Assignats or Death: Inflationary Finance in Revolutionary France

43 Pages Posted: 30 Sep 2020 Last revised: 21 Oct 2021

See all articles by Bryan Cutsinger

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

Louis Rouanet

George Mason University

Date Written: August 15, 2020

Abstract

Between 1794 and 1796, France experienced an unprecedented hyperinflation fueled by an explosion of paper money called the assignat. In September 1795, the French adopted the Constitution of Year III, which we use to demonstrate how changes in the "rules of the game" and in the "political equilibrium" can have important effects on the monetary phenomena that are critical to the study of inflationary finance. We find that the new regime had a structural effect on the demand for money that substantially weakened the link between real money balances and inflation, and that failing to account for this effect results in substantially different estimates of the seigniorage-maximizing rates of inflation. If we ignore this effect, we find that the seigniorage-maximizing rate of inflation was 35% per 10 days, but once we incorporate the effect of the new regime, this rate falls to 19%. Lastly, we also find that the new regime increased the volatility of inflation, suggesting that the previous regime was more effective at anchoring the public's inflation expectations. Taken together, these results lend credence to the constitutional perspective's primary theoretical insight.

Keywords: Constitutional Political Economy, Demand for Money, Inflationary Finance, French Revolution

JEL Classification: D72, E31, N13

Suggested Citation

Cutsinger, Bryan and Ingber, Joshua and Rouanet, Louis, Assignats or Death: Inflationary Finance in Revolutionary France (August 15, 2020). Free Market Institute Research Paper No. 3674658, Available at SSRN: https://ssrn.com/abstract=3674658 or http://dx.doi.org/10.2139/ssrn.3674658

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

Louis Rouanet

George Mason University ( email )

4400 University Drive
Fairfax, VA 22030
United States

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