Assignats: The Revolutionary Paper Money
The Revolutionary Crisis and a Desperate Idea
In 1789, the newly formed French National Assembly faced a monumental problem. The government of King Louis XVI was bankrupt. Decades of expensive wars, including helping finance the American Revolution, and a flawed tax system had left the treasury empty. The public debt was enormous, and confidence in the old financial system had collapsed. The Revolution needed funds to operate, pay its soldiers, and implement its ideals. Selling off the vast land holdings of the Catholic Church, which comprised about 10% of France's territory, seemed like the perfect solution. But there was a catch: these lands could not be sold instantly.
The brilliant, yet ultimately disastrous, idea was to create a new form of money: the assignat. The government would seize the church lands, appraise their value, and then issue paper notes (assignats) that represented a claim on this land. The notes would be used to pay the state's immediate bills. Later, when citizens wanted to buy the land, they would use the assignats as payment, and the notes would be destroyed. In theory, this was a secure, asset-backed currency. The total value of assignats in circulation would never exceed the value of the land for sale. This is a key concept in economics: backing a currency with a tangible asset to give it value and maintain public trust.
From Land-Backed Bonds to Unbacked Paper Money
Initially, the plan worked as intended. The first assignats in 1789 were large-denomination, interest-bearing bonds, intended for investors and land buyers. They were a success, restoring some financial stability. However, the temptation was too great. In 1790, the Assembly made a fateful decision: it declared the assignats to be France's official paper currency. They were no longer just bonds for land purchase but legal tender for all debts, public and private. The interest payments were removed, and smaller denominations were printed so that ordinary people could use them for daily transactions.
This shift marked a critical change. The assignat began its transformation from an asset-backed security into fiat money—currency that a government declares to be legal tender but is not backed by a physical commodity. Its value now depended less on the promise of land and more on the public's faith in the revolutionary government and its promise to eventually redeem them.
| Phase | Date | Nature of the Assignat | Economic Impact |
|---|---|---|---|
| Initial Bond | Dec 1789 | Large-denomination, interest-bearing bond secured by church land. | Restored some confidence, provided capital for government. |
| Official Currency | Apr 1790 | Declared legal tender. Small notes printed for daily use. | Began circulation as everyday money; link to land weakened. |
| Mass Printing | 1791-1795 | Government printed more and more to fund wars and expenses. | Severe inflation. Value of assignat plummeted rapidly. |
| Collapse & Replacement | Feb 1797 | Assignats demonetized (declared worthless) and burned. | Financial ruin for many. Replaced by a new, hard currency. |
The Spiral of Printing and Hyperinflation
The revolutionary government soon discovered that printing money was an easy way to pay for its escalating costs: funding a war against multiple European monarchies, suppressing internal revolts, and financing new social programs. Each crisis was met with a new issue of assignats. The original limit based on land value was ignored. The total face value of assignats in circulation exploded.
This led to hyperinflation1. The basic economic principle at work is the Quantity Theory of Money. A simplified version can be expressed as:
$ MV = PT $
Where:
$ M $ = Money Supply (number of assignats)
$ V $ = Velocity of Money (how fast they change hands)
$ P $ = Price Level
$ T $ = Volume of Transactions (goods/services)
If the amount of money ($ M $) increases dramatically (mass printing) while the production of goods ($ T $) stays relatively stable, then prices ($ P $) must rise. As people lost faith in the assignats, they tried to spend them as fast as possible ($ V $ increased), which made prices rise even faster. A vicious cycle began.
Prices for basic necessities like bread, meat, and firewood skyrocketed. Wages did not keep up. People needed wheelbarrows full of assignats to buy a loaf of bread. The currency became a joke. By 1795, the assignat had lost over 99% of its original value.
A Classroom Experiment: The Chocolate Bar Economy
Let's understand this with a simple classroom example. Imagine your teacher brings 10 delicious chocolate bars to class one day. To facilitate trade, the teacher prints 10 "Class Bucks," each representing a claim on one chocolate bar. The system works perfectly: 1 Class Buck = 1 Chocolate Bar.
Now, the teacher needs to pay for a new poster. Instead of using real money, she prints 10 more Class Bucks and uses them. There are now 20 Bucks chasing only 10 chocolate bars. Students sense the Bucks are less valuable. The price naturally rises to 2 Bucks per bar. If the teacher keeps printing Bucks for every new expense, their value will quickly approach zero. No one will want them. This is exactly what happened with the assignats: the "chocolate bars" were the national wealth (land, goods), and the government kept printing more "Class Bucks."
Important Questions
A: No, they were not. China had paper money centuries earlier, and other European countries had experimented with it. However, the assignat episode was one of history's first and most dramatic large-scale experiments with fiat paper currency issued by a national government. Its spectacular failure became a textbook case for economists studying inflation.
A: Yes, some groups did benefit, at least in the short term. Debtors, including the government itself and farmers with mortgages, could pay off their debts with nearly worthless money. Land speculators who bought church lands early with valuable assignats got a great deal. The biggest losers were savers, creditors, and anyone on a fixed income, like pensioners or workers whose wages lagged behind prices. Their life savings and purchasing power were wiped out.
A: The core lesson is that the value of money is based primarily on scarcity and trust. If a government prints too much money without increasing the supply of goods and services, it destroys that money's value. Trust is fragile; once people believe their money is losing value, they will quickly spend it, accelerating inflation. A currency must be managed responsibly to maintain its function as a reliable store of value and medium of exchange.
Conclusion
Footnote
1 Hyperinflation: An extremely rapid and out-of-control rise in prices, typically defined as a monthly inflation rate exceeding 50%. It renders a currency virtually worthless and leads to a collapse in its normal use for transactions.
Fiat Money: Currency that has value because a government decree (fiat) has established it as legal tender. It is not backed by a physical commodity like gold or silver. Modern banknotes, like the US dollar or the Euro, are fiat money.
Legal Tender: Money that must be accepted if offered in payment of a debt. By declaring assignats legal tender, the French government forced creditors to accept them, even as their value fell.