We pick up where we left off in this excellent little book…
One of the opponents of the French plan to print a second batch of paper money backed by land stripped from the Catholic church was M. Maury who was a student of history. The French had gone through the EXACT same difficulties in 1716 when an English scofflaw named John Law came up with a plan to aid France’s recovery from The War of Spanish Succession by…you guessed…printing paper money. As Mr. Maury pointed out Law’s first issue of paper money was a rousing success; the many issues of paper money that followed the first one (QE 2, 3, 4, etc.) brought misery. All of this was settled history, it could not stop the push for France’s new experiment in quantitive easing through printing money.
The bill passed on 29 September 1790, a new issue of 800 million of new assignats was printed with an addition to the bill stating that in no case could more than 1200 million of assignats be in circulation at any one time (you can see where this is going). QE2 was in the books.
The first result was the exact opposite of what the Assembly predicted. They expected people to give up gold and silver coins because using the printed bills would be so much more convenient. Instead people began to hoard hard currency (Can you say gold at $1400 per ounce?). Prices began to rise and there was a constant call for more paper money to meet the demand since prices were rising (this is what inflation looks like). As the author of “Fiat Inflation” points out while there was resistance to printing even more money at first, the more money that was printed, the less resistance there was to printing even more money, and so it went.
I will end this post by quoting from the book:
During the various stages of this debate, there cropped up a doctrine old and ominous…This was the doctrine that all currency whether gold, paper, leather or any other material, derives its efficiency from the official stamp it bears, and that, this being the case, a government may relieve itself of its debts and make itself rich and prosperous simply by means of the printing press:- fundamentally the theory which underlay the later American doctrine of “fiat money.
And the French? The great majority of Frenchmen became desperate optimists, declaring that inflation is prosperity.