In which I continue my blogway through the excellent little book “Fiat Money Inflation in France,” a study of how France already traveled the pathway down which the U. S. is traveling. We pick up the discussion at page 7.
“Oratory prevailed over science and experience,” is the author’s way of pointing out that, despite their knowledge of fundamentals of economics and their experience of disastrous inflation less than one hundred years before when John Law inflated the French livre to catastrophe, the French parliament still went down the road of appropriating all lands of the Catholic church and issuing paper money backed by that land.
The outcome of this grand experiment? Perfection. The treasury was relieved; France began to pay back some of it’s debt; trade increased; and “all difficulties seemed to vanish.” The French version of QE 1 was an absolute success! For 5 months.
The problem was that after 5 months all of the 400 million livres had been spent and all of the old difficulties swiftly returned. What to do? Issue more assignats (the money created by confiscating church lands) of course, only this time there was no more land against which to assure their value so they were simply added to the paper money already in circulation. This was the French version of QE 2.
How did it work? I’m glad you asked. We’ll pick up at page 10 next time.