The Online Library of Liberty

A project of Liberty Fund, Inc.

• Banking In the Latin Nations.
• Part I.: Banking In France.
• Chapter I.: Its Status Before the Revolution.
• Chapter II.: The Bank and “system” of Law.
• Chapter III.: The Discount Bank—la Caisse D’escompte.
• Chapter IV.: Assignats—the Basis of Their Issue.
• Chapter V.: The Bank of France.
• Chapter VI.: Banks and Bankers After the Revolution.
• Chapter VII.: Banking In the French Colonies.
• Part II.: Banking In Italy.
• Chapter I.: Primitive Banks.
• Chapter II.: Banking Under the Unification of the Kingdom.
• Chapter III.: Italian Co-operative Banks.
• Chapter IV.: The Bankers of Florence.
• Chapter V.: Banks and Bankers In Sicily.
• Part III.: Banking In Spain.
• Chapter I.: The Earliest Banks.
• Chapter II.: The Bank of Spain.
• Part IV.: Banking In Belgium.
• Part V.: Banking In Switzerland.
• Part VI.: Banking In Portugal, 1750 to 1891.
• Chapter I.: The First Great Banks.
• Chapter II.: The Bank of Portugal.
• Part VII.: National Bank of Roumania.
• Part VIII.: The Latin Monetary Union.
• Part IX.: Dynamics of Circulation.
• Part X.: The Banks of Alsace-lorraine After the Annexation. *
• Banking In Canada.
• Author’s Preface.
• Chapter I.: Currency Expedients.
• Chapter II.: 1817-1841. Banking Under Joint-stock Charters.
• Chapter III.: 1841-1867. Banking In Old Canada.
• Chapter IV.: Banking Under the Dominion.
• Chapter V.: Scope of Existing Laws.
• Chapter VI.: Land Banks—loan Companies.

CHAPTER IV.

ASSIGNATS—THE BASIS OF THEIR ISSUE.

WHILE assignats have no immediate connection with questions of banking, they have played such a conspicuous part in the national economy of France, and their history is so full of instruction for any government that may be tempted to tamper with its monetary affairs, that it is impossible to omit all mention of them from a work intended to throw light upon problems of banking and credit.

In 1789, the clergy of France were in possession of immense estates granted to them as gratuities by princes, or demised to them by the faithful. The properties were devoted to the maintenance of religion and to institutions of charity and instruction. The National Assembly, on motion of Talleyrand, then Bishop of Autun, decided that it was the business of the State to attend to all those public duties to which the possessions of the clergy were devoted, and to employ the priests on salary, and that thereafter all ecclesiastical property should be placed at the disposal of the nation. It was, however, a very difficult matter to determine the best manner of realizing upon such an enormous mass of property. Evidently, to put it all on sale at once would be to destroy its market value. The venerable President of the Assembly, Bailly, destined to so sad an end, proposed, in behalf of the city of Paris, that the property be turned over to the municipalities, which should purchase it as a whole and then sell it from time to time in small lots. The municipalities would undertake to pay at fixed dates, and the creditors of the State could be paid with the communal bonds. This was the first suggestion of assignats. The National Assembly, very deeply impressed with the scarcity of money, ordered the sale of 400,000,000 francs’ worth of ecclesiastical and crown property, and in September (17-21), 1789, determined upon the formation of a special Treasury Department, under the auspices of which assignats were issued, bearing interest at five per cent.

The assignats were accepted in preference to other forms of money in the sale of the properties, and they were to be redeemed with the product of the sales and other extraordinary income at the rate of 120,000,000 francs in 1791, 100,000,000 francs in 1792, 80,000,000 francs in 1793 and 1794, and the remainder in 1795. On April 15, 1790, the interest rate was reduced to three per cent.; the assignats were made a legal tender between individuals, and all public departments were directed to accept them as the equivalent of specie. Interest was reckoned by the day, and, at the end of the year, the holder of the assignat could collect the whole of the interest at the special Treasury Department. As security for their payment, the assignats were made a lien upon all national property and the income derived from it. Up to this point, the assignat appears as a species of mortgage obligation such as are common in all countries, but very soon it became a regular form of paper money, the interest being suppressed and the paper made non-convertible.

OVER-ISSUES—THEN DEPRECIATION.

The first issue had been well received by the public; a second soon followed, and it, in turn, was succeeded by so many others that in a report to the Convention, made on February 3, 1793, Cambon places the total issue at 3,067,000,000 francs, of which 682,000,000 francs had been canceled, leaving 2,385,000,000 francs then outstanding.

Perverted from their original nature of mortgage bonds, and issued with extravagant frequency, the notes depreciated day by day. The Revolution, accustomed to violent methods, thought to sustain its paper money by forcible means. On April 11, 1793, in spite of the opposition of the Girondins, the Convention provided a penalty of six years’ imprisonment for all sellers of coin—for all persons, that is to say—who should exchange a given amount of gold or silver for a nominally greater amount of assignats. They were liable to the same penalty who should sell their goods at one price in assignats and at another in coin. “These measures,” says Thiers (“Histoire de la Révolution”), “did not prevent the difference between the values of the two forms of money from increasing with great rapidity. In June, 1793, a specie franc was worth three francs in assignats, and in August one silver franc was worth six francs in assignats.” In such a state of affairs, merchants refused to sell their goods at former prices; they locked them up and refused them to buyers. Of course, this depreciation of the assignats would have been a matter of no consequence if everybody, taking them at their current value, had accepted them and paid them out at the same rate; but capitalists living upon their income, and State creditors in receipt either of yearly interest or the salary of an office, were compelled to accept the paper at its nominal value. All debtors made haste to settle the claims against them, and creditors, forced to receive a fictitious form of money, got only a fourth, or a fifth, or a sixth part of what was due them. Finally, the working-people, unable to combine and force up their wages as assignats went down, found that they were not getting money enough to buy the actual necessaries of life. Capitalists were discontented and moody, and the common people, ignorant of the fact that all their troubles arose from a defective monetary system, rose against the merchants, calling them engrossers and demanding that they be sent to the guillotine.

“THE MAXIMUM.”

The Convention, finding itself overwhelmed with petitions, adopted the ridiculous measure known as the “Maximum.” On May 3, 1793, it issued a decree requiring every merchant or producer of grain or flour to declare how much he had on hand. All were forbidden to sell except in the public markets, and the administrative officers were authorized to see that the required amount was offered in each market. In order to fix the maximum price of grain, the directories of the various districts were required to send to the departmental directories the prices of grain from January 1 to May 17, 1793, and the average of the prices between these dates was to be the maximum at which sales could be made; this was to be decreased by one-tenth each month from June 1st to September 1st. As the maximum was not the same in different markets, and as those in which it was highest would naturally attract grain from the others, the Convention, on September 4, 1793, adopted for the whole of France a single maximum of fourteen livres per quintal of wheat. The adoption of a wheat maximum involved the necessity of fixing a maximum for all other articles of merchandise, and for wages. In spite of the fearful penalties denounced against all who should trade in disregard of the Maximum, the law seems never to have been fully executed. But its effects were none the less disastrous. Farmers sold their products stealthily to those who were willing to pay in specie; the amount of grain, flour, and provisions brought to market decreased day by day; shopkeepers were bankrupted and went out of business; manufacturing establishments closed down, and Cambon said—with some degree of exaggeration, however—“I regard the ‘Maximum’ law as the sole source of our misfortunes.”

By the beginning of 1794, the issues of assignats had aggregated nearly 8,000,000,000 francs, of which 2,464,000,000 francs had come back into the Treasury and been destroyed; nevertheless, the Convention voted an issue of another 1,000,000,000 francs, in denominations varying between 10 sous and 100 francs, making a net total of 5,536,000,000 francs. After the repeal of the law of maximum, and the cessation of the despotic measures to which it had given rise, prices, left to seek their proper level, rose to the most extraordinary quotations; the depreciation of paper money showed itself in a tremendous rise in exchange, and assignats became the subjects of the wildest speculation, which caused their value to fluctuate widely from moment to moment.

ATTEMPTS TO RESTORE THE VALUE OF THE NOTES.

The Convention determined to increase the value of the paper money; there was no way to accomplish this except by reducing the quantity, and a number of schemes for making this reduction, each more visionary than the others, had been examined, when a member of the Convention, Bourdon (de l’Oise), though he was a man wholly ignorant of financial affairs, and notable chiefly for his drunkenness, hit upon a very feasible plan of escape from the trouble. He proposed to sell the national property; but instead of offering it at auction, which would have depreciated the paper money still more—for everyone would think himself fortunate to be able to exchange any quantity of worthless assignats for real estate having an actual value—he proposed that the lands be deeded to anyone who should offer for them in assignats three times as much as they were worth in 1790. This plan would inevitably have increased the value of the assignats, for as long as they were exchangeable on demand for a definite quantity of real estate they could not fall to zero. Under this plan, the national lands would have been sold at a very low price; but the Government had been paid in advance, since it had settled all the debts of the State with the paper money. If Burdon’s plan had been carried out in its entirety, all the assignats would have returned to the Treasury, and the national lands, delivered up to industrial uses, would have become productive. The scheme was tried upon a small scale, and the eagerness with which the public put in their bids showed how successful the project was likely to be; but, unfortunately, there were a large number of Deputies who could see nothing in it but a loss, and they declared that the property of the Republic was being squandered. A combination was formed among various members of the Convention and the law was repealed. After having caught a glimpse of a method by which the troubles might have been ended, they abandoned it and fell back again into the appalling misery from which they might so easily have escaped.

However, if no effort was to be made to raise the value of the assignats, it was impossible to maintain the ruinous fiction of nominal value, which was bankrupting all who accepted payment in paper. A scale was finally established in accordance with which the assignat was to be reduced to its actual value. Beginning with the time when there were only 2,000,000,000 francs in circulation, it was decided that the paper should lose one-fourth of its value for each 500,000,000 francs added thereto. The Government did not venture to make this reduction applicable in all transactions, but it was applied in all tax collections; thus there was a return to the financial methods of King John the Good, who debased the coinage but required that all royal revenues be paid in coins of full weight and fineness.

ISSUES UNDER THE DIRECTORY.

The financial disorders were growing more serious. The Directory, successor of the Convention, was guilty of even greater abuses in its dealings with paper money. Between the 5th Brumaire and the 30th Pluviose, Year IV, there were issued more than 20,000,000,000 francs of new assignats. In Nivose, 1795, the issue reached 30,000,000,000 francs, and by February 19, 1796, it had risen to the ridiculous figure of 45,500,000,000 francs, not including the counterfeit assignats made by England on the Island of Jersey and introduced into France through La Vendée and Brittany. Out of this total issue, about 20,000,000,000 francs were in the hands of the public. A law of Nivose, Year IV, set a limit to the emission by providing that the plates should be destroyed whenever the circulation should amount to 40,000,000,000 francs.

THE ASSIGNATS CONVERTED INTO MANDATS.

As a result of various payments to the Treasury, the assignats were reduced to 36,000,000,000 francs, and later to 24,000,000,000 francs, and this latter amount was made convertible into 800,000,000 francs of land warrants (mandats territorians). These land warrants, the total issue of which amounted to 2,400,000,000 francs, were a new kind of paper money, constituting a mortgage and preferred claim against all the lands of the Republic, except national forests of greater extent than 300 arpents (about 275 acres), and buildings and other structures devoted to public use. The mandats were no better esteemed by the public than the assignats had been, and were at a discount of eighty-two per cent. on the day of their issue. Nevertheless, they were better than assignats, because the holder could acquire national property in exchange for them without bidding against other holders. Their issuance, accordingly, was a return to the plan formerly proposed by Bourdon. But the public took no note of the difference; and the new paper depreciated to such an extent that the Directory, to avoid the necessity of practically giving away the national lands, was compelled to order that the warrants be accepted in payments at their value on the day of the contract. By 1796 the warrants had lost ninety-nine per cent. of their value; they were withdrawn from circulation on March 21, 1797, and finally annulled a few months later.

State creditors had been receiving their dues in assignats and other warrants, and their income had now been reduced to zero; but they could still delude themselves with the belief that their capital was intact. In the year VI, the Directory shattered even this source of consolation. Under pretence of adjusting the debt to the State’s resources, they reduced the rentes inscribed in the great book of the public debt by two-thirds, and named the remainder the “Consolidated Third.”

Thus, the issue of State paper money ended in bankruptcy after bringing untold evils upon the State. The memory of the assignats is not yet effaced from the minds of the French people, and “assignats” is the name they give to all irredeemable paper.