We continue to blog through the little book “Fiat Money Inflation in France.”
As the French assembly debated whether or not to go ahead with the equivalent of QE2, or printing more paper money, there were a few voices who pointed out the dangers of paper money. These voices were generally disregarded.
One excellent critique came from a man named Du Pont de Nemours. He argued that “doubling the quantity of money or substitutes for money in a nation simply increases prices, disturbs values, alarms capital, diminishes legitimate enterprise and so decreases the demand both for products and for labor” (p. 15). This was all true and well argued, but would be disregarded by the Assembly as we shall see.
Perhaps the most telling point came from Charles Talleyrand, the famous French statesman. He said: “You can indeed arrange it so that people shall be forced to take a thousand livres in paper for a thousand livres in specie; but you can never arrange it so that a man shall be obliged to give a thousand livres in specie for a thousand livres in paper” (p. 16).
In other words, if the French were to print paper money, they could never make good on a promise to exchange it at any time for a like amount of silver or gold. Talleyrand was of course correct.
Which brings me to my general thought for today. Men often get so enthralled with the brilliance of their theories that common sense seems to escape them. Unfortunately, when the siren song of easy money is heard by politicians, few can resist the urge, and of course the ones who suffer most are the poor.
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