Speaker 1: Hello, and welcome to another episode of the Odd Lots Podcast.
Speaker 1: I'm Joe Wisenthal and I'm Tracy Alloway. How are you doing, Tracy?
Speaker 1: I think I'm like dying of consumption or something. Consumption
Speaker 1: is a thing, right, Yeah, I think I think I
Speaker 1: think it used to be a thing and now there's
Speaker 1: probably another name for it. Anyway, Sorry to hear that. Um,
Speaker 1: So we've had a lot of bleak episodes lately. We
Speaker 1: just finished a sequence of episodes on money and crime
Speaker 1: and terrorism and the black market and stuff like that,
Speaker 1: and I think today's is also kind of going to
Speaker 1: be pretty bleak because we're gonna be talking about the
Speaker 1: French Revolution. People died of consumption in the French Revolution,
Speaker 1: right they probably did. Yeah, it's a good way to
Speaker 1: connect connect our episode to your current your current ailment. Okay, Joe,
Speaker 1: in all seriousness, Um, that that is very bleak. Uh.
Speaker 1: We seem to be on something of a very dark
Speaker 1: thematic pathway for two thousand seventeen. Yeah, maybe it says
Speaker 1: something about our times, but of course we're we're taking
Speaker 1: an angle that is relevant to past episodes that we've done,
Speaker 1: and I think it's one of my favorite questions and
Speaker 1: one of your favorite questions, which is what is money exactly?
Speaker 1: And the French Revolution will tell us something about what
Speaker 1: money is, right because every time in history, you know,
Speaker 1: the subject of coming up with a monetary system is important.
Speaker 1: And you know, economists and historians and people on financial
Speaker 1: markets tend to I think, sort of abstract away the
Speaker 1: question of money, and they just sort of come up
Speaker 1: with these models that take it for a given. And uh,
Speaker 1: it often seems to be the case that they people
Speaker 1: should go the other way, start by looking at the
Speaker 1: form of money and seeing what it says about the time. Right. Well, Also,
Speaker 1: people forget that money is intricately linked with power and
Speaker 1: therefore with politics, and sometimes money can be um, I guess,
Speaker 1: either reinforcing force um of the existing social structure or
Speaker 1: an instrument of change, right, right, And people money makes
Speaker 1: people do things that seem irrational. I mean, in theory,
Speaker 1: people should just want to increase their wealth and material wealth,
Speaker 1: but sometimes people just want to run up the score,
Speaker 1: so to speak. Okay, so I'm intrigued. So who is
Speaker 1: going to be um connecting the idea of money with
Speaker 1: the French Revolution for us, Well, there's the perfect guest
Speaker 1: We're going to be talking to Rebecca Spang. She is
Speaker 1: a professor of history at Indiana University, and she actually
Speaker 1: wrote a book called Stuff and Money in the Time
Speaker 1: of the French Revolution, which is essentially a monetary history
Speaker 1: of the French Revolution, looking specifically at how they dealt
Speaker 1: with what is money and how that really shed some
Speaker 1: interesting light on a on this period in history. Very cool, Okay,
Speaker 1: So I have a feeling, in addition to asking about
Speaker 1: the French Revolution and money during that era of time,
Speaker 1: we're going to have a whole bunch of questions about
Speaker 1: money now as well, right, like things like bitcoin you, yeah,
Speaker 1: Trump's relationship with gold, um, all sorts of current events
Speaker 1: stuff too, so much, so much we can take from
Speaker 1: the past to apply the present. So without further ado, Rebecca,
Speaker 1: thank you very much for joining us. Oh, thank you
Speaker 1: for inviting me. I'm delighted to be here. So let's, uh,
Speaker 1: let's start with the question of why this angle on
Speaker 1: studying the French Revolution. No doubt there have been numerous books, uh,
Speaker 1: much academic study about this period of time. Why explore
Speaker 1: it through the monetary system. There's a well established way
Speaker 1: of thinking about the relation of money and the French Revolution,
Speaker 1: which is to say that the French revolutionaries were utopian
Speaker 1: philosophers who had little understanding of the practicality of government,
Speaker 1: and so one of the ill advised things they are
Speaker 1: caricatured having done was to issue paper currency in great quantities. Um.
Speaker 1: It was issued in such quantities that so called hyper
Speaker 1: inflation resulted and the whole system collapsed. And that is
Speaker 1: something that historians, economists, and policy makers, ever since the
Speaker 1: debate on the green back in the aftermath of the
Speaker 1: American Civil War, that is a story that people know
Speaker 1: and are familiar with and site as true. I went back,
Speaker 1: everybody takes it for granted exactly um, And so the
Speaker 1: French Revolution can always be offered as an example of
Speaker 1: why fiat currency is a bad idea. I wanted to
Speaker 1: go back to that episode re examine it, and I
Speaker 1: think I've come up with something different to say. Can
Speaker 1: you maybe explain for those who aren't entirely familiar with
Speaker 1: the subject exactly what the money system was during the
Speaker 1: time of the French Revolution and how it went wrong
Speaker 1: and how it became this lynchpin for people to focus
Speaker 1: their fiat currency criticisms around what you need to know
Speaker 1: is that the French Revolution is precipitated UM by a
Speaker 1: very heated political debate about government debt, and it's a
Speaker 1: lot like recent debates we've seen. It has more to
Speaker 1: do with politics than it does with the actual viability
Speaker 1: of the state's finances. Nonetheless, when the representatives who formed
Speaker 1: the first French National Assembly, this is in seventeen eighty
Speaker 1: nine UM, declare themselves to be a national Assembly, they
Speaker 1: face a considerable debt they want to repay it. They
Speaker 1: also have an operating deficit. They can't fail, and so
Speaker 1: they decide that what they're going to do is they're
Speaker 1: going to nationalize land formerly held by the Catholic Church.
Speaker 1: This amounts to probably about ten percent of the property
Speaker 1: in France. They do this because, after all, they say,
Speaker 1: Jesus doesn't say to the disciples go forth and be
Speaker 1: property developers. So why does the Catholic Church have all
Speaker 1: this wealth the nation? The state is going to take
Speaker 1: over the property. In exchange, it will also pay the priests,
Speaker 1: it will do all the charity work, and it will
Speaker 1: then pay off its debts with this land. But you know,
Speaker 1: people don't necessarily want to be be paid in land.
Speaker 1: It's not always the case that you know, an armament
Speaker 1: supplier wants a used monastery in Brittany. Say. So what
Speaker 1: they say is, we'll have this piece of paper that's
Speaker 1: worth leavre that was the unit of account at the time, um,
Speaker 1: and that's backed by a used monastery in Brittany, say,
Speaker 1: and will issue the paper and then when somebody wants
Speaker 1: to buy the used monastery, it will come back into
Speaker 1: the central government. So we won't have created paper. We're
Speaker 1: just creating land in a form that can circulate. And
Speaker 1: the that was supposed to be and these physical bills
Speaker 1: their paper money, they were called a and so they
Speaker 1: explain to us a little bit more the mechanism by
Speaker 1: which they were ostensibly backed by the land. Did they
Speaker 1: pay any sort of dividend or yield or anything like
Speaker 1: that or they how did uh, how did the actual
Speaker 1: backing work? Okay, So actually that's interesting. For the first
Speaker 1: six months they were supposed to be interest bearing, and
Speaker 1: that's really complicated because imagine that you've got a bill
Speaker 1: for a thousand leave and it's going to carry four
Speaker 1: percent annual interest. So that means that after six months
Speaker 1: it's actually worth a little bit more than a thousand
Speaker 1: so how do you make change for that? Um So
Speaker 1: after the first six months when these are supposed to
Speaker 1: be interest bearing, the government decides now they're not going
Speaker 1: to be interest bearing, and they introduced some other changes
Speaker 1: as well. UM. In fact, there were some who argued
Speaker 1: that the best way to make them widely accepted would
Speaker 1: be for each bill to be backed by a very
Speaker 1: specific piece of land, so that they would in effec
Speaker 1: to be real estate trading cards. The problem with that
Speaker 1: is that it would have greatly complicated making any exchange,
Speaker 1: because while somebody might be happy to take a bill
Speaker 1: backed by five hundred livre worth worth of land, there
Speaker 1: might be much more skeptical about a piece of bill
Speaker 1: that's only this little corner of a wheat field, because
Speaker 1: then everybody has to become an expert on all the
Speaker 1: different pieces of land exactly, and then there's going to
Speaker 1: be people who say, oh, well, I don't want that
Speaker 1: five hundred, I want that five hundred. So it creates
Speaker 1: non equivalency. At the very least, though you would have
Speaker 1: expected that um these papers or certificates backed by land
Speaker 1: would have been relatively stable in value, right like land
Speaker 1: is usually pretty stable, so creating money backed by land
Speaker 1: should have made some sense, but I'm guessing it it
Speaker 1: all went wrong, right. So that was exactly the logic
Speaker 1: of the French revolutionaries. They say the price of land
Speaker 1: is stable. They say the land is ours, nobody can
Speaker 1: take it away from us. What they didn't think through
Speaker 1: very well, um, was that by having taken the land
Speaker 1: that once belonged to the Catholic Church, they had created
Speaker 1: politically controversial money. So something like fifty of the population
Speaker 1: of France right from the get go, says these bills
Speaker 1: are illegitimate because the state never had the right to
Speaker 1: the land. The land belongs to the church. It would
Speaker 1: be a sin to take one of these bills. So
Speaker 1: how did you know Initially these starts you were very
Speaker 1: high denomination bills, right, not. These were not designed to
Speaker 1: be money that you could go to the store and
Speaker 1: buy some apples or buy a loaf of breadwidth So
Speaker 1: how did they become go from these sort of essentially
Speaker 1: paper money, very big or you know, bills at very
Speaker 1: high denominations, to money that started to circulate and be used.
Speaker 1: That's a really good question, um. In the beginning, they're
Speaker 1: large denominations because they represent pieces of land and really
Speaker 1: you can't get very much land for a dollar and
Speaker 1: a half, say um. But as you say, it's just
Speaker 1: not practical if they are also supposed to be a
Speaker 1: medium of exchange to only have five hundred and a
Speaker 1: thousand as the smallest denominations in circulation. Um. So at
Speaker 1: the beginning, what happens is that all across France, literally
Speaker 1: thousands of bodies, municipalities, counties, for profit banks, they say, well,
Speaker 1: will make small change. We'll take this bill that's good
Speaker 1: for a thousand, and we're going to lock it up
Speaker 1: in our safe, and we will issue a thousand of
Speaker 1: our own bills, each of which is equal to one,
Speaker 1: and then those can circulate, and when they all come
Speaker 1: back into us eventually, then we can take the thousand
Speaker 1: out of the safe. So what ends up happening in
Speaker 1: the course of is that you get this proliferation of
Speaker 1: different issuers of small change, which the central government enthusiastically
Speaker 1: welcomes as people doing their patriotic duty and evidence of
Speaker 1: what ingenious people will do in a country that has
Speaker 1: freedom and liberty. That also sounds like a recipe for
Speaker 1: lots of confusion and potentially counterfeiters as well. It's a
Speaker 1: recipe for both of those, because imagine that you live
Speaker 1: in a small town in the north of France and
Speaker 1: there are these locally issued, very small denomination bills that
Speaker 1: have been signed by the mayor and um some other
Speaker 1: patriotic officials, and maybe even you know your cousin and
Speaker 1: you know what it is. But then somebody who's traveling
Speaker 1: across the country, a merchant or by s a soldier,
Speaker 1: comes with a small bill issued in a different part
Speaker 1: of the country, signed by different people. Well, you don't
Speaker 1: know who those people are. You don't know if that
Speaker 1: bill is legitimate. It could just have been made up
Speaker 1: on the spot. So there's enormous increase in the information
Speaker 1: costs of any transaction because people have to verify these
Speaker 1: many different bills they see in front of them. Now,
Speaker 1: there were some people who thought there was a benefit
Speaker 1: to the skepticism around this money in the sense there
Speaker 1: you know, if you silver and old, you can export those,
Speaker 1: you can take those out of the country. But if
Speaker 1: there's some sort of paperback money, or it's and it's
Speaker 1: only local credibility, you can at least be sure that
Speaker 1: that will stay in France and only circulate in France.
Speaker 1: That's right, That is the argument for a national money.
Speaker 1: And remember that throughout the medieval and early modern period
Speaker 1: a lot of the currency in circulation um it's gold,
Speaker 1: it's silver, and it circulates by weight, so it's not
Speaker 1: national money. We're talking about the era in which money
Speaker 1: really begins to be identified with the nation. And so
Speaker 1: one argument for that, and this goes back to sort
Speaker 1: of Rousseau's ideas about self sufficiency, is if we issue
Speaker 1: a paper that nobody else wants because they don't believe
Speaker 1: in our politics, well that's great because it stays in
Speaker 1: the country. It's a sort of by American venture. That
Speaker 1: sounds familiar, Yes it does. So. So it's the ultimate
Speaker 1: argument that the assignat that they failed because they were
Speaker 1: politically controversial forms of money, or is it that they
Speaker 1: failed because they were poorly designed forms of money? Good question.
Speaker 1: I think it's a little bit of both. They were
Speaker 1: politically controversial, and for nearly all of the seventeen nineties,
Speaker 1: with an exception of a few months, French revolutionaries really
Speaker 1: endorsed the idea of free trade to the point of
Speaker 1: allowing the free trade in money. So while this paper
Speaker 1: is being issued, except for a few months, they never
Speaker 1: say that you have to take the paper and coins
Speaker 1: at a one to one exchange value. So what you
Speaker 1: end up getting our situations in which a merchant might say, sure,
Speaker 1: you can have that for two in coins or two
Speaker 1: hundred in paper. So over and over again, there are
Speaker 1: these controversies about how the money backed by land relates
Speaker 1: to the money that was already in circulation. Could they
Speaker 1: have just taken a stronger stance on it, and would
Speaker 1: that have been effective. We say this is absolutely money.
Speaker 1: It is illegal to trade them at a different price
Speaker 1: than any other money with the same denomination, and you
Speaker 1: have to accept this. Would that have worked, that's interesting question.
Speaker 1: If they had done that from seventeen, there would have
Speaker 1: been immediate objections, as I said, on the part of
Speaker 1: the Catholics who see this as not all Catholics, but
Speaker 1: those Catholics that did see it um as sacrilegious. On
Speaker 1: the other hand, I think it would have made for
Speaker 1: a much more coherent policy. UM. A lot of what
Speaker 1: radicalizes the French Revolution, and we see this in other
Speaker 1: historical episodes as well, is policymakers thinking oh, well, that
Speaker 1: didn't work, why don't we try this, and then they
Speaker 1: try something for a couple of months and that doesn't work,
Speaker 1: and they say, Okay, let's try this, And that's a
Speaker 1: really bad way to build trust in a monetary or
Speaker 1: a political system. So this gives to something that you know,
Speaker 1: you hear echoes of this in current politics, which is
Speaker 1: the idea of monetary innovation, or the idea that the
Speaker 1: price of money could fluctuate. Even though our money system
Speaker 1: is pretty stable in the US and has been for
Speaker 1: a while, it's still there are a lot of people
Speaker 1: who get very concerned. They get really inflation. The idea
Speaker 1: of inflation sets people off. The idea of quantitative easing
Speaker 1: makes people nervous. What is it due to society when
Speaker 1: the money itself is perceived to be traded on a
Speaker 1: market and volatile, so that beyond just the price of
Speaker 1: good going up and down, they don't feel that the
Speaker 1: money is a stable store of value. Very good question. Um.
Speaker 1: I was fascinated to discover that through the nineteen thirties
Speaker 1: it was possible for political figures in the United States
Speaker 1: to be pro inflation. You could be pro inflation because
Speaker 1: you were thinking of yourself and the people around you
Speaker 1: as producers. You wanted prices to go up it's when
Speaker 1: we all start thinking of ourselves as consumers and only
Speaker 1: consumers that inflate, which goes back, of course to Tracy's
Speaker 1: terrible affliction with consumption. Uh. That's the point at which
Speaker 1: inflation becomes this awful, terrible bug bear. Now in societies
Speaker 1: that experience dramatic inflation, so of course we think about Vimar, Germany,
Speaker 1: or Hungary after the Second World War, um, many other
Speaker 1: historic examples. What happens is that people tend to think
Speaker 1: that they need to get their wealth of money and
Speaker 1: into something that will last, so they might buy land. Uh,
Speaker 1: they try to buy any sort of physical object that
Speaker 1: they think will hold its value. It's a point which
Speaker 1: money is no longer believed to be a store of value.
Speaker 1: It doesn't serve that function. Rebecca, I want to go
Speaker 1: back to the politically controversial aspect of this discussion and
Speaker 1: ask you to connect what happened in the French Revolution
Speaker 1: with the assignat to potentially what might happen today with
Speaker 1: the Eurozone and the euro which is of course a
Speaker 1: currency um which seems to even though it's stable in
Speaker 1: terms of the actual market, at least for now, it
Speaker 1: seems to be becoming ever more controversial UM in its
Speaker 1: basic ideals. I guess what do you think will happen there?
Speaker 1: What's fascinating about the euro is that I don't think
Speaker 1: it's the political ideals that it was want to embody cooperation, UM,
Speaker 1: the movement of people. UH. Europe as not divided by
Speaker 1: the sort of nationalism and xenophobia that destroyed it in
Speaker 1: the Two World Wars. Those political ideals, while they're under
Speaker 1: attack from the extreme right, I don't think those are
Speaker 1: things that people generally disagree with. What's happened is that
Speaker 1: those political ideals got yoked to certain fiscal monetary criteria
Speaker 1: about debt, about taxation. UH. That meant that those political
Speaker 1: ideals really could not be achieved with the euro UM.
Speaker 1: So it's hard to say what's going to happen. So
Speaker 1: the takeaway, the big takeaway that I got from your book,
Speaker 1: and it's it touches on a theme that we've discussed
Speaker 1: a lot of times on this podcast, which is that
Speaker 1: like money is essentially a social network, and it it
Speaker 1: establishes its value once we essentially all accept that it
Speaker 1: establishes its value once we all accept that dollars are
Speaker 1: worth something. Dollars are worth something, but that it's really
Speaker 1: hard to just sort of manufacture that social acceptance x niolo.
Speaker 1: It takes momentum, it takes good uh governance, it takes laws,
Speaker 1: it takes certain trust, and that in a time of
Speaker 1: extreme sort of social disorder, when the government is weak,
Speaker 1: when a lot of people don't trust each other, the
Speaker 1: monetary system is just going to sort of be a
Speaker 1: mirror to that. That's absolutely very insightful as a reading
Speaker 1: in my book, what I would say is that at
Speaker 1: a time when political legitimacy is in doubt, when people
Speaker 1: wonder if the government really has their interests at heart,
Speaker 1: that is the worst time to attempt any kind of
Speaker 1: monetary innovation, because it then calls the monitor. I mean,
Speaker 1: on that note, we we can't. We have to ask
Speaker 1: you about bitcoin, right because of course bitcoin kind of
Speaker 1: rose um from the ashes of the financial crisis, during
Speaker 1: a period of great upheaval in markets and within the world,
Speaker 1: and the idea was that it could offer something different
Speaker 1: to national currencies. Do you see any prospect of success
Speaker 1: on that front. I'm actually a bit worried about that.
Speaker 1: Only think that what we're seeing in the continued interest
Speaker 1: in bitcoin is one fantasy of money that is completely
Speaker 1: divorced from regulation, policy, government, the state. UM. And while
Speaker 1: that doesn't necessarily mean that it's only going to be
Speaker 1: used for black market or illegal transactions, it does mean
Speaker 1: that those people who are left, perhaps for reasons of poverty, um,
Speaker 1: dependent on the money issued by the state are going
Speaker 1: to be in a worse and worse position. So what
Speaker 1: I worry about is that we see perhaps a growing
Speaker 1: possibility for monetary systems that are really very strongly different
Speaker 1: for the rich and the poor. I mean, they're like
Speaker 1: that today. UM. The example I always use is just
Speaker 1: imagine your homeless person, you've amassed quite a few quarters,
Speaker 1: and you go to try to buy a plane ticket
Speaker 1: with your change. It's almost legally impossible to buy a
Speaker 1: plane ticket with cash these days, Tracy. We should try
Speaker 1: to do that episode by a plane ticket with quarters. Yes,
Speaker 1: you should. Uh. I mean I used to cover fintech,
Speaker 1: and I know a lot of fintech companies that were
Speaker 1: created specifically to try to address this problem. But that's
Speaker 1: probably a topic for a whole another episode. Rebecca Spang,
Speaker 1: the book is Stuff and Money in the French Revolution,
Speaker 1: and the paperback copy is just about to come out right,
Speaker 1: Yes it is next week. Well, it's a fascinating book.
Speaker 1: I highly recommend people read it and really appreciate you
Speaker 1: coming on the episode. Thank you so, Tracy. When we
Speaker 1: were first talking about doing this episode of monetary policy
Speaker 1: during the French Revolution, I was thinking of it as
Speaker 1: sort of this uh, you know, historical curiosity. But it
Speaker 1: definitely seems like there's a lot of relevant events to
Speaker 1: things going on these days. Oh yeah, for sure. I
Speaker 1: mean I think purely on the political front, you could
Speaker 1: probably draw a lot of connections between what's happening now, um,
Speaker 1: certainly in Europe and the French Revolution. Right, like a
Speaker 1: bunch of people, a bunch of rich people like the
Speaker 1: Catholic Church, didn't really want to contribute more into the
Speaker 1: taxation system, and so they hijacked this argument that they
Speaker 1: were going to fight for the good of the people, um,
Speaker 1: in order to fight against paying their fair share. And
Speaker 1: I think there's some who would say maybe that that
Speaker 1: reflects a little bit what Brexit supporters have been doing.
Speaker 1: And also the euro is an interesting example because normally
Speaker 1: when we talk about currency movements or currencies, they tend
Speaker 1: to be driven, at least in the shortened medium term
Speaker 1: by sort of plain vanilla economic data points, so whether
Speaker 1: inflation comes in strong, or whether GDP comes in strong,
Speaker 1: or whether the Fed hyps or cuts rates. But we
Speaker 1: don't really talk much about sort of the existential case
Speaker 1: for this currency or that. But as more stress is
Speaker 1: placed on politics, uh, in one way or another, it's
Speaker 1: you know, you could imagine that we'll start to see
Speaker 1: more stresses placed on different currencies. Yeah, I mean I
Speaker 1: also liked Rebecca's idea of currencies for the rich and
Speaker 1: currencies for the poor. That was really fascinating. It's something
Speaker 1: that we kind of already see playing out thanks to
Speaker 1: technology that basically either gives you access to certain things
Speaker 1: or prevents you from accessing certain things, right right. I mean,
Speaker 1: there was the article in the New York or recently
Speaker 1: about all the rich tech and finance executives all getting
Speaker 1: into becoming preppers with their with their real estate and
Speaker 1: New Zealand and their you know, home home solar and
Speaker 1: telecom networks. And it's sort of this sort of early
Speaker 1: indication of people wanting to have insurance that sort of
Speaker 1: outside the existing financial system in case things really fall apart,
Speaker 1: right right, So maybe they'll come up with like their
Speaker 1: own special currency in which to do that, right or
Speaker 1: would or would everyone just go back to using gold?
Speaker 1: I don't place your bets now, Okay, all right, well
Speaker 1: this has been another episode of the Odd Lots Podcast.
Speaker 1: I'm Joe Wisn't though. You could follow me on Twitter
Speaker 1: at the Stalwarts, and I'm Tracy Alloway. I'm on Twitter
Speaker 1: at Tracy Alloway. And you can find Rebecca Spang on
Speaker 1: Twitter at Rebecca Spain. Thanks for listening