Assignats or Death: Inflationary Finance in Revolutionary France

58 Pages Posted: 30 Sep 2020 Last revised: 12 Jun 2023

See all articles by Louis Rouanet

Louis Rouanet

George Mason University

Bryan Cutsinger

Angelo State University - Accounting, Economics and Finance Department; Texas Tech University - Free Market Institute

Joshua Ingber

Government of the United States of America - Bureau of Economic Analysis (BEA); Northern Michigan University - Department of Economics

Date Written: August 15, 2020

Abstract

Following a revolution precipitated by unsustainable government deficits, an explosion of paper money called the assignat caused a rapid increase in the price level not seen in Europe again until the widespread adoption of discretionary fiat standards in the 20th century. The value of the assignat depended on the property the revolutionary government had expropriated to back it. The decision to retire the assignats from circulation using the revenue collected from the sale of the expropriated property was ultimately political. We examine how shifts in the political equilibrium affected the demand for the assignat and find evidence of two money demand shocks that correspond to the collapse of the assignat's political support. Our estimates of the demand for the assignat indicate that the first shock reduced the demand for real balances by up to 70%. The second shock caused the negative relationship between real balances and inflation to break down entirely. Our results point to politics' critical role in determining a currency's fiscal backing and, thus, the demand for money.

Keywords: Political Economy, Inflationary Finance, French Revolution

JEL Classification: D72, E31, N13

Suggested Citation

Rouanet, Louis and Cutsinger, Bryan and Ingber, Joshua, Assignats or Death: Inflationary Finance in Revolutionary France (August 15, 2020). Free Market Institute Research Paper No. 3674658, AIER Sound Money Project Working Paper No. 2023-03, European Economic Review, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3674658 or http://dx.doi.org/10.2139/ssrn.3674658

Louis Rouanet

George Mason University ( email )

4400 University Drive
Fairfax, VA 22030
United States

Bryan Cutsinger (Contact Author)

Angelo State University - Accounting, Economics and Finance Department ( email )

San Angelo, TX 76909
United States

Texas Tech University - Free Market Institute

Box 45059
Lubbock, TX 79409-5059
United States

Joshua Ingber

Government of the United States of America - Bureau of Economic Analysis (BEA) ( email )

1441 L Street NW
Washington, DC 20910
United States

Northern Michigan University - Department of Economics ( email )

162 Magers Hall
Marquette, MI 49855
United States

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