‘The most difficult financial matter that has ever presented itself’: paper money and the financing of warfare under Louis XIV

Abstract

Based on an extensive survey of French primary sources and a discussion of the recent literature on fiscal policy in France and Europe during Louis XIV's wars, this article revisits the rationale behind the first experiment with paper money undertaken by finance minister Michel Chamillart, comparing it to other belligerents’ strategies, in particular England's, to adjust their monetary regime to the challenges of funding long wars of attrition. The article shows how concerns about economic activity, coinage and the need to finance the war deficit led to a series of debasements of the French currency, the establishment of a bank in the form of aCaisse des empruntsand the introduction of mint bills, which became legal tender and caused the first experience of fiat money inflation in history. Whereas Chamillart's personal shortcomings have been recently suggested as the cause of Louis XIV's humbling in the War of the Spanish Succession, I argue on the contrary that the introduction of paper money in 1704 was key to the capacity of France to sustain its military effort, but that a succession of military defeats against a more powerful coalition led to inflation. I also argue that the introduction of paper money saved theCaisse des empruntsand its bonds which helped sustain the war effort up until the peace. By situating the use of paper money within the broader question of the exercise of power in the absolute monarchy, this article examines the formation of fiscal policy, paying attention to the ways in which government sought advice from experts. It concludes by calling for further studies on policy- and decision-making under Louis XIV.

Credit, confidence and the circulation of Exchequer bills in the early financial revolution

“…The Treasury also employed a number of informal measures. Some bore little resemblance to the open and transparent methods to be expected of a democratic state, and instead more closely resembled practices used by absolutist monarchies such as France to maintain the credit of their unreliable financial instruments (Rowlands 2012, 2014; Felix 2018, pp. 43–70).…”

Surge, retraction and prices: the performance of fiat coins in Sweden, c. 1715–1720

“…373–9; Bonney 2001; Rowlands 2012, pp. 108–27; Kleer 2015; Félix 2018). In the literature on paper money systems, the focus has mainly been on the overall increases of liquidity and the impact on prices and exchange rates.…”