The Paper Tide that Drowned the French Revolution
History has a funny way of repeating itself, especially when it comes to money.
The temptation to solve economic woes by printing more currency rears its misguided head once a generation has forgotten the painful lessons of the past.
In 1789, France again found itself in financial chaos—this time because of the costs of war, royal excess, and the chaos of the revolution that toppled a monarchy. Gold and silver vanished from circulation. The French were hiding their wealth in anticipation of another disaster.
They had good reason to be wary. Few remembered the disastrous experiment with John Law’s paper money in the early 1700s.
Yet, despite the warning signs, the French revolutionary government saw paper money as the ready solution to their cash shortage.
This time would be different.
A Dangerous Proposal
Not everyone was convinced. Honoré Gabriel Riqueti, the Comte de Mirabeau, was one of the loudest voices against issuing paper money. He called it “a loan to an armed robber.” He even argued for banning the term "paper money" itself.
Despite his strong words, even Mirabeau eventually gave in to the majority. They believed the new constitutional government would be more responsible than the old monarchy.
Revolutionary leaders proposed backing any new currency with confiscated Church property, which amounted to a quarter of all land in France. It was similar to John Law's proposed land bank for his native Scottland.
They suggested printing only large-denomination notes to avoid inflation: 200, 300, and 1,000 livres. This ensured the wealthy and businesses, not the average worker, would handle these new notes. The Assembly agreed, issuing 400 million livres worth of *assignats*—government-backed paper currency. It bore a modest 3% interest to lure gold and silver back into circulation.
A Royal Endorsement
In an ironic twist, the assignats bore a portrait of King Louis XVI, the very monarch they had just stripped of power. Each note was embossed and signed by the king himself. In a patriotic display, one nobleman even sold his house entirely for assignats. The scheme worked for a while. Businesses started to pick up, and the economy got a boost. But as with all easy money, the results were short-lived.
Within five months, the government was back, begging bowl in hand. Talleyrand and Jacques Necker, the finance minister, warned that printing more money would drive down its value.
Their protests fell on deaf ears. By September 1789, the Assembly voted for another 800 million livres, with no interest promised. The law declared that the total amount of assignats would never exceed 1.2 billion livres.
But such promises were as empty as the government vaults.
The Floodgates Open
Sure enough, the floodgates of endless paper money opened. Just nine months later, the government issued another 600 million livres. In December 1791, another 300 million, followed by yet another 300 million in April 1792. The total supply reached a staggering 2.4 billion livres.
As paper money poured into the market, gold and silver disappeared. Prices soared, and speculators jumped at the opportunity to buy goods with borrowed money, fully expecting to pay it back with rapidly devaluing currency.
Meanwhile, workers and peasants, whose wages were fixed, suffered immensely. By 1793, a desperate mob plundered 200 stores in Paris.
Desperate Measures
To curb the chaos, the government turned to forced loans and price controls under the so-called "Law of the Maximum." Farmers and manufacturers responded by cutting production. Cities resorted to rationing.
Then came the harshest decree: selling goods in anything other than assignats became punishable by death. This did little to help the situation.
By 1794, with Robespierre following Marie Antoinette’s route to the guillotine, the assignat experiment had spiraled out of control.
By May 1795, the number of assignats in circulation had reached 7 billion. Just two months later, it ballooned to 10 billion and then to a jaw-dropping 14 billion—a thousand times the original 1.2 billion limit set just four years earlier.
Prices surged, but wages didn’t. Speculators who bought goods with borrowed assignats made fortunes. Those who saved diligently found their wealth wiped out. Gambling and speculation replaced productive investment. The morality of the nation crumbled.
The Final Blow
In a last-ditch effort, the government destroyed the plates used to print assignats and introduced a new paper currency—the mandat territorial, also backed by land. But confidence had already eroded. Within months, the mandat had lost 97% of its value. France’s experiment with paper money had failed utterly. By 1797, all assignats were repudiated, effectively rendered worthless.
By the time Napoleon Bonaparte rose to power, the French economy was in shambles.
Napoleon, recognizing the need for financial stability, ended the experiment with paper money, famously declaring, "I will pay cash or pay nothing."
This episode of hyperinflation during the French Revolution, often overshadowed by the political and military events of the period, provides valuable insights into the dangers of excessive money printing and the importance of maintaining public confidence in a nation's currency.
History does not repeat itself. But it does rhyme.
And the lessons from this little-understood historical bout of hyperinflation remain remarkably relevant.