Revolutionary government launches new coin based on state assets

Venezuela? No. As with all doomed experiments in monetary reform, France got there first.

In her excellent book Stuff and Money in the Time of the French Revolution, Rebecca Spang cautions against using the story of the attempted reinvention of money following the French Revolution as part of a superficial “transition to capitalism” narrative, but as a non-historian it did seem to me that there is something for today in comparing the evolution of money in industrialising Britain and the evolution of money in revolutionary France. To me, it is a contrast between British mercantile pragmatism to exploit bottom-up innovation with French idealism and top-down change, which is why I included a discussion of the assignats in my book “Before Babylon, Beyond Bitcoin”. All of which explains why I was intrigued by Tuur Demeester’s reference to assignats as the “first ICO” in a tweet about them and the emergence of the Latin Monetary Union (LMU).

First ICO? Launched in 1790, Assignats were paper tokens “backed by” confiscated church lands. Replaced by Napoleon’s Silver Standard. pic.twitter.com/VYSkuq7b6U — Tuur Demeester (@TuurDemeester)
August 18, 2017

Now, in this context, I would probably have awarded the title of first ICO to John Law’s notorious Banque Royal (see “The Mississippi Bubble) but Tuur makes an interesting point which is worth exploring. How did the assignats come about?

In pre-revolutionary France there was actually very little cash in circulation because pre-revolutionary France was, as pre-industrial England had been, a reputation economy. The great majority of the population engaged in commercial activities with well-known and trusted counterparties. Buying and selling was done “on tick” as people maintained a web of credit relationships for periodic reckoning.

In such an economy, based on trust, then once trust fails the substitute of money is required to oil the wheels of commerce. This is exactly what happened in France where after the revolution a lack of trust in the state quickly became a shortage of credit in the marketplace and therefore an immediate demand for a circulating medium of exchange. It is easy to see echoes of this in the post-crash demand for “trustless money”, initially manifest in Bitcoin.

So where could this new money come from? Not from gold or silver, since they didn’t have any. Nor did they have a central bank along the lines of the Bank of England, so one of the first acts of the new revolutionary government was to take over Church lands and use them as security to issue interest-bearing bonds with the redemption in portion of the land itself. Were the blockchain available to them, I am certain that Robespierre and the others would have gone down the Venezuelan route with an ERC-20 token in an ICO, but they were restricted to the technology of the time and thus the paper assignats were created.

An assignat.

The assginats didn’t last that long. The interest payments and the redemption in land were soon abandoned (maybe these would have been easier in a blockchain age) and the notes simply became state-issued inconvertible fiduciary notes. There followed what Professor Glynn Davies called in his magisterial History of Money from Ancient Times to the Present Day “the usual consequences” of inflation, dual-pricing (with note payers forced to give more than coin payers), hoarding and (Gresham’s Law again) the practical disappearance of coins as capital fled across international borders. By October 1795, 100 Franc assignats could be traded for only 15 sous in coin and the Paris riots of the time opened the door for Napoleon. It wasn’t until the Bank of France was founded in 1800 that the nation at last enjoyed the same kind of public institution that England, Holland and Sweden had had for more than a century.

Why am I so interested in these long-gone Latin precursors of the Euro? Well, Rebecca notes that when the assignats went into circulation people treated the new paper currency as the bills of exchange that they were familiar with. They did not value the anonymity of the notes at all. In fact, they signed them as they passed them around. Who had used a note attested to its validity and the identity of the previous holders gave the notes value! A note signed by a trustworthy person such as Joanna Lumley or Sergio Aquero would be worth more than one signed by me, for example. For the sans-culottes, fungibility was not all that.

Or, to look at it from a modern perspective, the new money was identity.

[This is an edited version of a post that first appeared on the 15Mb blog.]