Assignats and Reprises!
Feb 25, 2017Posted by on
This week on Facebook: I keep getting economic reports that any money I may hold is in danger and that those who want to take it from are my government. That my government should seek innovative means of creating inflation is hardly a surprise, the government’s (apparent) wish dispense with money altogether and make all fiat money digital is news. Although digital money is not new concept and in todays economy is synonymous with debt, the trail blazed by a digital money economy will be complex. Not in the least — I believe — because it will lead to greater debt having to be borne by the taxpayer. In a world scramble for economic growth any public administration where all money is digital in form will find it easier to devalue their currency in a sleight of hand inflation, especially when engaged in a currency war to promote economic growth.
The Assignats issued by the French Revolutionary government in 1789 is a lesson from history largely ignored by economists and completely ignored by successive British Chancellors of the Exchequer. While providing momentary economic growth by increased money supply, French monetary inflation brought about by continually devaluing the assignats in the hope of stimulating further economic growth ultimately ensured its failure. The French revolutionary government’s adoption of paper money , in the form of assignats, was a prelude to fiat money. By increasing the supply of assignats, abandoning the fiscal policy on which they were originally based and failing to stimulate long term economic growth, the assignats were a model for the evolution of fiat money.
If additional cash were needed, as in the case of the assignats, then an increase in economic growth should result in a (relatively) stable buying power for the assignats (fiat money) in circulation. This of course never happened and all trade in assignats virtually ceased in the new Republic. Little wonder the revolutionary government of France established a commission for currency reform to replace the assignats. Nevertheless, the successful replacement of assignats should probably go to Napoleon and his successful Italian campaign in providing the monies that enabled the French government to dispense with paper money and return to the hard currency reform of 1797 (eventually leading to Napoleon’s imperial reign in France).
There was time (pre-fiat money) when money was commonly understood to be in the form of notes and coin. We are now living in a fiat money world where money is now largely digital in form and the economy is debt based, being one in which politicians have created a great disparity between income and wealth. But perhaps the real tragedy lies in the expectation of those reliant solely on money —as it was (and still is) —commonly understood, who are dependant on it to maintain a relatively constant (even an improved) buying power, then having to live with its failure to do either.
With the collapse of the Bretton Woods Agreement and global acceptance of fiat money as a national currency circa 1973, it’s surprising that in 1995 the EU should issue Euros that effectively emulated the assignats. Paper money based on an initial fiscal policy (like assignats) that it abandoned long ago and for which the European Central Bank (ECB) has no common fiscal policy to service the debts of the Eurozone member states. A currency now used by EU member states that have no common economic bond binding them to its stability other than the constantly changing objectives set by the Stability and Growth Pact (SGP) .
In fiat money economy the central bank does not control the amount of debt created but it does control the amount of money circulating in the economy. Total debt creation is mainly bank credit in the form of digital money, exacerbated by a government’s digital quantitative easing (QE) and a profligate fiscal policy. In a global economy where banks control the amount of debt created and global markets determine the parity of all currencies, public administration increasingly seek more totalitarian methods to resolve their economic difficulties. It may be that the shills knocking on my door are right, where the question of hard or soft currencies refers to a global view of a public administration’s ability to maintain the stability of its currency.
The present global scramble for the economic growth to simply maintain fiscal, private and public debt and achieve some degree of economic hegemony is not a new occurrence. However, modern currency wars are not only global in their impact but global in their origin. This is no longer a replay of earlier historic economic scrambles for growth, where the industrialised nations of the West competed with each other for global economic hegemony. Rather, it’s 21st century model where global economic hegemony is uncertain in the scramble for growth between the old industrialised nations of the West and the emerging global economies — especially in the East —that are now competing with them for economic hegemony.
Monday 20/2/2017 Euronomics [posted by Peter on December 30 – 2011] The realisation that the European debacle is much more an issue of political harmonisation and Empire-building than one of pure economic band-aid provision should be clear to any and everyone who has followed the words and deeds of the various European factions for the past year or two.
Tuesday 21/2/2017 Money money money…[posted by Peter on January 12 – 2013] Throughout the 1960s and ’70s private-sector debt lagged behind the outstanding total of M4 money (the total — officially acknowledged — money supply). The deregulation of the financial services industry noticeably increased the volume of private-sector debt during the Tory early ’80s. However, during the New Labour period — 1997 to 2007 — the UK’s money supply, assisted by private sector debt, nearly tripled.
Wednesday 22/2/2017 The pound in your pocket [posted by Peter on February 19 – 2014] Depending on which school of economic thought our economist subscribed to, we could be offered a number of views intended to overcome our naivety on this matter. And, having obfuscated any ideas that we may have held, the now smug economist leaves us to muse over the pound in our pocket; with, perhaps, the remembered voice of Harold Wilson coming to mind.
Thursday 23/2/2017 The Budget Deficit – The Record [posted by Peter on April 29 – 2015] Government budget deficits create a debt burden that inevitably increases the national debt. Even when the fiscal deficit is financed by the issue promissory notes in the form of gilts, if these gilts fail to increase the revenue sufficiently government profligacy can be met by printing more money. As printing money is seen to be inflationary, the government’s sleight of hand now takes the form of quantitative easing (QE).
Friday 24/2/2017 Men in Black [posted by Peter on October 20 – 2016] ‘If I may my Lord, members of the jury may not be aware that Friedman was an economist who posited the principle of helicopter money. Simply stated, that if The Bank of England wanted to raise inflation and output in the economy, which both the bank and the government agree is necessary, then one of the most effective tools would simply be a once only gift of cash by the government. Increasing the amount of cash in circulation would boost spending and restore economic growth.’