What 1790 Paris teaches Chattanooga: Fiat money inflation hurts poor most

Inflations most grievously injure poor people and working commoners, such as these folks at Linda's Produce in Chattanooga and East Ridge.

Inflations most grievously injure poor people and working commoners, such as these folks at Linda’s Produce in Chattanooga and East Ridge.

This French assignat bill for 500 livres helped destroy France just as surely as the paper dollar will, in its inflation, addict and despoil the American economy.

This French assignat bill for 500 livres helped destroy France just as surely as the paper dollar will addict and despoil the American economy as it depreciates under inflation.

By David Tulis

Local economy, you understand, is apart from “the local economy.” It’s about the ideas of service to the other via free enterprise, the prospect of capital, the blessings of locale in forming of prosperity for oneself and one’s customers. “The local economy” is the world of business.

We encounter the local economy on the business pages of the Chattanooga Times Free Press, and on news sites such as Nooga.com or at Chattanoogan.com. We encounter it in long-view format in glossies on coffee tables in dentists’ offices.

Today we read about Score, a government-funded small business assistance group, proposing a video contest on increasing productivity. The federal government says unemployment falls to 7 percent. An event called “Vanguard conference” will bring 40 young entrepreneurs to Chattanooga as the city markets itself around the country as welcoming of industry and digital genius. Overseers of Thrive 2055 announced four areas they wish to talk about this year, including economic development. Cities are cracking down on drugstores: “Since the tiny town of Huntland in Franklin County, Tenn., last June became the state’s first municipality to pass an ordinance requiring a doctor’s prescription to buy pseudoephedrine-based cold medicines, the idea has spread like wildfire.” On Sunday night students competed for recognition and cash in Launch, a program that recognizes how people are empowered by entrepreneurship. Christmas trees are for sale at Linda’s Produce on Highway 58 and in East Ridge.

So here is “the local economy.” It’s a snapshot of today. Local economy, on the other hand, the idea, is a way of thinking, a mode of considering these details. Not that the news are mere trifles. But the news are part of a larger set of developments which often they simply do not touch. Obamacare, a further cartelization in sickcare, a papering over of a broken system. Quantitative Easing No. 3 by the Fed — the injection of F$85 billion a month into the economy by a mysterious process called “bond buying.” These related but not connected. Or vice versa.

Chattanooga under monetary inflation

Last night I shifted books out of a utility room into one of two bookshelves in my office, freshly bolted to the walls and each allowing a seven-foot stack. Books I’d forgotten about such as A History of Taxation and Expenditure in the Western World (Webber and Wildavsky) appeared. Others that I’d missed did, too. Fiat Money Inflation in France by Andrew Dickson White (1896) emerged, much to my delight.

The inflation in France at the time of the revolution is much like the one washing over Chattanooga. The official rate of inflation is 1 percent through October. But John Williams’ Shadow Government Statistics suggests the real rate is 7 points higher. The principle then and now is identical, though the actors and state ministries differ in name and office. The modern state favors inflation because under the pretense of making money cheap for the people, it creates money for itself. When it goes into debt for what it calls the public welfare  it first fills its own purse and then, as it spends the money, it extends its authority over the lives and liberties of the people. “It suborns them,” says Garet Garret in his study of FDR. ”Their consent is bought. It is bought with the proceeds of inflation.”

In revolutionary 1790 France the inflation was in paper notes pretended to have been based on the value of lands seized by the National Assembly. These princely estates in the country, palaces and convents, “the pious accumulations of fifteen hundred years,” backed the billowing of notes. Statesmen such as Necker warned of the dangers of currency not well based or controlled. Seventy years before, in John Law’s time,

“They had then learned how easy it is to issue it; how difficult it is to check its overissue; how seductively it leads to the absorption of the means of the workingmen and men of small fortunes; how heavily it falls on all those living on fixed incomes, salaries or wages; how securely it creates on the ruins of the prosperity of all men of meagre means a class of debauched speculators, the most injurious class that a nation can harbor, — more injurious, indeed, than professional criminals whom the law recognizes and can throttle; how it stimulates overproduction at first and leaves every industry flaccid afterward; how it breaks down thrift and develops political and social immorality. All this France had been thoroughly taught by experience.” (pp. 28, 29).

But the urge to create fiat and expand it is irresistible, and finally “oratory prevailed over science and experience.” The first issue of fiat money, the assignat, was in April 1790 of 400 million livres. The prosperity and blessings of this paper discharge lasted five months; the government had spent it and was again in distress. More millions of assignats were printed and discharged. “The great majority of Frenchmen now became desperate optimists, declaring that inflation is prosperity. Throughout France there came temporary good feeling. The nation was becoming inebriated with paper money. The good feeling was that of a drunkard just after his draught; and it is to be noted as a simple historical fact, corresponding to a physiological fact, that, as draughts of paper money came faster the successive periods of good feeling grew shorter.” (p. 51, 52). Prices for eggs, butter, carriage rentals soared. Debtors clucked their tongues ecstatically, able to pay back IOUs in cheaper money.

McDonald’s workers stiffed

But wages in France stagnated. After the issue of 300 million assignats the pinch against the working man became clearer. “By this the prices of everything were again enhanced [rose] save one thing, and that one thing was labor. Strange as it may a t first appear, while the depreciation of the currency had raised all products enormously in price, the stoppage of so many manufactories and the withdrawal of capital caused wages in the summer of 1792, after all the inflation, to be as small as they had been four years before—viz., fifteen sous per day. No ïnore striking example can be seen of the truth uttered by Daniel Webster, that “of all the contrivances for cheating the laboring classes of mankind, none has been more effective than that which deludes them with paper-money. ***

[W]hile the prices of products thus rose, wages, which had at first gone up, under the general stimulus, lagged behind. Under the universal doubt and discouragement, commerce and manufactures were checked or destroyed. As a consequence the demand for labor was diminished; laboring men were thrown out of employment, and, under the operation of the simplest law of supply and demand, the price of labor — the daily wages of the laboring class — went down until, at a time when prices of food, clothing and various articles of consumption were enormous, wages were nearly as low as at the time preceding the first issue of irredeemable currency.

With each quantitative easing, immorality and folly multiplied across France. Assignats were tumbling in their value, and the government was angry. Laws were passed to criminalize asking, prior to a transaction, by what means the other party was going to pay.

White asks: “On whom did this vast depreciation mainly fall at last? When this currency had sunk to about one three-hundredth part of its nominal value and, after that, to nothing, in whose hands was the bulk of it? The answer is simple. I shall give it in the exact words of that thoughtful historian from whom I have already quoted: ‘Before the end of the year 1795 the paper money was almost exclusively in the hands of the working classes, employees and men of small means, whose property was not large enough to invest in stores of goods or national lands. Financiers and men of large means were shrewd enough to put as much of their property as possible into objects of permanent value. The working classes had no such foresight or skill or means. On them finally came the great crushing weight of the loss. *** ’ ’’ (pp 90, 91). [Some italics in original]

Rational action possible

In our day, common people in high inflation often know how to defend themselves. They shift as quickly as possible out of the paper money and into goods that hold value. That could be groceries, cars, land, weapons, gold, equipment, services. These steps are rational. Still, the citizen is the victim in inflationary regimes, though many in cupidity play along, Garrett says.

The intelligent and wealthy people in the national economy drain the value out of the inflation in its early stages, leaving people downstream to shift for themselves. The last one holding the soured paper is the biggest loser. Inflation is a workers’ rights issue. If Chattanooga Organized for Action won’t take it up, I’ll continue talking about it as we explore the blessings of local economy, oppressed as it is by the good people in Washington.

Sources: Andrew Dickson White, Fiat Money Inflation in France (Irvington-on-Hudson, N.Y., Foundation for Economic Education, 1959), 124 pp. Downloadable as PDF.

Garet Garrett, The People’s Pottage (Boston, Western Islands, 1965, 1953), 140 pp. Available online as PDF. Anything by Garret is worth reading. His books are short and poetic.

Cloe Morrison, “Small businesses: Want a ‘productivity makeover’?  SCORE hosts video contest,” Nooga.com, Dec. 9, 2013

Ben Benton, “Ordinance cuts into ‘smurf’ turf: More cities requiring prescription for pseudoephedrine-based medicines,” Timesfreepress.com, Dec. 9, 2013

Jeff LaFave, “Chattanooga’s entrepreneurial empowerment group LAUNCH gives teenagers chance to shine,” Timesfreepress.com, Dec. 9, 2013

James Mahon, “Mayor Berke welcomes ‘Next City’ Choosing Chattanooga as ‘Vanguard’ hub in the U.S.” TV-12 at wdef.com, Dec. 9, 2013

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