The above graph is Tom's experimental lab. We'll delete it eventually.
- -Zejin: below is the grapth with six lines in one graph. The lines generated by regressing y on x have the same color as the corresponding data points, while the lines generated by regressing x on y are all in green.
- -```{code-cell} ipython3 -plt.figure() -plt.gca().spines['top'].set_visible(False) -plt.gca().spines['right'].set_visible(False) - -# first subsample -plt.plot(bal[1:31], infl[1:31], 'o', markerfacecolor='none', color='blue', label='real bills period') -plt.plot(bal[1:31], a1 + bal[1:31] * b1, color='blue', linewidth=0.8) -plt.plot(a1_rev + b1_rev * infl[1:31], infl[1:31], color='green', linewidth=0.8) - -# second subsample -plt.plot(bal[31:44], infl[31:44], '+', color='red', label='terror') -plt.plot(bal[31:44], a2 + bal[31:44] * b2, color='red', linewidth=0.8) -plt.plot(a2_rev + b2_rev * infl[31:44], infl[31:44], color='green', linewidth=0.8) - -# third subsample -plt.plot(bal[44:63], infl[44:63], '*', color='orange', label='classic Cagan hyperinflation') -plt.plot(bal[44:63], a3 + bal[44:63] * b3, color='orange', linewidth=0.8) -plt.plot(a3_rev + b3_rev * infl[44:63], infl[44:63], color='green', linewidth=0.8) - -plt.xlabel('real balances') -plt.ylabel('inflation') -plt.legend() -#plt.savefig('frfinfig7.pdf', dpi=600) -``` - - - -The graph below is Tom's version of the six lines in one graph. The lines generated by regressing y on x have the same color as the corresponding data points, while the lines generated by regressing x on y are all in green.
- -```{code-cell} ipython3 -plt.figure() -plt.gca().spines['top'].set_visible(False) -plt.gca().spines['right'].set_visible(False) - -# first subsample -plt.plot(bal[1:31], infl[1:31], 'o', markerfacecolor='none', color='blue', label='real bills period') -plt.plot(bal[1:31], a1 + bal[1:31] * b1, color='blue', linewidth=0.8) -plt.plot(a1_rev + b1_rev * infl[1:31], infl[1:31], color='green', linewidth=0.8) - -# second subsample -plt.plot(bal[31:44], infl[31:44], '+', color='red', label='terror') -plt.plot(bal[34:44], a2 + bal[34:44] * b2, color='red', linewidth=0.8) -plt.plot(a2_rev + b2_rev * infl[34:44], infl[34:44], color='green', linewidth=0.8) - -# third subsample -plt.plot(bal[44:63], infl[44:63], '*', color='orange', label='classic Cagan hyperinflation') -plt.plot(bal[44:63], a3 + bal[44:63] * b3, color='orange', linewidth=0.8) -plt.plot(a3_rev + b3_rev * infl[44:63], infl[44:63], color='green', linewidth=0.8) - -plt.xlabel('real balances') -plt.ylabel('inflation') -plt.legend() - -plt.tight_layout() -plt.show() -#plt.savefig('frfinfig7.pdf', dpi=600) -``` - -```{code-cell} ipython3 -plt.figure() -plt.gca().spines['top'].set_visible(False) -plt.gca().spines['right'].set_visible(False) - -# first subsample -plt.plot(bal[1:31], infl[1:31], 'o', markerfacecolor='none', color='blue', label='real bills period') -plt.plot(bal[1:31], a1 + bal[1:31] * b1, color='blue') - -# second subsample -plt.plot(bal[31:44], infl[31:44], '+', color='red', label='terror') - -# third subsample -plt.plot(bal[44:63], infl[44:63], '*', color='orange', label='classic Cagan hyperinflation') - -plt.xlabel('real balances') -plt.ylabel('inflation') -plt.legend() - -plt.tight_layout() -plt.show() -#plt.savefig('frfinfig7_line1.pdf', dpi=600) -``` - -```{code-cell} ipython3 -plt.figure() -plt.gca().spines['top'].set_visible(False) -plt.gca().spines['right'].set_visible(False) - -# first subsample -plt.plot(bal[1:31], infl[1:31], 'o', markerfacecolor='none', color='blue', label='real bills period') -plt.plot(a1_rev + b1_rev * infl[1:31], infl[1:31], color='blue') - -# second subsample -plt.plot(bal[31:44], infl[31:44], '+', color='red', label='terror') - -# third subsample -plt.plot(bal[44:63], infl[44:63], '*', color='orange', label='classic Cagan hyperinflation') - -plt.xlabel('real balances') -plt.ylabel('inflation') -plt.legend() - -plt.tight_layout() -plt.show() -#plt.savefig('frfinfig7_line1_rev.pdf', dpi=600) -``` - -```{code-cell} ipython3 -plt.figure() -plt.gca().spines['top'].set_visible(False) -plt.gca().spines['right'].set_visible(False) - -# first subsample -plt.plot(bal[1:31], infl[1:31], 'o', markerfacecolor='none', color='blue', label='real bills period') - -# second subsample -plt.plot(bal[31:44], infl[31:44], '+', color='red', label='terror') -plt.plot(bal[31:44], a2 + bal[31:44] * b2, color='red') - -# third subsample -plt.plot(bal[44:63], infl[44:63], '*', color='orange', label='classic Cagan hyperinflation') - -plt.xlabel('real balances') -plt.ylabel('inflation') -plt.legend() - -plt.tight_layout() -plt.show() -#plt.savefig('frfinfig7_line2.pdf', dpi=600) -``` - -```{code-cell} ipython3 -plt.figure() -plt.gca().spines['top'].set_visible(False) -plt.gca().spines['right'].set_visible(False) - -# first subsample -plt.plot(bal[1:31], infl[1:31], 'o', markerfacecolor='none', color='blue', label='real bills period') - -# second subsample -plt.plot(bal[31:44], infl[31:44], '+', color='red', label='terror') -plt.plot(a2_rev + b2_rev * infl[31:44], infl[31:44], color='red') - -# third subsample -plt.plot(bal[44:63], infl[44:63], '*', color='orange', label='classic Cagan hyperinflation') - -plt.xlabel('real balances') -plt.ylabel('inflation') -plt.legend() - -plt.tight_layout() -plt.show() -#plt.savefig('frfinfig7_line2_rev.pdf', dpi=600) -``` - -```{code-cell} ipython3 -plt.figure() -plt.gca().spines['top'].set_visible(False) -plt.gca().spines['right'].set_visible(False) - -# first subsample -plt.plot(bal[1:31], infl[1:31], 'o', markerfacecolor='none', color='blue', label='real bills period') - -# second subsample -plt.plot(bal[31:44], infl[31:44], '+', color='red', label='terror') - -# third subsample -plt.plot(bal[44:63], infl[44:63], '*', color='orange', label='classic Cagan hyperinflation') -plt.plot(bal[44:63], a3 + bal[44:63] * b3, color='orange') - -plt.xlabel('real balances') -plt.ylabel('inflation') -plt.legend() - -plt.tight_layout() -plt.show() -#plt.savefig('frfinfig7_line3.pdf', dpi=600) -``` - -```{code-cell} ipython3 -plt.figure() -plt.gca().spines['top'].set_visible(False) -plt.gca().spines['right'].set_visible(False) - -# first subsample -plt.plot(bal[1:31], infl[1:31], 'o', markerfacecolor='none', color='blue', label='real bills period') - -# second subsample -plt.plot(bal[31:44], infl[31:44], '+', color='red', label='terror') - -# third subsample -plt.plot(bal[44:63], infl[44:63], '*', color='orange', label='classic Cagan hyperinflation') -plt.plot(a3_rev + b3_rev * infl[44:63], infl[44:63], color='orange') - -plt.xlabel('real balances') -plt.ylabel('inflation') -plt.legend() - -plt.tight_layout() -plt.show() -#plt.savefig('frfinfig7_line3_rev.pdf', dpi=600) -``` - - -## Figure 8 - - -```{code-cell} ipython3 ---- -mystnb: - figure: - caption: "Real balances of assignats (in gold and goods)" - name: fig8 ---- -# Read the data from Excel file -data7 = pd.read_excel('datasets/assignat.xlsx', sheet_name='Data', usecols='P:Q', skiprows=4, nrows=80, header=None) -data7a = pd.read_excel('datasets/assignat.xlsx', sheet_name='Data', usecols='L', skiprows=4, nrows=80, header=None) - -# Create the figure and plot -plt.figure() -h = plt.plot(pd.date_range(start='1789-11-01', periods=len(data7), freq='M'), (data7a.values * [1, 1]) * data7.values, linewidth=1.) -plt.setp(h[1], linestyle='--', color='red') - -plt.vlines([pd.Timestamp('1793-07-15'), pd.Timestamp('1793-07-15')], 0, 3000, linewidth=0.8, color='orange') -plt.vlines([pd.Timestamp('1794-07-15'), pd.Timestamp('1794-07-15')], 0, 3000, linewidth=0.8, color='purple') - -plt.ylim([0, 3000]) - -# Set properties of the plot -plt.gca().spines['top'].set_visible(False) -plt.gca().spines['right'].set_visible(False) -plt.gca().set_facecolor('white') -plt.gca().tick_params(labelsize=12) -plt.xlim(pd.Timestamp('1789-11-01'), pd.Timestamp('1796-06-01')) -plt.ylabel('millions of livres', fontsize=12) - -# Add text annotations -plt.text(pd.Timestamp('1793-09-01'), 200, 'Terror', fontsize=12) -plt.text(pd.Timestamp('1791-05-01'), 750, 'gold value', fontsize=12) -plt.text(pd.Timestamp('1794-10-01'), 2500, 'real value', fontsize=12) - - -plt.tight_layout() -plt.show() - -# Save the figure as a PDF -#plt.savefig('frfinfig8.pdf', dpi=600) -``` - -TO TEACH TOM: By staring at {numref}`fig8` carefully - - -## Figure 9 - - -```{code-cell} ipython3 ---- -mystnb: - figure: - caption: "Price Level and Price of Gold (log scale)" - name: fig9 ---- -# Create the figure and plot -plt.figure() -x = np.arange(1789 + 10/12, 1796 + 5/12, 1/12) -h, = plt.plot(x, 1. / data7.iloc[:, 0], linestyle='--') -h, = plt.plot(x, 1. / data7.iloc[:, 1], color='r') - -# Set properties of the plot -plt.gca().tick_params(labelsize=12) -plt.yscale('log') -plt.xlim([1789 + 10/12, 1796 + 5/12]) -plt.gca().spines['top'].set_visible(False) -plt.gca().spines['right'].set_visible(False) - -# Add vertical lines -plt.axvline(x=1793 + 6.5/12, linestyle='-', linewidth=0.8, color='orange') -plt.axvline(x=1794 + 6.5/12, linestyle='-', linewidth=0.8, color='purple') - -# Add text -plt.text(1793.75, 120, 'Terror', fontsize=12) -plt.text(1795, 2.8, 'price level', fontsize=12) -plt.text(1794.9, 40, 'gold', fontsize=12) - - -plt.tight_layout() -plt.show() -#plt.savefig('frfinfig9.pdf', dpi=600) -``` - -TO TEACH TOM: By staring at {numref}`fig9` carefully - - -## Figure 11 - - - - -```{code-cell} ipython3 ---- -mystnb: - figure: - caption: "Spending (blue) and Revenues (orange), (real values)" - name: fig11 ---- -# Read data from Excel file -data11 = pd.read_excel('datasets/assignat.xlsx', sheet_name='Budgets', usecols='J:K', skiprows=22, nrows=52, header=None) - -# Prepare the x-axis data -x_data = np.concatenate([ - np.arange(1791, 1794 + 8/12, 1/12), - np.arange(1794 + 9/12, 1795 + 3/12, 1/12) -]) - -# Remove NaN values from the data -data11_clean = data11.dropna() - -# Plot the data -plt.figure() -h = plt.plot(x_data, data11_clean.values[:, 0], linewidth=0.8) -h = plt.plot(x_data, data11_clean.values[:, 1], '--', linewidth=0.8) - - - -# Set plot properties -plt.gca().spines['top'].set_visible(False) -plt.gca().spines['right'].set_visible(False) -plt.gca().set_facecolor('white') -plt.gca().tick_params(axis='both', which='major', labelsize=12) -plt.xlim([1791, 1795 + 3/12]) -plt.xticks(np.arange(1791, 1796)) -plt.yticks(np.arange(0, 201, 20)) - -# Set the y-axis label -plt.ylabel('millions of livres', fontsize=12) - - - -plt.tight_layout() -plt.show() - -#plt.savefig('frfinfig11.pdf', dpi=600) -``` -TO TEACH TOM: By staring at {numref}`fig11` carefully - - -## Figure 12 - - -```{code-cell} ipython3 -# Read data from Excel file -data12 = pd.read_excel('datasets/assignat.xlsx', sheet_name='seignor', usecols='F', skiprows=6, nrows=75, header=None).squeeze() - - -# Create a figure and plot the data -plt.figure() -plt.plot(pd.date_range(start='1790', periods=len(data12), freq='M'), data12, linewidth=0.8) - -plt.gca().spines['top'].set_visible(False) -plt.gca().spines['right'].set_visible(False) - -plt.axhline(y=472.42/12, color='r', linestyle=':') -plt.xticks(ticks=pd.date_range(start='1790', end='1796', freq='AS'), labels=range(1790, 1797)) -plt.xlim(pd.Timestamp('1791'), pd.Timestamp('1796-02') + pd.DateOffset(months=2)) -plt.ylabel('millions of livres', fontsize=12) -plt.text(pd.Timestamp('1793-11'), 39.5, 'revenues in 1788', verticalalignment='top', fontsize=12) - - -plt.tight_layout() -plt.show() - -#plt.savefig('frfinfig12.pdf', dpi=600) -``` - - -## Figure 13 - - -```{code-cell} ipython3 -# Read data from Excel file -data13 = pd.read_excel('datasets/assignat.xlsx', sheet_name='Exchge', usecols='P:T', skiprows=3, nrows=502, header=None) - -# Plot the last column of the data -plt.figure() -plt.plot(data13.iloc[:, -1], linewidth=0.8) - -# Set properties of the plot -plt.gca().spines['top'].set_visible(False) -plt.gca().spines['right'].set_visible(False) -plt.gca().set_xlim([1, len(data13)]) - -# Set x-ticks and x-tick labels -ttt = np.arange(1, len(data13) + 1) -plt.xticks(ttt[~np.isnan(data13.iloc[:, 0])], - ['Mar', 'Apr', 'May', 'Jun', 'Jul', 'Aug', 'Sep', 'Oct', 'Nov', 'Dec', 'Jan', 'Feb', - 'Mar', 'Apr', 'May', 'Jun', 'Jul', 'Aug', 'Sep']) - -# Add text to the plot -plt.text(1, 120, '1795', fontsize=12, ha='center') -plt.text(262, 120, '1796', fontsize=12, ha='center') - -# Draw a horizontal line and add text -plt.axhline(y=186.7, color='red', linestyle='-', linewidth=0.8) -plt.text(150, 190, 'silver parity', fontsize=12) - -# Add an annotation with an arrow -plt.annotate('end of the assignat', xy=(340, 172), xytext=(380, 160), - arrowprops=dict(facecolor='black', arrowstyle='->'), fontsize=12) - - -plt.tight_layout() -plt.show() -#plt.savefig('frfinfig13.pdf', dpi=600) -``` - - -## Figure 14 - - -```{code-cell} ipython3 -# figure 14 -data14 = pd.read_excel('datasets/assignat.xlsx', sheet_name='Post-95', usecols='I', skiprows=9, nrows=91, header=None).squeeze() -data14a = pd.read_excel('datasets/assignat.xlsx', sheet_name='Post-95', usecols='F', skiprows=100, nrows=151, header=None).squeeze() - -plt.figure() -h = plt.plot(data14, '*-', markersize=2, linewidth=0.8) -plt.plot(np.concatenate([np.full(data14.shape, np.nan), data14a]), linewidth=0.8) -plt.gca().spines['top'].set_visible(False) -plt.gca().spines['right'].set_visible(False) -plt.gca().set_xticks(range(20, 237, 36)) -plt.gca().set_xticklabels(range(1796, 1803)) -plt.xlabel('*: Before the 2/3 bankruptcy') -plt.ylabel('Francs') - -plt.tight_layout() -plt.show() -#plt.savefig('frfinfig14.pdf', dpi=600) -``` - - -## Figure 15 - - -```{code-cell} ipython3 -# figure 15 -data15 = pd.read_excel('datasets/assignat.xlsx', sheet_name='Post-95', usecols='N', skiprows=4, nrows=88, header=None).squeeze() - -plt.figure() -h = plt.plot(range(2, 90), data15, '*-', linewidth=0.8) -plt.setp(h, markersize=2) -plt.gca().spines['top'].set_visible(False) -plt.gca().spines['right'].set_visible(False) -plt.text(47.5, 11.4, '17 brumaire', horizontalalignment='left', fontsize=12) -plt.text(49.5, 14.75, '19 brumaire', horizontalalignment='left', fontsize=12) -plt.text(15, -1, 'Vendémiaire 8', fontsize=12, horizontalalignment='center') -plt.text(45, -1, 'Brumaire', fontsize=12, horizontalalignment='center') -plt.text(75, -1, 'Frimaire', fontsize=12, horizontalalignment='center') -plt.ylim([0, 25]) -plt.xticks([], []) -plt.ylabel('Francs') - -plt.tight_layout() -plt.show() -#plt.savefig('frfinfig15.pdf', dpi=600) -``` - -```{code-cell} ipython3 - -``` - - -## Fiscal Situation and Response of National Assembly - - -In response to a motion by Catholic Bishop Talleyrand, -the National Assembly confiscated and nationalized Church lands. - -But the National Assembly was dominated by free market advocates, not socialists. - -The National Assembly intended to use earnings from Church lands to service its national debt. - -To do this, it began to implement a ''privatization plan'' that would let it service its debt while -not raising taxes. - -Their plan involved issuing paper notes called ''assignats'' that entitled bearers to use them to purchase state lands. - -These paper notes would be ''as good as silver coins'' in the sense that both were acceptable means of payment in exchange for those (formerly) church lands. - -Finance Minister Necker and the Constituants planned -to solve the privatization problem **and** the debt problem simultaneously -by creating a new currency. - -They devised a scheme to raise revenues by auctioning -the confiscated lands, thereby withdrawing paper notes issued on the security of -the lands sold by the government. - - This ''tax-backed money'' scheme propelled the National Assembly into the domain of monetary experimentation. - -Records of their debates show -how members of the Assembly marshaled theory and evidence to assess the likely -effects of their innovation. - -They quoted David Hume and Adam Smith and cited John -Law's System of 1720 and the American experiences with paper money fifteen years -earlier as examples of how paper money schemes can go awry. - - -### Necker's plan and how it was tweaked - -Necker's original plan embodied two components: a national bank and a new -financial instrument, the ''assignat''. - - -Necker's national -bank was patterned after the Bank of England. He proposed to transform the *Caisse d'Escompte* into a national bank by granting it a monopoly on issuing -notes and marketing government debt. The *Caisse* was a -discount bank founded in 1776 whose main function was to discount commercial bills -and issue convertible notes. Although independent of the government in principle, -it had occasionally been used as a source of loans. Its notes had been declared -inconvertible in August 1788, and by the time of Necker's proposal, its reserves -were exhausted. Necker's plan placed the National Estates (as the Church lands -became known after the addition of the royal demesne) at the center of the financial -picture: a ''Bank of France'' would issue a $5\%$ security mortgaged on the prospective -receipts from the modest sale of some 400 millions' worth of National Estates in -the years 1791 to 1793. -```{note} - Only 170 million was to be used initially -to cover the deficits of 1789 and 1790. -``` - - -By mid-1790, members of the National Assembly had agreed to sell the National -Estates and to use the proceeds to service the debt in a ``tax-backed money'' scheme -```{note} -Debt service costs absorbed - over 60\% of French government expenditures. -``` - -The government would issue securities with which it would reimburse debt. - -The securities -were acceptable as payment for National Estates purchased at auctions; once received -in payment, they were to be burned. - -```{note} -The appendix to {cite}`sargent_velde1995` describes the -auction rules in detail. -``` -The Estates available for sale were thought to be worth about 2,400 -million, while the exactable debt (essentially fixed-term loans, unpaid arrears, -and liquidated offices) stood at about 2,000 million. The value of the land was -sufficient to let the Assembly retire all of the exactable debt and thereby eliminate -the interest payments on it. After lengthy debates, in August 1790, the Assembly set the denomination -and interest rate structure of the debt. - - -```{note} Two distinct -aspects of monetary theory help in thinking about the assignat plan. First, a system -beginning with a commodity standard typically has room for a once-and-for-all emission -of (an unbacked) paper currency that can replace the commodity money without generating -inflation. \citet{Sargent/Wallace:1983} describe models with this property. That -commodity money systems are wasteful underlies Milton Friedman's (1960) TOM:ADD REFERENCE preference -for a fiat money regime over a commodity money. Second, in a small country on a -commodity money system that starts with restrictions on intermediation, those restrictions -can be relaxed by letting the government issue bank notes on the security of safe -private indebtedness, while leaving bank notes convertible into gold at par. See -Adam Smith and Sargent and Wallace (1982) for expressions of this idea. TOM: ADD REFERENCES HEREAND IN BIBTEX FILE. -``` - - -```{note} -The -National Assembly debated many now classic questions in monetary economics. Under -what conditions would money creation generate inflation, with what consequences -for business conditions? Distinctions were made between issue of money to pay off -debt, on one hand, and monetization of deficits, on the other. Would *assignats* be akin -to notes emitted under a real bills regime, and cause loss of specie, or would -they circulate alongside specie, thus increasing the money stock? Would inflation -affect real wages? How would it impact foreign trade, competitiveness of French -industry and agriculture, balance of trade, foreign exchange? -``` diff --git a/lectures/french_rev.md b/lectures/french_rev.md index 780f4317..8a9c6a21 100644 --- a/lectures/french_rev.md +++ b/lectures/french_rev.md @@ -1,1031 +1,961 @@ ---- -jupytext: - text_representation: - extension: .md - format_name: myst - format_version: 0.13 - jupytext_version: 1.16.1 -kernelspec: - display_name: Python 3 (ipykernel) - language: python - name: python3 ---- - - -# Inflation During French Revolution - - -## Overview - -This lecture describes some monetary and fiscal features of the French Revolution -described by {cite}`sargent_velde1995`. - -We use matplotlib to replicate several of the graphs that they used to present salient patterns. - - - -## Fiscal Situation and Response of National Assembly - - -In response to a motion by Catholic Bishop Talleyrand, -the National Assembly confiscated and nationalized Church lands. - -But the National Assembly was dominated by free market advocates, not socialists. - -The National Assembly intended to use earnings from Church lands to service its national debt. - -To do this, it began to implement a ''privatization plan'' that would let it service its debt while -not raising taxes. - -Their plan involved issuing paper notes called ''assignats'' that entitled bearers to use them to purchase state lands. - -These paper notes would be ''as good as silver coins'' in the sense that both were acceptable means of payment in exchange for those (formerly) church lands. - -Finance Minister Necker and the Constituants planned -to solve the privatization problem **and** the debt problem simultaneously -by creating a new currency. - -They devised a scheme to raise revenues by auctioning -the confiscated lands, thereby withdrawing paper notes issued on the security of -the lands sold by the government. - - This ''tax-backed money'' scheme propelled the National Assembly into the domain of monetary experimentation. - -Records of their debates show -how members of the Assembly marshaled theory and evidence to assess the likely -effects of their innovation. - -They quoted David Hume and Adam Smith and cited John -Law's System of 1720 and the American experiences with paper money fifteen years -earlier as examples of how paper money schemes can go awry. - - -### Necker's plan and how it was tweaked - -Necker's original plan embodied two components: a national bank and a new -financial instrument, the ''assignat''. - - -Necker's national -bank was patterned after the Bank of England. He proposed to transform the *Caisse d'Escompte* into a national bank by granting it a monopoly on issuing -notes and marketing government debt. The *Caisse* was a -discount bank founded in 1776 whose main function was to discount commercial bills -and issue convertible notes. Although independent of the government in principle, -it had occasionally been used as a source of loans. Its notes had been declared -inconvertible in August 1788, and by the time of Necker's proposal, its reserves -were exhausted. Necker's plan placed the National Estates (as the Church lands -became known after the addition of the royal demesne) at the center of the financial -picture: a ''Bank of France'' would issue a $5\%$ security mortgaged on the prospective -receipts from the modest sale of some 400 millions' worth of National Estates in -the years 1791 to 1793. -```{note} - Only 170 million was to be used initially -to cover the deficits of 1789 and 1790. -``` - - -By mid-1790, members of the National Assembly had agreed to sell the National -Estates and to use the proceeds to service the debt in a ``tax-backed money'' scheme -```{note} -Debt service costs absorbed - over 60\% of French government expenditures. -``` - -The government would issue securities with which it would reimburse debt. - -The securities -were acceptable as payment for National Estates purchased at auctions; once received -in payment, they were to be burned. - -```{note} -The appendix to {cite}`sargent_velde1995` describes the -auction rules in detail. -``` -The Estates available for sale were thought to be worth about 2,400 -million, while the exactable debt (essentially fixed-term loans, unpaid arrears, -and liquidated offices) stood at about 2,000 million. The value of the land was -sufficient to let the Assembly retire all of the exactable debt and thereby eliminate -the interest payments on it. After lengthy debates, in August 1790, the Assembly set the denomination -and interest rate structure of the debt. - - -```{note} Two distinct -aspects of monetary theory help in thinking about the assignat plan. First, a system -beginning with a commodity standard typically has room for a once-and-for-all emission -of (an unbacked) paper currency that can replace the commodity money without generating -inflation. \citet{Sargent/Wallace:1983} describe models with this property. That -commodity money systems are wasteful underlies Milton Friedman's (1960) TOM:ADD REFERENCE preference -for a fiat money regime over a commodity money. Second, in a small country on a -commodity money system that starts with restrictions on intermediation, those restrictions -can be relaxed by letting the government issue bank notes on the security of safe -private indebtedness, while leaving bank notes convertible into gold at par. See -Adam Smith and Sargent and Wallace (1982) for expressions of this idea. TOM: ADD REFERENCES HEREAND IN BIBTEX FILE. -``` - - -```{note} -The -National Assembly debated many now classic questions in monetary economics. Under -what conditions would money creation generate inflation, with what consequences -for business conditions? Distinctions were made between issue of money to pay off -debt, on one hand, and monetization of deficits, on the other. Would *assignats* be akin -to notes emitted under a real bills regime, and cause loss of specie, or would -they circulate alongside specie, thus increasing the money stock? Would inflation -affect real wages? How would it impact foreign trade, competitiveness of French -industry and agriculture, balance of trade, foreign exchange? -``` - -## Data Sources - -This notebook uses data from three spreadsheets: - - * datasets/fig_3.ods - * datasets/dette.xlsx - * datasets/assignat.xlsx - -```{code-cell} ipython3 -import numpy as np -import pandas as pd -import matplotlib.pyplot as plt -plt.rcParams.update({'font.size': 12}) -``` - - -## Figure 1 - - -```{code-cell} ipython3 ---- -mystnb: - figure: - caption: "Ratio of debt service to taxes, Britain and France" - name: fig1 ---- - -# Read the data from the Excel file -data1 = pd.read_excel('datasets/dette.xlsx', sheet_name='Debt', usecols='R:S', skiprows=5, nrows=99, header=None) -data1a = pd.read_excel('datasets/dette.xlsx', sheet_name='Debt', usecols='P', skiprows=89, nrows=15, header=None) - -# Plot the data -plt.figure() -plt.plot(range(1690, 1789), 100 * data1.iloc[:, 1], linewidth=0.8) - -date = np.arange(1690, 1789) -index = (date < 1774) & (data1.iloc[:, 0] > 0) -plt.plot(date[index], 100 * data1[index].iloc[:, 0], '*:', color='r', linewidth=0.8) - -# Plot the additional data -plt.plot(range(1774, 1789), 100 * data1a, '*:', color='orange') - -# Note about the data -# The French data before 1720 don't match up with the published version -# Set the plot properties -plt.gca().spines['top'].set_visible(False) -plt.gca().spines['right'].set_visible(False) -plt.gca().set_facecolor('white') -plt.gca().set_xlim([1688, 1788]) -plt.ylabel('% of Taxes') - -plt.tight_layout() -plt.show() - -#plt.savefig('frfinfig1.pdf', dpi=600) -#plt.savefig('frfinfig1.jpg', dpi=600) -``` - - -TO TEACH TOM: By staring at {numref}`fig1` carefully - - -## Figure 2 - - -```{code-cell} ipython3 ---- -mystnb: - figure: - caption: "Government Expenditures and Tax Revenues in Britain" - name: fig2 ---- - -# Read the data from Excel file -data2 = pd.read_excel('datasets/dette.xlsx', sheet_name='Militspe', usecols='M:X', skiprows=7, nrows=102, header=None) - -# Plot the data -plt.figure() -plt.plot(range(1689, 1791), data2.iloc[:, 5], linewidth=0.8) -plt.plot(range(1689, 1791), data2.iloc[:, 11], linewidth=0.8, color='red') -plt.plot(range(1689, 1791), data2.iloc[:, 9], linewidth=0.8, color='orange') -plt.plot(range(1689, 1791), data2.iloc[:, 8], 'o-', markerfacecolor='none', linewidth=0.8, color='purple') - -# Customize the plot -plt.gca().spines['top'].set_visible(False) -plt.gca().spines['right'].set_visible(False) -plt.gca().tick_params(labelsize=12) -plt.xlim([1689, 1790]) -plt.ylabel('millions of pounds', fontsize=12) - -# Add text annotations -plt.text(1765, 1.5, 'civil', fontsize=10) -plt.text(1760, 4.2, 'civil plus debt service', fontsize=10) -plt.text(1708, 15.5, 'total govt spending', fontsize=10) -plt.text(1759, 7.3, 'revenues', fontsize=10) - - -plt.tight_layout() -plt.show() - -# Save the figure as a PDF -#plt.savefig('frfinfig2.pdf', dpi=600) -``` - - -## Figure 3 - - - - -```{code-cell} ipython3 -# Read the data from the Excel file -data1 = pd.read_excel('datasets/fig_3.xlsx', sheet_name='Sheet1', usecols='C:F', skiprows=5, nrows=30, header=None) - -data1.replace(0, np.nan, inplace=True) -``` - -```{code-cell} ipython3 ---- -mystnb: - figure: - caption: "Government Spending and Tax Revenues in France" - name: fr_fig3 ---- -# Plot the data -plt.figure() - -plt.plot(range(1759, 1789, 1), data1.iloc[:, 0], '-x', linewidth=0.8) -plt.plot(range(1759, 1789, 1), data1.iloc[:, 1], '--*', linewidth=0.8) -plt.plot(range(1759, 1789, 1), data1.iloc[:, 2], '-o', linewidth=0.8, markerfacecolor='none') -plt.plot(range(1759, 1789, 1), data1.iloc[:, 3], '-*', linewidth=0.8) - -plt.text(1775, 610, 'total spending', fontsize=10) -plt.text(1773, 325, 'military', fontsize=10) -plt.text(1773, 220, 'civil plus debt service', fontsize=10) -plt.text(1773, 80, 'debt service', fontsize=10) -plt.text(1785, 500, 'revenues', fontsize=10) - - - -plt.gca().spines['top'].set_visible(False) -plt.gca().spines['right'].set_visible(False) -plt.ylim([0, 700]) -plt.ylabel('millions of livres') - -plt.tight_layout() -plt.show() - -#plt.savefig('frfinfig3.jpg', dpi=600) -``` - - -TO TEACH TOM: By staring at {numref}`fr_fig3` carefully - -```{code-cell} ipython3 -# Plot the data -plt.figure() - -plt.plot(np.arange(1759, 1789, 1)[~np.isnan(data1.iloc[:, 0])], data1.iloc[:, 0][~np.isnan(data1.iloc[:, 0])], '-x', linewidth=0.8) -plt.plot(np.arange(1759, 1789, 1)[~np.isnan(data1.iloc[:, 1])], data1.iloc[:, 1][~np.isnan(data1.iloc[:, 1])], '--*', linewidth=0.8) -plt.plot(np.arange(1759, 1789, 1)[~np.isnan(data1.iloc[:, 2])], data1.iloc[:, 2][~np.isnan(data1.iloc[:, 2])], '-o', linewidth=0.8, markerfacecolor='none') -plt.plot(np.arange(1759, 1789, 1)[~np.isnan(data1.iloc[:, 3])], data1.iloc[:, 3][~np.isnan(data1.iloc[:, 3])], '-*', linewidth=0.8) - -plt.text(1775, 610, 'total spending', fontsize=10) -plt.text(1773, 325, 'military', fontsize=10) -plt.text(1773, 220, 'civil plus debt service', fontsize=10) -plt.text(1773, 80, 'debt service', fontsize=10) -plt.text(1785, 500, 'revenues', fontsize=10) - - -plt.gca().spines['top'].set_visible(False) -plt.gca().spines['right'].set_visible(False) -plt.ylim([0, 700]) -plt.ylabel('millions of livres') - -plt.tight_layout() -plt.show() - -#plt.savefig('frfinfig3_ignore_nan.jpg', dpi=600) -``` - - -## Figure 4 - - -```{code-cell} ipython3 ---- -mystnb: - figure: - caption: "Military Spending in Britain and France" - name: fig4 ---- -# French military spending, 1685-1789, in 1726 livres -data4 = pd.read_excel('datasets/dette.xlsx', sheet_name='Militspe', usecols='D', skiprows=3, nrows=105, header=None).squeeze() -years = range(1685, 1790) - -plt.figure() -plt.plot(years, data4, '*-', linewidth=0.8) - -plt.plot(range(1689, 1791), data2.iloc[:, 4], linewidth=0.8) - -plt.gca().spines['top'].set_visible(False) -plt.gca().spines['right'].set_visible(False) -plt.gca().tick_params(labelsize=12) -plt.xlim([1689, 1790]) -plt.xlabel('*: France') -plt.ylabel('Millions of livres') -plt.ylim([0, 475]) - -plt.tight_layout() -plt.show() - -#plt.savefig('frfinfig4.pdf', dpi=600) -``` - -TO TEACH TOM: By staring at {numref}`fig4` carefully - -## Figure 5 - - -```{code-cell} ipython3 ---- -mystnb: - figure: - caption: "Index of real per capital revenues, France" - name: fig5 ---- -# Read data from Excel file -data5 = pd.read_excel('datasets/dette.xlsx', sheet_name='Debt', usecols='K', skiprows=41, nrows=120, header=None) - -# Plot the data -plt.figure() -plt.plot(range(1726, 1846), data5.iloc[:, 0], linewidth=0.8) - -plt.gca().spines['top'].set_visible(False) -plt.gca().spines['right'].set_visible(False) -plt.gca().set_facecolor('white') -plt.gca().tick_params(labelsize=12) -plt.xlim([1726, 1845]) -plt.ylabel('1726 = 1', fontsize=12) - -plt.tight_layout() -plt.show() - -# Save the figure as a PDF -#plt.savefig('frfinfig5.pdf', dpi=600) -``` - -TO TEACH TOM: By staring at {numref}`fig5` carefully - -## Rise and Fall of the *Assignat* - - - - We have partitioned Figures~\ref{fig:fig7}, \ref{fig:fig8}, and \ref{fig:fig9} - into three periods, corresponding -to different monetary regimes or episodes. The three clouds of points in -Figure~\ref{fig:fig7} - depict different real balance-inflation relationships. Only the cloud for the -third period has the inverse relationship familiar to us now from twentieth-century -hyperinflations. The first period ends in the late summer of 1793, and is characterized -by growing real balances and moderate inflation. The second period begins and ends -with the Terror. It is marked by high real balances, around 2,500 millions, and -roughly stable prices. The fall of Robespierre in late July 1794 begins the third -of our episodes, in which real balances decline and prices rise rapidly. We interpret -these three episodes in terms of three separate theories about money: a ``backing'' -or ''real bills'' theory (the text is Adam Smith (1776)), -a legal restrictions theory (TOM: HERE PLEASE CITE -Keynes,1940, AS WELL AS Bryant/Wallace:1984 and Villamil:1988) -and a classical hyperinflation theory.% -```{note} -According to the empirical definition of hyperinflation adopted by {cite}`Cagan`, -beginning in the month that inflation exceeds 50 percent -per month and ending in the month before inflation drops below 50 percent per month -for at least a year, the *assignat* experienced a hyperinflation from May to December -1795. -``` -We view these -theories not as competitors but as alternative collections of ``if-then'' -statements about government note issues, each of which finds its conditions more -nearly met in one of these episodes than in the other two. - - - - - -## Figure 7 - - -## To Do for Zejin - -I want to tweak and consolidate the extra lines that Zejin drew on the beautiful **Figure 7**. - -I'd like to experiment in plotting the **six** extra lines all on one graph -- a pair of lines for each of our subsamples - - * one for the $y$ on $x$ regression line - * another for the $x$ on $y$ regression line - -I'd like the $y$ on $x$ and $x$ on $y$ lines to be in separate colors. - -Once we are satisfied with this new graph with its six additional lines, we can dispense with the other graphs that add one line at a time. - -Zejin, I can explain on zoom the lessons I want to convey with this. - - - -Just to recall, to compute the regression lines, Zejin wrote a function that use standard formulas -for a and b in a least squares regression y = a + b x + residual -- i.e., b is ratio of sample covariance of y,x to sample variance of x; while a is then computed from a = sample mean of y - \hat b *sample mean of x - -We could presumably tell students how to do this with a couple of numpy lines -I'd like to create three additional versions of the following figure. - -To remind you, we focused on three subperiods: - - -* subperiod 1: ("real bills period): January 1791 to July 1793 - -* subperiod 2: ("terror:): August 1793 - July 1794 - -* subperiod 3: ("classic Cagan hyperinflation): August 1794 - March 1796 - - -I can explain what this is designed to show. - - - -```{code-cell} ipython3 -def fit(x, y): - - b = np.cov(x, y)[0, 1] / np.var(x) - a = y.mean() - b * x.mean() - - return a, b -``` - -```{code-cell} ipython3 -# load data -caron = np.load('datasets/caron.npy') -nom_balances = np.load('datasets/nom_balances.npy') - -infl = np.concatenate(([np.nan], -np.log(caron[1:63, 1] / caron[0:62, 1]))) -bal = nom_balances[14:77, 1] * caron[:, 1] / 1000 -``` - -```{code-cell} ipython3 -# fit data - -# reg y on x for three periods -a1, b1 = fit(bal[1:31], infl[1:31]) -a2, b2 = fit(bal[31:44], infl[31:44]) -a3, b3 = fit(bal[44:63], infl[44:63]) - -# reg x on y for three periods -a1_rev, b1_rev = fit(infl[1:31], bal[1:31]) -a2_rev, b2_rev = fit(infl[31:44], bal[31:44]) -a3_rev, b3_rev = fit(infl[44:63], bal[44:63]) -``` - -```{code-cell} ipython3 -plt.figure() -plt.gca().spines['top'].set_visible(False) -plt.gca().spines['right'].set_visible(False) - -# first subsample -plt.plot(bal[1:31], infl[1:31], 'o', markerfacecolor='none', color='blue', label='real bills period') - -# second subsample -plt.plot(bal[31:44], infl[31:44], '+', color='red', label='terror') - -# third subsample -plt.plot(bal[44:63], infl[44:63], '*', color='orange', label='classic Cagan hyperinflation') - -plt.xlabel('real balances') -plt.ylabel('inflation') -plt.legend() - -plt.tight_layout() -plt.show() -#plt.savefig('frfinfig7.pdf', dpi=600) -``` - - - -```{code-cell} ipython3 -# fit data - -# reg y on x for three periods -a1, b1 = fit(bal[1:31], infl[1:31]) -a2, b2 = fit(bal[31:44], infl[31:44]) -a3, b3 = fit(bal[44:63], infl[44:63]) - -# reg x on y for three periods -a1_rev, b1_rev = fit(infl[1:31], bal[1:31]) -a2_rev, b2_rev = fit(infl[31:44], bal[31:44]) -a3_rev, b3_rev = fit(infl[44:63], bal[44:63]) -``` - -```{code-cell} ipython3 -plt.figure() -plt.gca().spines['top'].set_visible(False) -plt.gca().spines['right'].set_visible(False) - -# first subsample -plt.plot(bal[1:31], infl[1:31], 'o', markerfacecolor='none', color='blue', label='real bills period') - -# second subsample -plt.plot(bal[34:44], infl[34:44], '+', color='red', label='terror') - -# third subsample # Tom tinkered with subsample period -plt.plot(bal[44:63], infl[44:63], '*', color='orange', label='classic Cagan hyperinflation') - -plt.xlabel('real balances') -plt.ylabel('inflation') -plt.legend() - -plt.tight_layout() -plt.show() -#plt.savefig('frfinfig7.pdf', dpi=600) -``` - - -The above graph is Tom's experimental lab. We'll delete it eventually.
- -Zejin: below is the grapth with six lines in one graph. The lines generated by regressing y on x have the same color as the corresponding data points, while the lines generated by regressing x on y are all in green.
- -```{code-cell} ipython3 -plt.figure() -plt.gca().spines['top'].set_visible(False) -plt.gca().spines['right'].set_visible(False) - -# first subsample -plt.plot(bal[1:31], infl[1:31], 'o', markerfacecolor='none', color='blue', label='real bills period') -plt.plot(bal[1:31], a1 + bal[1:31] * b1, color='blue', linewidth=0.8) -plt.plot(a1_rev + b1_rev * infl[1:31], infl[1:31], color='green', linewidth=0.8) - -# second subsample -plt.plot(bal[31:44], infl[31:44], '+', color='red', label='terror') -plt.plot(bal[31:44], a2 + bal[31:44] * b2, color='red', linewidth=0.8) -plt.plot(a2_rev + b2_rev * infl[31:44], infl[31:44], color='green', linewidth=0.8) - -# third subsample -plt.plot(bal[44:63], infl[44:63], '*', color='orange', label='classic Cagan hyperinflation') -plt.plot(bal[44:63], a3 + bal[44:63] * b3, color='orange', linewidth=0.8) -plt.plot(a3_rev + b3_rev * infl[44:63], infl[44:63], color='green', linewidth=0.8) - -plt.xlabel('real balances') -plt.ylabel('inflation') -plt.legend() -#plt.savefig('frfinfig7.pdf', dpi=600) -``` - - - -The graph below is Tom's version of the six lines in one graph. The lines generated by regressing y on x have the same color as the corresponding data points, while the lines generated by regressing x on y are all in green.
- -```{code-cell} ipython3 -plt.figure() -plt.gca().spines['top'].set_visible(False) -plt.gca().spines['right'].set_visible(False) - -# first subsample -plt.plot(bal[1:31], infl[1:31], 'o', markerfacecolor='none', color='blue', label='real bills period') -plt.plot(bal[1:31], a1 + bal[1:31] * b1, color='blue', linewidth=0.8) -plt.plot(a1_rev + b1_rev * infl[1:31], infl[1:31], color='green', linewidth=0.8) - -# second subsample -plt.plot(bal[31:44], infl[31:44], '+', color='red', label='terror') -plt.plot(bal[34:44], a2 + bal[34:44] * b2, color='red', linewidth=0.8) -plt.plot(a2_rev + b2_rev * infl[34:44], infl[34:44], color='green', linewidth=0.8) - -# third subsample -plt.plot(bal[44:63], infl[44:63], '*', color='orange', label='classic Cagan hyperinflation') -plt.plot(bal[44:63], a3 + bal[44:63] * b3, color='orange', linewidth=0.8) -plt.plot(a3_rev + b3_rev * infl[44:63], infl[44:63], color='green', linewidth=0.8) - -plt.xlabel('real balances') -plt.ylabel('inflation') -plt.legend() - -plt.tight_layout() -plt.show() -#plt.savefig('frfinfig7.pdf', dpi=600) -``` - -```{code-cell} ipython3 -plt.figure() -plt.gca().spines['top'].set_visible(False) -plt.gca().spines['right'].set_visible(False) - -# first subsample -plt.plot(bal[1:31], infl[1:31], 'o', markerfacecolor='none', color='blue', label='real bills period') -plt.plot(bal[1:31], a1 + bal[1:31] * b1, color='blue') - -# second subsample -plt.plot(bal[31:44], infl[31:44], '+', color='red', label='terror') - -# third subsample -plt.plot(bal[44:63], infl[44:63], '*', color='orange', label='classic Cagan hyperinflation') - -plt.xlabel('real balances') -plt.ylabel('inflation') -plt.legend() - -plt.tight_layout() -plt.show() -#plt.savefig('frfinfig7_line1.pdf', dpi=600) -``` - -```{code-cell} ipython3 -plt.figure() -plt.gca().spines['top'].set_visible(False) -plt.gca().spines['right'].set_visible(False) - -# first subsample -plt.plot(bal[1:31], infl[1:31], 'o', markerfacecolor='none', color='blue', label='real bills period') -plt.plot(a1_rev + b1_rev * infl[1:31], infl[1:31], color='blue') - -# second subsample -plt.plot(bal[31:44], infl[31:44], '+', color='red', label='terror') - -# third subsample -plt.plot(bal[44:63], infl[44:63], '*', color='orange', label='classic Cagan hyperinflation') - -plt.xlabel('real balances') -plt.ylabel('inflation') -plt.legend() - -plt.tight_layout() -plt.show() -#plt.savefig('frfinfig7_line1_rev.pdf', dpi=600) -``` - -```{code-cell} ipython3 -plt.figure() -plt.gca().spines['top'].set_visible(False) -plt.gca().spines['right'].set_visible(False) - -# first subsample -plt.plot(bal[1:31], infl[1:31], 'o', markerfacecolor='none', color='blue', label='real bills period') - -# second subsample -plt.plot(bal[31:44], infl[31:44], '+', color='red', label='terror') -plt.plot(bal[31:44], a2 + bal[31:44] * b2, color='red') - -# third subsample -plt.plot(bal[44:63], infl[44:63], '*', color='orange', label='classic Cagan hyperinflation') - -plt.xlabel('real balances') -plt.ylabel('inflation') -plt.legend() - -plt.tight_layout() -plt.show() -#plt.savefig('frfinfig7_line2.pdf', dpi=600) -``` - -```{code-cell} ipython3 -plt.figure() -plt.gca().spines['top'].set_visible(False) -plt.gca().spines['right'].set_visible(False) - -# first subsample -plt.plot(bal[1:31], infl[1:31], 'o', markerfacecolor='none', color='blue', label='real bills period') - -# second subsample -plt.plot(bal[31:44], infl[31:44], '+', color='red', label='terror') -plt.plot(a2_rev + b2_rev * infl[31:44], infl[31:44], color='red') - -# third subsample -plt.plot(bal[44:63], infl[44:63], '*', color='orange', label='classic Cagan hyperinflation') - -plt.xlabel('real balances') -plt.ylabel('inflation') -plt.legend() - -plt.tight_layout() -plt.show() -#plt.savefig('frfinfig7_line2_rev.pdf', dpi=600) -``` - -```{code-cell} ipython3 -plt.figure() -plt.gca().spines['top'].set_visible(False) -plt.gca().spines['right'].set_visible(False) - -# first subsample -plt.plot(bal[1:31], infl[1:31], 'o', markerfacecolor='none', color='blue', label='real bills period') - -# second subsample -plt.plot(bal[31:44], infl[31:44], '+', color='red', label='terror') - -# third subsample -plt.plot(bal[44:63], infl[44:63], '*', color='orange', label='classic Cagan hyperinflation') -plt.plot(bal[44:63], a3 + bal[44:63] * b3, color='orange') - -plt.xlabel('real balances') -plt.ylabel('inflation') -plt.legend() - -plt.tight_layout() -plt.show() -#plt.savefig('frfinfig7_line3.pdf', dpi=600) -``` - -```{code-cell} ipython3 -plt.figure() -plt.gca().spines['top'].set_visible(False) -plt.gca().spines['right'].set_visible(False) - -# first subsample -plt.plot(bal[1:31], infl[1:31], 'o', markerfacecolor='none', color='blue', label='real bills period') - -# second subsample -plt.plot(bal[31:44], infl[31:44], '+', color='red', label='terror') - -# third subsample -plt.plot(bal[44:63], infl[44:63], '*', color='orange', label='classic Cagan hyperinflation') -plt.plot(a3_rev + b3_rev * infl[44:63], infl[44:63], color='orange') - -plt.xlabel('real balances') -plt.ylabel('inflation') -plt.legend() - -plt.tight_layout() -plt.show() -#plt.savefig('frfinfig7_line3_rev.pdf', dpi=600) -``` - - -## Figure 8 - - -```{code-cell} ipython3 ---- -mystnb: - figure: - caption: "Real balances of assignats (in gold and goods)" - name: fig8 ---- -# Read the data from Excel file -data7 = pd.read_excel('datasets/assignat.xlsx', sheet_name='Data', usecols='P:Q', skiprows=4, nrows=80, header=None) -data7a = pd.read_excel('datasets/assignat.xlsx', sheet_name='Data', usecols='L', skiprows=4, nrows=80, header=None) - -# Create the figure and plot -plt.figure() -h = plt.plot(pd.date_range(start='1789-11-01', periods=len(data7), freq='M'), (data7a.values * [1, 1]) * data7.values, linewidth=1.) -plt.setp(h[1], linestyle='--', color='red') - -plt.vlines([pd.Timestamp('1793-07-15'), pd.Timestamp('1793-07-15')], 0, 3000, linewidth=0.8, color='orange') -plt.vlines([pd.Timestamp('1794-07-15'), pd.Timestamp('1794-07-15')], 0, 3000, linewidth=0.8, color='purple') - -plt.ylim([0, 3000]) - -# Set properties of the plot -plt.gca().spines['top'].set_visible(False) -plt.gca().spines['right'].set_visible(False) -plt.gca().set_facecolor('white') -plt.gca().tick_params(labelsize=12) -plt.xlim(pd.Timestamp('1789-11-01'), pd.Timestamp('1796-06-01')) -plt.ylabel('millions of livres', fontsize=12) - -# Add text annotations -plt.text(pd.Timestamp('1793-09-01'), 200, 'Terror', fontsize=12) -plt.text(pd.Timestamp('1791-05-01'), 750, 'gold value', fontsize=12) -plt.text(pd.Timestamp('1794-10-01'), 2500, 'real value', fontsize=12) - - -plt.tight_layout() -plt.show() - -# Save the figure as a PDF -#plt.savefig('frfinfig8.pdf', dpi=600) -``` - -TO TEACH TOM: By staring at {numref}`fig8` carefully - - -## Figure 9 - - -```{code-cell} ipython3 ---- -mystnb: - figure: - caption: "Price Level and Price of Gold (log scale)" - name: fig9 ---- -# Create the figure and plot -plt.figure() -x = np.arange(1789 + 10/12, 1796 + 5/12, 1/12) -h, = plt.plot(x, 1. / data7.iloc[:, 0], linestyle='--') -h, = plt.plot(x, 1. / data7.iloc[:, 1], color='r') - -# Set properties of the plot -plt.gca().tick_params(labelsize=12) -plt.yscale('log') -plt.xlim([1789 + 10/12, 1796 + 5/12]) -plt.gca().spines['top'].set_visible(False) -plt.gca().spines['right'].set_visible(False) - -# Add vertical lines -plt.axvline(x=1793 + 6.5/12, linestyle='-', linewidth=0.8, color='orange') -plt.axvline(x=1794 + 6.5/12, linestyle='-', linewidth=0.8, color='purple') - -# Add text -plt.text(1793.75, 120, 'Terror', fontsize=12) -plt.text(1795, 2.8, 'price level', fontsize=12) -plt.text(1794.9, 40, 'gold', fontsize=12) - - -plt.tight_layout() -plt.show() -#plt.savefig('frfinfig9.pdf', dpi=600) -``` - -TO TEACH TOM: By staring at {numref}`fig9` carefully - - -## Figure 11 - - - - -```{code-cell} ipython3 ---- -mystnb: - figure: - caption: "Spending (blue) and Revenues (orange), (real values)" - name: fig11 ---- -# Read data from Excel file -data11 = pd.read_excel('datasets/assignat.xlsx', sheet_name='Budgets', usecols='J:K', skiprows=22, nrows=52, header=None) - -# Prepare the x-axis data -x_data = np.concatenate([ - np.arange(1791, 1794 + 8/12, 1/12), - np.arange(1794 + 9/12, 1795 + 3/12, 1/12) -]) - -# Remove NaN values from the data -data11_clean = data11.dropna() - -# Plot the data -plt.figure() -h = plt.plot(x_data, data11_clean.values[:, 0], linewidth=0.8) -h = plt.plot(x_data, data11_clean.values[:, 1], '--', linewidth=0.8) - - - -# Set plot properties -plt.gca().spines['top'].set_visible(False) -plt.gca().spines['right'].set_visible(False) -plt.gca().set_facecolor('white') -plt.gca().tick_params(axis='both', which='major', labelsize=12) -plt.xlim([1791, 1795 + 3/12]) -plt.xticks(np.arange(1791, 1796)) -plt.yticks(np.arange(0, 201, 20)) - -# Set the y-axis label -plt.ylabel('millions of livres', fontsize=12) - - - -plt.tight_layout() -plt.show() - -#plt.savefig('frfinfig11.pdf', dpi=600) -``` -TO TEACH TOM: By staring at {numref}`fig11` carefully - - -## Figure 12 - - -```{code-cell} ipython3 -# Read data from Excel file -data12 = pd.read_excel('datasets/assignat.xlsx', sheet_name='seignor', usecols='F', skiprows=6, nrows=75, header=None).squeeze() - - -# Create a figure and plot the data -plt.figure() -plt.plot(pd.date_range(start='1790', periods=len(data12), freq='M'), data12, linewidth=0.8) - -plt.gca().spines['top'].set_visible(False) -plt.gca().spines['right'].set_visible(False) - -plt.axhline(y=472.42/12, color='r', linestyle=':') -plt.xticks(ticks=pd.date_range(start='1790', end='1796', freq='AS'), labels=range(1790, 1797)) -plt.xlim(pd.Timestamp('1791'), pd.Timestamp('1796-02') + pd.DateOffset(months=2)) -plt.ylabel('millions of livres', fontsize=12) -plt.text(pd.Timestamp('1793-11'), 39.5, 'revenues in 1788', verticalalignment='top', fontsize=12) - - -plt.tight_layout() -plt.show() - -#plt.savefig('frfinfig12.pdf', dpi=600) -``` - - -## Figure 13 - - -```{code-cell} ipython3 -# Read data from Excel file -data13 = pd.read_excel('datasets/assignat.xlsx', sheet_name='Exchge', usecols='P:T', skiprows=3, nrows=502, header=None) - -# Plot the last column of the data -plt.figure() -plt.plot(data13.iloc[:, -1], linewidth=0.8) - -# Set properties of the plot -plt.gca().spines['top'].set_visible(False) -plt.gca().spines['right'].set_visible(False) -plt.gca().set_xlim([1, len(data13)]) - -# Set x-ticks and x-tick labels -ttt = np.arange(1, len(data13) + 1) -plt.xticks(ttt[~np.isnan(data13.iloc[:, 0])], - ['Mar', 'Apr', 'May', 'Jun', 'Jul', 'Aug', 'Sep', 'Oct', 'Nov', 'Dec', 'Jan', 'Feb', - 'Mar', 'Apr', 'May', 'Jun', 'Jul', 'Aug', 'Sep']) - -# Add text to the plot -plt.text(1, 120, '1795', fontsize=12, ha='center') -plt.text(262, 120, '1796', fontsize=12, ha='center') - -# Draw a horizontal line and add text -plt.axhline(y=186.7, color='red', linestyle='-', linewidth=0.8) -plt.text(150, 190, 'silver parity', fontsize=12) - -# Add an annotation with an arrow -plt.annotate('end of the assignat', xy=(340, 172), xytext=(380, 160), - arrowprops=dict(facecolor='black', arrowstyle='->'), fontsize=12) - - -plt.tight_layout() -plt.show() -#plt.savefig('frfinfig13.pdf', dpi=600) -``` - - -## Figure 14 - - -```{code-cell} ipython3 -# figure 14 -data14 = pd.read_excel('datasets/assignat.xlsx', sheet_name='Post-95', usecols='I', skiprows=9, nrows=91, header=None).squeeze() -data14a = pd.read_excel('datasets/assignat.xlsx', sheet_name='Post-95', usecols='F', skiprows=100, nrows=151, header=None).squeeze() - -plt.figure() -h = plt.plot(data14, '*-', markersize=2, linewidth=0.8) -plt.plot(np.concatenate([np.full(data14.shape, np.nan), data14a]), linewidth=0.8) -plt.gca().spines['top'].set_visible(False) -plt.gca().spines['right'].set_visible(False) -plt.gca().set_xticks(range(20, 237, 36)) -plt.gca().set_xticklabels(range(1796, 1803)) -plt.xlabel('*: Before the 2/3 bankruptcy') -plt.ylabel('Francs') - -plt.tight_layout() -plt.show() -#plt.savefig('frfinfig14.pdf', dpi=600) -``` - - -## Figure 15 - - -```{code-cell} ipython3 -# figure 15 -data15 = pd.read_excel('datasets/assignat.xlsx', sheet_name='Post-95', usecols='N', skiprows=4, nrows=88, header=None).squeeze() - -plt.figure() -h = plt.plot(range(2, 90), data15, '*-', linewidth=0.8) -plt.setp(h, markersize=2) -plt.gca().spines['top'].set_visible(False) -plt.gca().spines['right'].set_visible(False) -plt.text(47.5, 11.4, '17 brumaire', horizontalalignment='left', fontsize=12) -plt.text(49.5, 14.75, '19 brumaire', horizontalalignment='left', fontsize=12) -plt.text(15, -1, 'Vendémiaire 8', fontsize=12, horizontalalignment='center') -plt.text(45, -1, 'Brumaire', fontsize=12, horizontalalignment='center') -plt.text(75, -1, 'Frimaire', fontsize=12, horizontalalignment='center') -plt.ylim([0, 25]) -plt.xticks([], []) -plt.ylabel('Francs') - -plt.tight_layout() -plt.show() -#plt.savefig('frfinfig15.pdf', dpi=600) -``` - -```{code-cell} ipython3 - -``` +--- +jupytext: + text_representation: + extension: .md + format_name: myst + format_version: 0.13 + jupytext_version: 1.16.2 +kernelspec: + display_name: Python 3 (ipykernel) + language: python + name: python3 +--- + +# Inflation During French Revolution + + +## Overview + +This lecture describes some monetary and fiscal features of the French Revolution (1789-1799) +described by {cite}`sargent_velde1995`. + +To finance public expenditures and service its debts, +the French Revolutionaries performed several policy experiments. + +The Revolutionary legislators who authored these experiments were guided by their having decided to put in place monetary-fiscal policies recommended to them by theories that they believed. + +Some of those theories make contact with modern theories about monetary and fiscal policies that interest us today. + +* a *tax-smoothing* model like Robert Barro's {cite}`Barro1979` + + * this normative (i.e., prescriptive mode) advises a government to finance temporary war-time surges in government expenditures mostly by issuing government debt; after the war to roll over whatever debt accumulated during the war, and to increase taxes permanently by enough to finance interest payments on that post-war debt + +* *unpleasant monetarist arithmetic* like that described in {doc}`unpleasant` + + * this arithmetic governed French government debt dynamics in the decades preceding 1789 and according to leading historians set the stage for the French Revolution + +* a **real bills** theory of the effects of government open market operations in which the government *backs* its issues of paper money with valuable real property or financial assets + + * the Revolutionaries learned about this theory from Adam Smith's 1776 book The Wealth of Nations + and other contemporary sources + + * It shaped how the Revolutionaries issued paper money called assignats from 1789 to 1791 + +* a classical **gold** or **silver standard** + + * Napoleon, who became head of government in 1799 used this theory to guide his monetary and fiscal policies + +* a classical inflation-tax theory of inflation in which Philip Cagan's demand for money studied +in this lecture {doc}`cagan_ree` is a key component + + * This theory helps us explain French price level and money supply data from 1794 to 1797 s + +* a *legal restrictions* or *financial repression* theory of the demand for real balances + + * the Twelve Members comprising the Committee of Public Safety who adminstered the Terror from June 1793 to July 1794 used this theory to guide their monetary policy + +We use matplotlib to replicate several of the graphs that {cite}`sargent_velde1995` used to portray outcomes of these experiments + +--- + + + +## Data Sources + +This lecture uses data from three spreadsheets: + * [datasets/fig_3.xlsx](https://github.com/QuantEcon/lecture-python-intro/blob/main/lectures/datasets/fig_3.xlsx) + * [datasets/dette.xlsx](https://github.com/QuantEcon/lecture-python-intro/blob/main/lectures/datasets/dette.xlsx) + * [datasets/assignat.xlsx](https://github.com/QuantEcon/lecture-python-intro/blob/main/lectures/datasets/assignat.xlsx) + +```{code-cell} ipython3 +import numpy as np +import pandas as pd +import matplotlib.pyplot as plt +plt.rcParams.update({'font.size': 12}) + +base_url = 'https://github.com/QuantEcon/lecture-python-intro/raw/'\ + + 'main/lectures/datasets/' + +fig_3_url = f'{base_url}fig_3.xlsx' +dette_url = f'{base_url}dette.xlsx' +assignat_url = f'{base_url}assignat.xlsx' +``` + +## Government Expenditures and Taxes Collected + +We'll start by using `matplotlib` to construct two graphs that will provide important historical context. + +```{code-cell} ipython3 +--- +mystnb: + figure: + caption: Military Spending in Britain and France + name: fr_fig4 +--- +# Read the data from Excel file +data2 = pd.read_excel(dette_url, + sheet_name='Militspe', usecols='M:X', + skiprows=7, nrows=102, header=None) + +# French military spending, 1685-1789, in 1726 livres +data4 = pd.read_excel(dette_url, + sheet_name='Militspe', usecols='D', + skiprows=3, nrows=105, header=None).squeeze() + +years = range(1685, 1790) + +plt.figure() +plt.plot(years, data4, '*-', linewidth=0.8) + +plt.plot(range(1689, 1791), data2.iloc[:, 4], linewidth=0.8) + +plt.gca().spines['top'].set_visible(False) +plt.gca().spines['right'].set_visible(False) +plt.gca().tick_params(labelsize=12) +plt.xlim([1689, 1790]) +plt.xlabel('*: France') +plt.ylabel('Millions of livres') +plt.ylim([0, 475]) + +plt.tight_layout() +plt.show() +``` + +During the 18th century, Britain and France fought four large wars. + +Britain won the first three wars and lost the fourth. + +Each of those wars produced surges in both countries government expenditures that each country somehow had to finance. + +{numref}`fr_fig4` shows surges in military expenditures in France (in blue) and Great Britain. +during those four wars. + +A remarkable aspect of {numref}`fr_fig4` is that despite having a population less than half of France's, Britain was able to finance military expenses of about the same amount as France's. + +This testifies to Britain's success in having created state institutions that could tax, spend, and borrow. + +```{code-cell} ipython3 +--- +mystnb: + figure: + caption: Government Expenditures and Tax Revenues in Britain + name: fr_fig2 +--- +# Read the data from Excel file +data2 = pd.read_excel(dette_url, sheet_name='Militspe', usecols='M:X', + skiprows=7, nrows=102, header=None) + +# Plot the data +plt.figure() +plt.plot(range(1689, 1791), data2.iloc[:, 5], linewidth=0.8) +plt.plot(range(1689, 1791), data2.iloc[:, 11], linewidth=0.8, color='red') +plt.plot(range(1689, 1791), data2.iloc[:, 9], linewidth=0.8, color='orange') +plt.plot(range(1689, 1791), data2.iloc[:, 8], 'o-', + markerfacecolor='none', linewidth=0.8, color='purple') + +# Customize the plot +plt.gca().spines['top'].set_visible(False) +plt.gca().spines['right'].set_visible(False) +plt.gca().tick_params(labelsize=12) +plt.xlim([1689, 1790]) +plt.ylabel('millions of pounds', fontsize=12) + +# Add text annotations +plt.text(1765, 1.5, 'civil', fontsize=10) +plt.text(1760, 4.2, 'civil plus debt service', fontsize=10) +plt.text(1708, 15.5, 'total govt spending', fontsize=10) +plt.text(1759, 7.3, 'revenues', fontsize=10) + +plt.tight_layout() +plt.show() +``` + +Figures {numref}`fr_fig2` and {numref}`fr_fig3` summarize British and French government fiscal policies during the century before the start the French Revolution in 1789. + + +Progressive forces in France before 1789 thought admired how Britain had financed its government expenditures and advocated reforms in French institutions designed to make them more like Britain's. + +Figure {numref}`fr_fig2` shows government expenditures and how it was distributed among expenditures for + + * civil (non military) activities + * debt service, i.e., interest payments + * military expenditures (the yellow line minus the red line) + +Figure {numref}`fr_fig2` also plots total government revenues from tax collections (the purple circled line) + +Notice the surges in total government expenditures associated with surges in military expenditures +in these four wars + + * Wars against France's King Louis XIV early in the 18th century + * The War of the Spanish Succession in the 1740s + * The French and Indian War in the 1750's and 1760s + * The American War for Independence from 1775 to 1783 + +{numref}`fr_fig2` indicates that + + * during times of peace, the expenditures approximately equal taxes and debt service payments neither grow nor decline over time + * during times of wars, government expenditures exceed tax revenues + * the government finances the deficit of revenues relative to expenditures by issuing debt + * after a war is over, the government's tax revenues exceed its non-interest expenditures by just enough to service the debt that the government issued to finance earlier deficits + * thus, after a war, the government does *not* raise taxes by enough to pay off its debt + * instead, it just rolls over whatever debt it inherits, raising taxes by just enough to service the interest payments on that debt + +Eighteenth century British fiscal policy portrayed {numref}`fr_fig2` thus looks very much like a text-book example of a *tax-smoothing* model like Robert Barro's {cite}`Barro1979`. + +A striking feature of the graph is what we'll nick name a **law of gravity** for taxes and expenditures. + + * levels of government expenditures at taxes attract each other + * while they can temporarily differ -- as they do during wars -- they come back together when peace returns + +Next we'll plot data on debt service costs as fractions of government revenues in Great Britain and France during the 18th century. + +```{code-cell} ipython3 +--- +mystnb: + figure: + caption: Ratio of debt service to taxes, Britain and France + name: fr_fig1 +--- +# Read the data from the Excel file +data1 = pd.read_excel(dette_url, sheet_name='Debt', + usecols='R:S', skiprows=5, nrows=99, header=None) +data1a = pd.read_excel(dette_url, sheet_name='Debt', + usecols='P', skiprows=89, nrows=15, header=None) + +# Plot the data +plt.figure() +plt.plot(range(1690, 1789), 100 * data1.iloc[:, 1], linewidth=0.8) + +date = np.arange(1690, 1789) +index = (date < 1774) & (data1.iloc[:, 0] > 0) +plt.plot(date[index], 100 * data1[index].iloc[:, 0], + '*:', color='r', linewidth=0.8) + +# Plot the additional data +plt.plot(range(1774, 1789), 100 * data1a, '*:', color='orange') + +# Set the plot properties +plt.gca().spines['top'].set_visible(False) +plt.gca().spines['right'].set_visible(False) +plt.gca().set_facecolor('white') +plt.gca().set_xlim([1688, 1788]) +plt.ylabel('% of Taxes') + +plt.tight_layout() +plt.show() +``` + +Figure {numref}`fr_fig1` shows that interest payments on government debt (i.e., so-called ''debt service'') were high fractions of government tax revenues in both Great Britain and France. + +{numref}`fr_fig2` showed us that Britain managed to balance its budget despite those large +interest costs. + +But as we'll see in our next graph, on the eve of the French Revolution in 1788, that fiscal policy *law of gravity* that worked so well in Britain, did not seem to be working in France. + +```{code-cell} ipython3 +# Read the data from the Excel file +data1 = pd.read_excel(fig_3_url, sheet_name='Sheet1', + usecols='C:F', skiprows=5, nrows=30, header=None) + +data1.replace(0, np.nan, inplace=True) +``` + +```{code-cell} ipython3 +--- +mystnb: + figure: + caption: Government Spending and Tax Revenues in France + name: fr_fig3 +--- +# Plot the data +plt.figure() + +plt.plot(range(1759, 1789, 1), data1.iloc[:, 0], '-x', linewidth=0.8) +plt.plot(range(1759, 1789, 1), data1.iloc[:, 1], '--*', linewidth=0.8) +plt.plot(range(1759, 1789, 1), data1.iloc[:, 2], + '-o', linewidth=0.8, markerfacecolor='none') +plt.plot(range(1759, 1789, 1), data1.iloc[:, 3], '-*', linewidth=0.8) + +plt.text(1775, 610, 'total spending', fontsize=10) +plt.text(1773, 325, 'military', fontsize=10) +plt.text(1773, 220, 'civil plus debt service', fontsize=10) +plt.text(1773, 80, 'debt service', fontsize=10) +plt.text(1785, 500, 'revenues', fontsize=10) + +plt.gca().spines['top'].set_visible(False) +plt.gca().spines['right'].set_visible(False) +plt.ylim([0, 700]) +plt.ylabel('millions of livres') + +plt.tight_layout() +plt.show() +``` + +{numref}`fr_fig3` shows that in 1788 on the eve of the French Revolution government expenditures exceeded tax revenues. + +Especially during and after France's expenditures to help the Americans in their War of Independence from Great Britain, growing government debt service (i.e., interest payments) +contributed to this situation. + +This was partly a consequence of the unfolding of the debt dynamics that underlies the Unpleasant Arithmetic discussed in this quantecon lecture {doc}`unpleasant`. + +{cite}`sargent_velde1995` describe how the Ancient Regime that until 1788 had governed France had stable institutional features that made it difficult for the government to balance its budget. + +Powerful contending interests had prevented from the government from closing the gap between its +total expenditures and its tax revenues by + + * raising taxes + * lowering government's non debt service (i.e., non-interest) expenditures + * lowering its debt service (i.e., interest) costs by rescheduling its debt, i.e., defaulting on on part of its debt + +The French constitution and prevailing arrangements had empowered three constituencies to block adjustments to components of the government budget constraint that they cared especially about + +* tax payers +* beneficiaries of government expenditures +* government creditors (i.e., owners of government bonds) + +When the French government had confronted a similar situation around 1720 after King Louis XIV's +Wars had left it with a debt crisis, it had sacrificed the interests of +government creditors, i.e., by defaulting enough of its debt to bring reduce interest payments down enough to balance the budget. + +Somehow, in 1789, creditors of the French government were more powerful than they had been in 1720. + +Therefore, King Louis XVI convened the Estates General together to ask them to redesign the French constitution in a way that would lower government expenditures or increase taxes, thereby +allowing him to balance the budget while also honoring his promises to creditors of the French government. + +The King called the Estates General together in an effort to promote the reforms that would +would bring sustained budget balance. + +{cite}`sargent_velde1995` describe how the French Revolutionaries set out to accomplish that. + +## Nationalization, Privatization, Debt Reduction + +In 1789, the Revolutionaries quickly reorganized the Estates General into a National Assembly. + +A first piece of business was to address the fiscal crisis, the situation that had motivated the King to convence the Estates General. + +The Revolutionaries were not socialists or communists. + +To the contrary, they respected private property and knew state-of-the-art economics. + +They knew that to honor government debts, they would have to raise new revenues or reduce expenditures. + +A coincidence was that the Catholic Church owned vast income-producing properties. + +Indeed, the capitalized value of those income streams put estimates of the value of church lands at +about the same amount as the entire French government debt. + +This coincidence fostered a three step plan for servicing the French government debt + + * nationalize the church lands -- i.e., sequester or confiscate it without paying for it + * sell the church lands + * use the proceeds from those sales to service or even retire French government debt + +The monetary theory underlying this plan had been set out by Adam Smith in his analysis of what he called **real bills** in his 1776 book +**The Wealth of Nations** {cite}`smith2010wealth`, which many of the revolutionaries had read. + +Adam Smith defined a **real bill** as a paper money note that is backed by a claims on a real asset like productive capital or inventories. + +The National Assembly put togethere an ingenious institutional arrangement to implement this plan. + +In response to a motion by Catholic Bishop Talleyrand (an atheist), +the National Assembly confiscated and nationalized Church lands. + +The National Assembly intended to use earnings from Church lands to service its national debt. + +To do this, it began to implement a ''privatization plan'' that would let it service its debt while +not raising taxes. + +Their plan involved issuing paper notes called ''assignats'' that entitled bearers to use them to purchase state lands. + +These paper notes would be ''as good as silver coins'' in the sense that both were acceptable means of payment in exchange for those (formerly) church lands. + +Finance Minister Necker and the Constituants of the National Assembly thus planned +to solve the privatization problem *and* the debt problem simultaneously +by creating a new currency. + +They devised a scheme to raise revenues by auctioning +the confiscated lands, thereby withdrawing paper notes issued on the security of +the lands sold by the government. + + This ''tax-backed money'' scheme propelled the National Assembly into the domains of then modern monetary theories. + +Records of debates show +how members of the Assembly marshaled theory and evidence to assess the likely +effects of their innovation. + + * Members of the Natioanl Assembly quoted David Hume and Adam Smith + * They cited John Law's System of 1720 and the American experiences with paper money fifteen years +earlier as examples of how paper money schemes can go awry + * Knowing pitfalls, they set out to avoid them + +They succeeded for two or three years. + +But after that, France entered a big War that disrupted the plan in ways that completely altered the character of France's paper money. {cite}`sargent_velde1995` describe what happened. + +## Remaking the tax code and tax administration + +In 1789 the French Revolutionaries formed a National Assembly and set out to remake French +fiscal policy. + +They wanted to honor government debts -- interests of French government creditors were well represented in the National Assembly. + +But they set out to remake the French tax code and the administrative machinery for collecting taxes. + + * they abolished all sorts of taxes + * they abolished the Ancient Regimes scheme for ''tax farming'' + * tax farming meant that the government had privatized tax collection by hiring private citizes -- so called tax farmers to collect taxes, while retaining a fraction of them as payment for their services + * the great chemist Lavoisier was also a tax farmer, one of the reasons that the Committee for Public Safety sent him to the guillotine in 1794 + +As a consequence of these tax reforms, government tax revenues declined + +The next figure shows this + +```{code-cell} ipython3 +--- +mystnb: + figure: + caption: Index of real per capital revenues, France + name: fr_fig5 +--- +# Read data from Excel file +data5 = pd.read_excel(dette_url, sheet_name='Debt', usecols='K', + skiprows=41, nrows=120, header=None) + +# Plot the data +plt.figure() +plt.plot(range(1726, 1846), data5.iloc[:, 0], linewidth=0.8) + +plt.gca().spines['top'].set_visible(False) +plt.gca().spines['right'].set_visible(False) +plt.gca().set_facecolor('white') +plt.gca().tick_params(labelsize=12) +plt.xlim([1726, 1845]) +plt.ylabel('1726 = 1', fontsize=12) + +plt.tight_layout() +plt.show() +``` + +According to {numref}`fr_fig5`, tax revenues per capita did not rise to their pre 1789 levels +until after 1815, when Napoleon Bonaparte was exiled to St Helena and King Louis XVIII was restored to the French Crown. + + * from 1799 to 1814, Napoleon Bonaparte had other sources of revenues -- booty and reparations from provinces and nations that he defeated in war + + * from 1789 to 1799, the French Revolutionaries turned to another source to raise resources to pay for government purchases of goods and services and to service French government debt. + +And as the next figure shows, government expenditures exceeded tax revenues by substantial +amounts during the period form 1789 to 1799. + +```{code-cell} ipython3 +--- +mystnb: + figure: + caption: Spending (blue) and Revenues (orange), (real values) + name: fr_fig11 +--- +# Read data from Excel file +data11 = pd.read_excel(assignat_url, sheet_name='Budgets', + usecols='J:K', skiprows=22, nrows=52, header=None) + +# Prepare the x-axis data +x_data = np.concatenate([ + np.arange(1791, 1794 + 8/12, 1/12), + np.arange(1794 + 9/12, 1795 + 3/12, 1/12) +]) + +# Remove NaN values from the data +data11_clean = data11.dropna() + +# Plot the data +plt.figure() +h = plt.plot(x_data, data11_clean.values[:, 0], linewidth=0.8) +h = plt.plot(x_data, data11_clean.values[:, 1], '--', linewidth=0.8) + +# Set plot properties +plt.gca().spines['top'].set_visible(False) +plt.gca().spines['right'].set_visible(False) +plt.gca().set_facecolor('white') +plt.gca().tick_params(axis='both', which='major', labelsize=12) +plt.xlim([1791, 1795 + 3/12]) +plt.xticks(np.arange(1791, 1796)) +plt.yticks(np.arange(0, 201, 20)) + +# Set the y-axis label +plt.ylabel('millions of livres', fontsize=12) + +plt.tight_layout() +plt.show() +``` + +To cover the disrepancies between government expenditures and tax revenues revealed in {numref}`fr_fig11`, the French revolutionaries printed paper money and spent it. + +The next figure shows that by printing money, they were able to finance substantial purchases +of goods and services, including military goods and soldiers' pay. + +```{code-cell} ipython3 +--- +mystnb: + figure: + caption: Revenues raised by printing paper money notes + name: fr_fig24 +--- +# Read data from Excel file +data12 = pd.read_excel(assignat_url, sheet_name='seignor', + usecols='F', skiprows=6, nrows=75, header=None).squeeze() + +# Create a figure and plot the data +plt.figure() +plt.plot(pd.date_range(start='1790', periods=len(data12), freq='M'), + data12, linewidth=0.8) + +plt.gca().spines['top'].set_visible(False) +plt.gca().spines['right'].set_visible(False) + +plt.axhline(y=472.42/12, color='r', linestyle=':') +plt.xticks(ticks=pd.date_range(start='1790', + end='1796', freq='AS'), labels=range(1790, 1797)) +plt.xlim(pd.Timestamp('1791'), + pd.Timestamp('1796-02') + pd.DateOffset(months=2)) +plt.ylabel('millions of livres', fontsize=12) +plt.text(pd.Timestamp('1793-11'), 39.5, 'revenues in 1788', + verticalalignment='top', fontsize=12) + +plt.tight_layout() +plt.show() +``` + +{numref}`fr_fig24` compares the revenues raised by printing money from 1789 to 1796 with tax revenues that the Ancient Regime had raised in 1788. + +Measured in goods, revenues raised at time $t$ by printing new money equal + +$$ +\frac{M_{t+1} - M_t}{p_t} +$$ + +where + +* $M_t$ is the stock of paper money at time $t$ measured in livres +* $p_t$ is the price level at time $t$ measured in units of goods per livre at time $t$ +* $M_{t+1} - M_t$ is the amount of new money printed at time $t$ + +Notice the 1793-1794 surge in revenues raised by printing money. + +* this reflects extraordinary measures that the Committee for Public Safety adopted to force citizens to accept paper money, or else. + +Also note the abrupt fall off in revenues raised by 1797 and the absence of further observations after 1797. + +* this reflects the end using the printing press to raise revenues. + +What French paper money entitled its holders to changed over time in interesting ways. + +These led to outcomes that vary over time and that illustrate the playing out in practice of theories that guided the Revolutionaries' monetary policy decisions. + + +The next figure shows the price level in France during the time that the Revolutionaries used paper money to finance parts of their expenditures. + +Note that we use a log scale because the price level rose so much. + +```{code-cell} ipython3 +--- +mystnb: + figure: + caption: Price Level and Price of Gold (log scale) + name: fr_fig9 +--- +# Read the data from Excel file +data7 = pd.read_excel(assignat_url, sheet_name='Data', + usecols='P:Q', skiprows=4, nrows=80, header=None) +data7a = pd.read_excel(assignat_url, sheet_name='Data', + usecols='L', skiprows=4, nrows=80, header=None) +# Create the figure and plot +plt.figure() +x = np.arange(1789 + 10/12, 1796 + 5/12, 1/12) +h, = plt.plot(x, 1. / data7.iloc[:, 0], linestyle='--') +h, = plt.plot(x, 1. / data7.iloc[:, 1], color='r') + +# Set properties of the plot +plt.gca().tick_params(labelsize=12) +plt.yscale('log') +plt.xlim([1789 + 10/12, 1796 + 5/12]) +plt.gca().spines['top'].set_visible(False) +plt.gca().spines['right'].set_visible(False) + +# Add vertical lines +plt.axvline(x=1793 + 6.5/12, linestyle='-', linewidth=0.8, color='orange') +plt.axvline(x=1794 + 6.5/12, linestyle='-', linewidth=0.8, color='purple') + +# Add text +plt.text(1793.75, 120, 'Terror', fontsize=12) +plt.text(1795, 2.8, 'price level', fontsize=12) +plt.text(1794.9, 40, 'gold', fontsize=12) + + +plt.tight_layout() +plt.show() +``` + +We have partioned {numref}`fr_fig9` that shows the log of the price level and {numref}`fr_fig8` +below that plots real balances $\frac{M_t}{p_t}$ into three periods that correspond to +to different monetary experiments. + +The first period ends in the late summer of 1793, and is characterized +by growing real balances and moderate inflation. + +The second period begins and ends +with the Terror. It is marked by high real balances, around 2,500 millions, and +roughly stable prices. The fall of Robespierre in late July 1794 begins the third +of our episodes, in which real balances decline and prices rise rapidly. + +We interpret +these three episodes in terms of three separate theories about money: a ''backing'' +or ''**real bills**'' theory (the text is Adam Smith {cite}`smith2010wealth`), +a legal restrictions theory ( {cite}`keynes1940pay`, {cite}`bryant1984price` ) +and a classical hyperinflation theory ({cite}`Cagan`).% +```{note} +According to the empirical definition of hyperinflation adopted by {cite}`Cagan`, +beginning in the month that inflation exceeds 50 percent +per month and ending in the month before inflation drops below 50 percent per month +for at least a year, the *assignat* experienced a hyperinflation from May to December +1795. +``` +We view these +theories not as competitors but as alternative collections of ''if-then'' +statements about government note issues, each of which finds its conditions more +nearly met in one of these episodes than in the other two. + +```{code-cell} ipython3 +--- +mystnb: + figure: + caption: Real balances of assignats (in gold and goods) + name: fr_fig8 +--- +# Read the data from Excel file +data7 = pd.read_excel(assignat_url, sheet_name='Data', + usecols='P:Q', skiprows=4, nrows=80, header=None) +data7a = pd.read_excel(assignat_url, sheet_name='Data', + usecols='L', skiprows=4, nrows=80, header=None) + +# Create the figure and plot +plt.figure() +h = plt.plot(pd.date_range(start='1789-11-01', periods=len(data7), freq='M'), + (data7a.values * [1, 1]) * data7.values, linewidth=1.) +plt.setp(h[1], linestyle='--', color='red') + +plt.vlines([pd.Timestamp('1793-07-15'), pd.Timestamp('1793-07-15')], + 0, 3000, linewidth=0.8, color='orange') +plt.vlines([pd.Timestamp('1794-07-15'), pd.Timestamp('1794-07-15')], + 0, 3000, linewidth=0.8, color='purple') + +plt.ylim([0, 3000]) + +# Set properties of the plot +plt.gca().spines['top'].set_visible(False) +plt.gca().spines['right'].set_visible(False) +plt.gca().set_facecolor('white') +plt.gca().tick_params(labelsize=12) +plt.xlim(pd.Timestamp('1789-11-01'), pd.Timestamp('1796-06-01')) +plt.ylabel('millions of livres', fontsize=12) + +# Add text annotations +plt.text(pd.Timestamp('1793-09-01'), 200, 'Terror', fontsize=12) +plt.text(pd.Timestamp('1791-05-01'), 750, 'gold value', fontsize=12) +plt.text(pd.Timestamp('1794-10-01'), 2500, 'real value', fontsize=12) + + +plt.tight_layout() +plt.show() +``` + +The three clouds of points in Figure +{numref}`fr_fig104` + depict different real balance-inflation relationships. + +Only the cloud for the +third period has the inverse relationship familiar to us now from twentieth-century +hyperinflations. + + + + +* subperiod 1: ("**real bills** period): January 1791 to July 1793 + +* subperiod 2: ("terror:): August 1793 - July 1794 + +* subperiod 3: ("classic Cagan hyperinflation): August 1794 - March 1796 + +```{code-cell} ipython3 +def fit(x, y): + + b = np.cov(x, y)[0, 1] / np.var(x) + a = y.mean() - b * x.mean() + + return a, b +``` + +```{code-cell} ipython3 +# Load data +caron = np.load('datasets/caron.npy') +nom_balances = np.load('datasets/nom_balances.npy') + +infl = np.concatenate(([np.nan], + -np.log(caron[1:63, 1] / caron[0:62, 1]))) +bal = nom_balances[14:77, 1] * caron[:, 1] / 1000 +``` + +```{code-cell} ipython3 +# Regress y on x for three periods +a1, b1 = fit(bal[1:31], infl[1:31]) +a2, b2 = fit(bal[31:44], infl[31:44]) +a3, b3 = fit(bal[44:63], infl[44:63]) + +# Regress x on y for three periods +a1_rev, b1_rev = fit(infl[1:31], bal[1:31]) +a2_rev, b2_rev = fit(infl[31:44], bal[31:44]) +a3_rev, b3_rev = fit(infl[44:63], bal[44:63]) +``` + +```{code-cell} ipython3 +--- +mystnb: + figure: + caption: Inflation and Real Balances + name: fr_fig104 +--- +plt.figure() +plt.gca().spines['top'].set_visible(False) +plt.gca().spines['right'].set_visible(False) + +# First subsample +plt.plot(bal[1:31], infl[1:31], 'o', markerfacecolor='none', + color='blue', label='real bills period') + +# Second subsample +plt.plot(bal[31:44], infl[31:44], '+', color='red', label='terror') + +# Third subsample +plt.plot(bal[44:63], infl[44:63], '*', + color='orange', label='classic Cagan hyperinflation') + +plt.xlabel('real balances') +plt.ylabel('inflation') +plt.legend() + +plt.tight_layout() +plt.show() +``` + +The three clouds of points in Figure +{numref}`fr_fig104` evidently + depict different real balance-inflation relationships. + +Only the cloud for the +third period has the inverse relationship familiar to us now from twentieth-century +hyperinflations. + + To bring this out, we'll use linear regressions to draw straight lines that compress the + inflation-real balance relationship for our three sub periods. + + Before we do that, we'll drop some of the early observations during the terror period + to obtain the following graph. + +```{code-cell} ipython3 +# Regress y on x for three periods +a1, b1 = fit(bal[1:31], infl[1:31]) +a2, b2 = fit(bal[31:44], infl[31:44]) +a3, b3 = fit(bal[44:63], infl[44:63]) + +# Regress x on y for three periods +a1_rev, b1_rev = fit(infl[1:31], bal[1:31]) +a2_rev, b2_rev = fit(infl[31:44], bal[31:44]) +a3_rev, b3_rev = fit(infl[44:63], bal[44:63]) +``` + +```{code-cell} ipython3 +--- +mystnb: + figure: + caption: Inflation and Real Balances + name: fr_fig104b +--- +plt.figure() +plt.gca().spines['top'].set_visible(False) +plt.gca().spines['right'].set_visible(False) + +# First subsample +plt.plot(bal[1:31], infl[1:31], 'o', markerfacecolor='none', color='blue', label='real bills period') + +# Second subsample +plt.plot(bal[34:44], infl[34:44], '+', color='red', label='terror') + +# Third subsample +plt.plot(bal[44:63], infl[44:63], '*', color='orange', label='classic Cagan hyperinflation') + +plt.xlabel('real balances') +plt.ylabel('inflation') +plt.legend() + +plt.tight_layout() +plt.show() +``` + +Now let's regress inflation on real balances during the **real bills** period and plot the regression +line. + +```{code-cell} ipython3 +--- +mystnb: + figure: + caption: Inflation and Real Balances + name: fr_fig104c +--- +plt.figure() +plt.gca().spines['top'].set_visible(False) +plt.gca().spines['right'].set_visible(False) + +# First subsample +plt.plot(bal[1:31], infl[1:31], 'o', markerfacecolor='none', + color='blue', label='real bills period') +plt.plot(bal[1:31], a1 + bal[1:31] * b1, color='blue') + +# Second subsample +plt.plot(bal[31:44], infl[31:44], '+', color='red', label='terror') + +# Third subsample +plt.plot(bal[44:63], infl[44:63], '*', + color='orange', label='classic Cagan hyperinflation') + +plt.xlabel('real balances') +plt.ylabel('inflation') +plt.legend() + +plt.tight_layout() +plt.show() +``` + +The regression line in {numref}`fr_fig104c` shows that large increases in real balances of +assignats (paper money) were accompanied by only modest rises in the price level, an outcome in line +with the **real bills** theory. + +During this period, assignats were claims on church lands. + +But towards the end of this period, the price level started to rise and real balances to fall +as the government continued to print money but stopped selling church land. + +To get people to hold that paper money, the government forced people to hold it by using legal restrictions. + +Now let's regress real balances on inflation during the terror and plot the regression +line. + +```{code-cell} ipython3 +--- +mystnb: + figure: + caption: Inflation and Real Balances + name: fr_fig104d +--- +plt.figure() +plt.gca().spines['top'].set_visible(False) +plt.gca().spines['right'].set_visible(False) + +# First subsample +plt.plot(bal[1:31], infl[1:31], 'o', markerfacecolor='none', + color='blue', label='real bills period') + +# Second subsample +plt.plot(bal[31:44], infl[31:44], '+', color='red', label='terror') +plt.plot(a2_rev + b2_rev * infl[31:44], infl[31:44], color='red') + +# Third subsample +plt.plot(bal[44:63], infl[44:63], '*', + color='orange', label='classic Cagan hyperinflation') + +plt.xlabel('real balances') +plt.ylabel('inflation') +plt.legend() + +plt.tight_layout() +plt.show() +``` + +The regression line in {numref}`fr_fig104d` shows that large increases in real balances of +assignats (paper money) were accompanied by little upward price level pressure, even some declines in prices. + +This reflects how well legal restrictions -- financial repression -- was working during the period of the Terror. + +But the Terror ended in July 1794. That unleashed a big inflation as people tried to find other ways to transact and store values. + +The following two graphs are for the classical hyperinflation period. + +One regresses inflation on real balances, the other regresses real balances on inflation. + +Both show a prounced inverse relationship that is the hallmark of the hyperinflations studied by +Cagan {cite}`Cagan`. + +```{code-cell} ipython3 +--- +mystnb: + figure: + caption: Inflation and Real Balances + name: fr_fig104e +--- +plt.figure() +plt.gca().spines['top'].set_visible(False) +plt.gca().spines['right'].set_visible(False) + +# First subsample +plt.plot(bal[1:31], infl[1:31], 'o', markerfacecolor='none', + color='blue', label='real bills period') + +# Second subsample +plt.plot(bal[31:44], infl[31:44], '+', color='red', label='terror') + +# Third subsample +plt.plot(bal[44:63], infl[44:63], '*', + color='orange', label='classic Cagan hyperinflation') +plt.plot(bal[44:63], a3 + bal[44:63] * b3, color='orange') + +plt.xlabel('real balances') +plt.ylabel('inflation') +plt.legend() + +plt.tight_layout() +plt.show() +``` + +{numref}`fr_fig104e` shows the results of regressing inflation on real balances during the +period of the hyperinflation. + +```{code-cell} ipython3 +--- +mystnb: + figure: + caption: Inflation and Real Balances + name: fr_fig104f +--- +plt.figure() +plt.gca().spines['top'].set_visible(False) +plt.gca().spines['right'].set_visible(False) + +# First subsample +plt.plot(bal[1:31], infl[1:31], 'o', + markerfacecolor='none', color='blue', label='real bills period') + +# Second subsample +plt.plot(bal[31:44], infl[31:44], '+', color='red', label='terror') + +# Third subsample +plt.plot(bal[44:63], infl[44:63], '*', + color='orange', label='classic Cagan hyperinflation') +plt.plot(a3_rev + b3_rev * infl[44:63], infl[44:63], color='orange') + +plt.xlabel('real balances') +plt.ylabel('inflation') +plt.legend() + +plt.tight_layout() +plt.show() +``` + +{numref}`fr_fig104e` shows the results of regressing real balances on inflation during the +period of the hyperinflation. diff --git a/lectures/french_rev_tom.md b/lectures/french_rev_tom.md deleted file mode 100644 index e6c19e22..00000000 --- a/lectures/french_rev_tom.md +++ /dev/null @@ -1,1078 +0,0 @@ ---- -jupytext: - text_representation: - extension: .md - format_name: myst - format_version: 0.13 - jupytext_version: 1.16.1 -kernelspec: - display_name: Python 3 (ipykernel) - language: python - name: python3 ---- - - -# Inflation During French Revolution - - -## Overview - -This lecture describes some monetary and fiscal features of the French Revolution -described by {cite}`sargent_velde1995`. - -In order to finance public expenditures and service debts issued by earlier French governments, -successive French governments performed several policy experiments. - -Authors of these experiments were guided by their having decided to put in place monetary-fiscal policies recommended by particular theories. - -As a consequence, data on money growth and inflation from the period 1789 to 1787 at least temorarily illustrated outcomes predicted by these arrangements: - -* some *unpleasant monetarist arithmetic* like that described in this quanteon lecture XXX -that governed French government debt dynamics in the decades preceding 1789 - -* a *real bills* theory of the effects of government open market operations in which the government *backs* its issues of paper money with valuable real property or financial assets - -* a classical ``gold or silver'' standard - -* a classical inflation-tax theory of inflation in which Philip Cagan's demand for money studied -in this lecture is a key component - -* a *legal restrictions* or *financial repression* theory of the demand for real balances - -We use matplotlib to replicate several of the graphs that they used to present salient patterns. - - - -## Data Sources - -This notebook uses data from three spreadsheets: - - * datasets/fig_3.ods - * datasets/dette.xlsx - * datasets/assignat.xlsx - -```{code-cell} ipython3 -import numpy as np -import pandas as pd -import matplotlib.pyplot as plt -plt.rcParams.update({'font.size': 12}) -``` - - -## Figure 1 - - -```{code-cell} ipython3 ---- -mystnb: - figure: - caption: "Ratio of debt service to taxes, Britain and France" - name: fig1 ---- - -# Read the data from the Excel file -data1 = pd.read_excel('datasets/dette.xlsx', sheet_name='Debt', usecols='R:S', skiprows=5, nrows=99, header=None) -data1a = pd.read_excel('datasets/dette.xlsx', sheet_name='Debt', usecols='P', skiprows=89, nrows=15, header=None) - -# Plot the data -plt.figure() -plt.plot(range(1690, 1789), 100 * data1.iloc[:, 1], linewidth=0.8) - -date = np.arange(1690, 1789) -index = (date < 1774) & (data1.iloc[:, 0] > 0) -plt.plot(date[index], 100 * data1[index].iloc[:, 0], '*:', color='r', linewidth=0.8) - -# Plot the additional data -plt.plot(range(1774, 1789), 100 * data1a, '*:', color='orange') - -# Note about the data -# The French data before 1720 don't match up with the published version -# Set the plot properties -plt.gca().spines['top'].set_visible(False) -plt.gca().spines['right'].set_visible(False) -plt.gca().set_facecolor('white') -plt.gca().set_xlim([1688, 1788]) -plt.ylabel('% of Taxes') - -plt.tight_layout() -plt.show() - -#plt.savefig('frfinfig1.pdf', dpi=600) -#plt.savefig('frfinfig1.jpg', dpi=600) -``` - - - {numref}`fig1` plots ratios of debt service to total taxes collected for Great Britain and France. - The figure shows - - * ratios of debt service to taxes rise for both countries at the beginning of the century and at the end of the century - * ratios that are similar for both countries in most years - - - - - -## Figure 2 - - -```{code-cell} ipython3 ---- -mystnb: - figure: - caption: "Government Expenditures and Tax Revenues in Britain" - name: fig2 ---- - -# Read the data from Excel file -data2 = pd.read_excel('datasets/dette.xlsx', sheet_name='Militspe', usecols='M:X', skiprows=7, nrows=102, header=None) - -# Plot the data -plt.figure() -plt.plot(range(1689, 1791), data2.iloc[:, 5], linewidth=0.8) -plt.plot(range(1689, 1791), data2.iloc[:, 11], linewidth=0.8, color='red') -plt.plot(range(1689, 1791), data2.iloc[:, 9], linewidth=0.8, color='orange') -plt.plot(range(1689, 1791), data2.iloc[:, 8], 'o-', markerfacecolor='none', linewidth=0.8, color='purple') - -# Customize the plot -plt.gca().spines['top'].set_visible(False) -plt.gca().spines['right'].set_visible(False) -plt.gca().tick_params(labelsize=12) -plt.xlim([1689, 1790]) -plt.ylabel('millions of pounds', fontsize=12) - -# Add text annotations -plt.text(1765, 1.5, 'civil', fontsize=10) -plt.text(1760, 4.2, 'civil plus debt service', fontsize=10) -plt.text(1708, 15.5, 'total govt spending', fontsize=10) -plt.text(1759, 7.3, 'revenues', fontsize=10) - - -plt.tight_layout() -plt.show() - -# Save the figure as a PDF -#plt.savefig('frfinfig2.pdf', dpi=600) -``` - - - -{numref}`fig2` plots total taxes, total government expenditures, and the composition of government expenditures in Great Britain during much of the 18th century. - -## Figure 3 - - - - -```{code-cell} ipython3 -# Read the data from the Excel file -data1 = pd.read_excel('datasets/fig_3.xlsx', sheet_name='Sheet1', usecols='C:F', skiprows=5, nrows=30, header=None) - -data1.replace(0, np.nan, inplace=True) -``` - -```{code-cell} ipython3 ---- -mystnb: - figure: - caption: "Government Spending and Tax Revenues in France" - name: fr_fig3 ---- -# Plot the data -plt.figure() - -plt.plot(range(1759, 1789, 1), data1.iloc[:, 0], '-x', linewidth=0.8) -plt.plot(range(1759, 1789, 1), data1.iloc[:, 1], '--*', linewidth=0.8) -plt.plot(range(1759, 1789, 1), data1.iloc[:, 2], '-o', linewidth=0.8, markerfacecolor='none') -plt.plot(range(1759, 1789, 1), data1.iloc[:, 3], '-*', linewidth=0.8) - -plt.text(1775, 610, 'total spending', fontsize=10) -plt.text(1773, 325, 'military', fontsize=10) -plt.text(1773, 220, 'civil plus debt service', fontsize=10) -plt.text(1773, 80, 'debt service', fontsize=10) -plt.text(1785, 500, 'revenues', fontsize=10) - - - -plt.gca().spines['top'].set_visible(False) -plt.gca().spines['right'].set_visible(False) -plt.ylim([0, 700]) -plt.ylabel('millions of livres') - -plt.tight_layout() -plt.show() - -#plt.savefig('frfinfig3.jpg', dpi=600) -``` - - -TO TEACH TOM: By staring at {numref}`fr_fig3` carefully - -{numref}`fr_fig3` plots total taxes, total government expenditures, and the composition of government expenditures in France during much of the 18th century. - -```{code-cell} ipython3 - ---- -mystnb: - figure: - caption: "Government Spending and Tax Revenues in France" - name: fr_fig3b ---- -# Plot the data -plt.figure() - -plt.plot(np.arange(1759, 1789, 1)[~np.isnan(data1.iloc[:, 0])], data1.iloc[:, 0][~np.isnan(data1.iloc[:, 0])], '-x', linewidth=0.8) -plt.plot(np.arange(1759, 1789, 1)[~np.isnan(data1.iloc[:, 1])], data1.iloc[:, 1][~np.isnan(data1.iloc[:, 1])], '--*', linewidth=0.8) -plt.plot(np.arange(1759, 1789, 1)[~np.isnan(data1.iloc[:, 2])], data1.iloc[:, 2][~np.isnan(data1.iloc[:, 2])], '-o', linewidth=0.8, markerfacecolor='none') -plt.plot(np.arange(1759, 1789, 1)[~np.isnan(data1.iloc[:, 3])], data1.iloc[:, 3][~np.isnan(data1.iloc[:, 3])], '-*', linewidth=0.8) - -plt.text(1775, 610, 'total spending', fontsize=10) -plt.text(1773, 325, 'military', fontsize=10) -plt.text(1773, 220, 'civil plus debt service', fontsize=10) -plt.text(1773, 80, 'debt service', fontsize=10) -plt.text(1785, 500, 'revenues', fontsize=10) - - -plt.gca().spines['top'].set_visible(False) -plt.gca().spines['right'].set_visible(False) -plt.ylim([0, 700]) -plt.ylabel('millions of livres') - -plt.tight_layout() -plt.show() - -#plt.savefig('frfinfig3_ignore_nan.jpg', dpi=600) -``` - -{numref}`fr_fig3b` plots total taxes, total government expenditures, and the composition of government expenditures in France during much of the 18th century. - - - - -## Figure 4 - - -```{code-cell} ipython3 ---- -mystnb: - figure: - caption: "Military Spending in Britain and France" - name: fig4 ---- -# French military spending, 1685-1789, in 1726 livres -data4 = pd.read_excel('datasets/dette.xlsx', sheet_name='Militspe', usecols='D', skiprows=3, nrows=105, header=None).squeeze() -years = range(1685, 1790) - -plt.figure() -plt.plot(years, data4, '*-', linewidth=0.8) - -plt.plot(range(1689, 1791), data2.iloc[:, 4], linewidth=0.8) - -plt.gca().spines['top'].set_visible(False) -plt.gca().spines['right'].set_visible(False) -plt.gca().tick_params(labelsize=12) -plt.xlim([1689, 1790]) -plt.xlabel('*: France') -plt.ylabel('Millions of livres') -plt.ylim([0, 475]) - -plt.tight_layout() -plt.show() - -#plt.savefig('frfinfig4.pdf', dpi=600) -``` - - -{numref}`fig4` plots total taxes, total government expenditures, and the composition of government expenditures in France during much of the 18th century. - -TO TEACH TOM: By staring at {numref}`fig4` carefully - - -## Figure 5 - - -```{code-cell} ipython3 ---- -mystnb: - figure: - caption: "Index of real per capital revenues, France" - name: fig5 ---- -# Read data from Excel file -data5 = pd.read_excel('datasets/dette.xlsx', sheet_name='Debt', usecols='K', skiprows=41, nrows=120, header=None) - -# Plot the data -plt.figure() -plt.plot(range(1726, 1846), data5.iloc[:, 0], linewidth=0.8) - -plt.gca().spines['top'].set_visible(False) -plt.gca().spines['right'].set_visible(False) -plt.gca().set_facecolor('white') -plt.gca().tick_params(labelsize=12) -plt.xlim([1726, 1845]) -plt.ylabel('1726 = 1', fontsize=12) - -plt.tight_layout() -plt.show() - -# Save the figure as a PDF -#plt.savefig('frfinfig5.pdf', dpi=600) -``` - -TO TEACH TOM: By staring at {numref}`fig5` carefully - -## Rise and Fall of the *Assignat* - - - - We have partitioned Figures~\ref{fig:fig7}, \ref{fig:fig8}, and \ref{fig:fig9} - into three periods, corresponding -to different monetary regimes or episodes. The three clouds of points in -Figure~\ref{fig:fig7} - depict different real balance-inflation relationships. Only the cloud for the -third period has the inverse relationship familiar to us now from twentieth-century -hyperinflations. The first period ends in the late summer of 1793, and is characterized -by growing real balances and moderate inflation. The second period begins and ends -with the Terror. It is marked by high real balances, around 2,500 millions, and -roughly stable prices. The fall of Robespierre in late July 1794 begins the third -of our episodes, in which real balances decline and prices rise rapidly. We interpret -these three episodes in terms of three separate theories about money: a ``backing'' -or ''real bills'' theory (the text is Adam Smith (1776)), -a legal restrictions theory (TOM: HERE PLEASE CITE -Keynes,1940, AS WELL AS Bryant/Wallace:1984 and Villamil:1988) -and a classical hyperinflation theory.% -```{note} -According to the empirical definition of hyperinflation adopted by {cite}`Cagan`, -beginning in the month that inflation exceeds 50 percent -per month and ending in the month before inflation drops below 50 percent per month -for at least a year, the *assignat* experienced a hyperinflation from May to December -1795. -``` -We view these -theories not as competitors but as alternative collections of ``if-then'' -statements about government note issues, each of which finds its conditions more -nearly met in one of these episodes than in the other two. - - - - - -## Figure 7 - - -## To Do for Zejin - -I want to tweak and consolidate the extra lines that Zejin drew on the beautiful **Figure 7**. - -I'd like to experiment in plotting the **six** extra lines all on one graph -- a pair of lines for each of our subsamples - - * one for the $y$ on $x$ regression line - * another for the $x$ on $y$ regression line - -I'd like the $y$ on $x$ and $x$ on $y$ lines to be in separate colors. - -Once we are satisfied with this new graph with its six additional lines, we can dispense with the other graphs that add one line at a time. - -Zejin, I can explain on zoom the lessons I want to convey with this. - - - -Just to recall, to compute the regression lines, Zejin wrote a function that use standard formulas -for a and b in a least squares regression y = a + b x + residual -- i.e., b is ratio of sample covariance of y,x to sample variance of x; while a is then computed from a = sample mean of y - \hat b *sample mean of x - -We could presumably tell students how to do this with a couple of numpy lines -I'd like to create three additional versions of the following figure. - -To remind you, we focused on three subperiods: - - -* subperiod 1: ("real bills period): January 1791 to July 1793 - -* subperiod 2: ("terror:): August 1793 - July 1794 - -* subperiod 3: ("classic Cagan hyperinflation): August 1794 - March 1796 - - -I can explain what this is designed to show. - - - -```{code-cell} ipython3 -def fit(x, y): - - b = np.cov(x, y)[0, 1] / np.var(x) - a = y.mean() - b * x.mean() - - return a, b -``` - -```{code-cell} ipython3 -# load data -caron = np.load('datasets/caron.npy') -nom_balances = np.load('datasets/nom_balances.npy') - -infl = np.concatenate(([np.nan], -np.log(caron[1:63, 1] / caron[0:62, 1]))) -bal = nom_balances[14:77, 1] * caron[:, 1] / 1000 -``` - -```{code-cell} ipython3 -# fit data - -# reg y on x for three periods -a1, b1 = fit(bal[1:31], infl[1:31]) -a2, b2 = fit(bal[31:44], infl[31:44]) -a3, b3 = fit(bal[44:63], infl[44:63]) - -# reg x on y for three periods -a1_rev, b1_rev = fit(infl[1:31], bal[1:31]) -a2_rev, b2_rev = fit(infl[31:44], bal[31:44]) -a3_rev, b3_rev = fit(infl[44:63], bal[44:63]) -``` - -```{code-cell} ipython3 -plt.figure() -plt.gca().spines['top'].set_visible(False) -plt.gca().spines['right'].set_visible(False) - -# first subsample -plt.plot(bal[1:31], infl[1:31], 'o', markerfacecolor='none', color='blue', label='real bills period') - -# second subsample -plt.plot(bal[31:44], infl[31:44], '+', color='red', label='terror') - -# third subsample -plt.plot(bal[44:63], infl[44:63], '*', color='orange', label='classic Cagan hyperinflation') - -plt.xlabel('real balances') -plt.ylabel('inflation') -plt.legend() - -plt.tight_layout() -plt.show() -#plt.savefig('frfinfig7.pdf', dpi=600) -``` - - - -```{code-cell} ipython3 -# fit data - -# reg y on x for three periods -a1, b1 = fit(bal[1:31], infl[1:31]) -a2, b2 = fit(bal[31:44], infl[31:44]) -a3, b3 = fit(bal[44:63], infl[44:63]) - -# reg x on y for three periods -a1_rev, b1_rev = fit(infl[1:31], bal[1:31]) -a2_rev, b2_rev = fit(infl[31:44], bal[31:44]) -a3_rev, b3_rev = fit(infl[44:63], bal[44:63]) -``` - -```{code-cell} ipython3 -plt.figure() -plt.gca().spines['top'].set_visible(False) -plt.gca().spines['right'].set_visible(False) - -# first subsample -plt.plot(bal[1:31], infl[1:31], 'o', markerfacecolor='none', color='blue', label='real bills period') - -# second subsample -plt.plot(bal[34:44], infl[34:44], '+', color='red', label='terror') - -# third subsample # Tom tinkered with subsample period -plt.plot(bal[44:63], infl[44:63], '*', color='orange', label='classic Cagan hyperinflation') - -plt.xlabel('real balances') -plt.ylabel('inflation') -plt.legend() - -plt.tight_layout() -plt.show() -#plt.savefig('frfinfig7.pdf', dpi=600) -``` - - -The above graph is Tom's experimental lab. We'll delete it eventually.
- -Zejin: below is the grapth with six lines in one graph. The lines generated by regressing y on x have the same color as the corresponding data points, while the lines generated by regressing x on y are all in green.
- -```{code-cell} ipython3 -plt.figure() -plt.gca().spines['top'].set_visible(False) -plt.gca().spines['right'].set_visible(False) - -# first subsample -plt.plot(bal[1:31], infl[1:31], 'o', markerfacecolor='none', color='blue', label='real bills period') -plt.plot(bal[1:31], a1 + bal[1:31] * b1, color='blue', linewidth=0.8) -plt.plot(a1_rev + b1_rev * infl[1:31], infl[1:31], color='green', linewidth=0.8) - -# second subsample -plt.plot(bal[31:44], infl[31:44], '+', color='red', label='terror') -plt.plot(bal[31:44], a2 + bal[31:44] * b2, color='red', linewidth=0.8) -plt.plot(a2_rev + b2_rev * infl[31:44], infl[31:44], color='green', linewidth=0.8) - -# third subsample -plt.plot(bal[44:63], infl[44:63], '*', color='orange', label='classic Cagan hyperinflation') -plt.plot(bal[44:63], a3 + bal[44:63] * b3, color='orange', linewidth=0.8) -plt.plot(a3_rev + b3_rev * infl[44:63], infl[44:63], color='green', linewidth=0.8) - -plt.xlabel('real balances') -plt.ylabel('inflation') -plt.legend() -#plt.savefig('frfinfig7.pdf', dpi=600) -``` - - - -The graph below is Tom's version of the six lines in one graph. The lines generated by regressing y on x have the same color as the corresponding data points, while the lines generated by regressing x on y are all in green.
- -```{code-cell} ipython3 -plt.figure() -plt.gca().spines['top'].set_visible(False) -plt.gca().spines['right'].set_visible(False) - -# first subsample -plt.plot(bal[1:31], infl[1:31], 'o', markerfacecolor='none', color='blue', label='real bills period') -plt.plot(bal[1:31], a1 + bal[1:31] * b1, color='blue', linewidth=0.8) -plt.plot(a1_rev + b1_rev * infl[1:31], infl[1:31], color='green', linewidth=0.8) - -# second subsample -plt.plot(bal[31:44], infl[31:44], '+', color='red', label='terror') -plt.plot(bal[34:44], a2 + bal[34:44] * b2, color='red', linewidth=0.8) -plt.plot(a2_rev + b2_rev * infl[34:44], infl[34:44], color='green', linewidth=0.8) - -# third subsample -plt.plot(bal[44:63], infl[44:63], '*', color='orange', label='classic Cagan hyperinflation') -plt.plot(bal[44:63], a3 + bal[44:63] * b3, color='orange', linewidth=0.8) -plt.plot(a3_rev + b3_rev * infl[44:63], infl[44:63], color='green', linewidth=0.8) - -plt.xlabel('real balances') -plt.ylabel('inflation') -plt.legend() - -plt.tight_layout() -plt.show() -#plt.savefig('frfinfig7.pdf', dpi=600) -``` - -```{code-cell} ipython3 -plt.figure() -plt.gca().spines['top'].set_visible(False) -plt.gca().spines['right'].set_visible(False) - -# first subsample -plt.plot(bal[1:31], infl[1:31], 'o', markerfacecolor='none', color='blue', label='real bills period') -plt.plot(bal[1:31], a1 + bal[1:31] * b1, color='blue') - -# second subsample -plt.plot(bal[31:44], infl[31:44], '+', color='red', label='terror') - -# third subsample -plt.plot(bal[44:63], infl[44:63], '*', color='orange', label='classic Cagan hyperinflation') - -plt.xlabel('real balances') -plt.ylabel('inflation') -plt.legend() - -plt.tight_layout() -plt.show() -#plt.savefig('frfinfig7_line1.pdf', dpi=600) -``` - -```{code-cell} ipython3 -plt.figure() -plt.gca().spines['top'].set_visible(False) -plt.gca().spines['right'].set_visible(False) - -# first subsample -plt.plot(bal[1:31], infl[1:31], 'o', markerfacecolor='none', color='blue', label='real bills period') -plt.plot(a1_rev + b1_rev * infl[1:31], infl[1:31], color='blue') - -# second subsample -plt.plot(bal[31:44], infl[31:44], '+', color='red', label='terror') - -# third subsample -plt.plot(bal[44:63], infl[44:63], '*', color='orange', label='classic Cagan hyperinflation') - -plt.xlabel('real balances') -plt.ylabel('inflation') -plt.legend() - -plt.tight_layout() -plt.show() -#plt.savefig('frfinfig7_line1_rev.pdf', dpi=600) -``` - -```{code-cell} ipython3 -plt.figure() -plt.gca().spines['top'].set_visible(False) -plt.gca().spines['right'].set_visible(False) - -# first subsample -plt.plot(bal[1:31], infl[1:31], 'o', markerfacecolor='none', color='blue', label='real bills period') - -# second subsample -plt.plot(bal[31:44], infl[31:44], '+', color='red', label='terror') -plt.plot(bal[31:44], a2 + bal[31:44] * b2, color='red') - -# third subsample -plt.plot(bal[44:63], infl[44:63], '*', color='orange', label='classic Cagan hyperinflation') - -plt.xlabel('real balances') -plt.ylabel('inflation') -plt.legend() - -plt.tight_layout() -plt.show() -#plt.savefig('frfinfig7_line2.pdf', dpi=600) -``` - -```{code-cell} ipython3 -plt.figure() -plt.gca().spines['top'].set_visible(False) -plt.gca().spines['right'].set_visible(False) - -# first subsample -plt.plot(bal[1:31], infl[1:31], 'o', markerfacecolor='none', color='blue', label='real bills period') - -# second subsample -plt.plot(bal[31:44], infl[31:44], '+', color='red', label='terror') -plt.plot(a2_rev + b2_rev * infl[31:44], infl[31:44], color='red') - -# third subsample -plt.plot(bal[44:63], infl[44:63], '*', color='orange', label='classic Cagan hyperinflation') - -plt.xlabel('real balances') -plt.ylabel('inflation') -plt.legend() - -plt.tight_layout() -plt.show() -#plt.savefig('frfinfig7_line2_rev.pdf', dpi=600) -``` - -```{code-cell} ipython3 -plt.figure() -plt.gca().spines['top'].set_visible(False) -plt.gca().spines['right'].set_visible(False) - -# first subsample -plt.plot(bal[1:31], infl[1:31], 'o', markerfacecolor='none', color='blue', label='real bills period') - -# second subsample -plt.plot(bal[31:44], infl[31:44], '+', color='red', label='terror') - -# third subsample -plt.plot(bal[44:63], infl[44:63], '*', color='orange', label='classic Cagan hyperinflation') -plt.plot(bal[44:63], a3 + bal[44:63] * b3, color='orange') - -plt.xlabel('real balances') -plt.ylabel('inflation') -plt.legend() - -plt.tight_layout() -plt.show() -#plt.savefig('frfinfig7_line3.pdf', dpi=600) -``` - -```{code-cell} ipython3 -plt.figure() -plt.gca().spines['top'].set_visible(False) -plt.gca().spines['right'].set_visible(False) - -# first subsample -plt.plot(bal[1:31], infl[1:31], 'o', markerfacecolor='none', color='blue', label='real bills period') - -# second subsample -plt.plot(bal[31:44], infl[31:44], '+', color='red', label='terror') - -# third subsample -plt.plot(bal[44:63], infl[44:63], '*', color='orange', label='classic Cagan hyperinflation') -plt.plot(a3_rev + b3_rev * infl[44:63], infl[44:63], color='orange') - -plt.xlabel('real balances') -plt.ylabel('inflation') -plt.legend() - -plt.tight_layout() -plt.show() -#plt.savefig('frfinfig7_line3_rev.pdf', dpi=600) -``` - - -## Figure 8 - - -```{code-cell} ipython3 ---- -mystnb: - figure: - caption: "Real balances of assignats (in gold and goods)" - name: fig8 ---- -# Read the data from Excel file -data7 = pd.read_excel('datasets/assignat.xlsx', sheet_name='Data', usecols='P:Q', skiprows=4, nrows=80, header=None) -data7a = pd.read_excel('datasets/assignat.xlsx', sheet_name='Data', usecols='L', skiprows=4, nrows=80, header=None) - -# Create the figure and plot -plt.figure() -h = plt.plot(pd.date_range(start='1789-11-01', periods=len(data7), freq='M'), (data7a.values * [1, 1]) * data7.values, linewidth=1.) -plt.setp(h[1], linestyle='--', color='red') - -plt.vlines([pd.Timestamp('1793-07-15'), pd.Timestamp('1793-07-15')], 0, 3000, linewidth=0.8, color='orange') -plt.vlines([pd.Timestamp('1794-07-15'), pd.Timestamp('1794-07-15')], 0, 3000, linewidth=0.8, color='purple') - -plt.ylim([0, 3000]) - -# Set properties of the plot -plt.gca().spines['top'].set_visible(False) -plt.gca().spines['right'].set_visible(False) -plt.gca().set_facecolor('white') -plt.gca().tick_params(labelsize=12) -plt.xlim(pd.Timestamp('1789-11-01'), pd.Timestamp('1796-06-01')) -plt.ylabel('millions of livres', fontsize=12) - -# Add text annotations -plt.text(pd.Timestamp('1793-09-01'), 200, 'Terror', fontsize=12) -plt.text(pd.Timestamp('1791-05-01'), 750, 'gold value', fontsize=12) -plt.text(pd.Timestamp('1794-10-01'), 2500, 'real value', fontsize=12) - - -plt.tight_layout() -plt.show() - -# Save the figure as a PDF -#plt.savefig('frfinfig8.pdf', dpi=600) -``` - -TO TEACH TOM: By staring at {numref}`fig8` carefully - - -## Figure 9 - - -```{code-cell} ipython3 ---- -mystnb: - figure: - caption: "Price Level and Price of Gold (log scale)" - name: fig9 ---- -# Create the figure and plot -plt.figure() -x = np.arange(1789 + 10/12, 1796 + 5/12, 1/12) -h, = plt.plot(x, 1. / data7.iloc[:, 0], linestyle='--') -h, = plt.plot(x, 1. / data7.iloc[:, 1], color='r') - -# Set properties of the plot -plt.gca().tick_params(labelsize=12) -plt.yscale('log') -plt.xlim([1789 + 10/12, 1796 + 5/12]) -plt.gca().spines['top'].set_visible(False) -plt.gca().spines['right'].set_visible(False) - -# Add vertical lines -plt.axvline(x=1793 + 6.5/12, linestyle='-', linewidth=0.8, color='orange') -plt.axvline(x=1794 + 6.5/12, linestyle='-', linewidth=0.8, color='purple') - -# Add text -plt.text(1793.75, 120, 'Terror', fontsize=12) -plt.text(1795, 2.8, 'price level', fontsize=12) -plt.text(1794.9, 40, 'gold', fontsize=12) - - -plt.tight_layout() -plt.show() -#plt.savefig('frfinfig9.pdf', dpi=600) -``` - -TO TEACH TOM: By staring at {numref}`fig9` carefully - - -## Figure 11 - - - - -```{code-cell} ipython3 ---- -mystnb: - figure: - caption: "Spending (blue) and Revenues (orange), (real values)" - name: fig11 ---- -# Read data from Excel file -data11 = pd.read_excel('datasets/assignat.xlsx', sheet_name='Budgets', usecols='J:K', skiprows=22, nrows=52, header=None) - -# Prepare the x-axis data -x_data = np.concatenate([ - np.arange(1791, 1794 + 8/12, 1/12), - np.arange(1794 + 9/12, 1795 + 3/12, 1/12) -]) - -# Remove NaN values from the data -data11_clean = data11.dropna() - -# Plot the data -plt.figure() -h = plt.plot(x_data, data11_clean.values[:, 0], linewidth=0.8) -h = plt.plot(x_data, data11_clean.values[:, 1], '--', linewidth=0.8) - - - -# Set plot properties -plt.gca().spines['top'].set_visible(False) -plt.gca().spines['right'].set_visible(False) -plt.gca().set_facecolor('white') -plt.gca().tick_params(axis='both', which='major', labelsize=12) -plt.xlim([1791, 1795 + 3/12]) -plt.xticks(np.arange(1791, 1796)) -plt.yticks(np.arange(0, 201, 20)) - -# Set the y-axis label -plt.ylabel('millions of livres', fontsize=12) - - - -plt.tight_layout() -plt.show() - -#plt.savefig('frfinfig11.pdf', dpi=600) -``` -TO TEACH TOM: By staring at {numref}`fig11` carefully - - -## Figure 12 - - -```{code-cell} ipython3 -# Read data from Excel file -data12 = pd.read_excel('datasets/assignat.xlsx', sheet_name='seignor', usecols='F', skiprows=6, nrows=75, header=None).squeeze() - - -# Create a figure and plot the data -plt.figure() -plt.plot(pd.date_range(start='1790', periods=len(data12), freq='M'), data12, linewidth=0.8) - -plt.gca().spines['top'].set_visible(False) -plt.gca().spines['right'].set_visible(False) - -plt.axhline(y=472.42/12, color='r', linestyle=':') -plt.xticks(ticks=pd.date_range(start='1790', end='1796', freq='AS'), labels=range(1790, 1797)) -plt.xlim(pd.Timestamp('1791'), pd.Timestamp('1796-02') + pd.DateOffset(months=2)) -plt.ylabel('millions of livres', fontsize=12) -plt.text(pd.Timestamp('1793-11'), 39.5, 'revenues in 1788', verticalalignment='top', fontsize=12) - - -plt.tight_layout() -plt.show() - -#plt.savefig('frfinfig12.pdf', dpi=600) -``` - - -## Figure 13 - - -```{code-cell} ipython3 -# Read data from Excel file -data13 = pd.read_excel('datasets/assignat.xlsx', sheet_name='Exchge', usecols='P:T', skiprows=3, nrows=502, header=None) - -# Plot the last column of the data -plt.figure() -plt.plot(data13.iloc[:, -1], linewidth=0.8) - -# Set properties of the plot -plt.gca().spines['top'].set_visible(False) -plt.gca().spines['right'].set_visible(False) -plt.gca().set_xlim([1, len(data13)]) - -# Set x-ticks and x-tick labels -ttt = np.arange(1, len(data13) + 1) -plt.xticks(ttt[~np.isnan(data13.iloc[:, 0])], - ['Mar', 'Apr', 'May', 'Jun', 'Jul', 'Aug', 'Sep', 'Oct', 'Nov', 'Dec', 'Jan', 'Feb', - 'Mar', 'Apr', 'May', 'Jun', 'Jul', 'Aug', 'Sep']) - -# Add text to the plot -plt.text(1, 120, '1795', fontsize=12, ha='center') -plt.text(262, 120, '1796', fontsize=12, ha='center') - -# Draw a horizontal line and add text -plt.axhline(y=186.7, color='red', linestyle='-', linewidth=0.8) -plt.text(150, 190, 'silver parity', fontsize=12) - -# Add an annotation with an arrow -plt.annotate('end of the assignat', xy=(340, 172), xytext=(380, 160), - arrowprops=dict(facecolor='black', arrowstyle='->'), fontsize=12) - - -plt.tight_layout() -plt.show() -#plt.savefig('frfinfig13.pdf', dpi=600) -``` - - -## Figure 14 - - -```{code-cell} ipython3 -# figure 14 -data14 = pd.read_excel('datasets/assignat.xlsx', sheet_name='Post-95', usecols='I', skiprows=9, nrows=91, header=None).squeeze() -data14a = pd.read_excel('datasets/assignat.xlsx', sheet_name='Post-95', usecols='F', skiprows=100, nrows=151, header=None).squeeze() - -plt.figure() -h = plt.plot(data14, '*-', markersize=2, linewidth=0.8) -plt.plot(np.concatenate([np.full(data14.shape, np.nan), data14a]), linewidth=0.8) -plt.gca().spines['top'].set_visible(False) -plt.gca().spines['right'].set_visible(False) -plt.gca().set_xticks(range(20, 237, 36)) -plt.gca().set_xticklabels(range(1796, 1803)) -plt.xlabel('*: Before the 2/3 bankruptcy') -plt.ylabel('Francs') - -plt.tight_layout() -plt.show() -#plt.savefig('frfinfig14.pdf', dpi=600) -``` - - -## Figure 15 - - -```{code-cell} ipython3 -# figure 15 -data15 = pd.read_excel('datasets/assignat.xlsx', sheet_name='Post-95', usecols='N', skiprows=4, nrows=88, header=None).squeeze() - -plt.figure() -h = plt.plot(range(2, 90), data15, '*-', linewidth=0.8) -plt.setp(h, markersize=2) -plt.gca().spines['top'].set_visible(False) -plt.gca().spines['right'].set_visible(False) -plt.text(47.5, 11.4, '17 brumaire', horizontalalignment='left', fontsize=12) -plt.text(49.5, 14.75, '19 brumaire', horizontalalignment='left', fontsize=12) -plt.text(15, -1, 'Vendémiaire 8', fontsize=12, horizontalalignment='center') -plt.text(45, -1, 'Brumaire', fontsize=12, horizontalalignment='center') -plt.text(75, -1, 'Frimaire', fontsize=12, horizontalalignment='center') -plt.ylim([0, 25]) -plt.xticks([], []) -plt.ylabel('Francs') - -plt.tight_layout() -plt.show() -#plt.savefig('frfinfig15.pdf', dpi=600) -``` - -```{code-cell} ipython3 - -``` - - -## Fiscal Situation and Response of National Assembly - - -In response to a motion by Catholic Bishop Talleyrand, -the National Assembly confiscated and nationalized Church lands. - -But the National Assembly was dominated by free market advocates, not socialists. - -The National Assembly intended to use earnings from Church lands to service its national debt. - -To do this, it began to implement a ''privatization plan'' that would let it service its debt while -not raising taxes. - -Their plan involved issuing paper notes called ''assignats'' that entitled bearers to use them to purchase state lands. - -These paper notes would be ''as good as silver coins'' in the sense that both were acceptable means of payment in exchange for those (formerly) church lands. - -Finance Minister Necker and the Constituants planned -to solve the privatization problem **and** the debt problem simultaneously -by creating a new currency. - -They devised a scheme to raise revenues by auctioning -the confiscated lands, thereby withdrawing paper notes issued on the security of -the lands sold by the government. - - This ''tax-backed money'' scheme propelled the National Assembly into the domain of monetary experimentation. - -Records of their debates show -how members of the Assembly marshaled theory and evidence to assess the likely -effects of their innovation. - -They quoted David Hume and Adam Smith and cited John -Law's System of 1720 and the American experiences with paper money fifteen years -earlier as examples of how paper money schemes can go awry. - - -### Necker's plan and how it was tweaked - -Necker's original plan embodied two components: a national bank and a new -financial instrument, the ''assignat''. - - -Necker's national -bank was patterned after the Bank of England. He proposed to transform the *Caisse d'Escompte* into a national bank by granting it a monopoly on issuing -notes and marketing government debt. The *Caisse* was a -discount bank founded in 1776 whose main function was to discount commercial bills -and issue convertible notes. Although independent of the government in principle, -it had occasionally been used as a source of loans. Its notes had been declared -inconvertible in August 1788, and by the time of Necker's proposal, its reserves -were exhausted. Necker's plan placed the National Estates (as the Church lands -became known after the addition of the royal demesne) at the center of the financial -picture: a ''Bank of France'' would issue a $5\%$ security mortgaged on the prospective -receipts from the modest sale of some 400 millions' worth of National Estates in -the years 1791 to 1793. -```{note} - Only 170 million was to be used initially -to cover the deficits of 1789 and 1790. -``` - - -By mid-1790, members of the National Assembly had agreed to sell the National -Estates and to use the proceeds to service the debt in a ``tax-backed money'' scheme -```{note} -Debt service costs absorbed - over 60\% of French government expenditures. -``` - -The government would issue securities with which it would reimburse debt. - -The securities -were acceptable as payment for National Estates purchased at auctions; once received -in payment, they were to be burned. - -```{note} -The appendix to {cite}`sargent_velde1995` describes the -auction rules in detail. -``` -The Estates available for sale were thought to be worth about 2,400 -million, while the exactable debt (essentially fixed-term loans, unpaid arrears, -and liquidated offices) stood at about 2,000 million. The value of the land was -sufficient to let the Assembly retire all of the exactable debt and thereby eliminate -the interest payments on it. After lengthy debates, in August 1790, the Assembly set the denomination -and interest rate structure of the debt. - - -```{note} Two distinct -aspects of monetary theory help in thinking about the assignat plan. First, a system -beginning with a commodity standard typically has room for a once-and-for-all emission -of (an unbacked) paper currency that can replace the commodity money without generating -inflation. \citet{Sargent/Wallace:1983} describe models with this property. That -commodity money systems are wasteful underlies Milton Friedman's (1960) TOM:ADD REFERENCE preference -for a fiat money regime over a commodity money. Second, in a small country on a -commodity money system that starts with restrictions on intermediation, those restrictions -can be relaxed by letting the government issue bank notes on the security of safe -private indebtedness, while leaving bank notes convertible into gold at par. See -Adam Smith and Sargent and Wallace (1982) for expressions of this idea. TOM: ADD REFERENCES HEREAND IN BIBTEX FILE. -``` - - -```{note} -The -National Assembly debated many now classic questions in monetary economics. Under -what conditions would money creation generate inflation, with what consequences -for business conditions? Distinctions were made between issue of money to pay off -debt, on one hand, and monetization of deficits, on the other. Would *assignats* be akin -to notes emitted under a real bills regime, and cause loss of specie, or would -they circulate alongside specie, thus increasing the money stock? Would inflation -affect real wages? How would it impact foreign trade, competitiveness of French -industry and agriculture, balance of trade, foreign exchange? -```