The public debt, an old story: The Revolution, daughter of the loan

Always more spendthrift, the kings of France accumulate an abyssal debt in the eighteenth century and try in vain to bring more order and justice.

The king paid neither the financiers nor the merchants, from whom he had borrowed considerable sums, he granted them deportations or safe-conducts against their creditors, another disorder which disturbed and still extremely disturbed the commerce, in which no one saw almost more money, credit (…) was passed out, discredit was universal, trade was destroyed, consumption was half of it (…), workers went abroad, and the people were sorry. , the poorly fed and poorly dressed peasant. ”

This striking picture, which could almost apply to Greece or Spain today, is due to the economist Nicolas Dutot. He paints the state of France at the end of the reign of Louis XIV. For, if he knew how to surround himself with great talented clerks, such as Colbert, the Sun King has waged tremendous warfare, exhausting the royal treasury. Debt has exploded, reaching a level close to the income of the kingdom and the revenue is permanently mortgaged for the next three to four years. Credit is always more expensive – when it’s possible to have one.

This dramatic situation is conjunctural – the wars of the Augsburg League and Spanish Succession were chained between 1688 and 1714 – and structural. The method of financing adopted by the kings of France since the Renaissance has generated a pyramid of crossed privileges that block any attempt to reform. The history of the eighteenth century until the French Revolution can be summed up with failed attempts to arrive at more order and justice.

The sale of annuities has become, on the model developed in the Italian cities, a classic way of financing European courts. But on this model, the French monarchy has abundantly embroidered, multiplying the emissions – on the City Hall of Paris, but also on corporations and local authorities. It has not neglected the short-term loan and has resorted to another resource: payday loan consolidation. Over the years, the tasks related to the management of royal finances – including the annuity service – were transferred, against payment, to private: the receivers collect the direct tax of which are exempted the nobles and the clergy, the size; farmers control indirect taxes on salt (salt), tariffs and spirits; Treasurers are responsible for payments.

Those who are called financiers must be accountable. But the machine runs slowly. To save irritable taxpayers, they are granted significant delays; on their side, the officers make “play the cash”, that is to say, that they make work on their behalf the recovered cash before transmitting it to the Public Treasury. In the meantime, they emit effects, such as the prescriptions of the receivers, circulating as money.

If the accounts are finally made, and even checked judicially, and if the owners of offices are liable for any overdraft on their property, all this takes place only years after a fiscal year in which the Royal Treasury, for to ensure the ordinary, had to borrow at great expense, often to the financiers. To this lack of visibility is added the independence displayed by the ministries of the navy and the war who persist in financing their extraordinary expenses by the ordinary budget and vice versa, making all control of their balance illusory.

The debt accumulated by the sale of charges does not only obey the crown. It crumbles its power especially as behind the financiers, often hide the members of the nobility who know how to defend their privileges. This is not the only purpose of financiers. Become the most hated of France, they serve as fuses. This is what happens in 1716, when Philippe d’Orléans, appointed regent at the death of Louis XIV, imposes a partial bankruptcy and pay the rest in notes on the Treasury whose course collapses. Financials accused of mismanagement are embarked and then brought before a court of justice. The maneuver is not new. And it is bad for a business that stagnates, while capital spin abroad.

The regent’s response is a breathtaking experience inspired by the Bank of England: the famous Law system.

Scottish economist and banker, John Law of Lauriston offer a solution to the holders of treasury notes: exchange them, with a little cash, for shares of two companies he has created, a deposit bank, the General Bank, and a charter company in charge of exploiting the American colonies, the Compagnie d’Occident. After a hesitant departure, the titles take off. The amount of paper in circulation soon exceeds the capacity of the bank, which became Royal Bank in 1718, and the company, whose results disappoint. Attacked by aristocrats whose Scottish has shaken the privileges, speculation is the reason for this system, which collapses in March 1720 facing demands for withdrawal impossible to meet.

The confidence of the French in the paper money is shaken but the finances are clean: the share of the public debt invested in the Compagnie d’Occident has volatilized with it, the private debts have melted with the inflation and, if the Annuities have done the same, this affects only a few privileged. Bad habits resume. The attempt to control accounts in real time fails in 1726. The Seven Years’ War (1756-1763), which consecrated the withdrawal of French power in America from England, dried up finances again. The revenge costs even more. The last years of the Ancien Régime saw a multiplication of reform efforts that were rarely successful.

Geneva banker Jacques Necker is the most controversial. In 1775, he attacked the financiers, whose offices he drastically reduced, and published a report to the King on his budget forecasts for 1781, which became a bestseller. In parallel with a policy of austerity, it resorts to the loan to finance the war but by favoring a form in vogue, the life annuity. Criticized because it encourages selfishness to the detriment of family continuity patrimonial, the latter fuels speculation. The resources of the state are cut off again, while the spread of rent in the population makes it more allergic than ever to any idea of bankruptcy.

The ouster of Necker in 1781 and the arrival in 1783 of Charles-Alexandre de Calonne are perceived as a revenge of the aristocratic party that the first has jostled. Yet it is Calonne who, confronted with a mountain of debts that he helped to grow by a stimulus policy, made in 1786 a very daring proposal: to create a territorial subsidy on property revenues including those of the nobility and clergy. The announcement of this project sets in motion the process that will lead to the Revolution. First rejected by an assembly of notables, it is submitted to the Parliament which rejects it also and calls for the convocation of the States General.

Formed equally by representatives of the nobility, clergy and the third estate, the Estates General approve major political decisions, including fiscal. However, they have not been summoned since 1614. The parliamentarians count on the mathematical superiority of the nobility and the clergy. But at Versailles, in May 1789, the writing of the notebooks of complaints in which the third state exposes its requirements creates political agitation. And the king is still bankrupt: it was necessary to issue Treasury notes and recall Necker.

In this climate, the idea is that the third state should benefit from two votes per representative against one for those of the other two orders. On June 17, faced with the resistance and secession of the latter, the third state proclaimed National Assembly. The rest is known. The Revolution will be keen to honor the debt. It will resort to a new version of the Law system, the issue of notes on the nationalized property of the clergy, the assignats. Here too, the machine will jam, panicked by the circulation of more and more titles. In 1797, the Directory will be forced to decree a bankruptcy of two-thirds.

Has the public debt got the better of the monarchy? This simplifies things to excess: England, at the same time, borrows with a comparable spirit and opposite results. But credit, as we know, is as fragile as it is complex. And in 1789, for a series of reasons that go beyond accounting calculations, the throne was exhausted in every respect.