No matter how much the American economy grows during the next decade, the government will have serious trouble funding expanding entitlements, increased education spending, and ongoing wars in the Middle Continue Reading
No matter how much the American economy grows during the next decade, the government will have serious trouble funding expanding entitlements, increased education spending, and ongoing wars in the Middle East, while maintaining a global military constabulary and presence everywhere. Something has to give. No matter how one crunches the numbers, a crisis is looming, and Americans are bound to see their standard of living fall and their global empire collapse.
It has happened before. Consider that seminal and catastrophic event that inaugurated the era of mass politics, bureaucratic centralism, and the ideological state—the French Revolution. It is a large and complex event worthy of a Gibbon, but it may not have happened at all if the French monarchy had balanced its budget.
While the causes of the Revolution are many, the cause of the crisis that brought on the Revolution is not. It was a fiscal and credit crisis that weakened the authority and confidence of the monarchy so much that it thought it had to convene a defunct political assembly before it had safely carried out a successful program of liberal constitutional and free market reform. It would be as if the American federal government called a constitutional convention with an open agenda and hoped that all would go smoothly. The Estates General lasted only a little over a month before the leaders of the Third Estate (the bourgeoisie, artisans, and peasantry) transformed it into a National Assembly and took political power from the monarchy. The Revolution was on.
Revisionist historians have challenged the standard interpretation of pre-revolutionary France as a country with a stagnant economy, an oppressed peasantry, a shackled bourgeoisie, and an archaic political structure. In Citizens (1989), Simon Schama describes France under Louis XVI as a rapidly modernizing nation with entrepreneurial nobles, a reform-minded monarchy, nascent industrialization, growing commerce, scientific progress, and energetic intendants (royal administrators in the provinces).
Moreover, Montesquieu was in vogue; the English mixed constitution was the cynosure of political reform, and the economic philosophy of physiocracy, with its belief in economic law and advocacy of laissez faire, had discredited the dogmas of state mercantilism.
In 1774, Louis XVI appointed Jacques Turgot, a Physiocrat, to be Controller-General of Finances. Turgot believed that subsidies, regulations, and tariffs were crippling productivity and enterprise in France. End them, he advised the king, and business would thrive and state revenues increase. He proposed an ambitious reform program that included taking down internal custom barriers, lifting price controls on grain, abolishing the guilds and the corvee (forced labor service), and devolving political power to newly created provincial assemblies (two of which he established). Turgot envisioned a federated France, with a chain of elected bodies extending from the village through the provinces to some form of national assembly.
Not surprisingly, there was both aristocratic and popular opposition to these reforms, but what really doomed them was Turgot’s inveterate opposition to French intervention in the American War of Independence. Many were still stewing over the humiliating and catastrophic defeat suffered by France in the Seven Years’ War (1756–1763). The country had lost her North American possessions (Quebec, Louisiana) and all of French India, except two trading stations. The foreign minister (Vergennes) calculated that by helping the Americans gain their independence they could weaken the British Empire, gain revenge, and restore France’s previous position as one of the world’s two superpowers.
Turgot argued perceptively that another war with England would derail his reform program, bankrupt the state, and, even if successful, do little to weaken British power. “The first gunshot will drive the state to bankruptcy,” he warned the king. It was to no avail. International power politics and considerations of national prestige took precedence over domestic reform, and the king dismissed him in May 1776. He would be proved right on all three points.
The French began covertly supplying war material to the rebellious colonists in 1777, and in 1778 they signed a treaty of alliance with the Americans. Throughout the war, they supplied hard money loans, and underwrote others for the purchase of war supplies in Europe. In 1780, they landed a 5,000-man army in Rhode Island. In 1781, the French navy blockaded Lord Cornwallis’s army at Yorktown.
Turgot’s successor Jacques Necker, a Swiss banker, financed these expenditures almost entirely through loans. Although successful, France’s intervention cost 1.3 billion livres and almost doubled her national debt. Schama writes, “No state with imperial pretensions has, in fact, ever subordinated what it takes to be irreducible military interests to the considerations of a balanced budget. And like apologists for military force in twentieth-century America,” imperialists “in eighteenth century France pointed to the country’s vast demographic and economic reserves and a flourishing economy to sustain the burden.” Even more, they claimed that prosperity was “contingent on such military expenditures, both directly in naval bases like Brest and Toulon, and indirectly in the protection it gave to the most rapidly expanding sector of the economy.” Plus ca change, plus c’est la meme chose.
Necker was neither a financial profligate nor an ultra royalist. He was simply financing a war that the government deemed to be in the national interest. During the conflict, he held down royal expenditures at home, eliminated many sinecures, published a national budget in 1781, and proposed the formation of a third provincial assembly. However, when his request to join the royal council (as a Protestant, he was barred) was rejected, he resigned. His immediate successor, Joly de Fleury, restored many of the offices he had eliminated.
Upon the return of peace with the signing of the Treaty of Paris (1783), the monarchy had another opportunity to institute economic, financial, and political reforms, but it squandered it. Just as with the first Bush administration after the Cold War, there would be no peace dividend. The government was determined to exploit the vacuum created by British defeat to restore French imperial power. Their global strategy was to maintain a standing army of 150,000 men to defend the borders and preserve the balance of power on the Continent while building up a transoceanic navy capable of challenging the British in all the world’s oceans. What is more, the new Controller General, Calonne, made no effort to restrain domestic or court spending. The result was a peacetime spending spree, chronic budget deficits, and the addition of 700 million livres to the national debt. By 1788, debt service alone would absorb fifty percent of annual revenue. It was guns and butter, French style. Today we are savoring it, Texas style.
In a few years, Calonne was faced with an imminent fiscal catastrophe. The annual deficit in 1786 was projected to be 112 million livres, and the American war loans would begin falling due the next year. Action was imperative. Such was the power of liberal and federalist ideas in France that Calonne summoned the Physiocrat Dupont de Nemours, a former Turgot associate, to advise him. Meanwhile, with their blessing, the foreign minister, Vergennes, signed a free trade agreement with Great Britain (1786). With the help of Nemours, Calonne proposed the following measures to open up the French economy: the deregulation of the domestic grain trade, the dismantling of internal custom barriers, and commuting the corvee into a public works tax. To raise a regular and equitable revenue, he suggested a “territorial subvention,” (i.e. a direct tax levied on all landowners, without exception, to be assessed and levied by representative provincial assemblies).
Calonne remembered the mistake Turgot had made ten years before. He had relied exclusively on royal authority to enact his program and in so doing had antagonized the nobility who did not like being presented with a fait accompli. To avoid a similar fate, Calonne suggested the summoning of an Assembly of Notables for early 1787 to consider, modify, and sanction the reforms before they were sent to the Parlement of Paris for registration (making them law). The king approved Calonne’s whole program in December 1786. Here was the last chance for the monarchy to institute a program of decentralist constitutional and liberal economic reform that would free the economy, solve the fiscal crisis, transmute absolutism into constitutionalism, and avert an impending political cataclysm.
Alas, as excellent and necessary as were Calonne’s reforms, he was not the right man to see them through. He was deeply unpopular for his lavish court spending and for using his office to cultivate various corrupt stock schemes. The nobility did not trust him, and the people despised him. Recognizing he was a liability, the king dismissed him and appointed Lomenie de Brienne in his stead. Brienne was a high noble, a Notable, and a reformer. The Assembly was supportive of all the reforms, except the taxes. Here they balked. Before they would give their sanction to new taxes, they wanted the king to publish an annual budget and to agree to a permanent commission of auditors.
Their concern was obvious. Why should they agree to changes that would increase royal revenue if they had no way of monitoring royal expenses to see if those funds were being prudently spent? Now the king balked. He thought the proposals an infringement on his prerogatives over the finances and the budget. He vetoed them. It was a grievous error, but typical of the vacillating mind of the king and the intellectual fetters of an absolutist political tradition.
The Parlement of Paris duly registered the decrees freeing the grain trade, commuting the corvee, and setting up the provincial assemblies, but they would not register the stamp duty or the land tax. They claimed that only the Estates General, the medieval representative assembly of the three estates of the kingdom (clergy, nobility, and commons) that had last met in 1614, could approve the taxes. The nobles were gambling that Louis would never dare call for an assembly of the Estates. It was a clever stratagem for defeating the tax proposals without incurring the popular odium for doing so. The nobility and clergy would not give up their tax exemptions nor grant the monarchy a potentially inexhaustible new source of revenue without a share of political power. An unforeseen consequence was to create a popular expectation for the reconvening of the Estates. This time the nobility erred.
If the monarchy had not been so pressed for funds to stave off bankruptcy, they could have declared the registered edicts a victory for reform and waited for another day to deal with taxes. Not having that luxury, Brienne and the king panicked. They decided to resort to the weapons of royal absolutism to force through the tax reforms. They issued lits de justice declaring the new taxes to be law by royal will. Second, they exiled the recalcitrant Parlement to Troyes. The public outcry and institutional resistance to these tyrannical measures was such that the monarchy had to back down. The king recalled the Parlement and withdrew the lits de justice.
Brienne now requested that the Parlement register new royal loans to stave off bankruptcy. It did so, but it again called for the re-convening of the Estates General. It also attempted to establish its new position as a de facto parliament. It declared that royal decrees were not law unless duly registered by the parlements and denied the constitutionality of both lits de justice and lettres de cachet (royal arrest warrants). The king and Brienne believed that the future of royal absolutism was at stake, so they responded with force. They surrounded the Parlement with troops. The king stripped it of its powers of remonstrance and registry, and he invested those powers in a newPlenary Court
to be appointed by him.
The May coup turned both the nobility and the clergy against the Crown, excited civil protest and unrest, and created a political crisis to match the seriousness of the fiscal crisis. Once again, a foolish attempt to preserve inviolate the senescent institutions of absolutism had failed. By August 1788, the monarchy was bankrupt and without credit. It could borrow new funds neither in Paris nor Amsterdam. Brienne had no choice but to resign. The king recalled Necker, who was the one man who had the confidence of investors, was trusted by the nobility, and popular among the masses. The king also summoned the Estates General to meet in May 1789.
The people would assemble by order in local assemblies and elect delegates. The electorate would comprise over six million Frenchmen. Schama calls it “the most numerous experiment in political representation attempted anywhere in the world.” By tradition, the assemblies could draw up a list of grievances and requests which their representatives would take with them to Versailles. They would carry 25,000 of them. Students are taught that the nobility and clergy were determined to preserve the old order, the ancien regime, with most of their privileges intact, and admit only a modicum of change, while the Third Estate demanded a transformed France in which the watchwords would be liberty, progress, and modernity.
The truth is almost precisely the opposite. The majority of the nobility envisioned a France that was rational, liberal, and constitutional. They were willing to surrender their tax exemptions and seigniorial dues. They called for the abolition of lettres de cachet and all forms of censorship; they wanted an Anglo-Saxon style bill of rights with constitutional protection for civil liberties. They recommended financial reforms: a published national budget, the abolition of the sale of government offices, and an end to tax farming. They also urged the abolition of the trade guilds and the suppression of internal custom barriers.
While many of these recommendations are found in the cahiers of the Third Estate, they are eclipsed by material concerns—understandable complaints about the high price of bread, the game laws, the gabelle (the salt tax), and the depredations of the tax collectors. There are also numerous criticisms of recent reforms, such as the free trade agreement with England, the lifting of price controls on grain, agricultural enclosures, and the granting of civil rights to Protestants.
In short, the voice of the Third Estate was largely one of reaction, and while they wanted fewer taxes they wanted more government. According to Schama, “much of the anger firing revolutionary violence arose from hostility towards that modernization, rather than from impatience with the speed of its progress.”
The Third Estate had some liberal merchants and innovative industrialists, but it had many more urban artisans and peasants. The latter believed they were getting the shaft and that the nobility and clergy, as well as the wealthy members of their own estate, were to blame. They wanted price controls reimposed on grain, restrictions put on its exportation, the prohibition of foreign manufactures, and the punishment of “speculators” and “hoarders.” They found leaders among lawyer intellectuals of their own estate, and some visionary members of the others, who spoke in a charged language of grievance, polarity, and combat. Knowing little and caring less about economic liberty or federal constitutionalism, they spoke of patriots versus traitors, citizens versus aristocrats, virtue versus vice, the nation assailed by its enemies. They offered the masses panaceas for their plight, villains to blame, and promises that the possession of political power would heave in the dikes of privilege and unleash the fountains of wealth.
Schama correctly deduces that it was the politicization of the masses that “turned a political crisis into a full-blooded revolution.” Once the vast Third Estate was told that they were the nation and that a “true national assembly would, by virtue of its higher moral quality—its common patriotism—provide satisfaction, they were given a direct stake in sweeping institutional change.” The abbe Sieyes’ pamphlet What is the Third Estate? appeared in January 1789 and would be to the French Revolution what Thomas Paine’s Common Sense (1776) had been to the American. By the time the Estates General convened in May, the masses and leading intellectuals regarded the continued existence of separate social orders with their own institutional representation not only as an obstacle to reform, but as unpatriotic, even treasonous. When the Estates General metastasized into the National Assembly in June 1789, it was the onset of a radical revolution. Liberty would not fare well on the guillotine.
Through 1788 and into 1789 the gods seemed to be conspiring to bring on a popular revolution. A spring drought was followed by a devastating hail storm in July. Crops were ruined. There followed one of the coldest winters in French history. Grain prices skyrocketed. Even in the best of times, an artisan or factor might spend 40 percent of his income on bread. By the end of the year, 80 percent was not unusual. “It was the connection of anger with hunger that made the Revolution possible,” observed Schama. It was also envy that drove the Revolution to its violent excesses and destructive reform.
Take the Reveillon riots of April 1789. Reveillon was a successful Parisian wall-paper manufacturer. He was not a noble but a self-made man who had begun as an apprentice paper worker but now owned a factory that employed 400 well-paid operatives. He exported his finished products to England (no mean feat). The key to his success was technical innovation, machinery, the concentration of labor, and the integration of industrial processes, but for all these the artisans of his district saw him as a threat to their jobs. When he spoke out in favor of the deregulation of bread distribution at an electoral meeting, an angry crowded marched on his factory, wrecked it, and ransacked his home.
From thenceforth, the Paris mob would be the power behind the Revolution. Economic science would not fare well. According to Jean Baptiste Say, “The moment there was any question in the National Assembly of commerce or finances, violent invectives could be heard against the economists.” That is what happens when political power is handed over to pseudo-intellectuals, lawyers, and the mob.
The exponents of the rationalistic Enlightenment had stood for a constitutional monarchy, a liberal economic and legal order, scientific progress, and a competent administration. According to Schama, “They were heirs to the reforming ethos of Louis XVI’s reign, and authentic predictors of the ‘new notability’ to emerge after the Revolution had run its course. Their language was reasonable and their tempers cool. What they had in mind was a nation vested, through its representatives, with the power to strip away the obstructions to modernity. Such a state . . . would not wage war on the France of the 1780s but consummate its promise.”
If only the French elites could have agreed on a course of reform along these lines, there would have been no Terror, no Napoleon, no centralizing, statist revolution. And it was the pressing financial crisis, brought on by deficit spending to fund a global empire that in the end frustrated the kind of evolutionary political and economic liberalization that is the true road of civilized progress.
Originally published April 9, 2004.