Financial Crisis of the French Monarchy

Financial Crisis of the french MonarchyWhat was the temper of the financial crisis that faced the monarchy in 1789?The financial crisis of the French Monarchy during the 17th and eighteenth centuries has been an issue of controversy amongst historians, on one hand some historians do non consider the financial crisis to shake been of great influence to the French revolution, whereas others intrust that the financial crisis was a significant factor of the French revolution. Of the historians that believe the latter, there remains dispute over the nature of the financial crisis. There is somewhat of a authoritative interpretation, which maintains that the financial crisis was collectable to the body of taxation and allow of France. This interpretation has been widely contested in recent years however, with a number of unseasoned factors coming to light. Historians much(prenominal) as Joel Felix, now speculate that the financial crisis was due to a vast number of factors suc h as, contend, the administrations policy of borrowing, pay ministers and the dust of vested quest. In this essay I pull up stakes examine each of these factors to determine what the nature of the financial crisis was, however it is my business that despite these factors being important, evidence seems to suggest that it was nature in which the government handled the financing during the war that was the biggest contrisolelying factor to the economic crisis.Firstly it is important to consider the crisis that the monarchy faced. In the 1780s it was suggested that the French government was burdened with a debt of 5 million livre, J. Brewer assessed that between the years of 1753 and 1764 the live of the debt rose from 30% of ordinary revenue to 60% (Brewer, 1989). This debt was huge, however when considered against the history of the French Monarchy, which J. Bosher does in French Finances, there appears to have been deficits and debt burdens throughout, which did not amount t o the financial crisis like that seen in 1789. For manakin Francois I began his reign with unresolved debt and borrowed heavily from Lyon bankers. Similarly Henri II ended his reign in a grand financial crisis it seems on examination of the Bourbon monarchy, few had not struggled with cash in hand and all had utilize emergency measures to concord government finances. It is important, then, to understand that the situation that the French monarchy was in during the 17th and eighteenth century was different to the financial problems faced by previous monarchs but not new in its conception. With this in mind a clear evaluation can be made of the nature of the financial crisis of 1789.Firstly I will start with the classical interpretation that the financial crisis was caused largely by a strategy of taxation and franchise that drained silver from the French people. Crucially the argument focuses upon the great tax burden. It was understood from this interpretation that because th e first and second estates were exempt from taxation, the whole burden fell upon the third estate, and that these taxes were unusually high. There are some(prenominal) problems with this theory of tax burden upon the third estate as an explanation for the financial crisis. Firstly the Cahier de Dolances evidences that most complaints about taxation were concerned with the inequalities of the tax system as well as collection, complaints about tax burdens namely concerned seigneurial or feudal dues that did not contribute to the Kings annual revenue. Secondly a analyze by Peter Mathias and Patrick OBrien, which focused on respective tax rates of Britain and France, found that in fact the British were much than heavily taxed then the French (Felix, 2006). This evidence suggests that the financial crisis did not come from a reaction to a tax burden. But what of privilege? It is clear that the system of privilege made the financial system of France un but also privilege was a crucial part of the ancien regime. Within this opinion it is argued that the allow orders of France blocked reform methods that would have enabled the monarchy to receive more revenue and correct its huge deficits.It is true that there was opposition to tax reforms from the nobility, and specimen of this comes from the Parelments rejection of the third vingtieme, which led to Marion commenting, they only had self-interests at heart1. This view point that the privileged sort to block reform to maintain their lifestyle is one that many an(prenominal) classical historians attribute to the fall of the ancien regime, and it does enable one to link the issue of privilege to the issue of tax reform, but it does seem to be inadequacying in some crucial elements that need to be accounted for when evaluating the financial crisis. Firstly, the issue of privilege confuses taxation with finance as Joel Felix points out, it doesnt account for the lack of financial disclosure which caused the financ e ministers difficulty in securing loans2. Secondly, the argument that the privilege blocked reforms for selfish interest is destruct by the Cahier de Dolances which shows that with rare exceptions the members of the nobility had unanimously expressed the desire to give up pecuniary privileges and become full3. Thirdly, and probably the most damning criticism of this classical interpretation is that the clergy and nobility would have only added 32-36 million livres well below what was needed to balance the budget4.It seems obvious then, that neither the tax burden nor the system of privilege can be attributed to the financial crisis of 1789, what needs to be considered is the system of taxation itself? It has been suggested that the labyrinth of taxes, franchises and laws amounted to the most powerful block of Monarchys desire to tax more equitably5. The pate relied on the service of intermediaries to manage. These agents were largely independent and often engaged in profit making enterprises. The financers holdled the borrowing process and had a vested interest in charge the French finances the way they were. Not only would they lend money to the King at high interest rates, which I shall deal with later, but they took money away from the Kings revenue by charging to collect taxes. An example of this is the Farmers General, a collection of private entrepreneurs that made profit in collecting taxes, arranging payments and money transfers and alter to the Crown. Typically they made a profit of 10 25% or more of the revenue collected6 for the Crown, Darigrand suggested for this reason that there was no need for tax reform, just a means of recovering what was lost from collection7, he suggested that from 15,000 livre collected 3,000 was left for the Royal Treasury8. Roussel also made this distinction and suggested that the defect of the current financial system was the inability to close the gap between what people paid in taxes and what the King received9. Collection agents also strongly opposed the idea of French brink system, The accountants, Farmers General and other financers would not tolerate a Central bank system because it would have cut down their profits10, which would have helped the French monarchy stop up finance dramatically, I shall assess the consequence of this later on.Here it is necessary to make a comparison between Britain and France in legal injury of tax collection, which many historians such as White, Riley and Bosher, do when evaluating French finances. In Britain tax collection was in the hands of centrally appointed government officials, instead of the French system using independent tax collectors under the Farmers General, who were largely untrained and did not come under the control of the King. The British system was also largely centralised different the French system which varied according to region which made revenue policing and administration difficult (Brewer, 1989).It is clear that the tax s ystem in France did contribute more than any other element considered so far to the financial crisis. Other than what I have considered already one of the most dramatic elements of the taxation system was the affect it had on populace opinion. There was a deep sense of hatred for the Farmers General within French society, this coupled with the secrecy over French finances bread an attitude that considered the financial crisis to be a result of lavish spending of the government and poor management of finance, rather than other more important factors, J.Felix comes to this conclusion about the public, public who continually blamed the deficits on poor royal administration and expenditure of court rather than on cost of war and burden on privilege11. Despite the damaging effect the taxation system had on French finances it should be considered that the Farmers General in human beings took no greater percentage than any other tax collection agency of this period in history, with this considered it seems necessary to evaluate Louis XVI management of his finances and his contribution to the financial crisis.It was commented that France was not overburdened by taxes, but the political economy constrained the ability to finance state expenditure. By this I am not implying that the reason for the financial crisis was due to the Kings lavish spending at court, however the King did undertake in lavish spending in terms of Wars, and it is this which seems to be the most damaging factor concerning French finances. There are many issues to consider when looking at Frances involvement in wars. Many depreciate the impact of war on a countries economic situation, as war was often fought on foreign soil or at sea and is because less directly harmful to a kingdoms domestic economy12, however an in depth look at the nature at which the French government financed wars provides many answers in understanding the financial crisis.Some historians have said that the financial crisi s was largely attributed to wars. The War of League of Augsburg 1688 91 and the War of Spanish Succession 1701-13 for example both occurred during the first 25 years of a cycle of economic depression which resulted in financial difficulties for the monarchy early on. Later in the 17th and 18th centuries three major wars contributed massively to a strain on the government finances. The war of Austrian Succession 1740-8, The Seven Years War 1756-63 and the American War 1778-83, overall the French were involved in 22 years of war compared with 21years peace13. The costs of these wars were huge and resulted in a huge increase in government expenditure. An example of this is the War of Austrian succession in which expenditure exceeded normal income by 112million by 174814. This resulted, as Joel Felix points out, in 8 years the government had to secure a sum of money that without war it would have taken 12years to collect15. Obviously war increased the strain on government finance, but it was the governments handling of this that resulted in real financial crisis.The government relied on borrowing to finance these wars, especially in the 17th and 18th centuries, this resulted in numerous problems. The French system of undisclosed financial records and their lack of bank system meant that securing loans was difficult for financial ministers the interest rates of loans grew according to the length of the war, accompanied by a general lack of confidence lenders had in the French finances. This meant that finance ministers had to offer higher interest rates and short term loans to lenders in order to generate enough revenue, for example Necker offered loans at rates between 6.5 9% (Felix, 2006).This system of lending meant that peacetime became dangerous territory in terms of French finances as they could no overnight revenue higher taxes on the public but had large debts to pay off after the war. In respect of this, another issue comes to light, the French public who were already unsatisfied with the system of taxation were unwilling to an increase in taxes come peacetime, and also the need for immediate credit required to fight a war, meant that an increasing demand was put upon finance ministers to finance the war through credit. This is what finance minister Necker did with the American War. Although this solved the difficulty of increasing taxes it left the notion that it was not necessary to increase taxes to finance a war, which was further compounded when Necker published his Compte Rendu au Roi which showed a balanced budget neglecting to show the deficit caused by the war. The result of these measures taken by the French government to secure money for war was that it was increasingly incurring more debt without gaining an increase in revenue.Considering this it is again competent to compare French finances with British finances, for in the same period of time Britain encountered 5 wars but enjoyed a system of adequate finance due to superior system of credit16, despite the fact that they too borrowed in order to finance war. There are several reasons for this firstly the interest rates the British paid were far less than the French, at 3% (Bosher, 1970). This explains why when Necker estimated the debt of 3,400,000,000 after the American war was equal to England he was wrong, as France was paying double the interest rate of Britain (Bosher, 1970). Secondly, the British had a different system in terms of administration and government control, and also a Bank, it left parliament in control of finances, giving them the control to raise taxes in order to suppress a deficit providing investment confidence. The same is true of its Bank system it gave the British an telling way of raising funds. It is therefore understandable that Britain was preferable to France, as in Britain the debt was the states, whereas in France the debt was Royal (Bosher, 1970).By far the war had the most impact on the French finances it pushed the deficit into a sum so large that it could not be counter-acted by increased taxation. It can therefore be used as an explanation of the financial crisis of 1789, but as I have demonstrated in this essay, it is not merely one factor that caused the financial crisis of 1789 but several. What needs to be considered is that it was not Frances involvement in wars that caused the financial crisis, but more the way the French government handled its finances. As can be seen the feature factors of the French keeping its financial details a secret from the public, the French borrowing at high rates, and the governments commitment to a system of privilege that seems to have formed the nature of the financial crisis. This conclusion of there being several factors that formed the nature of the financial crisis seems to have arisen fairly recently, one that modern historians snuff it upon more than old.J.C.Riley The Seven Years War and the Old Regime Page 212 Princeton University pack together 1986Joel Felix The Financial Origins of the French Revolution Page 44 Macmillian 2006Joel Felix The Financial Origins of the French Revolution Page 45- Macmillian 2006E.N. White The French Revolution and the Politics of Government Finance, 1770 -1815 Page 8 The Journal of Economic History, Vol. 55, No. 2 (Jun., 1995)Joel Felix The Financial Origins of the French Revolution Page 47 Macmillian 2006J. Bosher French Finances Page 9 Cambridge University Press 1970J.C.Riley- The Seven Years War and the Old Regime Page 204 Princeton University Press 1986J.C.Riley The Seven Years War and the Old Regime Page 204 Princeton University Press 1986J.C.Riley The Seven Years War and the Old Regime Page 194 Princeton University Press 1986J.Bosher French Finances Page 17 Cambridge University Press 1970J. Felix The Origins of the French Revolution summon 60 Macmillian 2006J.Felix The Origins of the French Revolution page 40 Macmillian 2006J. Felix The Origins of the French Revolution page 40 Macmillian 2006J.Felix The Origins of the French Revolution page 41 Macmillian 2006J.Felix The Origins of the French Revolution page 41- Macmillian 2006J.Bosher French Finances page 23 Cambridge University Press 1970