April 11. The Art of Contrary Thinking
Attached are 2 pages from The Art of Contrary Thinking, a book published in 1954. I happened to see a reference to it, and bought a used copy on Amazon (power of technology). As I started I found it quite dated, but the two pages (which I copied in attachment and quote below) are quite interesting, which cite economic malaise in France in 1789:
“Early in the year 1789,” writes Andrew D. White in his classic monograph, “the French nation found itself in deep financial embarrassment: there was a heavy debt and a serious deficit.”
In France the hard way had no appeal. There was a general search for some short road to prosperity, White tells us, and “ere long the idea was set afloat that the great want of the country was for more of the circulating medium [today throughout the world, it is for more dollars] and this was followed by calls for an issue of paper.” [expand the Central Bank balance sheet]
The great Mirabeau, you remember, tried by the strength of his oratory to stop the fiendish schemes of Marat, who wished to issue paper money backed by the lands of the Church. Mirabeau lifted his voice in the National Assembly against the wicked idea of issuing four hundred million assignats unsupported by specie—but to no avail. [the original QE1]
The immediate result of the paper money stimulant was, of course, successful. For a brief time, business picked up and people were happy. France rejoiced at the brilliant plan.
Bootstrap economics never works for long, however. Within a short five months the money was gone and “the gov’t was in distress again.” You know the sequel. After lengthy debates wise counsel went for naught. On the 29th of Sept, 1790, the Assembly voted by a large majority to issue more assignats—this time doubling the amount to eight hundred million. [QE2, 221 years later]
The false illusion that inflation is prosperity swept through France.
There was no stopping the orgy. Issue followed issue as the paper money quickly lost its value. Soon, drastic laws were instituted to save the day. Landed estates were confiscated. Price control was tried—the “Law of the Maximum.”
“New issues only increased the evil,” White explains…”but no relief resulted save a monetary stimulus, which aggravated the disease.
“At last came the collapse and a return, by a fearful shock, to a state of things which presented something like certainty of remuneration to capital and labor. Then, and not till then, came a new era of prosperity.”
This sounds awfully similar, in my opinion, to the current example of QE1 and QE2, and the resultant expansion of the Fed’s balance sheet…221 years later.
