Monday, June 7, 2010

Out of the Depths, Part VI: The Life's Blood of Commerce

No government can long stand that does not promote industry, commerce, and agriculture. That would be as contradictory and self-defeating as a government that failed to protect people's natural rights to life, liberty, property, and the acquisition and development of virtue ("pursuit of happiness"). The means of production are the means of sustaining life and liberty. This renders both of these two premier rights effectively meaningless without an adequate ownership stake — private property — in whatever industry, commerce, or agriculture provides subsistence for people.

Nor do industry, commerce, and agriculture spring from out of nowhere. Production of marketable goods and services requires a sound and stable money supply and, in an economy with any pretensions to being advanced, a commercial banking system. All of these things run on trust. Trust is, in a very real sense, the essence of civilization, the glue that holds society together. As the 19th century economist and proponent of worker ownership, Charles Morrison, explained,
Confidence and credit are only moral elements in society; they may be said to be, to a great extent, mere matters of opinion; yet their importance in the production and distribution of wealth is so great, that the whole machinery of material production is kept at work, disordered, or paralysed, according as these principles act in a healthy manner, irregularly, or not at all. They are to our industrial community what the nervous system is to the body, a slight and sensitive substance in itself, but the indispensable cause of all the life and motion of the system. A great nation may possess in abundance all the means of producing wealth, — population, intelligence, capital, natural and artificial instruments of production; and yet, if credit and confidence should be from any cause destroyed, all these resources seem to have lost their virtue, and general distress prevails. Let confidence and credit be restored, and the whole system is immediately set in motion again, and in a very short time general prosperity returns. (Charles Morrison, An Essay on the Relations Between Labour and Capital. London: Longman, Brown, Green, and Longmans, 1854, 200.)
The Restoration of Credit

Once the wreckage of the Revolutionary government's paper money farce was cleared away, it seemed safe once again to engage in business and commerce. In 1796, almost immediately after the decree of July 16, a number of private banking institutions were established. The first of these was the Caisse des Comptes Courants — Bank of Current Accounts. The bank was capitalized with 5 million Francs. Banknotes totaling 20 million Francs were authorized in 500 and 1,000 Franc denominations, backed by the capitalization and 90-day bills of exchange discounted at 6%. (Conant, op. cit., 44.)

Like the Bank of England organized a century before, the Caisse des Comptes Courants was a bank established by bankers for bankers. Unlike the Bank of England, however, the Comptes Courants was not a State-supported monopoly. A year later, some businessmen felt slighted by what they believed to be favoritism being shown to certain classes of customer. They believed that they were being shut out of the system and unfairly denied banking accommodation. Consequently they organized and established the Caisse d' Escompte du Commerce, the "Bank of Commercial Discounts." The bank was established on November 24, 1797 for a period of three years. The enterprise was so successful, however, that it was renewed at the end of the original charter period for an indefinite term. There was no fixed capital, but each new subscriber (shareholder) put 10,000 Francs into the bank, half in coin, half in endorsed bank bills. (Ibid.)

With the example of the Escompte du Commerce before them, French retailers organized and established an institution for their convenience: the Comptoir Commercial, or "Commercial Bank." All three banks accepted each other's notes and bills. The economy began to improve, and, for once, note-issuing banks in France seemed to be on a solid footing, with the financial community doing a safe and thriving business. (Ibid.)

Coinage of the Revolution

While reliance on paper money backed only by the State's promise to pay almost finished off the Revolution, the new government did make some effort to provide hard currency in the form of gold and silver coin, even before the final collapse of the assignat/mandat system in 1796.

Paper money was plentiful, so consequently, in accordance with "Gresham's Law" ("bad money drives out good"), gold, silver, and even copper coinage became increasingly scarce. The first official revolutionary issue continued the same copper denominations as under the old royal coinage, but added some new silver denominations and discontinued others. A 15 and 30 Sols were new, but the old 24 Sols went by the board. There was a greatly reduced coinage of the Louis d'Or, and the Two Louis d'Or was discontinued. The important Ecu of Six Livres was continued with, surprisingly, an adequate mintage. This was presumably due to the fact that it was the workhorse of the silver coinage. It was therefore crucially important to keep it before the public as a symbol of the adequacy of the new government.

After the execution of Louis XVI, the royal image was removed and replaced with a tablet proclaiming the presumed new basis of government: LES HOMMES SONT EGAUX SEVANT LA LOI: "Everyone is equal under the law." This is somewhat ironic, considering that this legend replaced the visage of a king whose trial had resembled a kangaroo court. The redesigned coins were struck only in 1793.

Every man might be equal under the law in the new France, but the coinage was not. Copper coinage was severely restricted, as reflected in the high prices for today's collectors. The Liard was dropped, as was every silver denomination except the Ecu, which now, in a design suggestive of Abou Ben Adhem's angel, had "Genius Writing in the Book of the Law" on the obverse, with the denomination on the reverse. This motif was repeated on the extremely limited coinage of gold 24 Livres.

In view of their extreme scarcity, the gold and silver coins were probably issued more for symbolic reasons and to attempt to give people confidence in the currency than to provide commerce with the necessary tools. The attempt failed, and people hoarded the coins. This makes for a relatively affordable supply of the coins today — "affordable" being understood in terms of thousands instead of tens of thousands of dollars for acceptable specimens. Coin was so scarce that when the Irish revolutionary Theobald Wolfe Tone went to France and attempted to make a purchase with minted gold, it was refused on the grounds that it must be spurious. Even after the eventual demonetization of the paper money, it took many years to draw as much coin back into circulation as there had been in 1789.

The fourth issue of the Revolution was even more restricted than the previous one, being issued only in "L'An II" of the new calendar, consisting of the latter quarter of 1793 and the first three quarters of 1794 (approximately). In an attempt to eliminate everything having to do with le ancién régime, the calendar, along with the old government and the religion of most of the people, was officially abolished. In an effort to control even the way people thought, and to remove all references to "superstition," the new calendar took away the old, "unscientific" reckoning in months and weeks, and substituted ten months for the old twelve, and brought in ten-day decades for the old seven-day week. All years would henceforth be calculated as being so many years before the Revolution, or in the Revolutionary year "Two," for example.

There were only three denominations in this coinage of L'An II, a copper One and Two Sols, and the symbolically important crown-sized Ecu. The Ecu was issued in such limited quantities that even the epidemic hoarding could not preserve enough specimens for today's collectors. Obviously the finances of the Revolution were becoming progressively worse, and rapidly so.

Increasing Desperation

A complete reform of the currency was carried out in late 1794 — (pardonnez-moi!) in L'An 3 of the Revolution, but the reform only extended to the units, not to the problems underlying the whole system. As with many things Revolutionary, the emphasis was on meaningless externalities in the apparent belief that changing the form would change the substance. Politicians and academics still suffer from the illusion that if you call something by a new name it then becomes something new.

Henceforth the "unscientific" duodecimal system first implemented by Pepin and Charlemagne nearly a millennium before would be replaced with a decimal system. In this, however, the French were not the innovators, but copycats. The Russians were the first to go decimal, having implemented a system of 100 Kopecks to the Ruble some time before. The United States instituted a quasi-decimal system beginning a year earlier in 1792. Officially still in use, the quasi-decimal system divides the dollar into halves, quarters and tenths, instead of only hundredths, with the "mill," or 1/1000 of a dollar being the smallest division.

The first issue of the new coinage, the fifth revised coinage for the Revolution in less than five years, began in L'An 4 and went into L'An 5. It consisted exclusively of copper Five Centimes (which the reactionary people still insisted on calling "un Sou"), Decimes (10 Centimes) and Two Decimes (20 Centimes). This issue is notable only for the first appearance on a coin of "Marianne," France's beloved personification and one of the few symbols connected with the Revolution to avoid associated unpleasantness. The reverse of all denominations consists of a simple statement of value, the mintmark and, on the Decime and Two Decimes, a wreath.

Due to the need to provide small change for the new monetary system, the coinage of these pieces was relatively large, although still severely restricted in comparison to the previous royal issues. The vast majority of circulating media, of course, consisted of the ubiquitous assignats, now denominated in Francs instead of Livres.

A sixth and final Revolutionary coinage was undertaken in L'An 5. The size of the Five and 10 Centimes was increased, and the Two Decimes denomination was dropped. The designs are virtually the same as the immediately previous coinage. This issue is notable for the restriking of "old" Decimes as Five Centimes, and the countermarking of the Two Decimes to obliterate the "2" by replacing it with "UN."

There was to be no more coinage after L'An 9 until Napoleon staged his coup in L'An 11, or late 1802. Even then, the "First Consul for Life" (as he was named) concentrated on establishing a sound silver and gold currency. He left small change to la petite bourgeoisie and nations of shopkeepers.

Role Reversal

Just as the French Revolution overturned the basis of government on which the American Revolution was founded by turning the sovereignty of the individual into the sovereignty of the collective, the economic roles were reversed. In the United States, the government minted specie, while the private wildcat banks printed vast quantities of paper money. In France, the State generated enormous quantities of assignats, while private individuals, businesses and banks provided coinage of sorts. From the early days of the Revolution, the dilatory official coinage had been supplemented with privately issued tokens in copper, bronze, billon, and silver.

The issuance of these Monnaies de Confiance, "Secure Monies," seems to have begun on a large scale in 1791, just as the official coinage with the new Revolutionary designs was being inadequately implemented. Like the German and Austrian (and French) Notgeld a little over a century later, these tokens were issued by political entities such as Boyere and Brun, business firms (e.g., Monneron Brothers of Paris), as well as others that may be the product of enterprising individuals. After all, if the government could make so much money by printing up cheap assignats and spending them into circulation, why couldn't some virtuous Bon Homme provide a better product while taking a somewhat smaller profit?

By far the greatest producers of this parallel currency, however, were the new banks that sprang up, apparently everywhere. This makes sense, for if the official currency was worthless or nearly so, some reasonably sound substitute had to be found fast or commerce and industry would come to a complete halt. With such names as Caisse de Bonne Foy ("Bank of Good Faith"), Caisse Metallique ("Metal Bank" — obviously eschewing issues of paper at least in name), and Caisse Populaire ("People's Bank"), these issued tokens in various unusual denominations. This calls to mind the official token issues of the Banks of England and Ireland a short time later. Eighteen Deniers — 1-1/2 Sols — seems to have been the most popular denomination, but 1-1/4, Two, 2-1/2, Three, Five and 10 Sols were common also.

Most issues were in copper and bronze or, at best, billon, but some were in good silver. One business, Lefevre, Lesage et Campagnie of Paris, issued an entire series of Five, 10 and 20 Sols in good silver. This must have been a very successful venture, for there are a number of varieties in this series.

Private tokens in the United States or Great Britain would have fallen into the classifications of store cards, patriotic or, especially, political commentary. The French Revolutionary issues, however, are notable for the absence of political features. They are limited almost exclusively to generic patriotic themes and commercial advertising.

Nothing could demonstrate more graphically the atmosphere of fear engendered by the various Revolutionary governments, especially the infamous Committee of Public Safety, and the hollowness of the claim to have restored liberty, equality and fraternity. Anyone expressing an unpopular or incorrect opinion was liable to find himself guillotined for having the wrong attitude or exhibiting insufficient fervor in support of the Revolution. It was in this respect a remarkable achievement: The Revolution may have been the only time in history when his own countrymen prevented the ordinary Frenchmen from expressing his opinion.

Just as in the Notgeld series there are subgroupings of Kriegsgeld and Kriegsmünzen, so the French Revolutionary token issues had their Monnoye D'urgence, small issues of "Emergency Money." To make up for the dearth of official specie coinage, these are often in silver, and have denominations of Two, Five, Seven, 10 and 20 Sols.

Many of the tokens have legends stating that they can be redeemed in assignats, which was to say that they were effectively unredeemable. Who, after all, would exchange a token of bronze or silver for a worthless piece of government paper?

On the whole, the French Revolution was a pale imitation of the American Revolution as a result of distorting the basic principles. This is accurately reflected in the currency chaos engendered by the Revolutionary activity. Coinage and paper money of the Revolution were pale imitations of what constitute sound fiscal and monetary policy. The French Revolution demonstrates most graphically what can happen with inadequate or incorrect principles, even with the best intentions in the world.

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