Written by Ambrose Evans-Pritchard, the newspaper’s International Business Editor, it highlighted the recent IMF paper by Jaromir Benes and Michael Kumhof, entitled, “The Chicago Plan Revisited” which strongly supported the proposals of Irving Fisher for full reserve banking. Fisher’s ideas are one of the inspirations behind Positive Money’s proposals.

An epic comment thread ensued on the internet version of the article (dated 21 Oct). There were over 1,100 comments, with around 50% in favour, and a vociferous 50% against (who were the same names posting again and again).

There was one particular character who was regularly posting almost every hour or so, with the same point – the erroneous claim that this “had been done before” – immediately after the French Revolution apparently – and the result was “hyperinflation, famine and bloodshed.”

“Hyperinflation, famine and bloodshed”, indeed!

Talk about trying to scare people away from the perfectly reasonable proposals suggested by Positive Money. Talk about “protesting too much”.

So what was this person referring to?

He was linking regularly in his posts to a PDF version of a book called “Fiat Money Inflation in France” by an Andrew Dickson White.
We asked one of the world’s foremost monetary historians, Stephen Zarlenga, of the American Monetary Institute for his opinion on the matter and he directed us, helpfully, to pages 446-450 of his magnum opus, “The Lost Science of Money” (Valatie, NY: American Monetary Institute, 2002).

Referring to the American “Greenbacks”, Zarlenga writes:

“Perhaps the most clever attack of all on the Greenbacks was Andrew Dickson White’s ‘Fiat Money Inflation in France’, written in 1876. White (1832-1918), whose inherited fortune arose from banking, eloquently used several rhetorical methods to undermine the Greenbacks. But Hazlitt’s introduction [to White’s book] presents White’s essay as objective history, rather than with a political motive. Not mentioned is that White’s purpose was to attack the Greenbacks, which at that time a majority of voters wanted to make a permanent feature of our money system.”

“Since a direct examination of the Greenbacks and their results would defeat his purpose, instead White argued from analogy, asserting that what was true for France must also be true for the United States: the failure of paper money, under the chaotic conditions of the French Revolution, automatically condemns government paper money everywhere. The argument does begin to look weak, even silly, when stated in that way.” (pp. 447-448)

Zarlenga points out that a repudiation to White’s essay was published, within a year, by Stephen D. Dillaye.  [Stephen D. Dillaye, “Assignats and Mandats, A True History, Including an Examination of Dr. Andrew Dickson White’s ‘Paper Money in France'”, (Philadelphia: Henry Carey Baird & Co, 1877)].

 

Massive Counterfeiting of “Assignats”

Dillaye pointed out that one of the reasons for the failure was massive counterfeiting of the paper currency, “the Assignats” – largely through London – where, according to Dillaye: “Seventeen manufacturing establishments were in full operation in London, with a force of four hundred men devoted to the production of false and forged Assignats.”

Dillaye cites legal proceedings in England where court disputes between those involved in these activities brought the matter into public record.

It was found at one stage that there was 12-15 billion francs of forged Assignats in circulation in comparison to the 7.86 billion issued by the Revolutionary government. Dillaye says that White’s figure of 45 billion francs of Revolutionary money is wrong.

It appears that Andrew Dickson White was politically motivated against the Greenbacks to, as Dillaye said, “overthrow our paper currency; to destroy confidence in our stability as a government; to question our honor as a nation, and our honesty as a people, by producing the history of French paper money, and showing by its failure and worthlessness, an example and illustration to convince us that because the French revolutionists failed in establishing a paper currency worthy of confidence, we must fail; that as they repudiated the obligations they created, the Government of the United States must repudiate the obligations it has created or may hereafter create. Mr White’s argument amounts to this or it amounts to nothing.”

We’re pleased to see people finally debating the issues around the creation of money, but making inaccurate (and irrelevant) comparisons to historical events is hardly helpful. Time moves on, and a largely “paper currency” would be unworkable – and unnecessary – today.

However, the arguments for a publicly-created money supply remain sound.

 

Reference:

Stephen Zarlenga, “The Lost Science of Money” (Valatie, NY: American Monetary Institute, 2002), pp.446-450. The book is available via Amazon, or via American Monetary Institute