From 8ce8b1d59d95ac5bbebbde696204f383890bdb43 Mon Sep 17 00:00:00 2001 From: thomassargent30 Date: Sun, 9 Jun 2024 14:59:19 -0400 Subject: [PATCH] Tom's mistaken edits in intro lectures --- lectures/_toc.yml | 2 +- .../{french_rev.md => french_rev copy.md} | 261 ++-- lectures/french_rev_tom.md | 1078 +++++++++++++++++ 3 files changed, 1233 insertions(+), 108 deletions(-) rename lectures/{french_rev.md => french_rev copy.md} (93%) create mode 100644 lectures/french_rev_tom.md diff --git a/lectures/_toc.yml b/lectures/_toc.yml index 15170f99..9977b487 100644 --- a/lectures/_toc.yml +++ b/lectures/_toc.yml @@ -54,7 +54,7 @@ parts: - file: unpleasant - file: money_inflation_nonlinear - file: laffer_adaptive - #- file: french_rev + - file: french_rev - file: ak2 - caption: Stochastic Dynamics numbered: true diff --git a/lectures/french_rev.md b/lectures/french_rev copy.md similarity index 93% rename from lectures/french_rev.md rename to lectures/french_rev copy.md index 226f4dc5..e6c19e22 100644 --- a/lectures/french_rev.md +++ b/lectures/french_rev copy.md @@ -20,120 +20,28 @@ kernelspec: 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''. - +In order to finance public expenditures and service debts issued by earlier French governments, +successive French governments performed several policy experiments. -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. -``` +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: -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. -``` +* some *unpleasant monetarist arithmetic* like that described in this quanteon lecture XXX +that governed French government debt dynamics in the decades preceding 1789 -The government would issue securities with which it would reimburse debt. +* 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 securities -were acceptable as payment for National Estates purchased at auctions; once received -in payment, they were to be burned. +* a classical ``gold or silver'' standard -```{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. +* 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 -```{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. -``` +We use matplotlib to replicate several of the graphs that they used to present salient patterns. -```{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 @@ -150,7 +58,7 @@ import matplotlib.pyplot as plt plt.rcParams.update({'font.size': 12}) ``` - + ## Figure 1 @@ -194,7 +102,14 @@ plt.show() ``` -TO TEACH TOM: By staring at {numref}`fig1` carefully + {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 @@ -240,6 +155,9 @@ plt.show() ``` + +{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 @@ -289,7 +207,16 @@ plt.show() 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() @@ -316,6 +243,10 @@ 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 @@ -350,8 +281,12 @@ 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 @@ -1029,3 +964,115 @@ plt.show() ```{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_tom.md b/lectures/french_rev_tom.md new file mode 100644 index 00000000..e6c19e22 --- /dev/null +++ b/lectures/french_rev_tom.md @@ -0,0 +1,1078 @@ +--- +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? +```