest, and receivable for taxes and the purchase of the national properties. In character, they were like English exchequer bills or American bills of credit. Supporters argued that the assignats would furnish payments to the state creditors, provide a means for the people to purchase lands and properties, draw specie out of hiding, and stimulate commerce and industry.

The consequences: depreciation, rising prices, feverish speculation, complaints about a shortage of money, calls for more assignats, the prostration of commerce and industry, inordinate consumption, and declining savings.


Many delegates, including Cazales, Bergasse, Maury, Necker, and Nemours, opposed the measure on economical principles. They argued that the new currency would depreciate, that it would be followed by additional emissions, further depreciation, and that the calamities of John Law's Mississippi Bubble (1717–20) would be re-enacted across republican France. Their objections and warnings were brushed aside. The enthusiasts essentially argued that economic laws did not apply to France, that she had learned from John Law's failed experiment never to overdo paper money, that a republican government could more safely inflate than a monarchical one (the precise opposite of the truth), and that the immense landed wealth of France provided solid security. Even though the issue was relatively moderate, the assignats promptly depreciated five, and later seven, percent, as measured against gold.

It should be noted that the Assembly was not a total bust when it came to economic freedom. They did abolish the tithe, the corvee, the guilds, and all internal custom barriers. However, they would go no farther, and would soon regress into a kind of hyper mercantilism. Burke writes of their open and contemptuous "defiance of economic principles." Jean Baptiste Say recalled with disgust that "the moment there was any question in the National Assembly of commerce or finances, violent invectives could be heard against the economists." Such is ever the reception accorded men who bear unwelcome or inconvenient truths.

By late summer, the government was again short of funds, so they naturally turned to a second issue of assignats. However, this time they doubled the dose to 800 million, dropped the interest payment, and made them legal tender for all purchases and debts across France. When the economists again remonstrated, paper advocates replied that the backing of the state would guard against depreciation, that assignats paid into the treasury would be destroyed, and that this would be the last emission.

(Whenever a government promises not to use a power they wish to exercise, or have just acquired, by way of assuaging the fears of those who anticipate abuse, they are sure to break that promise whenever it becomes convenient or they believe they can get away with it. Only fools or ignoramuses ever trust the word of government officials or politicians.)

Burke finished his Reflections soon after this second emission. As many of the French paper advocates had cited the notes of the Bank of England as a source of English prosperity and proof that paper money was safe, Burke drew an invidious contrast between his country's redeemable bank currency and the French assignats. In contrast to the latter, English bank notes have their "origin in cash actually deposited," are "convertible at pleasure, in an instant and without the slightest loss, into cash again," and not one shilling "is received but of choice." The French inflationists mistakenly assume that "our flourishing state in England is owing to that bank paper, and not the bank paper to the flourishing of our commerce, the solidity of our credit, and to the total exclusion of all idea of power from any part of the transaction." How different was the government currency of France—coercive, inconvertible, and without limit, its quantity subject to the needs or whims of the revolutionary assembly. Burke denounced its legal tender quality and the harsh measures adopted to enforce it as an "outrage upon credit, property, and liberty." Referring to their theft of the property of the French Church and using it to back their fictitious but coercive currency, he wrote: "They rob only to enable them to cheat." Having erected a deadly "apparatus of force and deception," they order the once free people of France, at the point of a bayonet, "to swallow down paper pills by thirty-four millions sterling at a dose." Liberte, egalite, fraternite, indeed!

The consequences of the second issue were just as the unpopular economists had foretold: depreciation in their value, rising prices, feverish speculation, complaints about a shortage of money, calls for more assignats, the prostration of commerce and industry, inordinate consumption, and declining savings. Economic calculation became impossible, but speculation quite profitable (or ruinous). Burke should get credit for a remarkably accurate and precise prediction. He believed that the rise of prices, consequent to assignat inflation, would render it unprofitable for farmers to take their crops to market. They would stay home and produce only for themselves or for barter with their neighbors. The government would then send troops into the countryside to confiscate grain and other foodstuffs. It happened exactly as he foretold.

The revolutionary government first decided to cure the evils generated by inflation with more inflation. Instead of destroying assignats received for the national properties, they reissued them in the form of smaller notes. In June 1791, they issued another 600 million assignats (the previous promise not to issue more was conveniently and predictably forgotten), and in December an additional 300 million. By the end of the year, its market value had fallen to 66 percent of its face value. In 1792, they issued 600 million more. In April of the same year, they confiscated the estates of the émigrés (those who fled France to avoid being arrested or murdered) and added them to the national properties. Then came 1793—Year One; the year of la Terreur. Having tried inflation and legal coercion, they would try terrorizing the population into accepting the plunging assignat at par, and producing and selling at a patriotic loss.

In March, the National Convention created the Orwellian-named Committee of Public Safety (another unfortunate American precedent), which was a kind of committee of terror, dedicated to expropriating and murdering those deemed to be "traitors" to France or enemies of la Revolution. In May, they passed le Maximum, imposing price ceilings on grain. It worsened the grain shortage. In June, they passed the Forced Loan, a progressive income tax, whose progressivity was progressively lowered to reach more and more citizens. They also passed increasingly draconian and deadly laws designed to force people to accept the assignats at par and forbidding them from exchanging them for anything less than their face value. In July, the Convention repudiated the first issue of interest-bearing assignats.

In August, trading (i.e. buying or selling) specie was prohibited. In September, the Convention passed the General Maximum, extending price ceilings to all foodstuffs, as well as firewood, coal, and other essentials. In that month, despite the deadly coercion, the assignat fell to 30 percent against gold. During 1793, the Convention issued 1,200 million assignats; in 1794, 3,000 million. Next came the deluge. In 1795, 33,000 million were printed, and in October, when a new government—the Directory—assumed power, the assignats' purchasing power had fallen to almost nothing. On the black market, 600 francs of assignats traded for one gold franc.

The Directory was done with the assignat, but it was not done with inflation. In February 1796, it issued a new paper currency, the mandat, and made it exchangeable for assignats at the rate of 30 to 1. By August, after 2,500 million had been issued, the mandat had fallen to three percent of its face value. In 1796, the Directory had had enough, finally, and it withdrew the legal tender character of both the assignat and the mandat. Thereupon, their remaining meager exchangeable value disappeared altogether.

It took Napoleon to restore hard money to France. As First Consul (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. As the Bank of England had suspended specie payments in 1797, the English government was thrown into consternation. Napoleon would go on to conquer most of the Continent while on the gold standard. His success gives the lie to generations of scholarly and academic excuse making that for all its pitfalls the assignat "saved" the Revolution. On the contrary, it helped bring on the Terror and set French progress back a generation. Will the fiat dollar one day do the same to America?