In 1789, France overthrew its government, the replacement for which would be a work in progress for years. The various regimes established in the French Revolution faced daunting fiscal challenges, the very tremors that brought down the old regime. As with many states in financial distress, France turned to the debt markets first and the printing press second. However, in the case of Revolutionary France these debt instruments and currency were the same. What made the ‘assignats’, as they were called, even more interesting was that they were backed, at least officially, not by gold or silver, but by land.
Revolution and Confiscation
Involvement in the Seven Years War and American War of Independence had greatly indebted the French state. In 1788, the French government debt stood at about 4 billion livres and the annual deficit may have been around 100 million livres; estimates varied even at the time. The debt burden itself was only so problematic. Indeed, modern economic ‘archeologists’ estimate that, relative to GDP, Britain’s debt was three times larger. However, debt service costs were higher than in Britain and taxation fell disproportionately on the poor.
Jacques Necker, the financial adviser to the French monarch, Louis XVI, supported expanding taxation to the nobility and the Catholic Church. Recounting all the political events of the French Revolution is a task too ambitious for this chronicling. However, to put it simply, the King convened a legislative body with the intent of resolving the fiscal crisis but ended up being overthrown instead. In the summer of 1789, power shifted to the newly created National Assembly, the first government of the revolutionary period in France. This government was relatively moderate. King Louis XVI was still alive at this point and the more radical periods of the revolution were yet to come.
The National Assembly quickly worsened the fiscal crisis by abolishing some of the taxes that fell disproportionately on commoners. Of course, 1789 already saw a large state debt and deficit. These were going to get worse soon, as wars against Great Britain, Austria, Spain, and Prussia lied not far in the future. However, one of the first major acts of the National Assembly offered a potential solution to this mess. Politically ascendant figures of the French Revolution called for the confiscation of Church property. Even the politically-savvy future diplomat Charles-Maurice de Talleyrand, himself a bishop, supported the move. The decision to make Church property “national goods” was of great significance. The value of the landholdings confiscated by the Assembly stood at 2-3 billion livres, a sum large enough to repay most of the state debt.
With the public finances still in shambles, the nationalized landholdings were useful for raising new funds. Eventually, the property confiscated from the Catholic Church was used to back a new currency, the assignat. However, the assignats were initially a debt obligation, not a medium of exchange. The first were issued in December 1789 and paid 5% in interest. The confiscated property secured the bonds, which were issued in denominations of 200 to 1000 livres each. The initial issuance of 400 million livres worth of assignats in 1789 was massive, the entire state revenues for the prior year were perhaps just under 500 million livres, for comparison.
From there, the assignats quickly came to be used as a currency; they were defined as legal tender within a few months of their introduction. They formed a curious kind of currency, backed not by any precious metal nor were they quite fiat money either, but they were backed by land. Regardless though, any monetary standard is only as strong as the state’s commitment to it and in France the property backing the notes was simultaneously being sold off to raise funds for the state. This may not have been a problem had issuance stopped there. Of course, the over 2 billion livres in landholdings was far more than necessary to secure 400 million livres in assignats.
However, it is tough to ask revolutionary governments to exercise monetary restraint, especially those threatened by internal revolts and wars with neighboring nations, all expensive engagements. In 1790, another 800 million livres in assignats were issued. Cementing the transition of the assignat from debt to currency; the interest rate on the notes was reduced to 3% and then eliminated altogether shortly thereafter. They also began being printed in a wider range of denominations, from 50 to 2000 livres, to facilitate its use as a means of payment. Amid this expansion in the money supply, the paper assignats started losing value relative to the older pre-revolution coins still in circulation, but only slowly at first. By mid-1791, they were still worth close to 90% of their face value in metal coins. Confidence in the assignat was hardly unquestioned but it was not altogether rejected.
This was not France’s first experiment with paper money. An entrepreneurial Scottish economist John Law had introduced the concept of paper money in France eighty years earlier. Just as on the eve of the French Revolution, France had earlier been nearly bankrupted by the wars of Louis XIV and the country suffered from a reduced availability of credit. Law, who fled Britain following murder charges, had made a name for himself as a financial speculator and gambler in Continental Europe. In France, he proposed replacing gold coins with paper money which would themselves be backed by the precious metal. Using paper notes helped increase the money supply and worked well for a few years until demands for redemptions into gold caused the experiment to end by 1720. The gold actually held in reserves was insufficient to fully bank the notes.
The issuance of assignats would also come to outstrip the holdings of property used to back the notes. Indeed, there has perhaps been no greater stimulus for the printing industry than the invention of paper money. The French soon experienced Gresham’s law in action. Gresham’s law, a monetary principle, states that if two types of money of different values are in circulation, the ‘bad’ money will drive out the ‘good’ as people hoard the later. As the assignats drove the old metal coins out of circulation, the National Assembly began printing more small denomination assignats to replace the role of the low denomination coins being hoarded. Printing of assignats only continued to surge from there and the accompanying inflation was only just beginning.
The total outstanding issuance of assignats would total almost 6 billion livres by mid-1794 and grew still upwards from there. The French Revolution was entering its more violent phases and the fiscal demands on the state grew. Following the attempt by King Louis XVI to go into exile and his execution in 1793, wars with neighboring states escalated. Adversaries in Austria, Prussia, and Britain sought to avenge the King and take advantage of French weakness. There was also a sizable internal revolt, the Guerre de Vendee, which the Revolution fought to put down.
War also brought a new monetary challenge. Throughout the early part of the French Revolutionary Wars, accusations of foreign counterfeiters aiming to undermine the French economy by introducing fake notes were common. Foreign economic sabotage of this kind was also a feature of the American Revolution’s experiment with paper currency. One might suspect this was simply a scapegoat used to deflect attention from the government’s profligate money-printing. However, this type of wartime sabotage was actually quite common at the time. Moreover, the ease of counterfeiting the assignats meant there was a cottage industry of forging fake notes, even in France itself. To ‘protect’ the public from these phony assignats, the government printed pamphlets teaching people how to spot the fakes, revealing to the public the extent of the problem and only further weakening trust in the currency.
In response to rising prices, the National Convention, the more radical successor to the National Assembly passed the so-called ‘Law of the Maximum’ in 1793. The edict set maximum prices on grain and other foodstuffs and like most such attempts by governments before or since, it too was ineffective. Still, it would be another three years until the assignats were finally abandoned. By 1796, they were worth as little as 0.25% of their face value; there had been about 45 billion livres in assignats issued by then. That year, the assignats were replaced by the ‘mandats’, a new currency also backed by confiscated land. They were issued by the Directory, yet another French government established as the Revolution waned.
The mandats met a similar fate and were replaced the following year with metal coins. The end of these monetary experiments came with the coup that brought Napoleon Bonaparte to power. The government established by Napoleon created the Banque de France and introduced France to bimetallism and free coinage, a monetary standard based on both gold and silver and which allowed anyone with precious metal to exchange it at the mint for coins. This approach, though it would encounter its own problems in later decades, would define the 19th century French monetary system as well as those of several other countries.
The story of the assignats may reflect the peculiar politics of the French Revolution; indeed, this is what makes them most fascinating. The Revolution made it possible for Church property to finance state expenditures. However, the essence of this history is not peculiar at all; unstable regimes have fostered unstable public finances for centuries. It is hard to justify planning for a fiscally stable future in a state that lives day by day, whose very existence a year in the future is in question. The fiscal health of any government is at least partially a reflection of the social and political well-being of the society it governs. This remains as true everywhere today as it was in 18th century France.
1. De Maré, Laurie. Assignats: Currency from the French Revolution. Museum of the National Bank of Belgium, 2 Feb. 2012.
2. Girard, Alice. The French Revolution, the Assignats, and the Counterfeiters. NumisCorner.com, 8 Sept. 2017.
3. Mudd, Douglas. Money of the French Revolution: The Assignat. American Numismatic Association, 25 Feb. 2016.
4. Weir, David R. “Tontines, Public Finance, and Revolution in France and England, 1688–1789.” The Journal of Economic History, vol. 49, no. 01, 1989, pp. 95–124.