Prophetic Intimations; J. Chamberlain

PROPHETIC INTIMA TIONS IT IS THE TEST of an enduring classic that it has the ability to maintain an underground life during periods when its spirit or its morality or its lesson is not in fashion. Andrew Dickson White's Fiat Money Inflation in France, which has just been republished again by the Foundation for Economic Education with an introduc tion by Henry Hazlitt (128 pp. $1.25 paper; $2.00 cloth), is such a classic. Both its spirit and its morality are old fashioned, and its lesson (though inexorable) has been honored more in the breach than in the observance. But it has always come back, a source of indisputable fact and wisdom for the discerning. This time the repUblication of Fiat Money Inflation in France, with its many prophetic intimations, prom ises to have a major impact. The battle for and against inflation rages in Washington, with the tide seemingly running strongly against the stalwart few who object to the notion that governments are instituted among Mr. Chamberlain, critic, journalist, and editor, has written a num ber of books and innumerable reviews as well as articles for news papers and magazines. This is one of his regular monthly reviews for THE FREEMAN.

382 PROPHETIC INTIMATIONS 383 men to serve as grabbags. In the country at large, how ever, the whole rigmarole of "social democratic" eco nomics (interventionism, Keynesian spending, the sacri fice of all other values to the fetish of full employment) commands less intellectual prestige than it did a few years back. And in Europe, where the social democratic ideas have raged through country after country like a plague, a real libertarian revival seems to be taking place in government itself. As is generally known, the ideas of Mont Pelerin Society libertarian professors have been dominant in West Germany for almost a decade. More recently these ideas have crossed the Rhine: Charles de Gaulle has been taking his economic cues from Mont-Pelerinian Jacques Rueff, whose program calls for a stabilized and convertible currency, a bal anced budget, fewer subsidies, and a relaxation of trade controls-in short, an end to inflation itself.

The "movement of ideas," then, should guarantee a more willing acceptance of certain deductions drawn by Henry l-Iazlitt from White's pungent historical essay. The usual argument for inflation is that it favors the debtor classes, who are usually thought of as the poor. But Mr. Hazlitt, drawing upon White's facts and rein terpreting them to fit the contemporary United States, notes that it is the rich who are ordinarily the chief debtors in any advanced economic society. Says Mr. Haz litt: "In the United States today the chief debtors are the stockholders of the corporations .... The creditors include the holders of life insurance policies, and of 384 JOHN CHAMBERLAIN government bonds, large and small. ..." Whom, then, does inflation help? And whom does it hurt? As Mr. Hazlitt says, "A poor man never gets to be a big. debtor." The only way. the poor man can protect himself against inflation in our modern society is to belong to a union which has a monopolistic position.

In French Revolutionary .times there were no such unions, which meant that the fiat money inflation bore down most heavily on the very people whom the revo lutionists professed to serve. But even today most work ers aren't in a position to get the "cost of living" in creases that are becoming standard items in the "pack ages" demanded by the few big unions. Inflation, in the modern United States, helps an aristocracy of labor; it bears down cruelly on a vast host of workers who either do their own individual bargaining or operate on a con tract basis for themselves. Andrew Dickson White Andrew Dickson White was a professor of history, an educator, and a diplomat; he helped to establish Cor nell University in New York State, and he led a famous campaign for the "equality of studies" in the post-Civil War era. His educational ideas, carried to excess, have done some harm, for they have led to the absurdity of giving college degrees for taking courses in flycasting, beekeeping, and home economics. When White was fighting against the primacy of Latin and Greek, how ever, it was the basic theoretical underpinning of sciPROPHETIC INTIMATIONS 385 ence itself that was being left out of account. To White, it seemed senseless to regard a Latin scholar as the social superior of the chemist, the civil engineer, or the econ omist. Something had to be done to bring the post-Civil War university abreast of the modern world; hence, White, a realist, accepted the challenge.

As a historian, he looked for uniformities of experi ence that might be formulated as natural law. When he was president of Cornell, the whole American West was seething with inflationary ideas. There was Greenback ism; there were the Free Silverites. William Graham Sum ner's History of the American Currency was replete with grisly instances of the workings of Gresham's Law when ever the effort was made in the United States to build prosperity on irredeemable paper. Because of the safety valve of the American frontier, however, the full force of inflation had never been felt on these shores. There was always a new horizon for the indigent, the tempo rarily ruined, or the immigrant without a stake. To uncover the workings of ~he natural law of infla tion, White, in a paper read before the Union League Club of New York in 1876, went back to the French Revo lutionary experience with the assignats and the mandats, paper money based on the properties which had been seized by the "peoples'" State from the Church or for feited by emigres. The leaders of the French National Assembly thought they were being inordinately clever in making their first issue of paper money a mortgage on "a landed domain vastly greater than the entire is sue." And, since land acquired for paper money could 386 JOHN CHAMBERLAIN be held for an indefinite period pending the return of financial probity, or sold on the market for solid cash, the dodge might have worked if the national authori ties had had the good sense to refrain from repeating it.

Within five months of the first issue,· however, the new Revolutionary regime succumbed to temptation and is sued a second batch of. paper livres. In the following year-1791-the inflationary debauch was on. Good men~the economist Du Pont de Nemours and the brilliant cook, Brillat-Savarin, were among them warned against any issue of paper money. Other good men-Mirabeau, Talleyrand-thought a little inflation, just a very little, might be a good thing. But when Tal leyrand argued that the effect of a second issue of as signats might be different from that of a first, he was overruled by an Assembly that had tasted blood. White, in the course of a wonderfully animated narrative, notes a "law of acceleration" that seemed to be at work as one inflationary issue of assignats followed another. When prices went out of whack with the inevitable de preciation of the circulating medium, the extremists in the Assembly took over. Naturally, they turned to force.

Price-fixing-the notorious Law· of the Maximum-was invoked in 1793. Then rationing was added. To make sure the merchants obeyed the Law of the Maximum, a spy system was organized. The death penalty was pre scribed for anyone who refused to accept payment in assignats, or for anyone who violated the Maximum laws. With the guillotine poised above the throats of virPROPHETIC INTIMATIONS 387 tually all shopkeepers, farmers, and manufacturers, it is scant cause for wonder that the people· of France ceased more and more to do any business whatsoever. It was much safer to go on relief-even though the bread dis tributed by the authorities was sometimes indigestible. Speculators, however, knew how to protect themselves. With a great show of virtue they willingly did business, buying up land and goods for vast amounts of worth less paper. Meanwhile, they bribed the legislators and dressed their wives in vulgar finery as the tone of "so ciety" became more and more raffish. The speculators "unloaded" their paper on the people before prostra tion set in.

Inflation, as Mr. Hazlitt points out, is always followed -in the end-by a "stabilization crisis." In the France of 1799, the "stabilization crisis" produced Napoleon, a dictator. When the dictator refused to have any more traffic with assignats or mandats, France began a long and painful convalescence. Along with the dictator the French people got fifteen years of debilitating warfare, a vast blood-letting carried out in the name of la gloire. And all because, in 1790, a few men had decided that a little nip of inflation might be a good thing. Many Contributing Factors There were many other elements, of course, that fed the flames of the French Revolution. First of all, there was the theory that all the people of a nation must be bound in all matters by the "general will" (meaning a 51 per 388 JOHN CHAMBERLAIN cent vote) . Secondly, there were the linked "scientistic" ideas that man is perfectible and that the State can be the instrument of making his perfection a reality. Third ly, there was what Frank Chodorov has called the opera tion of the Law of Parsimony-meaning that a steadily increasing number of people will cease to work for a living in any State that is philosophically committed to supporting its citizens. Inasmuch as the French Revolu tionary theorists believed what they believed, the infla tion was probably an inevitable by-product of a general state of mind. But this does not invalidate White's essay in the least. White does not say that inflation "caused"

the excesses of the Revolution. He does indicate that it helped to intensify and prolong the excesses. And that is quite enough.