Deflation Made Simple II

The Story of Real Money (Entry 181)

In his 1863 work entitled Histoire de Louvois Camille Rousset described the death of Jean-Baptiste Colbert as follows:

“Suspect au roi, calomnié par ses ennemis, — insulté par la populace, Colbert mourut le 6 septembre 1683. Cette mort, qui était un malheur public, fut à peine pleurée par quelques-uns; beaucoup s’en réjouirent; la foule y demeura surtout indifférente.”

In translation from French to English

“Held in suspicion by the king and slandered by his enemies — insulted by the general public, Colbert died on September 6, 1683. His death, a public bane that brought few tears to few people. Many rejoiced, in fact, and the masses were above all indifferent.”

It is difficult to understand how Rousset differentiated between the insulting general public (la populace) and the indifferent masses (la foule). Perhaps he was seeking to distinguish between an informed French public who took an avid interest in the affairs of state and those who cared little, or not at all, about matters over which they believed themselves to be completely impotent. No matter. It is a tragedy that men of such high-caliber as Jean-Baptiste Colbert are so easily brought into disrepute by those who would abuse the power of the public purse for their own selfish ends.

James Madison, Thomas Jefferson’s successor in the Oval Office and 4th President of the United States of America, once wrote:

“If men were angels, no government would be necessary. If angels were to govern men, neither external nor internal controls on government would be necessary. In framing a government which is to be administered by men over men, the great difficulty lies in this: You must first enable the government to control the governed; and in the next place, oblige it to control itself. A dependence on the people is no doubt the primary control on the government; but experience has taught mankind the necessity of auxiliary precautions.”

Federalist Papers, No. 51, February 6, 1788

Whether the public purse is controlled by a king, a parliament, or a congress, what fills the purse is the labor of the people — be they subjects or citizens. In the American tradition it is not wealth collected for the consumption of the few at the expense of the many; rather, it is wealth collected for the purpose of defending the wealth of the many no matter — and, more recently despite — the few who occupy the offices of the state. It is for this reason that those who manage the purse well should be given the highest praise. Reckless spending that excites should be the private pleasure of the gambling individual, not the prerogative of any head of state and his officers. And, those who keep such heads-of-state — be they a monarch, a parliament, a Congress, or similarly assembled body — in tow should be lauded for their strictness, not denigrated.

Upon his death the administration of Jean-Baptiste Colbert was principally divided among three individuals including Le Marquis de Seignelay (Jean-Baptiste, Jr.) and Louvois, whom we have already discussed in brief, and Claude le Peletier (1631-1711) who assumed the role of Contrôleur général des finances in 1683.

Between 1683 and 1689 there were no wars of significance, and military expenditures were modest. This said, by 1685 the French budget had gone from an average surplus of 2 million livres before 1683 to a deficit of 9 million livres per annum — this despite an increase in the dreaded tailles (a head tax) imposed on the French peasantry amounting to 3 million livres per annum.

During the five years that Claude le Pelletier remained in office total expenditures exceeded gross receipts by some 82 million livres — a per annum average deficit of 16.4 million livres. Not only had royal operating expenditure increased during this period, but gross revenue had receded. Although critical of Jean-Baptiste Colbert, Le Peletier did little to change the general outlines of the financial regime that Jean-Baptiste had put into place. Simply he was lax in its management.

By 1689 the royal treasury was empty, and the demands of war were already becoming substantial. William III of the United Provinces, along with his English wife Mary II, had just assumed the throne of England. Assembling a more than 300,000-man French army against this new adversary was not cheap — neither to recruit, nor sustain.

Overwhelmed by his responsibilities Le Peletier ceded his post in 1689 to a former intendant des finances named Louis Phélypeaux de Pontchartrain (1643-1727) who dismantled the former, now dilapidated, Colbert administration altogether.

Le marquis de Seignelay died in 1690 at the young age of 39, and De Pontchartrain assumed control of the French marine, as well as the administration of the kingdom’s colonies, all of its external commerce, France’s overseas diplomatic presence, and the royal dwellings in Paris. In 1691 — with the death of Louvois le Tellier — De Pontchartrain also became Le surintendant des bâtiments, arts et manufactures less that of construction (bâtiments) that went to another. Maybe the king was taking showers!

Indeed, by the close of 1691 — already more than two years into the Nine Years War (1688-1697) — De Pontchartrain had become nearly as powerful as Jean-Baptiste Colbert at his death in 1683. It appears that Louis XIV had finally realized that something had changed with the passage of both Colberts, that the finances of the French monarchy were in trouble, and that someone was needed to replace the Colbert legacy. Unfortunately, De Pontchartrain was not that individual.

During De Pontchartrain’s approximately eleven years in office net revenue amounted to 795 millions livres. Unfortunately, the Nine Years War alone cost 1,580 million livres. De Pontchartrain had run an average per annum deficit of more than 71 million livres! In order to fund this mammoth ever accruing debt De Ponchartrain did what every desperate government does in the absence of money-ex-nihilo and in the throes of war; he borrowed and debased.

In the midst of war many a French aristocrat was willing to come to the king’s aid, but each with the idea that he would be rewarded in the future for his sacrifice in the present. Indeed, no merchant-banker ever became wealthy through consumption, one became wealthy then, as one becomes wealthy now, through investment. Once again, however, let us be reminded that wealth-generating assets funded with money-in-use in its purest form, are not the same as investment in money-generating assets funded with money-ad-prodigo. Whereas the former tends to increase the real wealth of society to the benefit of everyone, the latter generally decreases real wealth overall and tends to benefit only those who make the investment and those who participate in the expenditure.

Unfortunately, De Pontchartrain did not invest what he raised in the form of money-ad-prodigo in wealth-generating assets, rather the king consumed it in the destructive pursuit of war. Furthermore, De Pontchartrain’s ressources extraordinaires — his source of funding for the king’s affaires extraordinaires — included much more than borrowed money. De Pontchartrain had reverted back to the pre-Colbert era of Cardinal Richelieu and Cardinal Mazarin who allowed their king to fund many of his short-term expenses with the sale of long-term, rent-consuming positions occupied by La noblesse de robe. So massive was the comeback of the paulette (Entries 167 and 172) that De Pontchartrain once remarked to His Majesty, Louis XIV,

“Toutes les fois que Votre Majesté crée un office, Dieu crée un sot pour l’acheter.”

In translation from French to English

Each time that you create a new office, Your Majesty, God creates for you a fool to buy it.

Just who was the real sot (pronounced sō, meaning fool) in this statement, anyway? Was it the king who was flouting good common sense, or the vanity of those who sought the offices — often real, more often only titular, in all cases prestigious? La paulette was a short-term fix for a long-term problem — namely, a steady rise in the demand for new public revenue as wealth-generating assets were diverted from real wealth production into war.

In time it became clear that the monarchy could not make good on what it had borrowed, and its ability to borrow began to ebb. Whereupon De Pontchartrain did what most every failed financial officer has done before him; he destroyed the French money supply.

In liberty, or not at all,
Roddy A. Stegemann, First Hill, Seattle 98104