|
|
|
|
|
|
|
|
|
|
|
|
|
Economics
has often been described as the "dismal science" for its predictions and
solutions to financial problems. It is a social science that seeks
to explain finance often in terms of politics and culture. Between
the 17th and 18th centuries, France experienced a paradigm shift in economic
policy. Under Louis XIV Absolutism reached its historical peak.
Accompanying the splendor of Absolutism was a command economy stifling
the working class and bourgeoisie. The rigidity of mercantilism caused
internal conflict and ultimately led to the French Revolution. The
laizze-faire economics, however, did not last long as France entered into
war with Europe and the government began once again to interfere with private
businesses. The conflict between open and closed economies in France
mimicked other repressive governments, including Russia during the 20th
century.
Recession. Inflation. Scarcity. All three of these words resonate fear in the general public. The state economy is one of the most hotly contested public issues, especially in an election year. During Gerald Ford’s campaign, he called inflation “public enemy number one” and wore a button with the acronym, “WIN,” for “Whip Inflation Now.” The economy is representative of a country’s international power and standing not only today, but also throughout history. Thus, France and other European nation-states manipulated the economy to increase their power and prestige during the 18th and 19th centuries. Economic policies quite often accompanied political and social change. It was truly France’s economic condition that precipitated both the drive toward the development of Absolutism and the French Revolution.
Economics is the study of the management of a society’s scarce resources. The peoples’ wants are unlimited, yet the resources to produce goods and services are not. Economists study how people make decisions: how much they work, what they buy, how much they save, and how they invest their savings (Mankiw 4). In a modern economy such as that experienced today in the United States and Europe, the economy is guided by the decisions of millions of firms and households. A “market economy” is the organization of firms and households. Firms decide what to produce and whom to hire to produce it. Households decide which firms to work for and what to buy with their resulting incomes. Self-interest and prices guide the marketplace in the tango between firms and households.
“Command economies,” however, rely on central planners to decide which goods and services are produced, how much, and by whom. Seemingly simplistic, command economies operated under the assumption that central planners are the most knowledgeable and have the most foresight to decide all of the economic activity. They would act in a way that promoted the economic well being of the country and its citizens. Two prominent examples of command economies are France, from Absolutism into the Revolution, and Soviet Union during the first part of the twentieth century.
France exemplified Absolutism in all of its greatness and shortcomings. A series of wars, compounded with tensions in political and social structures ushered in Absolutism with the rise of King Henry IV. The increasing debt of the feudal society had also brought the crown into to conflict with a variety of privileged groups and corporations. The triangle of power prior to Absolutism was characterized by preventing the king’s assertion of his financial needs over those of the nobles. Absolutism provided the king with enough power to squash the nobles and unify economic conditions to provide a semblance of stability. This semblance of stability included new fiscal policies of Maximilien de Bethune, duke of Sully, and Henry IV’s chief minister. Sully began the practice of governmental seizure of town’s municipal funds in order to redeem the crown’s own desperate plight. As town would slide into bankruptcy, the government would send personnel to investigate the finances and preside over the liquidation of debts (Parker 67). The prey had to return to its predator for help, as the towns became dependent on the crown for their financial health.
Absolutism reached its height under Louis XIII’s and his first minister Cardinal Richelieu, born Armand Jean Du Plessis. Richelieu continued Sully’s efforts. He liquidated the assets of towns untouched by Sully so that virtually every town in France was indebted to the crown. Richelieu’s prime goal was to assert the power of the crown. Nobles were all but thrown out of the triangle of power, maintained only for aesthetical images of the past. Richelieu also intensified the economic repression. Although very interested in the navy as a way to increase the crown’s revenue, he also regulated the activities of leather crafters, parchment makers, tanners, gold and silversmiths, butchers, masons, and plaster makers. These industries had been subject to added rules and regulations under Sully; however, Richelieu executed further micro-management of them
Unemployment as well as a steady rise in vagabondage and destitution were some of the repercussions of Richelieu’s repressive economic policies. Domestic disputes erupted in towns as protests to excessive taxation. A massive influx of the poor invaded towns, leaving the countryside to seek support against the crown. Richelieu sought to protect his economic policy and urban food supplies by containing the unemployed poor like cattle. He felt that dealing with them any other way would deprive the “deserving poor” of bread (Parker 80). These years of mounting civilian unrest ultimately lead to the Fronde, an civil war from 1648-1653. The overburdening taxes of the peasant class combined with the aristocracy’s desire to regain power in the monarch fueled the Fronde. Its supporters of the Fronde refused to pay taxes as protest to the crown’s abuse of taxation, however, since France’s economic system was so flawed, the protests consequently fell on deaf ears. The economy worsened and the standard of living continued to fall as a result of the Fronde.
The peak of Absolutism emerged after the violence of the Fronde. One of the most important aspects of Louis XIV’s success was his manipulation of the nobles. A powerful and vocal class, the nobles were persuaded against their previous antagonism of the crown. Louis collaborated and cooperated with them to promote the monarchy while still portraying the glory that accompanied a noble title. The triangle of power was still slanted greatly toward Louis, however, he allowed the nobles to live in the illusion that their piece of the triangle was significant.
As the crown intensified its authoritarian rule over the society, the economy reflected this changes in the new “mercantilistic” policy. The policy was generated as a means necessary to control foreign goods. French merchants were continually thwarted by English and Dutch goods. Fear of foreign competition and the need for improved quality control were used to justify and rationalize the tighter control on the economy. Popularized by Jean Baptiste Colbert, controller general of finances under Louis XIV, mercantilism was rooted in four principles: the desire to stimulate output of domestic goods, discriminatory tariffs on imports, limiting domestic consumption by the public, and the development strong army paid with gold and silver from exports (Cantebery 34). These principles, however, had opaquely existed prior Henry IV. Barthelemy de Laffemas, controller general de commerce, was a propagandist of government supervision of every economic activity prior to his royal appointment in 1601 (Parker 73). Guilds were forced by local authorities to increase the recruitment of merchants and craftsmen into an intricate framework of corporate bodies and regulations.
As previously demonstrated, mercantilism is a complex economic and political system. E. Ray Cantebery describes mercantilism in A Brief History of Economics as,
An economic system in which the government manages the economy for the purpose of increasing national wealth and state power. Generally, the focus is inward so that domestic output is stimulated, domestic consumption limited, and a favorable balance of trade (more exports than imports) encouraged.
Earning profits whilst seeking to expand the gold supply leads any knowledgeable economist to assume this policy would result in inflation. Prices would soar because although people had more money at their disposal to purchase goods, the production of those goods remained the same. An increase in the money supply can increase the disposable income society has, however, it cannot increase the rate at which goods and services are produced. Thus prices would consequently increase if there were a greater supply of gold. The pursuit of power that dominated this era that reinforced the association between money and power. An increase in money was correlated to an increase in power. During Absolutism, France used economic policy as the main instrument for procuring power.
France did not have a national bank and to generate gold they relied on taxes, fiscal expedients, and private credit. Consequently, they had no way to regulate the money supply. In today’s economy, the American dollar is regulated by the Federal Reserve. If the money supply is too great, then the Fed will sell government bonds to the public in order to recoup and place those dollars out of circulation. If the Fed wants to increase the money supply, then it will buy government bond with newly printed Federal Reserve notes, dollar bills, and place those in circulation
At any time the Board of Governors can evaluate the economy and decide whether or not to change the money supply (Mankiw 215). Since currency is so dynamic, the board will usually decide to intervene and regulate the supply. A recent example is the Chairperson Alan Greenspan’s February decision to stop cutting interest rates in due to the increasing money supply and heightened economic activity in the last quarter (www.nber.org).
Mercantilism was France’s alternative to a national bank. In order
to increase the gold supply, France exported more manufactured goods and
resources than they imported. To produce all goods and services domestically,
one would conclude that a country would need bountiful natural resources.
France did contain all the factors of production, and interestingly, natural
resources are not necessary for a nation’s growth. The economic success
of modern Japan has been staggering, yet Japan possesses little to no natural
resources. Factors of production include available physical capital,
the stock of equipment and structures used to produce goods and services;
human capital, the knowledge and skills that workers acquire through education,
training, and experience; and technological knowledge, the understanding
of the best ways to produce goods and services (Mankiw 136-137).
Natural resources are important, but not necessary for an economy to be
highly productive.
In theory, mercantilism and Colbert’s application of it have merit.
Ultimately it is simplistic, its goal is to increase the gold supply and
pay off debtors in the meantime. Everything a Frenchman or woman
could want could be found with in its domestic boarders, without any hindering
international tariffs or taxes attached to the good. The plan hinged
on keeping the people ignorant of better goods and services that France
could not replicate. Everything, from lace, metalworking, and art,
could be replicated. Finished products could be obtained from other
countries and “reversed engineered,” that is, the product could be slowly
taken apart by and consequently replicated. The degree to which the
product could be duplicated, however, was the definitive factor of the
success of mercantilism.
Louis XIV and Colbert’s policies were not substantially new yet they marked an era stability and enforcement. The policies were set, enacted, and maintained throughout Louis’s rule. The stability of the standard of living, however low it may have been, was enough to sustain peace. Additionally, Colbert’s motivation to usurp the English and Dutch was not radical either. His comprehensiveness and attention to detail, albeit micro-management, utilized every available technique of governmental intervention. Colbert would be quick to assist any industry that appeared to be threatened by foreign competition. It produced extraordinary short-term results, such as improved quality control and the importation of skilled artists and craftsmen to France from other rival countries. The costs of Colbert’s policies, however, proved to great for the benefits. His extreme rigidity hindered the French economy. In 1666 Colbert stifled the weaving industry through decreeing the fabrics at Chatillon were to contain precisely 1,216 threads; Auxerre and Avalon were to have 1,376 threads, and Dijon and Selangey were to have 1,408 threads. The merchant would be arrested if he violated Colbert’s regulations (Cantebery 36). Mercantilism and corresponding Absolutism were wearing thin on the French and would soon lead to the Revolution.
The issues that preceded the French Revolution involved a struggle between the privileged classes, the clergy and nobility, and the bourgeoisie for control of the government. Shepard Bancroft Clough describes this event in France: A History of National Economics as, “The outcome of the struggle of these two groups was of the greatest import for the development of national economic theories and practices” (Clough 33). The privileged classes were not particularly concerned with the economic well being or economic strength of the nation. They administered public affairs in their own interests and derived their own incomes from the production of their estates. Other economic matters mattered little.
The bourgeoisie, however, cared greatly for the national economic state. Only under favorable economic conditions would goods be consumed and the merchant’s production increased. If the state developed as an economic unit, then merchants could rely on the state for protection against foreign competitors and extend French affairs abroad. The development of the middle class as a governing body would stimulate more economic activity in France. No longer would mercantilism be an acceptable economic policy as the middle class was determined to usher in new economic practices.
The events leading up to the Revolution were varied and combined to make a volatile reaction. The depression between 1787 to 1789 was felt simultaneously by those in agriculture, industry and commerce. Crops were injured by spring frosts, summer droughts, and heavy rains (Clough 34). Due to the increasing price of bread, the purchasing power of urban workers declined—thus the domestic market suffered. Spanish tariffs against French goods, hoarding of money, and English competition all culminated in the Revolution. Borrowing also heavily influenced progression toward the Revolution as the interest on the public debt accounted for more than half of the revenue of the state (Hatton 276). The debt had mounted to 4.5 billion livres, a debt that had triple since Louis XV’s death.
At convention of the Estates General, the middle class condemned Absolutism and despotism. The middle class lobbied successfully and their demands of the state included: that France be made an economic unit; all impediments to commerce with the country be abolished; that French industry be allowed to develop freely by the application of a governmental “hands-off” policy; that the state give subsidies to needy businesses; and that foreign industrial and commercial competition be curbed by protective tariffs and navigation acts (Cantebery 36). The laizzer-faire economic policy, however, did not last long. Preparation for war in 1793 forced the constitutional Convention to support state intervention in business. Nationalism actually prompted the acceptance of this policy and forgo the demands of the Estates General. Before the Convention, Barere exclaimed, “Liberty has become the creditor of all citizens. Some owe her their industry, others their fortune; some their advice, others their arms; all owe her their blood” (Cantebery 48). By serving the national cause, i.e., waging war against other European nations, the French identified as the nation itself.
The vacillation between open and restricted governments in France during the Revolution mimics other oppressive governments. The great Act of Emancipation, which abolished serfdom in 1861, failed to instill the revolutionary change that the peasantry had hoped for. The enclosure movement experienced by Western Europe had yet to reach Russia as communal farms still existed. The peasantry still farmed strips of land, which discouraged the development of agrarian technology (Miller 7). Thus, Russia at the turn of the century, was still far behind the rest of Europe. When the Bolshevik took power in 1917, they inherited a poor economy and under-developed nation. The losses from the civil war and foreign intervention, combined with the state of the nation, led to doctrination of economic policies and destroyed the hope of a market economy.
Similarities between the French and Russian Revolutions included an angered proletarian class, whose reduced purchasing power resulting in a revolution and a new social class. Both the Bolsheviks and French middle class took control of the direction of the nation. However, the French succeeded in producing a relatively open economy, albeit that governmental intervention in private business swung back and forth on an economic pendulum. The Russians never were able to produce an economy that responded to the wants of the workers, that is, to achieve any semblance of an open economy. France through progression of the 19th century and leaders like Napoleon III, was slowly able to evolve into a healthy economic system, while the Russians reverted to a command, Absolutist economy under the guise of Communism.
French history is a fascinating tale, full of extravagance and eccentricity. Truly exemplifying Absolutism, France experienced a difficult transition to a modern nation-state. The transition, though, prompted development of the rest of Europe. Nationalism, liberalism, and laizze-faire economics proved fruitful in producing a modern day Western Europe.
Canterbery, E. Ray A Brief History of Economics: An Artful Approach
to the Dismal Science. Singapore:World
Scientific Publishing Co., 2001.
Clough, Shepard Bancroft. France: A History of National Economics,
1789-1939. New York: Octagon Books, 1964.
Doyle, William. Origins of the French Revolution. New York:
Oxford University Press, 1980.
Hatton, Ragnhild. Louis XIV and Absolutism. Columbus, Ohio:
Ohio State University Press, 1976.
Heywood, Colin. The Development of the French Economy, 1750-1914.
London: Macmillan Press LTD, 1992.
Mankiw, N. Gregory. Brief Principles of Macroeconomics. 2nd
ed. Harvard: Harcourt College Publishers, 2001.
Miller, Margaret. Communist Economy Under Change. London: Andre
Deutsch LTD, 1963.
Parker, David. The Making of French Absolutism. London: Edward
Arnold LTD, 1983.
Price, Roger. An Economic History of Modern France, 1730-1914.
New York: St. Martin’s Press, 1981.
Wallerstein, Immanuel. Unthinking Social Science: The Limits of
Nineteenth-Century Paradigms. Philadelphia:
Temple University Press, 2001.
National
Bureau of Economic Research The NBER is a private, nonprofit,
nonpartisan research organization dedicated to
promoting a greater understanding of how the economy works.
The Dismal Scientist Powered by Economy.com, this site provides economic forecasts and commentary.
Bill
Goffe's Resources for Economics on the Internet
This site lists 1,265 resources in 74 sections and
sub-sections available on the Internet of interest to academic and
practicing economists, and those interested
in economics.
EDIRC: Economics Departments, Institutes and Research Centers in the World
Federal
Reserve Economic Data (FRED) FRED provides consumers, students,
economists and financial institutions around the world with economic and
financial information in an easy-to-use format. FRED® provides historical
U.S. economic and financial data, including daily U.S. interest rates,
monetary and business indicators, exchange rates, balance of payments and
regional economic data.
Site Created by: Adrienne Perry