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Everybody knows
that New Orleans was founded by the French. But the area where we stand in
Alabama also used to be part of the French North American empire in the 18th
century. Not far from here, north of Montgomery, was a military fort called
Fort Toulouse. The French controlled one third of the continent at the time.
The reason why
I have to deliver this presentation in English today, however, is of course
that the French lost most of their empire in 1763, at the end of the Seven
Years' War — or what Americans call the French and Indian War.
The French were
great explorers but, as the saying goes, their empire was a giant with clay
feet. Although France was by far the largest country in Europe — it had
20 million inhabitants in 1700, compared with six million for England and
Wales — it sent very few settlers across the Atlantic. Most of the ten
million or so French Canadians who live in Canada and the United States today
are descendants of only some 10,000 settlers who stayed on this continent.
Huguenots were
forbidden to settle in the colony and hundreds of thousands went elsewhere in
Europe and North America instead. But the main reason why so few Frenchmen
crossed the Atlantic is that there was not much to do in Canada — not
because of the weather, to which colonists quickly adapted, but because of
the abysmally stupid French economic policy.
Mercantilism
was of course the official doctrine in France, just like in England. The
colony was seen as a source of raw materials for the benefit of the mother
country. The fur trade with the Indians was its main economic activity. This
could have allowed colonists to accumulate some capital to develop other
activities. But during most of the period, it was in the hands of a monopoly,
and profits went to France instead of being reinvested in Canada.
There weren't
many opportunities for investments anyway. There was very little that could
be profitably produced in Canada. Apart from small-scale crafts,
manufacturing was forbidden when it would bring competition to metropolitan
producers. The prices of various goods were controlled. And silliest of all,
trade with the neighbors— the English colonies to the south — was forbidden, although
contraband was widespread.
One thing the
French managed particularly badly was money. Until the 1660s, when there were
still only about 3,000 French settlers in the St. Lawrence Valley, economic
exchange in the colony took place primarily by barter. Beaver pelts
constituted the most commonly traded commodity, but other types of pelts, as
well as liquor, served as alternative media of exchange. Religious orders
brought some money to the colony, and once a year, the King would send a
large sum to pay for the administration and the soldiers stationed in the
colony. Most of that money was paid to metropolitan merchants for imported
goods and brought back to France.
The government
started manipulating the money in 1661, by ordaining that the value of
currencies circulating in Canada should be 25% higher than their nominal
values in France. This was designed to induce currency imports, favor the monetization of economic exchange and integrate
colonial economic activity with that of the mother country. But of course the
revaluation had its perverse effects. It led to an inflow of poor quality
French coins containing a large proportion of copper, while merchants only
accepted gold and silver coins as payment. By most accounts, the price level
in Canada gradually increased to accommodate the revaluation so that the
purchasing power of metropolitan currency was unchanged in the long run.
In his History of Money and Banking in the
United States, Murray Rothbard writes
that apart from medieval China, the world had never seen government paper
money until the colonial government of Massachusetts emitted a fiat paper
issue in 1690. In
a footnote however, he explains that the only exception was a curious form of
paper money issued five years earlier in Quebec, which became known as
"card money."
You won't be
surprised to learn that war and protectionism had something to do with the
appearance of paper money, in both New France and Massachusetts. To simplify
a bit, the two empires were then vying for control of the Great Lakes area,
which at the time was the new frontier of the fur trade. The Dutch and
English merchants in Albany, New York, were able to offer a higher price than
the French for the pelts and were attracting some of the Indian allies of the
French, as well as French adventurers who were selling fur in contraband.
They were also arming their Iroquois allies and encouraging them to attack
French parties and their Indian allies.
The French were
constantly at war with the Iroquois. In 1684, new soldiers had arrived from
France for another campaign against them. However, in the fall of that year,
the annual appropriations failed to arrive. The intendant of the colony,
Jacques de Meulles, had no funds to pay colonial
officials and troops. (The intendant was what could be called the top
bureaucrat in the colony, second only to the governor who represented the
king.)
In June 1685,
he decided to issue his own credit notes. Because good paper was rare, he
collected the playing cards in the colony and, with his seal and signature,
issued them in various denominations as paper money. By an ordinance, the
cards became legal tender and merchants had to accept them.
It is perhaps
just a coincidence, but it is certainly fitting that inflationary paper
money, which is often called "funny money," appeared on this
continent as playing cards with a bureaucrat's signature on them. At first
however, the issue of card money was not inflationary. The cards were backed
by funds that were supposed to arrive from France, and were fully redeemed
when those funds arrived. From the point of view of the authorities, they
also had the advantage of being worth nothing to New Yorkers and New
Englanders. They could not be used for trade and did not contribute to any
outflow of currency — trade and currency outflow of course being bad
from a mercantilist perspective.
 
Five years
later, the French and the English were again at war with each other. In 1689,
during the Glorious Revolution, William of Orange had acceded to the English
throne, and James II had fled to France. In North America, there were raiding
parties on both sides of the border and major invasion plans were drawn up. A
French plan to invade the city of New York and deport its population never materialized.
But in the summer of 1690,
a flotilla of 32 ships with 2000 men left Boston,
while 2500 English soldiers and Indian fighters left on foot to invade the
St. Lawrence Valley. Fortunately for my ancestors, bad weather, luck and an
epidemic of smallpox among the troops saved New France.
The English had
to return to Boston without any booty. Soldiers were grumbling for their pay
and there was fear of a mutiny. The Massachusetts government tried without
success to borrow from Boston merchants. In December 1690, it decided to
print £7,000 in paper notes and, as Rothbard
explains, pledged "that it would redeem them in gold or silver out of
tax revenue in a few years and that absolutely no further paper notes would
be issued. Characteristically, however, both parts of the pledge went quickly
by the board: The issue limit disappeared in a few months, and all the bills
continued unredeemed for nearly 40 years." Massachusetts would again
issue massive amounts of paper money after another failed expedition against
Quebec in 1711.
As might be
expected, in Canada too, the intendant got into the habit of issuing card
money. As confidence in the new money grew, the population began to regard it
as a stable asset and to retain a proportion instead of redeeming their
entire holdings every year. But instead of keeping currency reserves to cover
the card money still in circulation, colonial authorities increased their
spending. They also started to issue card money in excess of the French
government's annual appropriation. The cards were very useful but prices
started increasing as people realized that there were more and more of them
in circulation.
In the early
1700s, the War of the Spanish Succession extended to the French and English
colonies in North America. Military spending rose continuously and the growth
in the supply of card money far outstripped that of the colonial budget. In
1705, the French Crown refused to redeem all of the card money presented to
it, which amounted to a devaluation. The colonial
authorities responded by creating more. Inflation was running rampant and the
colonial economy was in disarray. In 1714, the Crown decided to get rid of
this system and to buy back the cards at half their face value.
For some years,
the monetary situation reverted to what it had been before 1685. Various
attempts were made to provide the colony with a stable currency, which only
ended up creating more confusion. In 1729, a new issue of card money was made. By
this time however, it wasn't the only form of paper money, nor the most
important. The government started issuing promissory notes, which were
redeemable by a bill of exchange on the Naval Treasury, in outlying regions
where currency and even card money was in short supply. Unlike card money,
they could be issued by any number of military officers and control of their
supply lay beyond both the intendant and the metropolitan government. The
inflation thus created amounted to a tax to finance military expenditures.
(Robert Armstrong)
The situation
deteriorated until the fall of Quebec City and Montreal in 1759 and 1760,
which brought about the final end of the French regime. The war years were
marked by economic breakdown and something close to hyperinflation. During
the peace negotiations, France agreed to convert card money and Treasury
paper into interest-earning debentures, with discounts ranging from 50 to 80 percent. However, with the French government essentially
bankrupt, these bonds quickly fell to a discount and, by 1771, they were
worthless.
A Quebec
historian, Gérard Filteau, wrote (my
translation):
What is
remarkable about the Canadian financial system is that it inaugurates a new
kind of money destined to have a great future: the cards are the first
banknotes in circulation. Another remarkable fact is that the country has no
asset, no monetary reserve to guarantee the value of its paper money. This
money is nothing but a representative sign, which gets its value from the
honesty of the government and the goodwill of the royal treasury. Such a
guarantee, based solely on morality, is insufficient in that it ties the
value of money to the good behavior of a few
bureaucrats, and imposes on it fluctuations that depend on the integrity of
some men and the vicissitudes of politics.
At the time of
the conquest, there were only 70,000 colonists in New France, as opposed to
more than a million in the English colonies to the south. Paper money helped
to destabilize and slow down the economic and demographic development of New
France. It contributed to the downfall of the French empire in North America.
Later, it would play a substantial role in the French and America
revolutions. Today, unfortunately, it is used the world over and continues to
distort economic calculations.
.
Martin Masse
Le Quebecois
Libre
Martin Masse is the editor of Le Quebecois Libre
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