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Speaker 1: Hello, and welcome to another episode of the Odd Lots Podcast.

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Speaker 1: I'm Joe Wisenthal and I'm Tracy Alloway. How are you doing, Tracy?

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Speaker 1: I think I'm like dying of consumption or something. Consumption

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Speaker 1: is a thing, right, Yeah, I think I think I

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Speaker 1: think it used to be a thing and now there's

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Speaker 1: probably another name for it. Anyway, Sorry to hear that. Um,

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Speaker 1: So we've had a lot of bleak episodes lately. We

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Speaker 1: just finished a sequence of episodes on money and crime

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Speaker 1: and terrorism and the black market and stuff like that,

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Speaker 1: and I think today's is also kind of going to

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Speaker 1: be pretty bleak because we're gonna be talking about the

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Speaker 1: French Revolution. People died of consumption in the French Revolution,

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Speaker 1: right they probably did. Yeah, it's a good way to

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Speaker 1: connect connect our episode to your current your current ailment. Okay, Joe,

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Speaker 1: in all seriousness, Um, that that is very bleak. Uh.

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Speaker 1: We seem to be on something of a very dark

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Speaker 1: thematic pathway for two thousand seventeen. Yeah, maybe it says

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Speaker 1: something about our times, but of course we're we're taking

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Speaker 1: an angle that is relevant to past episodes that we've done,

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Speaker 1: and I think it's one of my favorite questions and

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Speaker 1: one of your favorite questions, which is what is money exactly?

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Speaker 1: And the French Revolution will tell us something about what

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Speaker 1: money is, right because every time in history, you know,

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Speaker 1: the subject of coming up with a monetary system is important.

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Speaker 1: And you know, economists and historians and people on financial

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Speaker 1: markets tend to I think, sort of abstract away the

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Speaker 1: question of money, and they just sort of come up

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Speaker 1: with these models that take it for a given. And uh,

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Speaker 1: it often seems to be the case that they people

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Speaker 1: should go the other way, start by looking at the

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Speaker 1: form of money and seeing what it says about the time. Right. Well, Also,

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Speaker 1: people forget that money is intricately linked with power and

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Speaker 1: therefore with politics, and sometimes money can be um, I guess,

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Speaker 1: either reinforcing force um of the existing social structure or

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Speaker 1: an instrument of change, right, right, And people money makes

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Speaker 1: people do things that seem irrational. I mean, in theory,

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Speaker 1: people should just want to increase their wealth and material wealth,

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Speaker 1: but sometimes people just want to run up the score,

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Speaker 1: so to speak. Okay, so I'm intrigued. So who is

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Speaker 1: going to be um connecting the idea of money with

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Speaker 1: the French Revolution for us, Well, there's the perfect guest

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Speaker 1: We're going to be talking to Rebecca Spang. She is

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Speaker 1: a professor of history at Indiana University, and she actually

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Speaker 1: wrote a book called Stuff and Money in the Time

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Speaker 1: of the French Revolution, which is essentially a monetary history

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Speaker 1: of the French Revolution, looking specifically at how they dealt

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Speaker 1: with what is money and how that really shed some

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Speaker 1: interesting light on a on this period in history. Very cool, Okay,

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Speaker 1: So I have a feeling, in addition to asking about

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Speaker 1: the French Revolution and money during that era of time,

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Speaker 1: we're going to have a whole bunch of questions about

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Speaker 1: money now as well, right, like things like bitcoin you, yeah,

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Speaker 1: Trump's relationship with gold, um, all sorts of current events

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Speaker 1: stuff too, so much, so much we can take from

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Speaker 1: the past to apply the present. So without further ado, Rebecca,

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Speaker 1: thank you very much for joining us. Oh, thank you

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Speaker 1: for inviting me. I'm delighted to be here. So let's, uh,

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Speaker 1: let's start with the question of why this angle on

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Speaker 1: studying the French Revolution. No doubt there have been numerous books, uh,

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Speaker 1: much academic study about this period of time. Why explore

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Speaker 1: it through the monetary system. There's a well established way

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Speaker 1: of thinking about the relation of money and the French Revolution,

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Speaker 1: which is to say that the French revolutionaries were utopian

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Speaker 1: philosophers who had little understanding of the practicality of government,

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Speaker 1: and so one of the ill advised things they are

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Speaker 1: caricatured having done was to issue paper currency in great quantities. Um.

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Speaker 1: It was issued in such quantities that so called hyper

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Speaker 1: inflation resulted and the whole system collapsed. And that is

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Speaker 1: something that historians, economists, and policy makers, ever since the

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Speaker 1: debate on the green back in the aftermath of the

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Speaker 1: American Civil War, that is a story that people know

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Speaker 1: and are familiar with and site as true. I went back,

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Speaker 1: everybody takes it for granted exactly um, And so the

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Speaker 1: French Revolution can always be offered as an example of

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Speaker 1: why fiat currency is a bad idea. I wanted to

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Speaker 1: go back to that episode re examine it, and I

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Speaker 1: think I've come up with something different to say. Can

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Speaker 1: you maybe explain for those who aren't entirely familiar with

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Speaker 1: the subject exactly what the money system was during the

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Speaker 1: time of the French Revolution and how it went wrong

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Speaker 1: and how it became this lynchpin for people to focus

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Speaker 1: their fiat currency criticisms around what you need to know

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Speaker 1: is that the French Revolution is precipitated UM by a

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Speaker 1: very heated political debate about government debt, and it's a

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Speaker 1: lot like recent debates we've seen. It has more to

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Speaker 1: do with politics than it does with the actual viability

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Speaker 1: of the state's finances. Nonetheless, when the representatives who formed

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Speaker 1: the first French National Assembly, this is in seventeen eighty

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Speaker 1: nine UM, declare themselves to be a national Assembly, they

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Speaker 1: face a considerable debt they want to repay it. They

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Speaker 1: also have an operating deficit. They can't fail, and so

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Speaker 1: they decide that what they're going to do is they're

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Speaker 1: going to nationalize land formerly held by the Catholic Church.

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Speaker 1: This amounts to probably about ten percent of the property

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Speaker 1: in France. They do this because, after all, they say,

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Speaker 1: Jesus doesn't say to the disciples go forth and be

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Speaker 1: property developers. So why does the Catholic Church have all

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Speaker 1: this wealth the nation? The state is going to take

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Speaker 1: over the property. In exchange, it will also pay the priests,

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Speaker 1: it will do all the charity work, and it will

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Speaker 1: then pay off its debts with this land. But you know,

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Speaker 1: people don't necessarily want to be be paid in land.

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Speaker 1: It's not always the case that you know, an armament

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Speaker 1: supplier wants a used monastery in Brittany. Say. So what

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Speaker 1: they say is, we'll have this piece of paper that's

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Speaker 1: worth leavre that was the unit of account at the time, um,

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Speaker 1: and that's backed by a used monastery in Brittany, say,

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Speaker 1: and will issue the paper and then when somebody wants

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Speaker 1: to buy the used monastery, it will come back into

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Speaker 1: the central government. So we won't have created paper. We're

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Speaker 1: just creating land in a form that can circulate. And

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Speaker 1: the that was supposed to be and these physical bills

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Speaker 1: their paper money, they were called a and so they

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Speaker 1: explain to us a little bit more the mechanism by

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Speaker 1: which they were ostensibly backed by the land. Did they

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Speaker 1: pay any sort of dividend or yield or anything like

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Speaker 1: that or they how did uh, how did the actual

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Speaker 1: backing work? Okay, So actually that's interesting. For the first

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Speaker 1: six months they were supposed to be interest bearing, and

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Speaker 1: that's really complicated because imagine that you've got a bill

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Speaker 1: for a thousand leave and it's going to carry four

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Speaker 1: percent annual interest. So that means that after six months

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Speaker 1: it's actually worth a little bit more than a thousand

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Speaker 1: so how do you make change for that? Um So

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Speaker 1: after the first six months when these are supposed to

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Speaker 1: be interest bearing, the government decides now they're not going

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Speaker 1: to be interest bearing, and they introduced some other changes

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Speaker 1: as well. UM. In fact, there were some who argued

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Speaker 1: that the best way to make them widely accepted would

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Speaker 1: be for each bill to be backed by a very

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Speaker 1: specific piece of land, so that they would in effec

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Speaker 1: to be real estate trading cards. The problem with that

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Speaker 1: is that it would have greatly complicated making any exchange,

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Speaker 1: because while somebody might be happy to take a bill

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Speaker 1: backed by five hundred livre worth worth of land, there

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Speaker 1: might be much more skeptical about a piece of bill

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Speaker 1: that's only this little corner of a wheat field, because

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Speaker 1: then everybody has to become an expert on all the

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Speaker 1: different pieces of land exactly, and then there's going to

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Speaker 1: be people who say, oh, well, I don't want that

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Speaker 1: five hundred, I want that five hundred. So it creates

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Speaker 1: non equivalency. At the very least, though you would have

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Speaker 1: expected that um these papers or certificates backed by land

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Speaker 1: would have been relatively stable in value, right like land

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Speaker 1: is usually pretty stable, so creating money backed by land

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Speaker 1: should have made some sense, but I'm guessing it it

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Speaker 1: all went wrong, right. So that was exactly the logic

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Speaker 1: of the French revolutionaries. They say the price of land

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Speaker 1: is stable. They say the land is ours, nobody can

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Speaker 1: take it away from us. What they didn't think through

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Speaker 1: very well, um, was that by having taken the land

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Speaker 1: that once belonged to the Catholic Church, they had created

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Speaker 1: politically controversial money. So something like fifty of the population

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Speaker 1: of France right from the get go, says these bills

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Speaker 1: are illegitimate because the state never had the right to

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Speaker 1: the land. The land belongs to the church. It would

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Speaker 1: be a sin to take one of these bills. So

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Speaker 1: how did you know Initially these starts you were very

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Speaker 1: high denomination bills, right, not. These were not designed to

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Speaker 1: be money that you could go to the store and

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Speaker 1: buy some apples or buy a loaf of breadwidth So

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Speaker 1: how did they become go from these sort of essentially

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Speaker 1: paper money, very big or you know, bills at very

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Speaker 1: high denominations, to money that started to circulate and be used.

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Speaker 1: That's a really good question, um. In the beginning, they're

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Speaker 1: large denominations because they represent pieces of land and really

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Speaker 1: you can't get very much land for a dollar and

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Speaker 1: a half, say um. But as you say, it's just

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Speaker 1: not practical if they are also supposed to be a

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Speaker 1: medium of exchange to only have five hundred and a

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Speaker 1: thousand as the smallest denominations in circulation. Um. So at

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Speaker 1: the beginning, what happens is that all across France, literally

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Speaker 1: thousands of bodies, municipalities, counties, for profit banks, they say, well,

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Speaker 1: will make small change. We'll take this bill that's good

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Speaker 1: for a thousand, and we're going to lock it up

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Speaker 1: in our safe, and we will issue a thousand of

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Speaker 1: our own bills, each of which is equal to one,

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Speaker 1: and then those can circulate, and when they all come

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Speaker 1: back into us eventually, then we can take the thousand

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Speaker 1: out of the safe. So what ends up happening in

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Speaker 1: the course of is that you get this proliferation of

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Speaker 1: different issuers of small change, which the central government enthusiastically

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Speaker 1: welcomes as people doing their patriotic duty and evidence of

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Speaker 1: what ingenious people will do in a country that has

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Speaker 1: freedom and liberty. That also sounds like a recipe for

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Speaker 1: lots of confusion and potentially counterfeiters as well. It's a

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Speaker 1: recipe for both of those, because imagine that you live

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Speaker 1: in a small town in the north of France and

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Speaker 1: there are these locally issued, very small denomination bills that

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Speaker 1: have been signed by the mayor and um some other

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Speaker 1: patriotic officials, and maybe even you know your cousin and

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Speaker 1: you know what it is. But then somebody who's traveling

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Speaker 1: across the country, a merchant or by s a soldier,

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Speaker 1: comes with a small bill issued in a different part

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Speaker 1: of the country, signed by different people. Well, you don't

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Speaker 1: know who those people are. You don't know if that

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Speaker 1: bill is legitimate. It could just have been made up

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Speaker 1: on the spot. So there's enormous increase in the information

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Speaker 1: costs of any transaction because people have to verify these

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Speaker 1: many different bills they see in front of them. Now,

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Speaker 1: there were some people who thought there was a benefit

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Speaker 1: to the skepticism around this money in the sense there

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Speaker 1: you know, if you silver and old, you can export those,

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Speaker 1: you can take those out of the country. But if

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Speaker 1: there's some sort of paperback money, or it's and it's

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Speaker 1: only local credibility, you can at least be sure that

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Speaker 1: that will stay in France and only circulate in France.

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Speaker 1: That's right, That is the argument for a national money.

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Speaker 1: And remember that throughout the medieval and early modern period

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Speaker 1: a lot of the currency in circulation um it's gold,

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Speaker 1: it's silver, and it circulates by weight, so it's not

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Speaker 1: national money. We're talking about the era in which money

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Speaker 1: really begins to be identified with the nation. And so

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Speaker 1: one argument for that, and this goes back to sort

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Speaker 1: of Rousseau's ideas about self sufficiency, is if we issue

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Speaker 1: a paper that nobody else wants because they don't believe

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Speaker 1: in our politics, well that's great because it stays in

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Speaker 1: the country. It's a sort of by American venture. That

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Speaker 1: sounds familiar, Yes it does. So. So it's the ultimate

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Speaker 1: argument that the assignat that they failed because they were

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Speaker 1: politically controversial forms of money, or is it that they

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Speaker 1: failed because they were poorly designed forms of money? Good question.

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Speaker 1: I think it's a little bit of both. They were

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Speaker 1: politically controversial, and for nearly all of the seventeen nineties,

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Speaker 1: with an exception of a few months, French revolutionaries really

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Speaker 1: endorsed the idea of free trade to the point of

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Speaker 1: allowing the free trade in money. So while this paper

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Speaker 1: is being issued, except for a few months, they never

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Speaker 1: say that you have to take the paper and coins

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Speaker 1: at a one to one exchange value. So what you

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Speaker 1: end up getting our situations in which a merchant might say, sure,

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Speaker 1: you can have that for two in coins or two

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Speaker 1: hundred in paper. So over and over again, there are

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Speaker 1: these controversies about how the money backed by land relates

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Speaker 1: to the money that was already in circulation. Could they

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Speaker 1: have just taken a stronger stance on it, and would

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Speaker 1: that have been effective. We say this is absolutely money.

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Speaker 1: It is illegal to trade them at a different price

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Speaker 1: than any other money with the same denomination, and you

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Speaker 1: have to accept this. Would that have worked, that's interesting question.

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Speaker 1: If they had done that from seventeen, there would have

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Speaker 1: been immediate objections, as I said, on the part of

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Speaker 1: the Catholics who see this as not all Catholics, but

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Speaker 1: those Catholics that did see it um as sacrilegious. On

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Speaker 1: the other hand, I think it would have made for

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Speaker 1: a much more coherent policy. UM. A lot of what

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Speaker 1: radicalizes the French Revolution, and we see this in other

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Speaker 1: historical episodes as well, is policymakers thinking oh, well, that

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Speaker 1: didn't work, why don't we try this, and then they

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Speaker 1: try something for a couple of months and that doesn't work,

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Speaker 1: and they say, Okay, let's try this, And that's a

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Speaker 1: really bad way to build trust in a monetary or

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Speaker 1: a political system. So this gives to something that you know,

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Speaker 1: you hear echoes of this in current politics, which is

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Speaker 1: the idea of monetary innovation, or the idea that the

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Speaker 1: price of money could fluctuate. Even though our money system

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Speaker 1: is pretty stable in the US and has been for

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Speaker 1: a while, it's still there are a lot of people

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Speaker 1: who get very concerned. They get really inflation. The idea

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Speaker 1: of inflation sets people off. The idea of quantitative easing

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Speaker 1: makes people nervous. What is it due to society when

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Speaker 1: the money itself is perceived to be traded on a

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Speaker 1: market and volatile, so that beyond just the price of

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Speaker 1: good going up and down, they don't feel that the

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Speaker 1: money is a stable store of value. Very good question. Um.

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Speaker 1: I was fascinated to discover that through the nineteen thirties

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Speaker 1: it was possible for political figures in the United States

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Speaker 1: to be pro inflation. You could be pro inflation because

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Speaker 1: you were thinking of yourself and the people around you

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Speaker 1: as producers. You wanted prices to go up it's when

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Speaker 1: we all start thinking of ourselves as consumers and only

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Speaker 1: consumers that inflate, which goes back, of course to Tracy's

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Speaker 1: terrible affliction with consumption. Uh. That's the point at which

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Speaker 1: inflation becomes this awful, terrible bug bear. Now in societies

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Speaker 1: that experience dramatic inflation, so of course we think about Vimar, Germany,

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Speaker 1: or Hungary after the Second World War, um, many other

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Speaker 1: historic examples. What happens is that people tend to think

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Speaker 1: that they need to get their wealth of money and

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Speaker 1: into something that will last, so they might buy land. Uh,

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Speaker 1: they try to buy any sort of physical object that

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Speaker 1: they think will hold its value. It's a point which

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Speaker 1: money is no longer believed to be a store of value.

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Speaker 1: It doesn't serve that function. Rebecca, I want to go

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Speaker 1: back to the politically controversial aspect of this discussion and

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Speaker 1: ask you to connect what happened in the French Revolution

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Speaker 1: with the assignat to potentially what might happen today with

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Speaker 1: the Eurozone and the euro which is of course a

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Speaker 1: currency um which seems to even though it's stable in

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Speaker 1: terms of the actual market, at least for now, it

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Speaker 1: seems to be becoming ever more controversial UM in its

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Speaker 1: basic ideals. I guess what do you think will happen there?

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Speaker 1: What's fascinating about the euro is that I don't think

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Speaker 1: it's the political ideals that it was want to embody cooperation, UM,

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Speaker 1: the movement of people. UH. Europe as not divided by

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Speaker 1: the sort of nationalism and xenophobia that destroyed it in

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Speaker 1: the Two World Wars. Those political ideals, while they're under

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Speaker 1: attack from the extreme right, I don't think those are

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Speaker 1: things that people generally disagree with. What's happened is that

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Speaker 1: those political ideals got yoked to certain fiscal monetary criteria

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Speaker 1: about debt, about taxation. UH. That meant that those political

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Speaker 1: ideals really could not be achieved with the euro UM.

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Speaker 1: So it's hard to say what's going to happen. So

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Speaker 1: the takeaway, the big takeaway that I got from your book,

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Speaker 1: and it's it touches on a theme that we've discussed

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Speaker 1: a lot of times on this podcast, which is that

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Speaker 1: like money is essentially a social network, and it it

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Speaker 1: establishes its value once we essentially all accept that it

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Speaker 1: establishes its value once we all accept that dollars are

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Speaker 1: worth something. Dollars are worth something, but that it's really

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Speaker 1: hard to just sort of manufacture that social acceptance x niolo.

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Speaker 1: It takes momentum, it takes good uh governance, it takes laws,

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Speaker 1: it takes certain trust, and that in a time of

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Speaker 1: extreme sort of social disorder, when the government is weak,

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Speaker 1: when a lot of people don't trust each other, the

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Speaker 1: monetary system is just going to sort of be a

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Speaker 1: mirror to that. That's absolutely very insightful as a reading

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Speaker 1: in my book, what I would say is that at

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Speaker 1: a time when political legitimacy is in doubt, when people

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Speaker 1: wonder if the government really has their interests at heart,

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Speaker 1: that is the worst time to attempt any kind of

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Speaker 1: monetary innovation, because it then calls the monitor. I mean,

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Speaker 1: on that note, we we can't. We have to ask

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Speaker 1: you about bitcoin, right because of course bitcoin kind of

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Speaker 1: rose um from the ashes of the financial crisis, during

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Speaker 1: a period of great upheaval in markets and within the world,

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Speaker 1: and the idea was that it could offer something different

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Speaker 1: to national currencies. Do you see any prospect of success

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Speaker 1: on that front. I'm actually a bit worried about that.

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Speaker 1: Only think that what we're seeing in the continued interest

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Speaker 1: in bitcoin is one fantasy of money that is completely

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Speaker 1: divorced from regulation, policy, government, the state. UM. And while

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Speaker 1: that doesn't necessarily mean that it's only going to be

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Speaker 1: used for black market or illegal transactions, it does mean

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Speaker 1: that those people who are left, perhaps for reasons of poverty, um,

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Speaker 1: dependent on the money issued by the state are going

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Speaker 1: to be in a worse and worse position. So what

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Speaker 1: I worry about is that we see perhaps a growing

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Speaker 1: possibility for monetary systems that are really very strongly different

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Speaker 1: for the rich and the poor. I mean, they're like

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Speaker 1: that today. UM. The example I always use is just

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Speaker 1: imagine your homeless person, you've amassed quite a few quarters,

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Speaker 1: and you go to try to buy a plane ticket

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Speaker 1: with your change. It's almost legally impossible to buy a

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Speaker 1: plane ticket with cash these days, Tracy. We should try

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Speaker 1: to do that episode by a plane ticket with quarters. Yes,

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Speaker 1: you should. Uh. I mean I used to cover fintech,

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Speaker 1: and I know a lot of fintech companies that were

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Speaker 1: created specifically to try to address this problem. But that's

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Speaker 1: probably a topic for a whole another episode. Rebecca Spang,

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Speaker 1: the book is Stuff and Money in the French Revolution,

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Speaker 1: and the paperback copy is just about to come out right,

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Speaker 1: Yes it is next week. Well, it's a fascinating book.

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Speaker 1: I highly recommend people read it and really appreciate you

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Speaker 1: coming on the episode. Thank you so, Tracy. When we

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Speaker 1: were first talking about doing this episode of monetary policy

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Speaker 1: during the French Revolution, I was thinking of it as

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Speaker 1: sort of this uh, you know, historical curiosity. But it

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Speaker 1: definitely seems like there's a lot of relevant events to

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Speaker 1: things going on these days. Oh yeah, for sure. I

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Speaker 1: mean I think purely on the political front, you could

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Speaker 1: probably draw a lot of connections between what's happening now, um,

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Speaker 1: certainly in Europe and the French Revolution. Right, like a

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Speaker 1: bunch of people, a bunch of rich people like the

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Speaker 1: Catholic Church, didn't really want to contribute more into the

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Speaker 1: taxation system, and so they hijacked this argument that they

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Speaker 1: were going to fight for the good of the people, um,

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Speaker 1: in order to fight against paying their fair share. And

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Speaker 1: I think there's some who would say maybe that that

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Speaker 1: reflects a little bit what Brexit supporters have been doing.

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Speaker 1: And also the euro is an interesting example because normally

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Speaker 1: when we talk about currency movements or currencies, they tend

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Speaker 1: to be driven, at least in the shortened medium term

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Speaker 1: by sort of plain vanilla economic data points, so whether

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Speaker 1: inflation comes in strong, or whether GDP comes in strong,

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Speaker 1: or whether the Fed hyps or cuts rates. But we

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Speaker 1: don't really talk much about sort of the existential case

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Speaker 1: for this currency or that. But as more stress is

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Speaker 1: placed on politics, uh, in one way or another, it's

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Speaker 1: you know, you could imagine that we'll start to see

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Speaker 1: more stresses placed on different currencies. Yeah, I mean I

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Speaker 1: also liked Rebecca's idea of currencies for the rich and

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Speaker 1: currencies for the poor. That was really fascinating. It's something

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Speaker 1: that we kind of already see playing out thanks to

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Speaker 1: technology that basically either gives you access to certain things

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Speaker 1: or prevents you from accessing certain things, right right. I mean,

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Speaker 1: there was the article in the New York or recently

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Speaker 1: about all the rich tech and finance executives all getting

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Speaker 1: into becoming preppers with their with their real estate and

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Speaker 1: New Zealand and their you know, home home solar and

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Speaker 1: telecom networks. And it's sort of this sort of early

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Speaker 1: indication of people wanting to have insurance that sort of

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Speaker 1: outside the existing financial system in case things really fall apart,

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Speaker 1: right right, So maybe they'll come up with like their

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Speaker 1: own special currency in which to do that, right or

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Speaker 1: would or would everyone just go back to using gold?

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Speaker 1: I don't place your bets now, Okay, all right, well

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Speaker 1: this has been another episode of the Odd Lots Podcast.

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Speaker 1: I'm Joe Wisn't though. You could follow me on Twitter

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Speaker 1: at the Stalwarts, and I'm Tracy Alloway. I'm on Twitter

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Speaker 1: at Tracy Alloway. And you can find Rebecca Spang on

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Speaker 1: Twitter at Rebecca Spain. Thanks for listening