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Source link: http://archive.mises.org/9085/going-the-way-of-france-1790/

Going the Way of France (1790)

December 11, 2008 by

Cyd Malone writes: First printed in 1896 and as unfortunately pertinent today as it was then, Dr. Andrew Dickson White’s Fiat Money Inflation in France chronicles the national suicide of an imposing empire that choked to death on one of mankind’s more foolish delusions — the stubborn belief that money does grow on trees.

Dr. White’s style makes the book an easy read, even during the frightening parts that sound as if lifted directly from today’s newspapers.



Davorin Kremenjas December 11, 2008 at 9:03 am

In agreement with all you said and commented, may I ask for a small clarification with regards to the next part:

“church land stolen specifically for the purpose, and under the authority of The Will of the People”

In your opinion:
1. how did the church came to lawfully own this land in the first place? (I’ll give myself the freedom to remind you it was already there more than 4.5 billion years before the Church was even invented)
2. by whose will?



scineram December 11, 2008 at 9:40 am

The same way others came to own land presumably?

greg December 11, 2008 at 10:49 am

Our standard of living is much higher today than it was in 1900, it is much higher than it was in 1970. My question is if we continued on the gold standard would our standard of living be much higher today?

On your 401K value, it is only lost if you sold! And your value will increase faster if you buy when everyone is running to the doors to sell.

If you are really convinced on inflation, buy GLD, the gold index. My trade is to short this index when it hits $90. I perfer buying USO, the oil index at $35 because unlike gold, oil has real uses in the market and when it is used, it is gone.

fundamentalist December 11, 2008 at 11:58 am

greg: “My question is if we continued on the gold standard would our standard of living be much higher today?”

That’s a good question. I was reading something Hayek wrote a few days ago in which he argued that inflationary booms advance innovation at a faster rate than would a gold standard. I think the answer lies in whether the destruction of wealth in the bust is greater than the creation of wealth in the boom. Since we are better off today than a century ago hints that maybe Hayek had a good point.

Joe December 11, 2008 at 12:07 pm
Paul December 11, 2008 at 12:09 pm

Greg, you are wrong. Our inflation adjusted after-tax income has been stagnant since 1970. When you take government jobs out, our income has actually decreased from 35 years ago. The middle and lower class has suffered since that time while the top one-fifth earners has seen an increase in their incomes. The big difference between now and then? The illusion of wealth by the ease of taking on more debt.

That mentality, you only lose money if you sell, is exactly what gotten so many people in trouble. They continue to hold on to losing investments believing it’ll come back. If you’re down 40%, you’re down 40%. That’s a real loss. The best traders know that. They get out when the loss is small. The worst traders will keep holding on – hoping and praying.

And if you really concerned about inflation, buy the real thing, not paper gold like GLD.

Joe December 11, 2008 at 1:07 pm

People forget that if they are down 40%, it takes an upwards movement of 66% to get back to where you were.

Yancey Ward December 11, 2008 at 1:23 pm

Fundamentalist wrote:

I was reading something Hayek wrote a few days ago

Still writing after his death? That Hayek is something else! :~))

fundamentalist December 11, 2008 at 1:51 pm

Yancey: “Still writing after his death? That Hayek is something else! :~))”

You have just begun to learn how brilliant Hayek still is!

Ken Zahringer December 11, 2008 at 2:15 pm

Great article, Cyd. I gotta get that book.

I would like to take issue with one point, though. I think we should not be advocating a gold standard. We should be advocating no standard.

Having a gold standard, that is, a government-defined monetary standard based on gold, still reinforces the fundamental fallacy that led to fiat money in the first place. That is, that it is somehow within the proper purview of government to define what money is and force the populace to accept that definition. In short, if today the government says that gold is money, tomorrow it can say that it isn’t. If we grant them the authority to define money, we can’t argue much when they use that authority.

Instead, we should advocate no government standard or other involvement in defining money. Money should be only what individuals are willing to accept as such. With a purely market-defined money, I think we would quickly see a move to quality, metal-based money. We would also see a rapid convergence to standardized weights, for the same reason that today we standardization in most products, for instance soft drinks in only a few different sizes.

The only solution is to get the government out of the money business altogether. If the government has any part to play at all, it will inevitably expand its role and misuse its power.

Project Guttenberg December 11, 2008 at 2:46 pm

has plain text copy of the book:

Eric December 11, 2008 at 3:14 pm

Greg writes,

“Our standard of living is much higher today than it was in 1900, it is much higher than it was in 1970. My question is if we continued on the gold standard would our standard of living be much higher today?”

Our technology is clearly advanced, but our standard of living? How would you measure that?

For one thing, it seems that today, we have computers, and that has done a lot, plus a lot more medical advances.

Yet, while computer prices have dropped, medical is going through the roof, food costs more and transportation costs are in great flux. Today it would seem that every family must have 2 adults working to keep up. When I was a child in the 1950′s I knew of no family in our lower middle class neighborhood where both parents worked full time, and only a handful of moms that had part time work.

We were also not facing a financial meltdown then. Schools were much better, kids weren’t preyed upon by drug dealers, and we weren’t hated by the entire world.

So, I’m not so sure we have a higher standard of living today, just more complex toys.

But had we remained on the gold standard, it’s highly unlikely that the FED could have engineered this catastrophe looming upon us.

David Bratton December 11, 2008 at 3:59 pm

“how did the church came to lawfully own this land in the first place?”

It’s a legitimate question in general but it’s beside the point here. The point is the government had no right to the land. If you steal from a thief you are still a thief.

newson December 11, 2008 at 5:17 pm

eric’s right. the bubble hasn’t burst quite yet on longevity, but it’s only a matter of time before most nations public health schemes buckle under the weight of demographics and collapsing tax revenues as the recession continues to bite.

once “free” medicine is no longer available, even the health mirage will be revealed, and then we’ll truly wake up to our standard of living nightmare.

i really think hayek’s thought-bubble about technological progress under inflation is wrongheaded, counterintuitive, and not borne out by history (if any of the great inflations have produced great technology outside the printing profession, let me know).

i’m taking fundamentalist at face value here.

Doug & Family December 11, 2008 at 6:18 pm

The synopsis was entertaining! I read aloud to my family over diner – Thanks much for the insightful, provocative and inspiring work/teaching/lesson/etc.

peter helbich December 12, 2008 at 6:24 am

this is vienna austria. where it all began.
mozart, menger,mises,hayek etc.
send this theorem to all your friends and let it loose in the internet

it proofs mathematically that the austrian school of economics is right.

regards peter helbich

newson December 12, 2008 at 8:11 am

“it proofs mathematically that the austrian school of economics is right.”


newson December 12, 2008 at 8:16 am

for pdf fans, here’s the link:

greg December 12, 2008 at 8:36 am

If your standard of living has not advanced since 1970, you are NOT in the majority. In the 70′s the average person lived in a 1200 square foot house, now the average is closer to 2200 square feet. Most of us have 2 or more cars, 3 or more TV sets, we have leaf blowers that have the same power as the motorcycles we had in the 70′s. I could go on.

On medical, the cost has come down. You just don’t know how to negotiate for the best rate. Just because you have insurance, you think the bill they issue the insurance company is the cost. I have news for you it isn’t. I had a kindney stone removed and the cost was $15,000. I paid $4,400. Of course you would need to understand the difference between paper cost and real cost.

But maybe you are not as well off if you are taking investment advice to manage you 401K from people that tell you to liquidate on down swings. The basis of my advice comes from Buffett.

Bottom line, our standard of living and productivity is better now than in 1970. If you are one of the few that are not better off, you are in the minority. And if you are basing your economic forecast on a higher standard of living in the 70′s, you really are off base.

Paul December 12, 2008 at 9:43 am

Where do you get that figure that the average house is 2200 SF? In the area I live in (Washington DC metro), 2200 SF would be a luxury. Not that my area is representative of the country as a whole.

Like I said in my earlier post, the ability to take on a tremendous amount of debt has created the false illusion of prosperity. And someone mentioned, there are far more both-parent income earners then back then.

You could look at this site: http://www.pushhamburger.com/oct__05.htm

newson December 12, 2008 at 6:16 pm

to greg:
productivity has improved (for those that are working and not on welfare, but these numbers have shifted vastly). yes, we have many more baubles now. but does that translate to improved, across-the-board standard of living?

i don’t think so, but then it’s my view, your view. standard of living is always going to defy hard calculation. i think it will be interesting to see how average life expectancy holds up in the years to come. that’s one good indicator that’s hard to argue with.

Cyd Malone December 12, 2008 at 8:33 pm

To All: Thank you for all your posts, both pro and con. And to Doug and Family in particular, thank you for reminding me of the wisdom on not using foul language when you write.

fundamentalist December 13, 2008 at 8:36 am

I think everyone is right on the standard of living issue. By aggregate accounts, such as inflation adjusted per capita GDP or average size of house, we are much better off than in the 70′s. But when you break the data down, most of that increase has gone to the upper classes as a result of inflation. Inflation benefits those who get the new money first, such as government workers and those in the financial services sectors. So Hayek may be right about the technological benefits of inflation, but the distributive effects are pretty rough, especially on the poor. In addition, even mild inflation destroys our manufacturing base by 1) forcing companies to pay taxes on inflated income, thereby reducing retained earnings for re-investment and 2) destroying the value of depreciation so that replacing worn out equipment is much more expensive.

BTW, I found the passage from Hayek I referred to above:

“So long as we make use of bank credit as a means of furthering economic development we shall have to put up with the resulting trade cycles. They are, in a sense, the price we pay for a speed of development exceeding that which people would voluntarily make possible through their savings, and which therefore has to be extorted from them. And even if it is a mistake — as the recurrence of crises
would demonstrate — to suppose that we can, in
this way, overcome all obstacles standing in the
way of progress, it is at least conceivable that the
non-economic factors of progress, such as technical and commercial knowledge, are thereby benefited in a way which we should be reluctant to forgo.” from page 190 “Monetary Theory and the Trade Cycle.”

But I’m pretty sure that other Austrian writers discuss the break on technological advance caused by interest rates. In general, new technology causes an increased demand for loans to invest in the new technology, but with a fixed money supply interest rates rise and block the implementation of new technology. However, that is just one of many things to be considered when evaluating the effects of monetary inflation.

Paul Marks December 13, 2008 at 9:58 am

The idea that credit bubble ism (the booms and busts that come with credit money expansion) makes people better off than they would have been is false – it makes them worse off than they would have been.

People innovate partly out of the desire to know “what if” and partly because they want cheaper and/or different goods – they do not inovate because a lot of credit money is being given to the politically connected.

F.A. Hayek may (at some periods in his long life) have said something different – but that can not be helped.

As for Church land:

The old idea that if one can not trace back land owernship, without a break, to the first people to inhabit the land then the present owners are not “just owners” – as this tracing back can only be done on Iceland (as far as I know) it is about a crazy an idea as one could have the misfortune to come upon.

However, there is a weakness in the article (as has been noted by one person above) – the talk of a gold “standard”.

Few people in France in 1789 used notes or bank drafts (or whatever), the money was coins. It was more “gold as money” rather than a gold “standard”.

The difference is a very important one – as there is nothing to stop governments or banks issuing various types of note or document and claiming it is “backed by” gold. As the booms and busts of the 19th century show – this gold “standard” does not stop credit bubble ism.

True one need not be a “gold bug” many commodities have served as money over time – it should be up to people to decide what they make contracts in. However, the commodity must BE THE MONEY not serve as a “standard” for the money.

However, credit bubbles used to be smaller than today – at least in Britain.

For example – the Bank of England has been involved in fraud (issuing more notes and so on than it had gold in the faults) since it was founded in 1694 and the banks have always been fractional reserve shell games.

However, the scale was different – before 1914 most people did not use “white fivers” (a five Pound note – a 1914 Pound being worth about one hundred times what a modern one is) and few people had bank accounts or dealt in cheques.

Most people were paid in coin and shopped in coin – and the higher value coins were silver and gold.

Indeed (if people want to quote Hayek) he was fond of telling people that he had been paid a silver sixpence (twelve old penneys to a shilling, twenty shilling to a Pound) in 1963.

Indeed a few old coins were still be used in the early 1970′s – although (by that time) their face value was much less than the value of the metal in the coin.

People take a very long time to give up their old habits. And accepting that inflation (expansion of the money supply via notes and via bank credit) has made the coins worth less than their scrap value is hard.

Today the banking system (in both the United States and Britain) is beyond a joke even by fractional reserve standards and even the official notes and coins are purely fiat ( government command) money.

“But we have high living standard”.

Yes techology has improved (in spite of, not because of, credit bubble ism) and there has been capital investment.

But a lot of that improvement in living standards is going to be reversed over the next few years. Things are going to get very bad indeed – much worse than most people expect.

There you are, an “emprical prediction” from an a priori student of the Austrian School.

gene berman December 13, 2008 at 9:59 am


There’s not even a smidgin of evidence that inflation is a prerequisite of progress. It’s true, though, that most progress and inflation are coincident. However, I believe the relationship is most satisfactorily explained entirely differently.

Rather than lay out the matter for you in this comment thread, I’d instead refer you to earlier comment of mine in the comment thread regarding
Jorg Hulsman’s book (earlier on today’s blog posts).

I was writing in answer to somebody named Bill, one of the very first commenters on the thread. But the matter is one of very general interest and importance.

fundamentalist December 13, 2008 at 10:52 am

Gene: “There’s not even a smidgin of evidence that inflation is a prerequisite of progress.”

That’s not what Hayek wrote. Read the whole paper. It’s not too long and the context might help. It’s available under the literature link on this site. I think it was commonly accepted by Austrians that the interest rate acts as a break on the adoption of new technology. It seems that it was so commonly accepted that they didn’t try to defend it. Those of you who are more familiar with Rothbard than I am might have some insights from him on that.

That doesn’t mean that inflation is required for technological advancement. It just means that without inflation the adoption of new technologies will be slower. Does that outweigh the damage that inflation does? I don’t think so.

gene berman December 13, 2008 at 1:11 pm


OK–you and I are actually in agreement. (I wouldn’t have any idea what Rothbard might’ve written on the subject; haven’t read anything more by him than a few essays.)

I would agree that a lowering of the interest rate will encourage the employment of some newer technologies; but, rather than being an advancement in production, that shift is actually part of the tendency toward malinvestment which will only become apparent at some later date. I say “tendency toward” rather than “malinvestment” outright because, although from the perspective of someone not faced with the availablility of the lowered interest rate, the investment will be shunned,
that particular borrower is quite apt to escape being the one whose action will later be seen as malinvestment, a fate more likely to overtake those who pay even higher prices later for the same type of equipment or other investment.

The difference between Mises and Rothbard over whether (under private banking) the issuance of instruments in excess of the reserve is to be criminalized or not (Mises thought it unnecessary, Rothbard wants to behead ‘em) is essentially unimportant–at least in comparison to the present situation. Government’s destructive power is not merely due to the fractional reserve banking system; by itself, that would lack such capability. Rather, it’s the money-monopoly of “legal tender” coupled with FRB, with the latter entirely dependent on the former for its efficacy.

gene berman December 13, 2008 at 1:39 pm


Whether you’re aware of it or not, government is, in numerous instances (and probably more numerous than those of which I’m aware) completely and legally enabled to act in ways that would be considered (either or both) civilly or criminally culpable when committed by private citizens or business entities. I have witnessed a half-dozen or so incidents over the past 40 years (involving myself or others). If I were Rothbard, I’d impute it to malice and think revenge justified; but that’s beside the point—I can only fault myself for playing in a game where the “deck is stacked” against you “going in.”

newson December 13, 2008 at 8:20 pm

thanks fundamentalist for the hayek quote, which on the face of it seems dubious. i don’t see that technical or commercial developments necessarily equate to “progress”, though most often this is the case. the malinvestment argument suggests that many of the developments may be of the wrong sort, in the wrong areas, and in wrong proportions. the bust side of the inflation cycle causes many potentially new innovations to be stillborn, so we never know what we missed out on.

if moderate inflation can foster inflation, why is not hyperinflation even better? and if not, where is the inflection point where beneficial becomes deleterious?

i’ll have to read the whole hayek paper, but i’m not impressed.

compliments to paul marks for the interesting comments on coinage. so far, my favourite treatment of coinage is hulsmann’s “ethics of money production”.

anyone read selgin’s “good money”?

newson December 13, 2008 at 8:35 pm

“potential innovations”. note to myself: edit before posting.

fundamentalist December 14, 2008 at 8:29 am

Newson, Actually the paper is very good. I was surprised at Hayek’s conclusion, too, but the paper is one of the clearest short explanations of fractional banking I have seen. In addition to what I posted of his comments Hayek wrote that fractional banking is such an accepted part of our society and has been part of Western civilization for so many centuries that he thought it futile to focus on eliminating it. He could clearly see the problems it causes, but was being practical about the probability of getting rid of it. I think Hayek was showing his frustration with the obsession over fractional banking some people have. So he tossed out the one benefit–faster adoption of new technology.

Of course he saw the harm that fractional banking causes. In a way, his whole business cycle theory is built on it. In “Monetary Theory” the money supply increases because banks take advantage of fractional banking, not because the feds lower interest rates. And Hayek’s business cycle is built on the fact that the artificial increases in the money supply causes changes in relative profits and sets in motion the business cycle.

The real question is do the benefits outway the harm? I don’t doubt that Hayek would say no, but he would probably also add “what can you do about it?”

Ageing Hippie December 16, 2008 at 7:16 pm

On a technical point, in Europe a billion use to mean a million x a million ( 1 x 10^12)

Big Brother September 10, 2011 at 7:24 pm

Link to full article seems to be broken: it takes me to a page, blank except for the following:
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