Assignat¶

The assignat was a form of paper currency issued by Revolutionary France from 1789 to 1796, representing one of history's most dramatic episodes of currency debasement and hyperinflation. Initially conceived as interest-bearing bonds backed by confiscated church lands, assignats evolved into legal tender currency and were ultimately printed in such quantities that they lost virtually all value, contributing to the economic chaos and political radicalization of the French Revolution.

Origins and Initial Design¶

The assignat emerged from the fiscal crisis that precipitated the French Revolution. The royal government faced bankruptcy, unable to service its debts or maintain basic functions. In 1789, the revolutionary National Assembly confiscated vast estates owned by the Catholic Church—roughly 10% of French land—and issued assignats as bonds backed by this property. Holders could redeem assignats for land purchases at auction.

This initial design contained a self-limiting mechanism: as assignats were used to purchase land, they would be retired from circulation, preventing monetary expansion. The scheme appeared to solve France's fiscal crisis without creating inflation, since the total value of assignats could not exceed the value of confiscated lands.

Transformation into Currency¶

The revolutionary government soon abandoned this disciplined approach. Facing enormous expenses—suppressing internal dissent, fighting foreign wars, funding the new bureaucracy—and lacking effective taxation, the Assembly declared assignats legal tender in 1790 and began printing them not as redeemable bonds but as ordinary paper currency.

This transformation removed the constraint on quantity. Assignats were no longer limited by the value of available land but could be printed in whatever amounts the government desired. The seigniorage proved irresistible: each new printing provided immediate revenue without the political difficulty of taxation. The volume of assignats in circulation expanded rapidly, from 400 million livres in 1790 to over 45 billion by 1796.

Hyperinflation and Economic Collapse¶

Predictably, assignats' purchasing power collapsed. By 1795, they had lost more than 99% of their original value. Prices denominated in assignats rose exponentially while prices in gold or silver remained relatively stable—demonstrating that the inflation resulted from monetary expansion, not general scarcity.

The government responded to rising prices with increasingly coercive measures. Price controls (the "Law of the Maximum") were imposed in 1793, making it illegal to sell goods above fixed prices. Hoarding was declared a capital offense. Merchants accused of speculation faced the guillotine. These measures failed to stop the hyperinflation and instead created severe shortages as producers refused to sell at artificially low prices or went underground.

The assignat hyperinflation destroyed France's middle class. Savings, life insurance, annuities, and bonds denominated in assignats became worthless. Creditors who had lent money in good faith received repayment in valueless paper. Meanwhile, debtors benefited enormously, able to discharge obligations with worthless currency.

This massive wealth transfer contributed to social upheaval and political radicalization. The economic chaos helped legitimize increasingly authoritarian measures during the Terror. The assignat episode demonstrates how monetary collapse facilitates political extremism and violence.

Manifestation of Gresham's Law¶

The assignat period clearly illustrated Gresham's Law: as assignats depreciated, precious metals disappeared from circulation despite government edicts requiring acceptance of assignats at face value. Gold and silver were hoarded, exported, or used only in black market transactions. The debased assignat drove sound money out of official commerce, leaving only worthless paper in ordinary circulation.

Eventually, the law's limitations became apparent. When the assignat became sufficiently debased, people refused to accept it even at legal penalty. "Reverse Gresham's Law" operated: the bad money became so bad that good money (gold and silver) drove it out, as people increasingly rejected assignats in favor of anything else.

Collapse and Replacement¶

By 1796, the assignat was effectively defunct. The government attempted one final substitution, introducing the "mandat territorial," similarly backed by national lands. This new currency hyperinflated even faster than the assignat, losing most of its value within months. Finally, France returned to a metallic currency basis, though it took decades for full monetary confidence to be restored.

The assignat episode left deep scars on French economic and political culture. The memory of hyperinflation influenced French monetary policy for generations, creating skepticism toward paper currency and reinforcing preference for gold-backed money.

Lessons and Historical Significance¶

The assignat definitively refutes the notion that paper currency backed by "real assets" prevents debasement. The assignats were initially backed by valuable land, yet this backing proved meaningless once the government began printing without limit. The lesson: backing matters only if it imposes a binding constraint on issuance. Once authorities can print at will, any backing becomes theoretical rather than practical.

The assignat also demonstrates the political economy of debasement. Even as the hyperinflation became undeniable, the government continued printing because it had no alternative revenue source and faced immediate political crises. Short-term survival overrode long-term stability—a pattern repeated in many subsequent hyperinflations.

Contemporary Relevance¶

Parallels exist between the assignat episode and modern monetary practices, particularly the backing of fiat currencies by government bonds or other financial assets. Like the assignat's land backing, such arrangements provide no real constraint on money creation if the backing assets can be created, purchased, or valued arbitrarily by the issuing authority.

The assignat stands as history's cautionary tale about paper currency, government finance, and the temptations of seigniorage. Its collapse demonstrated that no amount of legal compulsion can maintain a currency's value once monetary expansion destroys confidence—a lesson relevant to any era of fiat money.