What the French Revolution tells us about the dangers of inflation

Credit: Michel Royon / Wikimedia Commons.

Did you know the French Revolution can teach us important lessons about money today? Yes, that’s right.

A study led by Louis Rouanet, a professor at The University of Texas at El Paso, shows how France faced the first case of extreme, modern inflation more than 200 years ago.

This type of super-fast price increase is called “hyperinflation.”

Why Look at the French Revolution?

The French Revolution was a big event at the end of the 18th century.

People in France were unhappy with how things were, especially with a system that made the king and nobles very powerful, while ordinary people had little say.

The revolution led to massive changes, including an end to that unfair system.

The Money Problem

During the revolution, the French government had no money. So, they took land and stuff from the Catholic Church to sell it and get some cash.

But, it wasn’t easy to sell the land quickly. So, the government made its own money out of paper, called “assignat.” They promised to remove these paper notes once they were used to buy land, but they didn’t always keep that promise.

Who Backed This Money?

A political group called the Jacobins were big supporters of this new money. But their influence started to fade away during the revolution.

They were slowly losing power, and a new government, called the Directory, was taking over.

What Happened Then?

Because people stopped trusting the government and the Jacobins were losing power, everyone tried to spend the paper money as fast as possible.

This rush made prices shoot up very quickly. Imagine going to a store and finding that the cost of a loaf of bread has doubled overnight! That’s what happened in France.

Rouanet’s research found that this hyperinflation occurred due to political instability and the public losing faith in the new money. Basically, when people expect that money will lose its value, they try to spend it quickly, which actually makes it lose value even faster.

What’s the Lesson Here?

Rouanet says that this tells us how important it is for governments to be careful with money and prices. When politics messes with the money supply, things can get very unstable.

People need to trust that their money will stay valuable, or else the economy can spiral into chaos.

He believes that a stable political environment and public trust are vital for keeping money valuable. Just like what happened in France, if people think money will lose value, they’ll rush to spend it, and that itself will cause prices to skyrocket.

Why This Research Matters

According to John Hadjimarcou, a professor at The University of Texas, this study helps us understand how public opinion can really affect things like money and pricing.

Rouanet’s work can serve as a cautionary tale for our times, reminding us that what happened more than 200 years ago in France still has something to teach us today.

So, next time you think history is just about the past, remember that it can also give us important clues about our present and future, especially when it comes to our wallets.

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