Reclining Right

History as a Guide to the Future.

Understanding the effects of government policies on the economic well-being of the majority should be the major focus in picking our elected leaders.  Andrew D. White, a history professor, ambassador and first president of Cornell University wrote one of the first detailed analyses of government monetary policy cause and effect.

He collected and analyzed the treasury papers of the French revolutionary government of 1789 to 1799.  This resulted in a book, Fiat Money Inflation in France-How it Came, What it Bought, and How it Ended.”

When they seized power in 1789, they confiscated approximately one third of the country’s land from the owners without compensation.  They took the choicest properties, namely all church assets and the most productive aristocratic farms and enterprises.

They created a paper currency and sold the confiscated assets to raise more money.  Understanding the ultimate results can help us predict the probable long-term effects of similar policies being followed today.

Printing money enabled the leadership to allocate resources to what THEY believed was in the best interests of its citizens rather than letting them decide for themselves.  At first it appeared to bring prosperity, but ultimately it brought disaster.

When the government increased the amount of money in circulation without a corresponding increase in assets (wealth) being created, the money lost value.  This hurt the poor the most since they were salaried and wages never went up as fast as inflation, even though wage and price controls were established and laws were passed requiring the indexing of wages to inflation.

Despite severe penalties of fines, imprisonment, and even death sentences, the government could not stop the currency’s loss of value. People of substantial means generally have had the ability to put more of their wealth into objects of permanent value and are less affected by inflation.

As the economy nosedived, tax increases were implemented to soak the rich.  It made things worse for employees because it took an even bigger portion of their salary as inflation grew.  With fewer buyers, manufactures also had to cut back production and lay off more workers.

The people who benefited the most were those who were politically connected.  But perhaps the most significant effect of the government’s policy was a wholesale demoralization of society.

Inflation encouraged people not to save because the currency lost its value.  Consequently there was even less money for investment to create jobs.

Values, essential to any civilization in maintaining and improving the human condition, broke down.  Morality, integrity, humanity, self-denial, hard work, and thrift were undermined.

Rampant government spending transformed prosperity into famine. Brutality, cruelty and chaos became commonplace in what historians now call France’s Reign of Terror.”

The result of France’s economic collapse was a dictator, Napoleon.  Largely ignored by historians, he did straighten out the financial mess.  At his first cabinet meeting Napoleon responded to his finance ministers request to print more money with,”I will pay cash or I will pay nothing.”

By the time Napoleon met his Waterloo and was thrown from power, France, despite the heavy expenses of war, did not suffer severe economic problems because the government had virtually no debt.  The natural laws of cause and effect revealed by this and other history are the best way of avoiding the repetition of past mistakes.  Why is it that our government leaders continue to institute policies that have cause so much suffering in the past?

James F. Davis 7-21-10