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Federal Reserve Bank of Chicago

Chronicles of a Deflation Unforetold
François R. Velde

WP 2006-12

Chronicles of a Deflation Unforetold
François R. Velde∗
Federal Reserve Bank of Chicago
November , 

Abstract
Suppose the nominal money supply could be cut literally overnight by, say, %. What would
happen to prices, wages, output? The answer can be found in s France, where just such an
experiment was carried out, repeatedly. Prices adjusted instantaneously and fully on one market
only, that for foreign exchange. Prices on other markets (such as commodities) as well as prices
of manufactured goods and industrial wages fell slowly, over many months, and not by the full
amount of the nominal reduction. Coincidentally or not, the industrial sector (as represented
by manufacturing of woolen cloths) experienced a contraction of %. When the government
changed course and increased the nominal money supply overnight by %, prices responded
much more, and the woolen industry rebounded.
Keywords: monetary policy, price and wage rigidities, deflation, recession (JEL E, N).

∗I

thank Danielle Velde for help in collecting the data, Nishat Hasan and Carrie Hyman for
help in preparing it. The views expressed herein do not necessarily reflect those of the Federal
Reserve System or the Federal Reserve Bank of Chicago. I thank Tom Sargent, colleagues at the
Bank and participants at the SED  meetings and the Atlanta Fed workshop on monetary
history for comments. Errors are mine.

Introduction
Lucas’s () Nobel lecture begins by tracing the two incompatible ideas of money’s
neutrality and non-neutrality to the origins of monetary theory, namely Hume ().
Hume’s essays exhibit the tension between the neutrality of money that seems “evident”
to him, at least in a closed economy,¹ and his empirical observation that prices lag in
response to increases in money, and therefore variations in the quantity of money can
have real effects²: a tension that has remained, in the words of Lucas, “at the center of
monetary theory” ever since.
Lucas notes that the manner in which money is increased matters, and that some of
the manners envisaged by Hume³ can be ruled out as “a little magical” and unrealistic,
for example, every man in Great Britain waking up one morning £ slipped in his
pocket. He also notes that it is hard to tell on what evidence Hume was basing his
belief in short-run non-neutralities, aside from the writings of “one Mons. du Tot.”⁴ As
it turns out, those writings describe the consequences of a monetary experiment that
was just as magical and unrealistic as Hume’s, with the signal difference that it actually
 “If

we consider any one kingdom by itself, it is evident that the greater or lesser plenty of money is of no
consequence; since prices of commodities are always proportion’d to the plenty of money” and later: “Tis
indeed evident, that money is nothing but the representation of labour and commodities, and serves only
as a method of rating or estimating them. Where coin is in greater plenty; as a greater quantity of it is
then requir’d to represent the same quantity of goods; it can have no effect, either good or bad, taking a
nation within itself: no more than it wou’d make any alteration on a merchant’s books, if instead of the
Arabian method of notation, which requires few characters, he shou’d make use of the Roman, which
requires a great many.” (Hume , , ). This, however, is a statement about steady states.
 “tho’

the high price of commodities be a necessary consequence of the encrease of gold and silver, yet it
follows not immediately upon that encrease, but some time is requir’d before the money circulate thro’
the whole state, and make its effects be felt on all ranks of people” (Hume , ).
 To

prove that the quantity of money has no effect on the interest rate, Hume asks us to “suppose that,
by miracle, every man in Britain shou’d have five pounds slipt into his pocket in one night” (Hume ,
).
 “And

that the specie may encrease to a considerable pitch before it have this later effect appears, amongst
other reasons, from the frequent operations of the French king on the money; where it was always found,
that the augmenting the numerary value did not produce a proportional rise of the prices, at least for some
time. [. . .] These facts I give upon the authority of Mons. de Tot in his Reflections politiques, an author
of reputation” although not above all suspicion (Hume , ) The theoretical experiments Hume
describes seem to involve changes in the physical stock of coins, whereas the French king’s operations, as
we shall see, did not always do so.



happened: the place and time was France in the s.
For this to make sense, a word is needed on the French monetary system. Money
took the form of gold and silver coins of various sizes and designs. None of these coins
bore any indication of value, as coins do since the th century. Rather, the nominal
value of coins was set by government decree, and could be changed, quite literally,
overnight. Thus, for example, on the morning of September , , every man in
France woke up with % fewer units of account in his pocket. This bit of magic was
just one in a sequences of decreases in the nominal value of coins engineered by the
government of the time. The sequence amounted in total to a % reduction over a
period of seven months in .
The French writers cited by Hume (, ), namely Melon (), Dutot ([]
), and Paris-Duverney (), had been either close observers of, or participants in,
this policy. They published their views of the events in the s. All three agreed that
prices did not adjust immediately or fully to the decrease in nominal value of coins, and
they also agreed that the French economy had undergone a sharp recession at the same
time. They differed on the lessons to be drawn from the episode, opening up a debate
on the uses and abuses of monetary policy that is still open today.
The purpose of this paper is to revisit the deflation of the s.⁵ Its position in the
genealogy of monetary economics is not the only motivation. The peculiar nature of the
monetary system of the time, and the way in which the government used it, makes the
experiment almost as unrealistic as those that have been used to understand monetary
economics from Hume to Lucas. Moreover, by the standards of macroeconomic history,
this experiment (perhaps the last of its kind) can be relatively well documented.
Of course, the monetary regime in place at the time was not the same as today.
Instead of the fiat money that is usually studied, the currency was made of gold and
silver. But one effect of the experiment, the overnight reduction in the nominal money
supply, was exact and instantaneous. The reaction of prices to such an experiment is
of great interest. It is often asserted that the behavior of inflation under a commodity
standard is substantially different, in particular much less persistent, than under a fiat
money regime (Alogoskoufis and Smith , Bordo ).
The paper proceeds as follows. Section  provides some background on the institutions of the period to help the reader understand the nature of the evidence. Section 
recounts the experiment itself and the debates that surrounded its execution. I survey
 This

episode has been described before, although not recently (Babeau , Marion , Akabane ),
and with little data. Antonetti () studies the much less significant business crisis in Paris in –.



the qualitative evidence on its impact through contemporary reports in section , and
present what quantitative evidence I have found, both on prices and on industrial
output, in section .

Institutional background
A brief description of the institutions is necessary to better understand the source and
nature of the documentary evidence I will provide.⁶

The organs of policy-making
France was at the time an absolute monarchy: the King had a God-given right to
exercise the three powers (legislative, executive, and judiciary) that were theorized by the
contemporary writer Montesquieu. There was no equivalent to the British parliament,
at least not at the national level.
Policy was decided in a restricted cabinet to which few people had access. The king
chose the members of the cabinet, which usually included the secretaries of state or
ministers in charge of war, the navy, foreign affairs, home affairs, and public finances.⁷
This last was called the contrôleur général (whom I will usually call the finance minister).⁸
Ministers served at the king’s pleasure and could be dismissed at any time. The cabinet
took decisions by a majority after all opinions were expressed.⁹ Deliberations were secret,
and no minutes were taken; and since the cabinet was not accountable to any public
body, it is often difficult to know the reasons for which policies were adopted. Sometimes
 See

Antoine (, , ).

 During

the period I study, there was a prime minister, which was somewhat unusual, since Louis XIV
had abolished the position in . Louis XV’s reign had begun under the regency of the duke of Orléans.
When the king came legally of age in February , the regency ended but to ensure continuity, cardinal
Dubois, foreign minister and confident of the duke, had been made prime minister in August , a
sign that the king was not yet ready to govern by himself. At Dubois’s death in August , the duke of
Orléans became prime minister, and when he died in December , his cousin the duke of Bourbon
followed him, until .
 From

September  to June , the finance minister was Dodun, previously a senior official in the
ministry of finance.
 The

king attended, but it was rare for him not to follow the majority. If he was displeased with policy,
he replaced the ministers; while they were in place, they acted as they saw fit.



the preamble of a new law or decree would formulate those reasons; otherwise, we have
to rely on what internal memos (usually anonymous) have survived in the archives.
One important institution for my topic is the Conseil de Commerce or Trade Council
(Bonnassieux and Lelong ). Created in , it was composed of bureaucrats
of the finance ministry, the lieutenant of police of Paris (who was in charge of the
administration of the capital), and twelve delegates chosen by the business communities
of the main commercial cities of the realm. These businessmen (bankers, traders,
merchants) were regularly asked to provide their input on the matters that came before
the council. The council did not have any authority to take decisions on its own,
but referred its recommendations to the finance minister. The council centralized the
collection of information about the state of the economy, and its archives, remarkably
preserved, represent a major source for this study.
One of the competencies of the finance minister was supervision of manufactures
and commerce.Since the time of the finance minister Colbert ( to ), French
manufactures, specifically woolens and linens, were closely regulated, in the following
way. Each type of cloth, produced in each town or small region of France, had to
be produced to a certain standard. To enforce the standard, the bolts of cloths were
submitted to an inspection process, which became more stringent over time. The
first inspection was done at the local level by representatives of the manufacturing
guilds or corporations, but they were supervised by government-appointed inspectors.
These inspectors reported regularly to the government (via the Trade Council) on
developments in manufacturing in their area. There were roughly as many inspectors as
there were intendances, or administrative districts, about thirty (see Minard  and
 on the inspectors). Beginning in January , the inspectors were required to
provide semi-annual reports on the manufactures in their districts (Gille , –),
some of which have survived (see Appendix A).
The main purpose of the regulatory system was to enforce standards of quality, not
to control output or prices. The inspectors could fine producers who failed to meet the
standards. Bolts of cloth that passed the inspection received a small lead seal affixed to
one end of the bolt.
The industrial organization of the manufactures was relatively simple. The producers, or fabricants, owned and operated the looms. The raw materials was bought either
by them or by an merchant-entrepreneur; labor was hired to process the raw materials
(mainly wool), spin it, and weave it. The producer returned or sold the finished cloth
to the merchant who sold it either directly to retailers (marchands-drapiers) or at cloth



markets in the main cities, or else at the regional fairs that took place annually in various
parts of France.¹⁰ The price data that I present was collected at all stages: factory gate,
fair, cloth market and retail shops.

Monetary regime
The monetary system in France at the time was a commodity money system. The
medium of exchange consisted mainly of gold and silver coins.¹¹ Aside from two brief
episodes (the billets de monnaie in – and the bank notes of John Law’s System in
–), there was no paper money or any form of circulating bank liabilities. However,
a commodity money system consists of two distinct elements: the circulating medium
(coins) and the unit of account, in this instance the livre (L) or franc. The key feature of
coinage before the th century is that coins bore no indication of face value: the face
value, or more generally the relation between coins and unit of account, was set by the
government at will.
Gold and silver was freely minted, meaning that the government-sanctioned mints
were at all times open to mint unlimited quantities of precious metal, either in the form
of old coins, foreign coins, or bullion, into coins of the realm (the only legal tender).
The mints offered a mint price (MP), expressed in units of account per pound of metal,
and paid in new coins. Thus, the physical quantity of money was determined not by
the government, but by the private sector through its minting and melting decisions.
The government determined the parameters of the system. One set consisted in
the coin specifications: size, weight, fineness and design of each coin. This was done
by royal edicts. Another set of parameters consisted in the legal tender, or current
values, assigned to each coin, expressed in the unit of account. This was done by a
decree known as arrêt du conseil (hereafter AC). For a given coin, one can calculate the
mint equivalent (ME), which is the number of units of account per weight of standard
metal contained in the coins (Glassman and Redish ).¹² Different denominations
of a given metal (gold or silver) always had the same mint equivalent: that is, all silver
and gold coins were full-bodied, and it is sufficient to keep track of the gold ME and
 See

Thomson (), Gayot () on the textile industry.

 There

were also billon (% silver, but slightly overvalued) and copper small denominations, both
minted on government account and with legal tender limited to L since . They were reduced once,
in April , by %.
unit of weight, which I will use because it makes for round numbers, was the marc (mark) or
half-pound (.g), and the standard fineness was  carats for gold and / for silver.
 The



the silver ME. The ratio between the two is called the gold-silver ratio. Finally, the
government also set the mint prices. This was done by publishing an official tariff or
price list.
The fact that a coin was assigned a legal tender value of N meant that it could be
tendered to discharge a (nominal) debt in the amount of N . All gold and silver coins
(except for a brief period in –) were unlimited legal tender for all debts. It was
possible to denominate debts in coins of a specific date, but commonly domestic bills
of exchange and other commercial bills were denominated in units of account, as were
long-term forms of debt (including the government’s). Foreign bills of exchange drawn
on France were denominated in units of account (specifically, in écu of  livres), and
were always payable in the current coins at their current legal value.
Several operations could take place. One was a reminting: an edict was passed
announcing new coins types, with distinct designs, and (possibly new) weight and
fineness. Typically, the existing coins were demonetized, that is, lost their legal tender
value after a certain grace period, although they could always be sold to the mint for new
coins at the official mint price. A variant of this was a reformation: the new coin type
had same weight and fineness, and the existing coins were restamped by the mint with a
new design, in exchange for a fee. Unreformed coins were, in principle, demonetized
after a grace period.
Another operation consisted in simply changing the legal tender values of existing
coins, without altering the coins or reminting them. A new AC was published, announcing the new legal tender values. If the face value of coins was lowered, this was
called a diminution; if it was increased, it was an augmentation.
Figure  plots the mint equivalent and the mint price in France from  to .
The gap between the two lines measures the seigniorage tax.
The monetary policy that concerns us here, between  and , consisted in a
series of (mostly unforetold) diminutions from  to , followed by one augmentation in . The effect of a diminution (augmentation) of x % is instantaneously to
reduce (increase) the nominal money supply by x % on the appointed date.

Policy in the s: a narrative
A brief account of the monetary policy runs as follows: after the collapse of John Law’s
System in , the government left the coinage at the high nominal level at which



130
120
110
100
livres / marc standard silver (log scale)

90
80
70
60
50

40

30

20
1685

1690

1695

1700

1705

1710

1715

1720

1725

1730

Figure : Mint equivalent (red, upper line) and mint price (blue, lower line), France, –
(log scale).

it had been raised by Law. Once more pressing problems were dealt with, it turned
to the currency. A minor adjustment in the gold-silver ratio in July  was followed
by a small diminution in August of the same year. The main diminutions took place
in February, April and (announced to be the last) September . By late , the
government pressed for funds decided on a reminting operation to generate seigniorage,
carried out in February . Then, in a complete reversal, an augmentation took place
in May . The government was dismissed by the king in June . No further
manipulations took place.

The immediate background
France between  and  was in a period of turmoil. The major event of that decade
was John Law’s System, an attempt at radical reform of French public finance, including
the introduction of fiat money (Velde ). The System collapsed in inflation in
, and the period from  to  was devoted to reconstructing the fiscal system,
salvaging Law’s Indies Company as a commercial concern, and liquidating the public



debt.

Monetary policy from  to 
In , the marc of silver stood at .L. For  years it moved up and down (Figure )
but by , at the death of Louis XIV, it had returned close to that level (see Table 
for a chronological account of the mint price and mint equivalent of silver). From
December  the ME rose again, to peak at L in July . The decree of July
,  had programmed a gradual fall to  livres; this was postponed in September
when a new coinage was launched, but resumed by decree of October  “for the benefit
of trade and to reduce the price of foodstuffs.” The new (reformed) coins were set to
fall from L to .L on December , and to L on January ,  (corresponding to a
ME of ). The first decrease took place as scheduled on December , but the second
one was postponed at the last minute on December  by the successor of John Law as
minister of finance, ostensibly to allow taxpayers to continue to pay their obligations in
coin at the existing rate. According to Paris-Duverney (, :), “at a time when the
System had made almost all the currency disappear from the realm, and the collection
of the king’s taxes and revenues was weak and languishing, there was no way to reduce
the value of specie and forgo the profit from restamping coins.” The unreformed coins
were scheduled to be demonetized on February , , but this was later postponed
indefinitely, and they were to remain legal tender for taxes until the first subsequent
diminution (AC March , ).
For several years, monetary reform was off the table as the government faced far
more pressing issues, like the liquidation of the debt. By , most of the issues had
been resolved. The Indies Company had been taken out of the business of government
finances and it had emerged from receivership as a going commercial concern in March.
The Visa operation, which reconstituted the national debt in the form of nominal
bonds, was completed. The government turned its attention back to the currency.
The first measure, published on July , , concerned only the gold coinage, and
the face value of gold coins was lowered from  livres to  livres, a .% reduction.
The reason for the change is stated in a letter of July  from the prime minister, cardinal
Dubois, to the regent: he had spent the previous day discussing with the finance minister
“the means to remedy as much as possible the disorder caused by the scarcity of white
[silver] currency which creates such perturbations in trade that a great scandal would



Date
1 Sep 1715
23 Dec 1715
1 Feb 1716
1 Jan 1717
3 Mar 1718
31 May 1718
1 Oct 1718
28 Sep 1719
8 Dec 1719
23 Jan 1720

MP
28
32
32
31.5
36
40
48
46.4
56
60

ME
28
40
40
40
40
60
60
58
60
60

Date
6 Mar 1720
1 Apr 1720
1 May 1720
29 May 1720
1 Jul 1720
16 Jul 1720
31 Jul 1720
1 Sep 1720
16 Sep 1720
1 Oct 1720

MP
80
70
65
82.5
75
67.5
120
105
90
78

ME
80
90
82.5
82.5
75
67.5
120
105
90
90

Date
1 Dec 1720
23 Aug 1723
11 Feb 1724
4 Apr 1724
22 Sep 1724
26 Sep 1724
1 Jan 1726
1 Feb 1726
27 May 1726
18 Jun 1726

MP
63
68
60.5
49
39.2
40.7
35.6
34
44
46.9

ME
75
69
63
50
40
41.5
36.3
41.5
49.8
49.8

Table : Mint prices and mint equivalents of the silver coinage, in livres per marc of silver / fine.
Sources: original decrees at http://www.ordonnances.org/.

arise if it weren’t remedied immediately to the greatest extent.”¹³ This explanation is also
given in the preamble of the decree, which mentions the excessive abundance of gold
coins in trade and the problems they create for the payment of small sums, and which is
attributed to a misalignment with the gold-silver ratio in the rest of Europe. In March
, there were already reports of scarcity of silver coins in the border provinces and
in Paris, and in June  concern about the abundance of false coins at the Beaucaire
fair.¹⁴ The reduction of July  was therefore mainly an adjustment of the gold-silver
ratio which had stood at  since  (except between  and ) and was now
lowered to .. Of course, the adjustment could have been made by raising silver
coins rather than lowering gold coins, but the government chose the latter because it
was already thinking that the price of coins was too high (Paris-Duverney , :).
But there is further evidence that a deflation was already being planned. When
Dubois became prime minister in August , he wrote down a list of policies to carry
out, including “settle the project on currency to restore order in trade, put the troops in
a position where they can be paid in peacetime or wartime without affecting the king’s
current revenues or commerce”; he further noted that “the morale of the troops is poor
today, nor is it as it should be [. . .] because of the excessive value of the coinage which
makes subsistence difficult.” More explicitly, a request by the managers of the postal
 Affaires

étrangères, Mémoires et Documents (hereafter AE M&D), France , f. .

 Archives

Nationales (hereafter AN) E, fol. , fol. .



service on July   to increase their rates was approved by the Council, but with a
remark that, although prices were indeed high, “there is good reason to hope that this
dearness will decrease by the measures that will be taken” and the rate increase was only
granted for one year.¹⁵
The diminution of August 
A month later, the government decreed a mandatory recoinage of gold coins: new coins
were produced, of smaller size, with face value of  livres, reducing the mint equivalent
of gold by %. The reason for this decision was the legacy of the last reformation of
, which had introduced different values for unreformed and reformed coins ( and
 livres respectively) and raised the seigniorage rate to %, resulting in considerable
amounts of counterfeiting.¹⁶
All gold coins now had the same value, and the seigniorage rate on gold was lowered
to .%, enough to cover the production costs only. The same measure was taken for
the silver coinage, which also consisted of a mix of unreformed and reformed coins
(the former rated at . livres, the latter taken at .L at the mints and in payment of
taxes). The seigniorage rate was lowered from % to .%, and the legal value of
existing silver coins (both reformed and unreformed) was made equal. But it was now
set at . livres, an increase of % for the unreformed coins but a reduction of % for
the reformed coins. This was the first, small step in what became a drastic process of
reduction of the value of coinage, and only a vague motivation (that the diminution on
silver coins was “suitable for trade”) was given at the time.
Diminutions in 
Three more reductions took place in : on February  (dated February ), April 
(dated March ), and September .¹⁷ They brought the silver coin from . livres to
 AE

M&D France , fol. v, v; AN E fol. .

 A

monetary reformation was an operation whereby the nominal value of coins was increased, but
coin-holders had to have the coin restamped (reformed) to avail themselves of the increase, with payment
of a mandatory fee. During the operation, the unreformed coins were given a temporary legal value. This
type of operation, whose purpose was to tax the whole money stock, was first introduced in ; the
 reformation was the last. A more common variant of the reformation was recoinage: a new type of
coin is introduced and the old coins are demonetized.
 The

date of the arrêt du conseil differs from the date of publication because of the delays in sending
the information to the various provinces (it took ten days for a letter to reach Perpignan from Paris).



date

Aug 1723
Feb 1724
Apr 1724
Sep 1724
recoinage

écu’s value

diminution

7.5
6.9
6.3
5
4

-8.0%
-8.7%
-20.6%
-20.0%

cumulative
diminution
-8.0%
-16.0%
-33.3%
-46.7%
-44.7%

Table : Changes in the legal tender value of the main silver coin (the écu) in –, with the
percentage diminution and cumulative diminution.

. livres,  livres, and  livres successively (see Table ). The gold coin was similarly
lowered from  livres to , , and  livres. Since the reductions were not quite
proportional for gold and silver, the gold-silver ratio was thus changed from . to
., , and finally . (the ratio that would prevail in France until ).
The second reduction was published on the morning of April . The preamble of
the arrêt offers no rationale whatsoever, but the same day, the finance minister Dodun
wrote to all the intendants a letter to be made public.¹⁸ The minister explained that
the cumulative reduction in coin value had by now reached a third, and the public
ought to see the benefit of this reduction in lower prices. This had not yet happened
“because merchants and workers, foreseeing that other reductions might happen, used
this pretext to increase prices rather than reduce them.” But coins were now at a rate
destined to remain “for a long time if not forever, the public has no reason to fear further
reductions for now” and all prices and wages ought now to return to the level they had
At each diminution, the government carefully calculated, given the postal schedules, when to send the
letters to the intendants so that the announcement would appear within a window of two or three days
everywhere in France. Although the text of the decrees explicitly stated that they entered in force from
the day of publication, the difference between the date of the decree and the date of publication gave rise
to some disputes. For the September diminution, therefore, the government post-dated the decree to
September  and started mailing copies to the most remote provinces on September . This confused
some intendants who hesitated to accept as valid a document dated in the future. Finally, for the May
 augmentation the government resorted to specially hired couriers. To ensure secrecy, each time the
minutes of the decree were sent to the royal press at night and the typesetters were kept locked up inside
the shop until the text had been issued to the street-hawkers the following morning (AN G//).
 AN

G//, letters to the intendants of April , .



before Law’s fiat money.
Dodun further pointed out that the increase in coin value of May  had not
resulted in a noticeable increase in prices and wages until December , and although
coins were ¹⁄₆ less, prices were three times higher (a statement that seems somewhat
exaggerated). Thus, the relative size of reductions since July  was a third, but he
expected an even greater than proportional effect since various other factors leading to
high prices were not acting anymore. One industry singled out for the excessive price
of its output was iron, which had been exporting a lot, and the minister was counting
on reduced demand from abroad after the exchange rate appreciation to bring prices
down in that sector. Conversely, French industries relying on imported raw materials
should be able to pay a better price. A few other factors were expected to help bring
down prices: scarce fodder had driven up transportation costs in the previous year, but
that was not expected to last in the coming year. Next, wages were to fall, and to ensure
this the intendants were to discourage any collusive attempts on the part of workers
to maintain high wages (see below). Then manufacturers should have to lower their
prices, and consequently retailers. The losses they would incur on their stocks would
be compensated by the high prices they had been enjoying previously. As for domestic
bills, they were mostly indexed (payable at the rate prevailing when they were issued).
The last reduction of  was published on September . It was announced as the
last. As will be shown later, the government had come to regret the uncertainty that it
had let linger over the possibility of future reductions at the previous move.
It was followed a few days later (on September ) by an edict announcing a
recoinage. The purpose here was not to change anything to the nominal value of money.
The recoinage had two stated objectives. One was to adjust again the gold-silver ratio
slightly to ., in response to the market ratio in England and the Netherlands, and to
the growing quantity of gold in circulation in Europe. To do this without altering the
gold coinage required a corresponding slight increase in the mint equivalent of silver,
from L per marc to .L per marc. The other objective was to remedy a side effect
of the diminutions, namely the inconvenient denomination structure. When the écu
was at L, it was natural to coin lower denominations of ¹⁄₃, ¹⁄₆ and ¹⁄₁₂ of an écu. With
the écu at L, these fractions were unsuitable, and the new coinage took the form of ¹⁄₂,
¹⁄₄, ¹⁄₈, and ¹⁄₁₆ of an écu. The very fact that the government was bothering with such
details suggested that the new face value of the écu was intended as permanent.¹⁹ To
allay suspicions that the recoinage was driven by fiscal considerations, it was announced
 This

point made by the intendant of Caen to the merchants of his district (AN G//, n. ).



that henceforth seigniorage on silver will be only high enough to cover production costs
and in any case never exceed %. The slight increase in the ME of silver allowed to
cover production costs and still leave a nominal inducement for recoinage.²⁰
An edict being a more solemn document (and one subject to registration in all the
superior courts, or parlements, of the realm), it was an appropriate occasion for an
official statement on monetary policy, worth quoting in full:
“Nothing has seemed more important to us for the general welfare of our
State than to set a certain and unchanging value of our moneys, on the
basis of which our subjects and foreigners could contract safely, and which
could serve as a certain rule for the determination of foreign exchange and
the prices of commodities and goods. The considerable increases in the
value of coins to which we have been compelled by circumstances, and the
need to return them to the value that seems appropriate through successive
reductions, have prevented us until now from achieving this goal. We
have even allowed, since the last reduction ordered on March  last, a
considerable amount of time to pass until we might be in a position to
decide, knowledgeably and on the basis of our own experience, whether
it was appropriate to set the price of coins at the value which they had
reached after the last reduction, or to reduce them further, and if so to what
extent. And after having examined in our Council the various memoranda
given to us on this point, it has seemed to us that after a considerable
increase in the value of coins, when a whole nation has contracted for a
long time on the basis of a valuation much higher than before, and when
manufactures and trade have settled themselves on such a value, it is very
dangerous if not impossible to return to the earlier value. The example of
the past shows it, since the marc of coined silver was brought progressively
to the value of  livres only through successive increases, after which it was
always necessary to keep coins at a higher value than they had previously.
The experience of what happened in  and all the other instances when
it was attempted to return to the old valuation conclusively shows that it
would be harmful to follow such a course. We have therefore believed that
we should take a proportion that could reconcile as much as possible the
various interests in play; and we have not found one better than that of 
 See

a memo from September , along with drafts of the decree, in AN G//.



livres for the current gold louis, and  livres for the écu that will be coined
pursuant to this present Edict, since we reduce thereby the value coins by
almost half from what they were worth for several years and set them at a
rate roughly equal to that which they had for a good part of our reign, and
even under the reign of our predecessor, and since there was no appreciable
increase in the prices of commodities and goods when they were at that
rate.”
To reinforce the message, the finance minister again sent a letter to the intendants
for publication.²¹ The letter begins by providing some explanations on recent policy.
The reduction in prices and wages had not taken place as expected, because of the
public’s conviction that another reduction in the value of coins would be necessary. It
had not been possible to dispel this notion because the king and the duke of Bourbon
wanted to observe the effect of the March reduction first before making a decision on
further reductions; as a result, six months elapsed without making any decisions about
the currency, “which is quite a long time in such a pressing matter,” acknowledged
Dodun; “but experience has shown us that the prices of commodities and goods is
influenced less by the value of coins than by the fear of an impending reduction on
coins and uncertainty over their future value, and this same fear and uncertainty would
persist and prevent the previous reductions from having their effect until His Majesty
had clearly explained himself on this matter.” The value of coins announced in the
Edict of September was therefore to be the final and permanent value. The letter then
justified this level by reference to the past. This was the value that had prevailed from
May  to September , in consequence of a reformation edict, but at the time
prices and wages had been reasonable and similar to what they had been earlier. A
deflationary program then followed from September  to September , but it
was reversed in December , and the level ( livres per marc) prevailed again from
December  to May , again without noticeable increase in prices and wages; and
even the reformation of May  which had increased the value of coinage by %
had not produced much inflation except for a few goods. Consequently, the level of
prices and wages of the years – and – should henceforth serve as a reference
when assessing whether prices and wages were excessive relative to the new level of coins.
Dodun insisted that prices should fall to this reference level, that is, by more than the
cumulative diminution of coins.
 Bibliothèque

nationale (hereafter BN) Fr , f. ; see also AN G//.



Policy to 
After September , the government was committed to making no further changes
in the currency. All it could do was wait for prices and wages to fall. In the meantime,
however, two crises developed in , one international and one domestic.
The risk of war increased considerably in April  for particular reasons.²² It was
decided to increase troop levels and begin furnishing warehouses on the borders in
preparation for a possible conflict. The expenses of a potential war would likely require
borrowing, and the government was convinced that punctual servicing of the debt was
insufficient, and that a program to begin reimbursing it was required.²³ To this end
a new tax imitated from the Dutch, the Fiftieth, was levied in June  for twelve
years. Its expected income of  to  millions was to be devoted to reimbursing the
debt; every year, the funds assigned to service debt that had been reimbursed would
be devoted to further reimbursements, a sinking fund formula sixty years before Dr.
Price and Pitt. But tax increases are never popular, and the government was blamed for
having needlessly provoked an international crisis.
The domestic crisis was a harvest shortfall in northern France, due to continual rains
from April to September  and following a mediocre harvest in the three previous
years. A riot just outside Paris on July  alerted the government to the dangers of the
situation,²⁴ and much effort was made in the summer and fall to supply Paris with
grains bought in the provinces or abroad, at the expense if need be of the provinces. The
price of wheat and bread spiked sharply in that period but returned to normal by the
winter. The public mood, however, remained sour; the government was blamed for the
dearth of bread and accused of having conspired it in order to profit from the people’s
 In

, to cement the alliance with Spain, the French king Louis XV had been engaged to the daughter
of the king of Spain. But she was much younger than him, and he a teenager with fragile health. As
it happened, his nearest genealogical heir was the king of Spain, who had renounced his rights to the
French throne but was known to consider that renunciation of little value. Should Louis XV die without
heir, a Spanish invasion and a civil war in France was likely. The duke of Bourbon decided to break the
engagement and marry the king to a Polish princess. The move infuriated Spain who immediately made
an offensive alliance with Austria. In  and , war seemed probable.
Paris-Duverney’s memoir in the Gazette d’Amsterdam; also a commentary on a budget plan of
December : “when the State’s credit is restored, everything is easy and everyone is satisfied, the realm
is feared and peace is reinforced . . . to restore one’s credit is the best way to peace, si vis pacem para
bellum” (AE M&D France , fol. v).
 See

 Two

rioters were expeditiously hanged as an example. This forceful reaction contrasts with the more
cautious approach taken with striking workers.



misery. Evidence of government agents engaging in grain purchases only seemed to
confirm these rumors (Kaplan ).
At this point, the budget was still not in balance and unpaid arrears from previous
years were accumulating, particularly on the debt. The fiscal pressure became enough
to push the government into the kinds of operations it had foresworn. In emergencies,
taxing the money supply was usually a relatively rapid way to raise funds; it was also
reasonably equitable (compared to the available alternatives), taxing as it did cash
holdings proportionally. The normal process, a recoinage, involved raising the mint
equivalent, so that individuals would receive no less in nominal value than they turned
in when exchanging old for new coins, but the government could collect seigniorage.
But the government did not wish to lose the hard-won fall in prices it had (partially)
achieved, so it proceeded to lower the value of coins even further, before recoining back
to the same ME.²⁵
On December , , it was announced that gold coins would fall from L to
L on January  and to L on February ; and silver écus from L to .L and L on
the same dates. This diminution was, therefore, pre-announced. By January, however,
rumors of an impending recoinage were rife, particularly after the government ordered
all tax receivers and treasurers to turn over all their spare cash to the mints.²⁶ The
government was fully aware that the impending recoinage could not be kept secret, but
it instructed the intendants to let the public guess without confirming anything except
a firm promise that, should any recoinage take place, it would not raise the ME higher
than it had been until December .²⁷ Individuals started buying foreign exchange to
hedge against the feared recoinage; the government secretly intervened on the market to
keep up the price of foreign currencies high, so as to make the hedge unprofitable.²⁸
On February , the diminution took place as scheduled, but three days later an edict
appeared ordering a general recoinage of silver and gold. New, lighter écus were to be
minted and circulate at L(with fractions at ,L, L, .L and .L), the existing écus
would circulate for another six months before demonetization. The seigniorage tax was
 As

early as October , rumors of war had led some to believe that the true purpose of the deflationary
policy was to allow for such an operation in time of need (letter of the intendant in Bourges, AN G//,
n. ).
 BN

Fr , fol. ; Fr , fol. ; Fr , fol. .

 BN

Fr , fol. -.

 The

Paris brothers, who did not approve of the policy, were charged with carrying out this market
intervention, and they were quite successful. They explained the details of the intervention in a
manuscript(AN KK).



%.
The credibility of the government’s monetary policy was, of course, in ruins. There
was growing dissatisfaction at the court with the duc de Bourbon’s ministry, and the
king was approached. He was by now sixteen years old, and felt ready to take matters
into his own hands. The ministry, meanwhile, took a final, desperate measure, and on
May  a decree raised the value of the newly minted gold and silver coinage by %,
without any tax. There is no direct evidence on the motivation for this move, but it is
likely that the same arguments were made by the business community as in  and
 for the need to increase the nominal value of coins so as to stimulate economic
activity. The measure came too late to save the ministry; Louis XV had arranged in
utmost secrecy for the dismissal of his prime minister, which took place on June , .
The new finance minister, Le Peletier des Forts, immediately announced that he would
return to the sound practices of the time of the great Colbert.²⁹ The last monetary
measure of the previous government had been to lower the seigniorage rate to .% (it
was promulgated after its fall, on June ). Thereafter, the French currency was not
altered (except for an adjustment to the gold-silver ratio) until the French Revolution.

Why a deflationary policy?
As I have already explained, the motivations of the government in pursuing the deflationary policy are not easy to ascertain from the available documents.
The fiscal cost
When it embarked on its deflationary policy, the government was not unaware of the
costs, although it may have underestimated them. The experience of the business
contraction of –, which was widely attributed to the similar (but pre-announced)
deflation of –, was recent enough; and the government knew that fiscal revenues
would suffer in a recession. A budget plan drawn in August  expects the largest
loss among indirect taxes on tariffs: because of lower exports, revenues from tariffs were
expected to fall by a quarter.³⁰
But there were more direct costs to the government, namely capital losses on the
balances held by tax collectors and treasurers at the time of the diminution, for which
the king was responsible. During the last series of diminutions from  to , the


BN, NAF , fol. . See Velde () for the other far-reaching changes in fiscal policy.

 BN

Fr , fol. v, r.



loss had totalled  millions. In , it came to . millions, reducing revenues from
 millions to  millions.³¹ The higher losses in the previous diminutions were due
to the fact that the treasurers’ obligations to the government were in units of account. If
no distinction was made between the coins they had received before the reduction and
those received after, it was very tempting for them to claim that the coins received after
(at the lower value) had been received before (at the higher value), allowing them to
discharge their obligations at a profit. This may have been a major motivation for not
announcing the diminutions. Furthermore, measures were taken to prevent the fraud:
on the morning of each diminution, on orders of the finance minister, government
officials throughout France immediately visited all the treasurers and tax collectors to
inventory their cash holdings and close their accounts.³²
Reasons for
Why did the government doggedly pursue this deflationary policy in spite of such
high costs? Why did it feel important to reduce the value of money? The lack of
documentation makes it difficult to answer precisely the question, but here are the
elements I have been able to find. ³³
As mentioned above, the desire to return to a lower price level was apparent as early
as . It was consistent with monetary policy since : whenever the nominal
value of coins was increased as part of a reformation, the government after a few
years attempted to return to the earlier level, although it was not unaware of the costs
involved.³⁴
One of the main motivations for wishing to bring down prices stemmed from
difficulties with the payment of troops, mentioned above. As of , the morale of the
troops was low, their pay was in arrears and was insufficient given the cost of living. But
France needed to be ready for war, as explained above.³⁵
 BN

NAF , fol. .

 AN

G///.

 The

duke of Bourbon’s papers have all but disappeared, probably during the Revolution. Neither he nor
Dodun left any memoirs or papers. Moreover, the ministry of the duke of Bourbon has attracted little
interest among historians: there is no biography of the duke of Bourbon, the only study of his ministry
(Dureng ) focuses on the relation with Great Britain. The Paris brothers have left some writings, but
they were not the primary decision-makers.
 See

a memorandum of  (AN G//, n. ) and one of  (AN G//, reg. , fol. )
discussing the pros and cons of such a policy.
 Melon

wrote soon after that “no one is unaware that the woes of the previous cabinet [the duke of



The clearest contemporary explanation for the deflationary policy can be found in a
memorandum, commonly attributed to Paris-Duverney, widely circulated at the time
and published in August  in the Gazette d’Amsterdam.³⁶ The memorandum argues
that the diminutions were “necessary to remedy the ills that the high value of specie had
long been causing through the excessive cost of wares, foodstuffs and labor; to allow the
troops to feed and clothe themselves with their salaries, which they couldn’t do so that
one could not find soldiers in a realm so plentiful in men; and to be just to the creditors
of the State who, by virtue of the reduction of annuities and offices from  and % to 
and .% did not truly receive % on the loans they had made at L to the mark to
support the late king in the long and difficult wars he had to endure. Determined by
such compelling reasons, the government therefore reduced the coined mark of silver to
.L.”
The concern for creditors of the State (and, to the degree that soldiers’ wages were
fixed in nominal terms, they were part of the broad category of nominal creditors of the
State) is rather surprising, given France’s poor reputation as a debtor in the eighteenth
century. The policy of deflation amounted to an “anti-default.” This may have been
prompted by political considerations, although, given that the creditors of the State
after the collapse of John Law’s system numbered half a million (out of a population of
twenty millions) it is not easy to identify the creditors of the State with any well-defined
interest group or social category. Another concern was probably the State’s reputation
as a lender. In the same document, Paris-Duverney justifies the creation of a sinking
fund to reimburse the debt, financed by a new tax, in the following words: “The more
one has given examples of behavior inimical to trust, the more the government needs to
exert care and punctuality in its promises to rekindle this precious trust, so as to make a
moderate use of it to the benefit of the State when it becomes necessary to ensure its
conservation.” With the looming European war, it was seen as necessary to make it
possible for the government to return to capital markets with an enhanced reputation.
Paris-Duverney acknowledged the effects of deflation: “The reduction of coins has
made money vanish from trade and cut off circulation; this is a normal result of coin
Bourbon’s] came in part from the imprudent diminution of coinage, and the fear of war that was its
pretext or its reason should have led to the opposite policy” (Arsenal , fol. -).
 This

French-language newspaper printed in Amsterdam was read throughout Europe. Copies of the
memorandum can be found in BN Clairambault , -; AE M&D France , f. -, where it is
dated June ; and attributed to Paris-Duverney; Arsenal  fol. –; AN K, n. , f. -.
Paris-Duverney, one of the influential Paris brothers (Velde ), was a close adviser of the duke of
Bourbon.



diminutions for a while . . . the further away from the time of the diminutions, the
more circulation regains strength by itself, and the government helps it presently since
it fosters contracting between private parties by allowing again interest rates at %, thus
one may hope with reason that money will day by day become less scarce.”
During the controversy of the s that Hume cited, Paris-Duverney justified again
the policies of the cabinet, albeit retrospectively (Paris-Duverney , :–). He
admitted that the value of currency should not be altered, once it is well established.
But he claimed that it was not well established in , because of the disruptions of
the System. Law himself, in March , had begun a policy to reduce the marc to L.
The government in  did not intend to go as far, but only to follow what had always
been the practice before. It had been forced to wait until France remonetized itself after
the collapse of the paper currency in . The economy had recovered, but in the
process the prices of foodstuffs, merchandise and labor had risen too far. He conceded
that diminutions had undesirable effects (he mentioned scarcity of currency, falling tax
revenues, and slowing trade), but they were transitory. Examining the diminutions
themselves, Paris Duverney observed that the foreign exchange had become favorable
for France after the diminutions of August  and February , as Dutot himself
had noted. Duverney attributed this to the fact that, contrary to the diminutions of
–, the most recent ones had not been announced in advance, to avoid merchants
raising their prices in anticipation of future, announced reductions. By September ,
the exchange rates were less favorable to France, but this was due to slackening exports
after the large volume of exports in .
Duverney stated that the government hesitated before the final diminution of
September .³⁷ It was moved to carry it out by the fact that prices and wages had
not fallen enough.
Arguments against
An insight into the debates over the policy comes from the manuscript writings of
Jean-François Melon (-). Although he held no official position at the time, he
was often consulted on financial matters.³⁸ He vigorously opposed the deflationary
 This

is apparent from a prospective budget drawn up by the Paris brothers in August or September ,
where they allow for the possibility that as-yet undecided further diminutions would reduce revenues
(BN , fol. v).
 Relatively

little is known about Melon’s career (but see Melon  and Melon ). According to
Malézieu, he was a secretary (premier commis) of John Law, then of cardinal Dubois and the duke of



policy, and argued for an inflationary policy, even after .
In  or , he wrote in response to the Paris brothers’ arguments for a diminution a memoir which, he claimed, dissuaded the Regent from following their advice.³⁹
The nominal value of coinage does not matter for foreign trade since it is carried out
by weight. Any misalignment of exchange rates will rectify itself: if a domestic commodity is cheap, foreigners will buy it and bid its price up to its correct level. The
main consequence of a diminution, from the government’s perspective, will be to make
taxes denominated in units of account more burdensome and hence more difficult to
collect. It will also increase the real value of the government’s debt, which will lead
to another default. Melon responds to two concerns that were presumably raised: the
plight of the bondholders and the wages of the army. He dismisses the bondholders
as mainly concentrated in Paris and numerically not important, and he believes them
to be sufficiently diversified so as to benefit from the current economic boom. As
for the army’s wages, they should simply be raised: although it increases government
expenditures, revenues will also be increasing with prosperity.
In one memoir dates May  and another one probably from ,⁴⁰ Melon argues
that the king’s wealth is that of his subjects, and it is impossible to make one rich and
the other poor. If production and trade flourish, taxes are paid more easily; if they are
not, creating new taxes does not create the means to pay them. The lack of circulation
of specie stymies economic activity. Melon blamed the current ills on the reduction
of money. He admits that trade could be carried out with more or less specie, if other
countries were “in a similar proportion” and if there weren’t any nominal debt contracts.
But in the current situation, the only ones to prosper were usurers. Melon disparaged
the fixation on any nominal value of the marc: nothing has any intrinsic value. Some
countered that the value of specie was even lower abroad, but he dismissed the idea by
claiming that in countries like Britain and the Netherlands the stock of currency was
larger than thought, because of inside money. Conversely, the lack of trust of foreigners
in French assets had destroyed the market for bills of exchange in France and reduced
the stock of money even further. He also argues that if the French currency were cheaper,
Orléans (BN NAF , p. ). He was still occasionally consulted on financial matters after . The
manuscript in Arsenal  (identical copies in AN K, n.  and University of Minnesota, Bell Library
 fRe), contains many texts of his written between  and .
 Arsenal

, fol. –. The arguments are repeated in another memoir to the duke of Orléans from
the fall of , ibid., fol. –.
 Arsenal

, fol. – and fol. –



the demand for exports would increase domestic production beyond what it would
otherwise be. He concludes that whatever inconveniences could arise from increasing
the nominal value of money were outweighed by the current ills. He also pleads for
the usefulness of credit, whether it be in the form of bills of exchange or in the various
attempts at public credit that were made in France from the time of Colbert’s Caisse
des Emprunts to John Law’s Bank. He concedes that they were not without flaws, but
he blames the recession on lack of confidence, both between private parties and with
respect to government policy.
A digression to Hume
Some of the ideas generated during this debate made it out of the obscurity of handwritten pamphlets in the cabinets of ministers, into the printed world and into Hume’s
readings. After writing several other pamphlets advocating augmentations or the creation of a new sort of money in  and , Melon gathered some of the more
general theories he had expressed into a “Political Essay on Commerce” published in
, and a revised edition in . The work touches on a number of economic topics,
but treats at great length the effect of augmentations and diminutions. It contained
some provocative statements, such as his assertion that inflation was to be preferred
because debtors should be preferred to creditors.
In , a reply to Melon’s work was published by a writer named Nicolas Dutot.⁴¹
Although Dutot was also a former collaborator of Law, and even more of an admirer
and supporter of his former employer, he took strong issue with some of Melon’s claims,
particularly Melon’s rather casual approach to monetary variations which Dutot strongly
condemned. The controversy soon became muddied by an unrelated debate over the
merits of Law and the policies of his successors. Dutot had been clearly working for
some years on a sort of financial history of the s and s, and for some reason
decided to place large segments of his work in his reply to Melon, at the cost of clarity,
relevance and consistency. Melon died in  and never responded to Dutot, but
Dutot’s swipes at the policies of Law’s successors, in particular the Visa and the deflation
of –, did prompt a response by Paris-Duverney in . This response was
mostly devoted to an attack of Law and a defense of the Paris brothers’ record. Dutot
 Nicolas

Dutot (-) is currently emerging from the shadows of history, thanks to the work of
Antoin Murphy (Dutot , xxiv–xxxiii)) and others. He was the son of a merchant of Cherbourg; he
worked in the Chamber of justice of – and was briefly imprisoned on suspicion of corruption
(Funck-Brentano , ). He later worked in Law’s bank under the Bank’s treasurer Bourgeois.



prepared a rejoinder but died before its publication, and the controversy abated.⁴² It
was nevertheless a resounding debate. Voltaire weighed in with insubstantial remarks,
thereby elevating the debate to intellectual prominence. It was translated into English,
German, and Italian. That Hume relied on these authors for the empirical evidence on
the real effects of money is a testimonial to the impact of the debate on the intellectual
circles of th century Europe.

The qualitative evidence
A striking aspect of the deflation of the s is that the government was very anxious
to know what was happening in the economy. During  and , it made efforts to
collect as much new data as it could on prices and wages, and also utilized the existing
mechanisms of data collection to put together a picture of industrial activity, particularly
in textiles, which was both the most important and the most closely monitored industrial
sector at the time. The information that has survived in the archives is very fragmentary,
but provides a good qualitative and quantitative picture.

Reports from the inspectors and intendants
The reports of the inspectors are a good source for qualitative evidence on the state of
the textile industry. Often, the cover letter for the reports contains remarks on business
conditions and activity. Additionally, the intendants reported on economic conditions
in their provinces, particularly in late . This section draws on both sources.
The textile industry, after suffering from the collapse of John Law’s currency in
the second half of , rebounded well and by  was doing very well. In Sedan,
the number of looms increased markedly in late  because manufacturers, having
lowered their prices and sold many bolts, were induced to bring their looms back into
production. By March , there were virtually no idle workers. At the same time in
Reims, bolts of cloth were sold as soon as they were finished even though prices were
rising, and it was becoming difficult to find workers to face the demand. In nearby
Troyes in July , employers were very busy and would have been even more if they
 Harsin

published Dutot’s manuscript rejoinder (Dutot [] ). Murphy identified a complete
manuscript of the rest of Dutot’s planned opus, covering the period from  to , and published it
(Dutot ).



could have found more spinners and workers, but labor was proving to be harder to
find and more expensive than materials. The intendant in Languedoc claimed as well
that high profits in manufacturing had induced many new entrants into the industry,
driving up wages.⁴³
Activity continued at a strong pace in : in Sedan in January, workers were
becoming extremely scarce and their rates had increased by half. In the summer of 
commerce with the South of France, which had been disrupted by a plague in August
, resumed. In his report for the second half of , the inspector in Sedan noted
that not only were there no idle looms, but many new ones were being built. In Amiens,
the situation was as good as it could be, the price of cloth was higher than manufacturers
hoped for, the number of working looms was rising. But in Beauvais, prices of cloth had
started to fall and activity had fallen: the inspector attributed this to the excessive prices
which cloths had reached, leading to a cutback in demand, along with a mild winter.
He thought this would be a good opportunity for employers to reign in the excessive
demands of their workers. The general impression of a booming economy is confirmed
by a later report of the intendant in Languedoc, stating that the great fortunes made
in trading and manufacturing had induced others to enter into these activities, that
manufactures had multiplied and thus pushed up wages as employers compete with
each other.⁴⁴ In Carcassonne, the clothiers complained in January  that the great
increase in their numbers over the past ten years had driven up competition for laborers
and pushed wages up to the point where their international competitiveness was being
threatened; they sought and obtained a three-year moratorium on the admission of new
clothiers in the city’s guild.⁴⁵
The first two diminutions, in February and April, did not appear to affect retail
prices very much. On May , a report from Paris indicated that silks had fallen %,
ironware %, imported spices %, domestic linens and lace % but the imported
ones not at all. Craftsmen and tradesmen had not reduced their prices at all, although
workers in manufactures did reduce their prices when their masters requested it.⁴⁶
 Trignart

in Sedan, F//, Mar , ; Pasquier in Reims, F//, Aug , ; Barolet in
Champagne, F//, Jul , ; Bernage in Languedoc, G//,  Oct . The Bordeaux wine
trade had also expanded unreasonably according to the intendant, G// n. .
 Trignart

in Sedan, F//, Jan , , Feb , ; Beauvais, F//A, Jan , ; Bernage in
Languedoc, G//,  bre .
 In

nearby Chalabre, it was alleged that individuals with no training had begun hiring workers to produce
cloth of poor quality (F//, n. , ).
 G//,

n. .



The tone of the inspectors’ reports began to change. In Aumale, the price of cloths
was reported in June  to have fallen, and this was attributed to slack demand because
wool was no cheaper and foodstuffs were still expensive. Several reports in August 
emphasized that the price of wool had not fallen. In Reims, prices of cloth had fallen
by  or % but wool was unchanged. In Tours, the high price of wool was leading
manufacturers to leave their looms idle. In Beauvais, activity was reported to have fallen
in the second half of  and the first half of , in part because of weaker foreign
demand. Prices of cloth had initially fallen after the diminution, but then rose by a sixth.
The Trade Council was not alarmed: it expressed the opinion that such fluctuations in
activity were normal, declines did not mean collapse. Periods of high demand could
lead to excess production and rising inventories, but once production slowed down and
inventories were drawn down, normal production could resume.⁴⁷
With the final diminution of September , Dodun asked of the intendants that
they send reports every other week, and although few survive, those that do give us a
picture of the situation in the fall of .
Many intendants reported that prices in general reacted little (Rouen, La Rochelle,
Auch-Pau, Bourgogne) and that the target level of  prices was difficult to reach
(Bourgogne, Dauphiné, Languedoc) although others were more optimistic (Caen). The
prices of grains and foodstuffs remained high (Alençon, Amiens, Bordeaux, Bourgogne,
Caen, Champagne, Dauphiné, Languedoc, La Rochelle, Poitiers, Soissons), as did those
of leather and meat (Caen, Metz, Moulins, Poitiers), and iron (Dauphiné, Roussillon).
Locally produced cloth was sometimes reported to be falling (Champagne, Amiens) but
producers were often reticent, alleging high wages and input prices. As for cloths brought
from other provinces, retailers balked at reducing their prices before factory prices came
down. Some intendants complained that they could do nothing because of high
prices in surrounding provinces (Auvergne, Moulins, Dauphiné). Some doubted that
much could be done without price controls (Auch-Pau, Berry, Bourgogne, Languedoc,
Moulins) although they recognized how dangerous they would be. A few proposed
allowing more foreign imports to drive down prices (Provence, Languedoc). Several
expected prices to fall slowly over time through the effect of competition between sellers
(Hainaut), especially as demand started falling off (Champagne, Flandres, Orléans,
Poitiers), inventories rose (Alençon), and money became scarce (Caen, Champagne).
Some reported difficulties with with workers (Auch-Pau, Berry, Dauphiné). There
were exceptions to this general picture, however. Several reported that the prices of
 AN

F//, June , Aug , Sep  , ; Reims, F//, Aug , .



imported goods adjusted fully (Caen, Provence, Soissons) or at least more than domestic
goods (La Rochelle). The price of silks in Lyon seemed to adjust fully as well. Also,
several border provinces reported that prices were adjusting fast and more fully (Alsace,
Flandres, ironware in Franche-Comté, Metz).⁴⁸
A phrase that appears with increasing frequency is “scarcity of money”. The first
reports in late October come from Champagne and Caen. In January  the intendant
in Rouen reports that trade is languishing and that there is no demand for cloths, even
though manufacturers have lowered their prices, whereas retailers have not lowered
theirs as much. He attributed the situation to the lack of money. At the same time the
inspector in Dauphiné reported that cloth output had fallen by half in three months
because foreign demand had evaporated, foreigners having bought a lot before the last
diminution; and also because workers were reluctant to lower their wages. In Troyes in
March, merchants were still hoping for a reversal of monetary policy; same remark in
Orléans. In Caen in September, the inspector reports that prices of inputs had become
reasonable but manufacturers were not producing for lack of money. In Rouen in
November, the high price of grain and the lack of money are blamed.⁴⁹
By the end of , the government was apparently becoming concerned with the
state of the economy, not just the evolution of prices. In the deliberations of the Trade
Council, increasing attention is paid to the reports of the inspectors of manufactures
about the conditions of the textile industry and the volume of trade at the major fairs.
The reports for the first half of  were consistently gloomy. In Alençon the inspector
blamed it on weak demand and high grain prices. In Caen it was said that inputs were
now reasonably prices and workers more numerous, but very little cloth was sold by
lack of money. In Rouen the lack of money was also being felt.⁵⁰
 Alençon,

Languedoc, Provence : G//, n. ; Alsace: G//,  Oct  ; Amiens: G//,
n. ; Auvergne: G//, n. , ; Auch-Pau: G//-, n.; Berry: G//, n.; Bordeaux:
G//, n.; Bourgogne: G//-, n., n., ; Caen: G//, n. , , , , ;
Champagne: G//, n. ; Dauphiné : BN , fol. v , v; Flandres: G//, n.; FrancheComté:G//, n., n ; Hainaut: G//, n. ; La Rochelle: G//, n.; Lyon:G//-,
n. , ; Metz: G//,  Oct ; Montauban: G//,  Oct ; Moulins: G//  Oct,
 Dec ; Orléans: G//, n. ; Poitiers:G//, n. ; Rouen: G//, n.; Roussillon:
G//, n. ; Soissons: G//, n. .
 Champagne:

G//, n. ; Caen: G//, Nov. , . F//: Rouen,  Jan ; Dauphiné,
 Jan ; Troyes,  Mar,  Apr . Alençon, F//A,  Jul. Caen, F//B, Sep . Rouen,
F//, Nov .
 Alençon:

F//A, Jul , ; Caen: F//B, Sep , ; F//, Nov , .



In early , the government heard rumors of bankruptcies among merchants, and
worried about the possible repercussions on the main trading centers. On January ,
 Dodun asked the intendant in Lyon to be kept informed of any bankruptcies,
and two days later he wrote similarly to the intendants in Orléans, Tours, la Rochelle,
Bordeaux, Rouen, Marseille, and Lille. The reports he received over the next few
months apparently reassured him that the bankruptcies that were taking place would
not have systemic repercussions. Either there were none to report, or they befell marginal
players who had not borrowed much from other merchants. Only Bordeaux reported a
significant number of bankruptcies, but all were linked to a speculative boom in the
wine trade that had developped in the previous years, and saw “cobblers, craftsmen and
even servants” enter into the business without knowing anything about it.⁵¹ By the
summer, a different sort of crisis, that related to grains, would take up Dodun’s full
attention.
The reports of the inspectors indicate that the industry experiences a turnaround
in mid-. In Languedoc, the inspector wrote in August wrote of the difficult times
as having just passed; in Sedan, the inspector dated the turn-around to the apparition
of the new coinage (of February ). In Beauvais, the inspector placed the previous
peak in  and , and the trough in the first half of ; according to him, the
augmentation of coins in May  and the reduction in the seigniorage rate of June
 had given some stimulus to trade.⁵²

The fairs
Much wholesale trade was conducted at the fairs, medieval in origin, which took place
year-round throughout France. The cloth inspectors and the intendants regularly
reported on the fairs, often providing detailed statistics on the volume of sales, prices,
and also the volume of goods brought and the volume sold, and sometimes the rate of
interest at which bills were discounted.⁵³
 AN

G//, Jan. , n. , ; Feb. , n. , ; Mar. , n. , ; May , n. . Bordeaux:
G//, n. , ; Lille, G//, n. ; La Rochelle, G//, n. ; Lyon, G//-, n. , ,
; Orléans, G//, n. ; Marseille, G//; Rouen: G//, n. .
 AD

Hérault, C,  Aug ; F//,  Feb ; F//A,  Jan .

 The

following are the beginning dates of the main fairs: Reims January , Saint-Germain and Rouen
February , Troyes the week after mid-Lent, Reims Thursday after Easter, Caen a week after Easter,
Rouen after Whitsunday, Saint-Denis Monday after June , Beaucaire July , Guibray August , Troyes
September , Saint-Denis October . The fairs lasted one or two weeks, except Beaucaire which lasted



At the fair at Dijon in March , business was very bad, the price of cloth was
down  to % but wool was unchanged. At Beaucaire in late July , there was a
lot of liquidity and rumors of an impending diminution made everything sell for high
prices and in cash; prices increased for wool by  to % since the fair of Pézenas in
June. At Troyes in September , prices had fallen by  to %. In Reims in October
, woolens had fallen by a fifth, but merchants were said to be preparing to increase
their prices. At Saint-Germain (February ) trade was as bad as in October ; a
third less goods were brought than the year before, yet only half were sold. Yet prices
had fallen by a third on average since the previous fair in February  (right before the
first diminution). Money was extremely scarce, and most sellers had to sell on credit,
increasing the risk of bankruptcies which were already common.
In Troyes (Feb -Mar  ) merchants brought less than the previous year but
sold only half of their goods. Prices had still not fully adjusted by the lack of money
was expected to bring them down further. At Dijon in March , more goods were
brought, more was sold but much of it on credit. At Caen (April - ), more goods
were brought than the year before, but trade had not been good and many purchases
were made on credit, as private lenders were reluctant to make loans. The volume was
the same as ; prices had fallen by  to % between April  and May , and
had gone back up by September , but fell again to a total of  to % compared
to . At Guibray in September , much less was brought than previously, prices
had fallen considerably but payments were difficult, several debtors could only pay an
eighth on bills a year or two old. The fair of October  in Saint-Denis had been the
best since , for sales if not for payments.
In November  in Pézenas, rumors of an impending increase on coinage for
January  caused everyone to hoard cash and few transactions were made, although it
was noted that traders who shipped to the Middle East were buying the usual quantities,
and hence their business must not have suffered as much as others.⁵⁴ The fair of SaintGermain in February  was good, but only because fewer goods had been brought
(% less than in October). Only a tenth of the payments were in cash, and a fourth of
the goods were unsold.
At Caen (April -May , ) sales amounted to % less than the previous year.
Very little cash transactions were made but merchants were willing to extend credit and
bankruptcies were avoided; nevertheless, manufacturers returned home determined to
three days.
 This

is corroborated by the quantitative evidence below.



Date rate
Jan 1725
Mar 1725
Jun 1725
Sep 1725
Nov 1725
Jan 1726
Apr 1726
Jun 1726
Sep 1726
Nov 1726
Jan 1727
Mar 1727
Jun 1727

term
(months)
2%
1%
4.5%
1.25%
1%

rate
(p.a.)

5–5.5%
6–6.5%
2–2.5%
5.5%

2
3.5
1
2

22%

2

12%
15%
11%

2.75%

1
2
1
1

12%
12–15%
12–15%

Table : Interest rates on commercial bills at the fairs of Montagnac and Pézenas, –.
Sources: AN F//; AD Hérault, C., C..

lay off more workers. In Pézenas in June , it was noted that the price of cloth had
increased in step with the augmentation of coinage. Nevertheless three fourths of the
transactions that took place were on credit.⁵⁵
Interest rates
Reports on the fairs of the Languedoc province also provide some information on
discount rates for commercial paper, summarized in Table . Rates apparently rose
markedly and peaked in June . This corroborates the talk of “scarcity of money”
from inspectors and intendants, something we would call a credit crunch.
A factor that may have exacerbated the problem was an ill-timed reduction in the
usury ceiling set by the usury laws. The ceiling had been % since ; a reduction
 Dijon

: F//,  Mar . Beaucaire : F//,  sept  and AD Hérault, C.
Reims : G//  Nov . Troyes : G//,  Nov . Saint-Germain: F//B. Troyes
: G//, Mar , . Dijon : G//,  Apr . Guibray : F//, Sep , . Caen:
G//,  May . Caen : F//,  Jun . Pézenas: AD C/.



from % to % had been debated in –, and again in August ,⁵⁶ and Law
attempted in March  to reduce the legal ceiling to % but the edict was never
registered in Parliament and did not come into force. In June , the legal ceiling
was lowered to %, with some resistance from the Parlements.⁵⁷ In June , the
government did an about-face and admitted that this had resulted in lenders either
withholding their funds or engaging in usurious (and illicit) practices: “we have ceded
against our own opinion to the general wishes of our people.”

The role of expectations
Even before the diminutions began, expectations of monetary policy were already
influencing the behavior of producers. The inspector in Champagne noted in July 
that they had never earned so much and had the upper hand over traders who were
looking to invest their funds in fear of a diminution: the latter thought there was less
to lose by holding goods, and they were willing to buy any cloths they found without
examining their quality.⁵⁸
Shortly before the first major diminution in February , there is evidence a
policy of reducing the value of currency was expected. On January , Dodun sent a
questionnaire to the intendants, asking among other things about the prices of grains.
Almost all reported that prices were high, and gave a variety of reasons (mediocre
harvests in the previous two years, a dry spell during the second half of , lack of
fodder), but several (in Châlons, Paris, and Poitiers) reported that farmers were selling
only small quantities because they feared a diminution of coins, and were “keeping their
inventories as an asset liable to a smaller loss.” This suggests that farmers and grain
merchants not only expected a diminution, but also expected that grain prices would
not fall as much in value as currency. The intendant in Dauphiné complained that high
prices were due to the high value of coins and urged the government to lower the coins
“or, if it is necessary for political reasons to leave them as they are, assuage the public’s
fears of an impending diminution.”⁵⁹
Reporting on the Beaucaire fair of late July , the inspector noted that the fear
of further diminutions had led to a frenzy of purchases, and prices had risen by  to
 AN

Mar G ; Mazarine ms. , fol. –.

 See

for example the complaints of the parlement of Provence (AN G//).

 AN

F//, July , .

 AN

G//.



% over the course of the fair, everything being bought cash; wool had risen by  to
% since the fair of Pézenas in early June. In Tours, in early September, the inspector
reported that sellers were unwilling to sell, and buyers eager to buy, because of fears
of further diminutions.⁶⁰ Similarly, the inspector in Troyes reporting on the fair of
September  attributed the high prices of wools to the belief among traders that
it was better to keep one’s funds in goods; those who have money prefer to lend it to
merchants without interest than lending it in annuities at .% (the legal interest rate).⁶¹
As noted above, the government attributed the lack of movement in prices to
expectations of further diminutions, in April and in September . Dodun thought it
important to alter public perceptions of future policy: “Although the public should be
well assured on the fear of further reductions after the letters I wrote on the orders of
the king and His Serene Highness [the duke of Bourbon] in all provinces of the realm, I
am informed that the rumor of another reduction is being spread in Paris and in several
provinces; although all men of good sense can see that this rumor is without basis it
has nevertheless had an effect in some places and serves as a pretext for merchants and
craftsmen (who are probably the authors of this rumor) not to reduce the price of their
goods.” The intendants were asked to find out the names of those who spread the
rumor and forward them to him.⁶² At the same time, on October ,  the Cour des
monnaies made it an offense to propagate rumors of future diminutions, punishable by
a fine of L (Paris-Duverney , :).
Later reports continued to link the fact that prices did not decline enough to
expectations, although not necessarily of further diminutions. In March , the
inspector in Troyes reporting on the recent fair, commented that merchants had been
expecting an augmentation of coinage would be conceded to stimulate trade, and most
of them still expected one. In April, the intendant in Provence expressed the belief
that money was still scarce and would remain so until coinage had come close enough
to its intrinsic value to persuade the public that no further changes would take place.
 AD
 AN

C letter of Huré de la Chapelle, Aug , ; AN F//, Sep , , Sep , .

F//, Dec , .

 AN

G//, May , . It was well known that the mail carried by the post office was opened and
read by government officials. A few days later the finance minister sent to the lieutenant of police of
Paris copy of a letter written by a man named Villeroy-Hubert to his sister in Brittany informing her of
an impending reduction, and asked for the arrest of the unfortunate fellow; he was not in Paris at the
time and it is not clear if the order were ever carried out (AN G//, May , ; Arsenal, ,, fol.
–). Another report contains the names of two Paris merchants who wrote letters “contrary to the
intent of the King’s Council,” and who received warnings (AN G//, n. ).



Reporting on the Beaucaire fair of July , the inspector said that those who had cash
preferred to hold on to it or buy bills of exchange rather than buy goods, since some
prices had still not bottomed out.⁶³
By then, expectations about the course of the economy rather than government
policy may have become more important. Already in October , some merchants
conceded that prices would fall of themselves because of reduced demand, whether
foreign or domestic, and also because increasing unemployment would push down
labor costs. A similar belief was expressed by the deputies, who thought that increasing
pressure from the creditors of merchants would sooner or later force the latter to sell
their inventories and drive down prices, as had happened in  (with an accompanying
raft of bankruptcies).⁶⁴

The government’s reaction
The bewilderment of government officials at the response of prices is well expressed by
the intendant in Bourges, writing in October :⁶⁵
It is true that, far from seeing a reduction in the prices and wages, by a
barely conceivable madness it seems that everyone in concert insists on
doing the opposite of what common sense and reason dictate; since by
giving almost double the weight of silver that one gave twelve or fifteen
months ago, one obviously ought to receive the good at half its former
rate, yet everyone is so accustomed to sell dearly that no one can bring
themselves to lower their prices.
As the economy’s response failed to meet its expectations, the government started
monitoring the economy closely.⁶⁶ The successive diminutions can be seen as further
 G//,

 Mar ; F//  Apr ; AD Hérault, C.

 AN

G//, letter of October ,  to La Tour, intendant in Poitiers; F//,  Dec . The
deputies’ comment on bankruptcies led them to muse that perhaps a further fall in prices was more to be
feared than desired; these perhaps too candid comments were struck out from the final minutes of the
Council’s meeting.
 AN

G//, n. .

In July  the finance minister asked the inspectors for a complete census of all establishments, the
number of looms or workshops, the number of workers employed, the type of product, the price of each
product and where it was sold or exported. On August , he sent to the intendants pre-printed forms
to be filled with data on wages by trade, skill level, and season in a variety of trades for the years ,




attempts to push down prices, although it is clear that from the start the target level of
prices was quite low. If prices didn’t react as expected, what else could be done?
The bully pulpit
On foodstuffs (denrées), the authorities were extremely cautious: “it would be dangerous
to use coercion on this matter for which one must act only with care, discretion and by
way of insinuation (l’attention, les ménagemens et la voye d’insinuation) must be used”;
and elsewhere “as for the necessities of life, one can only bring care and exhortations,
because it would be too dangerous to control their prices”.⁶⁷ Direct price controls were
consistently ruled out (with one minor exception to be described below).
Instead, the government resorted to “moral suasion,” in an apparent belief that only
ill-will, or perhaps a lack of coordination, was hindering a general fall in the price level.
In his instructions to the intendants, the finance minister repeatedly told them to talk
with producers and traders to convince them to lower their prices. He also anticipated
various objections that would be raised and offered counterarguments.
The government initially thought that moral suasion should be exercised along the
production chain. The instruction of April  told the intendants to begin discussions
with sellers of raw materials first, then move on to manufacturers and then traders and
merchants. To the excuse of merchants that they bought their wares at a higher price,
the answer was that they had compensated themselves in advance for this loss by selling
at excessively high prices in recent months in spite of the coin reductions; moreover, it
was only fair that they should bear the same loss on their holdings of goods that their
customers suffered on their holdings of cash or claims on cash. Holders of claims on
foreign exchange profited from the appreciated exchange rate, while most domestic
bills of exchange were denominated in coins of a specific date and thus protected from
the effect of the coin reduction.⁶⁸ The following month, when Dodun learned that
merchants in Orléans were trying to keep the price of sugar and spirits at the earlier level,
, ,  and  and at the élection level (of the  intendances,  were in pays d’élection and
contained a total of  élections). A similar letter was sent on the same day to the inspectors asking
for similar historical data on manufactures (AN G//, July , , August , ). How many of
these forms were actually filled and returned is not clear: I have not found any of the reports from the
intendants, and only one report concerning only the woolen manufactures of Carcassonne (AN F//);
a report on wages for Amiens is listed in the catalogue of AD Somme, C., but is currently missing.
 AN

G//, letter to Bernage, Oct , ; letter to Amelot de Chaillou, Nov , .

 AN

G//, letters to the intendants of April , .



he instructed the intendant to tell them that they had to lower their prices by a third.
⁶⁹ In September , he repeated his instructions to the intendants, and provided
them with additional arguments to use in their discussions with merchants. The point
of comparison for deciding whether a given price or wage was excessive was to be the
level of prices in  and ; merchants’ arguments that their prices needed to fall
in proportion with the cumulative reduction in coin value since  should not be
accepted, because prices had been excessively high in , even accounting for high
coin valuation.⁷⁰
Faced with what seemed like obstinacy or insubordination, the authorities made
themselves somewhat more threatening. Writing to the intendant of Tours, the finance
minister said that he was aware that some merchants were keeping up the prices of sugar
and brandy: “I ask you to summon before you the main dealers of Orléans to ask them
to account for their behavior and at the same time to inform them most seriously that
if they do not promptly fall into line by reducing the price of their wares by a third
or a half, the matter will be handled in a manner efficient enough to stop this sort of
exaction.”⁷¹
Such vague threats could not be expected to have much effect, and by October
Dodun was suggesting other methods, such as sting operations. While admitting that
it would be too difficult to control the prices of their wares, nevertheless merchants
were instructed to bring prices to the level of , and the main task was to identify
the worst offenders. To do so, the intendant was advised to send two or three reliable
individuals secretly to bargain with those merchants, and on the basis of their affidavits,
sentence the merchants to heavy fines and confiscation of the goods. Dodun conceded
that there was no legal basis for such sentences, but any appeals of the sentences would
be handled by the King’s Council in its judicial capacity, which could be relied upon to
uphold the sentences.⁷²
There are a few instances of similarly mild actions. The government, as was well
known, opened private letters as a matter of course. One such intercepted letter by
a merchant of Reims instructed his agents to raise rather than lower their prices; the
finance minister told the local intendant to summon the merchant and threaten him
 AN

G//, letter to Bouville, May , .

 BN

Fr, fol. .

 AN

G//, letter to Bouville, May , .

 AN

G//, letter to Bernage,  Oct . The advice appears in letters to other intendants, such as
Amelot de Chaillou in La Rochelle and Pajot in Montauban (G//,  Nov ).



with being barred from engaging in trade. (G//, letter May ,  to Lescalopier).
Collection of taxes was also used as a means to modify the producers’ incentives via
their budget constraint. In the middle of October the finance minister commented to
the intendants on the high prices of grains, which could be in part attributed to the
sowing season, but also to the greed of the wealthier farmers who were buying up grains
on the markets. There was little to be done about it yet, but by the end of November,
after the sowing season, the intendants were to ask the tax collectors to aggressively press
farmers for the payment of the taille, so as to force them to sell some of their inventories
and bring down prices.⁷³
Timid attempt at price controls
The one exception to the “moral suasion” approach confirms the rule that the government was reluctant to interfere directly with the price-setting mechanism. This concerns
high-end woolens produced in the North of France and sold in Paris stores.
In April  the minister received a notice from the gardes de la draperie (the
officials in charge of the wholesale cloth market in Paris) that, after the coin reduction
of early April which had reduced the nominal value of coins by a little over %, the
price of many woolens sold in Paris had not fallen proportionately. To support their
claim they reported prices before the first reduction of August  and after the most
recent one, of April  for a broad range of fabrics, from cheap razes of Saint-Lô at L
to the luxury scarlet fabrics of the Gobelins at L. The price reductions fell far short of
the cumulative fall in nominal value of coins (/), ranging from % to % with an
average of %. The guards insisted particularly on the most expensive fabrics, those
of the Gobelins produced by Julienne, those of Abbeville produced by the Vanrobais
firm, and those of Sedan produced by the widow Pagnon and Rousseau. They thought
that the first should sell at L instead of L, and the others at L instead of L; “and
as soon as one attends to reduce the price of fabrics of these three manufacturers the
others will conform.”⁷⁴
Dodun latched on to the notion that forcing down the prices of the high end would
naturally move the whole price distribution. It decided to establish the right price for
the four manufacturers (Julienne, Vanrobais, Pagnon, and Rousseau). The deputies of
the Trade Council pondered two briefs presented by the Vanrobais firm to justify the
price they were setting.
 AN

G//, letter of Oct ,  to the intendants.

 AN

F//, n. .



This manufacture was founded in , when Louis XIV authorized a Dutchman
named Josse Vanrobais to settle in the northern city of Abbeville with a number of
Dutch workers and set up production of fine woolen fabrics. The goal, a classic
instance of Colbert’s mercantilism, was to create a domestic industry that could compete
with the Dutch and English industries. The firm was given a royal privilege, giving
it exclusive right to produce these fabrics in the town of Abbeville, and granting it
various exemptions and tax breaks. The privilege ran for twenty years and was renewed
repeatedly, for Josse and after him for his sons Isaac (who died in ) and Josse. In
 the firm was run by the younger Josse and the children of Isaac.
The Vanrobais received a letter from the minister, asking them to reduce their prices,
and making the threat that foreign competitors might be allowed to import their fabrics
if the Vanrobais did not comply. The Vanrobais argued that they could not reduce their
prices as much as was asked because all their costs were high, from wages which were
 to % higher than in , to Spanish wool whose price in Spain had not changed
but was more expensive in France due to unfavorable exchange rates. They argued that
their cloth had always sold for roughly the price of a half marc of coined silver. As for
the threat of foreign imports, they dismissed it, claiming that the price of comparable
English fabrics was higher than theirs.⁷⁵
A second document admitted that they had not always stuck to the half-marc rule,
but this argued in their favor: their cloth sold at L when the marc was at L, even
though they could have charged more. Their final argument was to note the English
were unable to undercut their price even though “good policy would demand that
they set their price below that of the Vanrobais so as to introduce their fabrics into the
kingdom to the detriment of national producers.”
The Trade Council nevertheless decided that the Vanrobais should be forced to sell
their cloth at L the ell,⁷⁶ and that Julienne should lower the price of his cloth to L,
in spite of his royal privilege: “the intention of the king [in granting such privileges] has
never been that they should be used to vex the public,” and he might lose his privilege
if he refused to follow these orders. It was also decided to allow retailers a mark-up of L
on the Abbeville and Sedan cloths, and .L on the cloths of Julienne; and to tell them
to sell imported cloths of similar quality at the same prices. Vanrobais wrote back to
accept the decision, as did Julienne. The Sedan manufacturers, Pagnon and Rousseau,
 AD

Somme, C. They also provided, as requested, the history of the price of their fabric since .
Similar arguments were made by the manufacturers of Sedan a few months later (G//,  Jan ).
 The

French measure, the aune, was .cm, or .% longer than an English ell.



saw their cloths set at L, although their kept their price at L.⁷⁷
The matter came up again after the diminution of September . The finance
minister wrote on October  to the Trade Council, asking the deputies to give their
opinion on the appropriate price at which cloths of the main manufacturers should be
set after the latest decree. The Vanrobais had of their own lowered their prices to L the
ell, and Pagnon at L. The deputies decided to follow the same method as in April and
consider the costs of inputs. They noted that foreign exchange rates having improved,
the price of Spanish wool, cochineal and other imports had fallen, but wages were still
very high. They proposed setting the prices of Vanrobais cloth at L, Pagnon’s cloth
at L, and Julienne’s cloths at L and L depending on the quality. At the meeting
of the Bureau on October , the commissioners suggested that the prices should be
reduced by % since coins had been reduced by that amount, but the deputies insisted
that wages (which affected not just the cost of labor, but also the prices of tools and
other inputs) were still too high and no one knew how long it would take for them to
come to a reasonable level.
On Oct. , the Vanrobais wrote to Dodun to say that they could not reduce their
prices below L, on account of the price of Spanish wool being  reales (as opposed
to  to  in ). Wages could not be reduced even by s, as they had not increased
as much as elsewhere, and had already fallen over the previous four months.⁷⁸
The finance minister had also asked that the price of other fabrics be examined. A
visit to the main draper of Paris convinced the deputies that prices of fabrics made in
Picardy (serges, barracans, camlets) had fallen by % and required no further action;
the deputies also noted that it would be difficult to set the prices of such cloths because
of the variability in quality, a remark that the commissioners endorsed. Those made in
Berry did not seem to have fallen in price as much, but the deputies preferred to wait
until the Saint-Denis fair to ascertain prices. As for silks and other luxury fabrics, it was
decided to send for more information from the producing regions (Tours and Lyon).⁷⁹
At the next meeting a week later, the chairman of the Trade Council reported that
the finance minister had approved the prices set by the Council, but worried about
putting no expiration date on the price ceilings. Should the price of inputs fall further,
the manufacturers would have no incentive to continue to force wages down and lower
their prices. The minister had in mind a whole schedule of maximum prices moving
 AN

F///, p. –; F//, n.  to ; G//, n. .

 AN

F//.

 AN

F///, p. –. F//,  Oct .



down over time until the desired levels were reached. After the Paris lieutenant of police
had gathered information on the prices at which the cloths had sold in  and  in
Paris shops, the Council considered the matter again. The chairman proposed that the
Vanrobais cloths be set at L from December , L from January , and so forth until
they were brought to their  level of .L. The Vanrobais firm, given the opportunity
to comment on this plan, repeated its claim that it could not presently lower its prices,
and argued that the price of wool in Spain was higher than in  by  to %, and
that the wages it was paying its workers could not be lowered any further.
The deputies weighed in: not only were wool prices higher in Spain, but also foreign
exchange was higher. But how could the price of foreign exchange be different when
the marc of coined silver had the same nominal price? The reason, they explained, was
the spread introduced by the seigniorage rate. According to them, foreign exchange sets
itself on the mint price, which was % lower than the price of coins in , whereas it
was only .% lower in . As for wages, the Vanrobais had been able to lower them,
but only because of their position as a local monopsonist in Abbeville. Producers in
other places “are not the masters of their workers: the latter work for the manufacturer
who offers the highest wage; spinners demand a certain price to spin wool, otherwise
they spin cotton.” And wages were  to % higher than they used to be, and were
likely to remain so as long as the price of necessities remained high. The deputies
concluded that the price of cloth could not be reduced further.
A general discussion followed. The Council admitted that pushing down prices as
proposed could drive manufacturers out of business; and even if the richest ones could
absorb losses, the smaller ones could not. Nevertheless, it was decided to announce one
further reduction in prices of cloth for January , and to decide later whether or not to
go further.⁸⁰
The finance minister also asked the Council if it was possible to set the prices of
cheaper cloths as well. To this effect the lieutenant of police once again collected data
on these prices and compared them with their level in –. It was found that they
were generally more expensive than before; and, compared to the prices of the more
expensive fabrics (which, it was thought, had fallen by about % since the start of the
coin reductions) some had fallen by more and others by less. But the deputies were
firmly opposed to any attempt at fixing those prices. They first argued that high costs
were a factor here as well, both wages and wool prices. Even those fabrics that used
French wool also faced high prices, and the deputies recalled that wool prices, which had
 AN

F///, p. –.



declined in February and March, had climbed again at the time of the new wool harvest
in May and June. They conceded that the margins of both producers and retailers
could be smaller, and it might be desirable to reduce them, but it was not feasible. The
difference they saw with the high-end fabrics of Abbeville and Sedan was that the latter
were a homogeneous commodity, of constant quality. Other fabrics, even coming from
the same town, could vary considerably in quality and workmanship, and the price vary
consequently by as much as %. How could the price be set for such items? If it were
set according to the best quality, then the public would pay too much for the lower
quality. If it were set according to the lower quality, the high quality producer would
not be able to compete. And “if the good and bad fabrics are set at the same price, it
will follow that only the bad ones will be produced and our manufactures will decline
from the high state of perfection that they have reached.” The commissioners were
persuaded by these arguments and unanimously agreed that setting the prices of other
cloths was not feasible.⁸¹
Some of the manufacturers who were subjected to the price controls pleaded their
case directly. The widow Pagnon and her son wrote to the Bureau to explain what
the costs of their inputs were, and that the cost of producing an ell of cloth was L
higher than in –, or .L. The deputies commented on her letter and essentially
agreed with her. Any attempt to force down the price of wool by forcing down the
price of cloth, they said, would result in either manufacturers ceasing to produce or
using an inferior wool, or else wool importers ceasing to bring wool to the market. The
widow Pagnon’s plea and the deputies’ comments were taken up at the Bureau’s meeting
on January , and the commissioners unanimously decided not to debate the matter.
Another memorandum, from February, details the costs of production and arrives at a
total of .L (including overhead and capital costs); but the Bureau again stuck to its
decision.⁸²
The rejection of the widow Pagnon’s appeal did not mean that she obeyed. In fact, a
few weeks later a report by the lieutenant of police showed that the prices set in October
were applied by Vanrobais, but not by the Sedan manufacturers Pagnon and Rousseau;
as for the prices set for January , they were ignored by all three. The matter was referred
to the finance minister to see what he wanted to do about it. The widow Pagnon was
summoned by Dodun on Feb. , , but I have found no trace of the outcome.⁸³
 AN

F///, p. –; F//,  Nov .

 AN

F//, n. , , , , , .

 G//,

n. -; AN F//, n. ; G//, Feb. , n. .



These debates reflect divergences between deputies and commissioners, and it is
interesting to note that the business community’s views won out in the end. The strong
temptation to intervene for some prices (those visible in Paris to policy-makers, at least)
was counter-balanced by the practical difficulty of setting prices for goods of varying
quality. The only case where it seemed feasible to intervene concerned items produced
by monopolists, where there was some hope of squeezing profit margins with the threat
of withdrawing part of the privileges. How much pressure was the government really
willing to exert? In the case of the Vanrobais, whose privilege was coming up for
renewal in , the government attached great importance to the manufacture: when
the Parliament balked at certain clauses of the proposed privilege (in particular the
tolerance for Vanrobais’s protestantism), Dodun wrote that “the view to keep a man as
necessary as Mr. Vanrobais must make us pass over many considerations, and it is of
an extreme importance not to create any difficulties that would impel him to take into
foreign countries a manufacture unique of its kind and which can be regarded as one of
the main sources of wealth of the realm.”⁸⁴ In the event, the pressure brought to bear
had only limited effect, and the orders were outright ignored by some.
After the May  augmentation, the prices of these high-end manufacturers were
quick to move. In July, it was reported that Vanrobais sold his cloth at .L and
Rousseau and Pagnon at .L; Vanrobais agreed to lower his price to ,̌ but Rousseau
and Pagnon again ignored the government’s summons.⁸⁵
Labor relations
While the government showed itself reluctant to intervene in markets and made only
timid attempts to enforce its price controls for manufactured goods, it was more willing
to use force when it came to wages. In the April  instruction, he warns against
“cabals” formed by workers to prevent a fall in wages: “a few examples of severity will
easily bring them back to their duty, as I just experienced in a similar case in Paris
concerning the silk workers of Paris.” Dodun was referring to the following incident.
In March , the manufacturers of stockings of Paris gathered and decided that,
since the prices of their raw materials had only slightly fallen, they had to force a wage
cut on their workers. They announced to their workers that the rate for stockings would
be cut by s for silk stockings and .s for wool stockings. Upon hearing the news, a
number of workers walked out and persuaded the others to contribute  or s to a
 AN

G//, Jan. , n. .

 AN

F//,  July and  Aug .



fund to support them while they were on strike. Among the organizers, a secretary
allegedly kept a list of the strikers while the treasurer collected the funds (Barbier ,
:). To avoid arrest, they established themselves in the precinct of the Temple, which
by tradition was a sanctuary. The treasurer was alleged to be one Étienne Michel, and
the fund amounted to L per week for about  strikers. This forced the employers to
rescind the wage cut, and they wrote to the finance minister to ask him to intervene.
On March  the lieutenant of police was asked to place Michel under arrest. Michel
was promptly imprisoned at the For L’Évêque and interrogated.
Michel, under interrogation, denied having anything to do with the strike. He
had been working for the same employer for four years and had not ceased work, even
accepting a reduction of s on his previous piece rate of L per silk stocking. He had
heard of the strike, and thought that some of the workers gathered at a tavern in the
Temple area where he lived. He also admitted having contributed to what he thought
was a fund for sick workers; it was pointed out to him that there already existed such a
fund, but he claimed that it was not unusual to see workers collecting contributions
for charitable activities. He provided the name of the man in charge of the collection,
Lestoque, and the names of a half dozen strikers, including Lefèvre father and son.
Curiously, the four men named by the employers as being leaders of the cabal do not
seem to have been arrested.
The police suggested arresting those three, and orders were soon sent to that effect.
Lefèvre father and son were arrested on April , and Hubert Lestoque on April .
Lestoque admitted having stopped working for a few days to protest the cut in wages,
but claimed that he had been working at the new rate for three weeks. He denied any
knowledge of the conspiracy, but admitted having collected some funds for sick workers,
although he could not name anyone who had contributed.
On April , the officials of the corporation of hosiers wrote to the lieutenant of
police to ask for the release of the men arrested. The arrests had had the desired effect, all
workers had returned to work and the cabal was completely ended. Separately, Michel’s
employer wrote to vouch for his worker, assuring that he had never given cause for
complaint, had not taken part in the cabal, and had been maliciously implicated. Rather
than free the men immediately, the government preferred to send them to the hospital
for a while; finally, all four arrested workers, after tearful pleas from their families, were
deemed “sufficiently punished” and were freed in June.⁸⁶
 AN

G//, letters to Maurepas and d’Ombreval of March , April , April , , May , , June ,
. Arsenal , –. AN G//, n. –.



A similar case occurred in the paper industry in the Dauphiné. In June , workers
at several paper mills demanded a wage increase of L per year, and when employers
refused the workers walked out. One of the employers who refused to cede wrote to
the Trade Council which referred the matter to Dodun. On July , Dodun wrote to
the intendant in Dauphiné and asked him to arrest those workers that seemed the most
guilty “for the length of time that you deem appropriate,” and also to put an end to the
“bad example” given by the “reprehensible ease” with which those employers conceded
the raise. Fontanieu had two workers arrested, and also had the local authorities in
Crest give a verbal dress-down to the named employer and threaten him with severe
punishment should it happen again.⁸⁷

Quantitative evidence
Prices
I now turn to the quantitative evidence on the reaction of prices to the diminutions.
Foreign exchange markets
Coins were made of gold and silver; this is the essential difference between the regime
of the time and modern systems. This should have implications for the behavior of the
price of silver and gold bullion. Elementary logic suggests that the market price of either
metal must have immediately fallen between the mint price and the mint equivalent:
had it been lower than the former, minting would have occurred, increasing the money
supply; had it been higher than the latter, melting would have occurred.
I do not have any evidence on these market prices, but the closest analogue can be
found in foreign exchange markets. These markets traded claims on foreign (gold or
silver) currency delivered in a foreign city at a future date (typically one or two months
forward). Give or take the costs of arbitrage (shipping, insurance, and the time cost),
the mint prices and mint equivalents should have placed the same bounds on the price
of foreign currency.
As it turns out, the one market that systematically showed immediate and complete
adjustment to the diminutions was indeed the foreign exchange market. We do not have
 AN

F///, p. –; AN G//,  July  letter to Fontanieu; BN Fr , fol. .



very good direct evidence on the market in Paris, but we do have series of quotations
from two foreign markets, London and Hamburg. Figure  shows the quotations for
French livres (units of account) in London, twice a week. For comparison, I also plot
the parities for gold and silver. Each metal has two parities, depending on whether one
is minting or melting French coins: the difference between the two lines reflects the
seigniorage charge levied by the French mints (in other words, the mint price was always
lower than the mint equivalent; Britain did not charge any seigniorage). These parities
do not reflect costs of physically shipping gold or silver from London to Paris, so they
are narrower than true gold (silver) points. Figure  shows the same thing for Hamburg,
with only one pair of parities since Hamburg used only silver currency.⁸⁸
The one source for foreign exchange quotations in Paris comes from Dutot ([]
), but he usually provides a range within which the London quotations varied over a
certain period of time. I have represented this as rectangles in Figure . The parity is
the one calculated by Dutot himself.
Up to the few days’ delay in transmitting information, we see that the foreign exchange quotations adjust immediately and fully to the diminutions and augmentations.
The effect of the exchange rates on the trade balance is clear from the available
annual data on merchandise exports and imports (Figure ). Exports were booming in
, but collapsed in , and the balance turned negative, a rare event in this period.
The collapsed in foreign demand for French textiles was noted by the intendants in
Poitiers and in Lille in October .⁸⁹
Stock market
France did not have a full-fledged stock market until September . Although an
informal foreign exchange market had existed for a long time, and bankers’ account
books contained quotations for various government securities, it took John Law’s System
to see the emergence of a centralized trading place. In the aftermath of his System
the market remained unregulated, but a bout of severe speculation and suspicions of
manipulations led the government to create a true securities market, with an assigned
location, designated brokers, opening hours, and regulations. This market opened on
October , , and operated until .
 There

was a time lag before the news reached foreign cities. For Hamburg, the regular post took nine
days; for Amsterdam, five days. The time to reach London depended on the winds over the Channel:
reaching Calais alone took three days (AE M&D France , fol. ).
 G//,

n. ; G//, n. .



40
quote in London
silver points
gold points

livres tournois / £ sterling

35

30

25

20

15

10
1721

1722

1723

1724

1725

1726

1727

1728

1729

1730

Figure : Exchange rates on Paris in London, –. The lines indicate the silver and gold
points. Source: Course of the Exchange.
2

1.9

livres tournois / mark banco

1.8

1.7

1.6

1.5

1.4

1.3

1726

Apr

Jul

Oct

1727

Figure : Exchange rates on Paris in Hamburg, . The lines indicate the silver points. Source:
Geld-Cours, Staatsarchiv, Hamburg.



34
quote in London
quote in Paris
Dutot´s par

32

livres tournois / £ sterling

30
28
26
24
22
20
18
16
1723

1724

1725

1726

1727

1728

1729

1730

1731

1732

1733

1734

Figure : Exchange rate on London in Paris, –. Source: Dutot ([] ).

200
imports
exports

180
160

millions livres

140
120
100
80
60
40
20

1720

1725

1730

1735

1740

Figure : Exports and imports,  to . Source: Romano (), AN F//A.



2.4
2.2

index = 1 before July 1723

2
1.8
1.6
1.4
1.2
1
0.8
0.6
0.4
1722

1723

1724

1725

1726

1727

1728

1729

1730

Figure : Index of the price of shares in the Compagnie des Indes, –. Source: Gazette
d’Amsterdam, (Marais –, :, , ), (Buvat , :–), BN Fr , Arsenal
–, Bibliothèque historique de la Ville de Paris mss. .

The only security whose price is reported with any regularity is the share in the
Compagnie des Indes, survivor of John Law’s System. The quotations are found in
contemporary diaries or handwritten newsletters, as well as in the Gazette d’Amsterdam,
a French-language newspaper published in Amsterdam. It reports prices regularly only
from . Figure  plots the quotations I have been able to find, normalized to  in the
period from  to July , before the first diminution.
Although the daily price variations are large, they do not show any evidence of
reacting to the diminutions. The Company’s commercial prospects were still very
uncertain, and the market seemed prey to rumors and price manipulations. Importantly
the share’s dividend, set at L in  when the firm emerged from its reorganization,
was not changed during this period. At its meeting on Dec. ,  the Company
decided to maintain the dividend at its current level. It was still counting on being able
to raise the dividend in the future, but it noted that keeping it at the same nominal level
was already a real increase, and it preferred to wait until profits were sufficiently reliable



all goods
excluding wheat
currency index

1

index = 1 in Jan 1724

0.9

0.8

0.7

0.6

0.5
1724

1725

1726

1727

1728

1729

1730

1731

1732

1733

1734

Figure : Seasonally adjusted index of six commodities sold on the Paris Hallesmarket, monthly
data, –.

before raising the dividend to a new, permanently higher level.⁹⁰
Commodity markets
When Dutot ([] ) wrote his response to Paris-Duverney, he attacked the deflationary policy, in part because, he claimed, prices failed to adjust. He provided
data on prices in the Paris market for wheat, bread, eggs, pork, candles and butter:
monthly averages for – and daily prices for the months in which diminutions or
augmentations occurred (February, April and September ; January, February and
May ).⁹¹ The source he cites, a manuscript compilation of bi-weekly market prices,
has survived (although the volume for year  has disappeared).⁹²
 AN

G//.

 He

also provided daily data for the wheat crisis period of August and September . The price he
reports for wheat and bread is the maximum quoted price; for other goods it is an average of the day’s
high and low.
 The

manuscript is Bibliothèque de l’Institut, Paris, mss. -, and covers the years  to .
Another copy of the year  is in the Bibliothèque nationale. The catalogue of Dutot’s library, sold



This original source is much more detailed than the data provided by Dutot (it
contains prices for a half-dozen grains, as well as various other foodstuffs, twice a week),
but since the  volume is now missing, I can only extend the monthly averages for
the six commodities chosen by Dutot to cover the full period of diminutions. Figure 
plots an index of these six commodities, as well as an index excluding wheat. The
stepwise graph represents the index of the livre’s ME.
The graphs make clear that the market prices of commodities did not react instantaneously to the diminutions; nor did they react fully, even over a one or two-year
horizon.
Dutot also provided prices from each market day (twice a week) for the months in
which the diminutions took place (see Table ). An asterisk identifies the first market
day after each diminution. The lack of reaction of prices is apparent.
It should be noted that the grain markets were very much competitive, uncontrolled
markets. The government was extremely weary of interfering with market mechanisms
when it came to grains, and did so only in periods of emergencies: and even then, it
tried to do so (as in ) by shipping large quantities of grains from other provinces or
abroad, rather than by controlling prices directly. In normal times, the marketplace saw
hundreds of buyers and sellers meet twice a week and carry out their business unfettered,
except for a regulation requiring them to use the offices of official measurers when the
trade was concluded.⁹³

The textile industry: prices, output and wages
The sources on the textile industry
As explained above, the inspectors of manufactures sent a report to Paris twice a year.
For reasons unknown to me, many of the reports have not survived in the archives. The
cloth industry for which most reports are available is the woolen industry.⁹⁴ This is
therefore the industry on which I focus. It represented somewhere between  and %
of all French industry in the th century, and which itself accounted for  to % of
total output (Daudin , , ).
after his death, lists a manuscript État des grains vendus à Paris, -.
 The

measurers provided a third-party verification of the quantity and quality of the grain purchased.
They reported prices and quantities every market day to the market authorities, and are the ultimate
source for the price and quantity data of the Institut manuscripts.
 A

few more reports can be found for the linen industry; they will be added to this study.



wheat
low

1
5
9
12
16

Apr 1724
∗

1
5
8
12

27.5
23.5
25
24.5

3.25
3.25
3.25
3.25

Sep 1724

6
9
13
16
20
23
27
30

25
25.25
26.5
27.25
26.75
25
25.75
26

3
3
3.25
3.25
3.25
3.25
3.25
3.25

15
18
22
25
29
1
5
8
12

24.5
24
24
23.25
23.25
23.25
23.25
23.25
23

Feb 1724

∗

∗

May-Jun 1726

∗

12
12.5
12
12
12
12.5
13
13
13

mode

bread
high
low
3.75
3.75
3.5
3.5
3.5

high
25.5
25.5
25
24.25
24.5

20
18.25
19
18.5
20.5
19.9
21
22
21

2.75
2.75
2.75
2.75
2.75
2.75
2.75
2.75
2.75

2.5
2.5
2.5
2.5
2.5
2.5
2.5
2.5
2.5

eggs
avg
52.5
52
57.5
65
70

pork
avg
6.75
7.75
7.75
7.75
6.75

candles
avg
14.5
14.5
14.5
14.5
14.5

butter
avg
95
75
80
85
85

14.5
14.5
14.5
14.5

85
85
92
90

29
29.5
30
34
34
35
32
36.5

6.75
6.75
6.75
6.75
6.75
6.75
6.75
6.75

10.5
10.5
10.5
10.5
10.5
10.5
10.5
10.5

60
63
60
72
66
65
63
65

24
23
25
23.5
23.5
23.5
25
24.5
23.5

5.75
5.75
5.75
5.75
5.75
6
6.25
7.25
6.75

9.75
9.75
9.75
9.75
9
9
9
9
9

46
46
46
46
43
42
42
40

Table : Prices of various commodities at the Halles market, each market date, February, April
and September . The asterisk marks the first market date after each diminution. The units
are sous per pound for bread, pork and candles; livres per bushel (septier) of wheat, per hundred
pounds of butter, and per thousand eggs. Source: (Dutot [] , ), Institut mss. .



The report listed each town or area where manufactures were located, the types of
cloth they produced (length and width), the type of wool used, prices of wool, prices
of cloth per bolt or per ell, the number of producers, number of working and idle
looms, and number of bolts of cloth produced. The reports will eventually allow me to
compute price and quantity indices on a semi-annual basis. But, as noted, many reports
are missing. Some of the missing information can be filled in, in the following manner.
For each district, the report concludes with a total of looms working and bolts of cloth
produced, and compares with the same numbers from the previous semester.⁹⁵ Thus
I have more data on looms working and bolts produced (although the bolts can be of
very different lengths) than I have full reports. As a first step, I construct indices for
these two series first.
To deal with the unbalanced panel, I use a state-space model. For each collection
of regional series (bolts produced, looms working), a general index is modeled as a
common factor with local linear trend (Harvey ) The model, which allows for
seasonality, and includes the Hodrick-Prescott filter as a special case, is described in the
appendix. The purpose of the exercise is to represent the data in a parsimonious way,
rather than fit a statistical model. Hence, and given the small amount of data, I keep
the number of parameters small, and estimate them by maximum likelihood.
Results
Figure  shows the working looms series for each district (log-normalized) and the
computed index. Figure  presents the analog for bolts of cloth.⁹⁶ The districts
represented ( in all) cover almost all of France, although the data is fragmentary as
can be seen from the graph.⁹⁷
The two indices are shown, with standard error bands, on the same graph in
Figure . They are remarkably close, particularly for the period of interest for which
there is a lot of available data. The uncertainty is greater at the beginning and at the
end of the period, where fewer reports have survived.⁹⁸
 By

the late s, as the government realized that there was a seasonal pattern in the data due to
agriculture’s competing use of labor during the summer, numbers from the same semester in the previous
year also appear.
 The

number of working looms can be interpreted as an observation at a point in time, usually toward
the end of the semester. the number of bolts produced corresponds to the production over the semester.
 The
 For

percentage of available observations is % for :s – :s, or % for :s - :s.

reasons that are unclear, the surviving reports in the archives become sparse in the s and s.



working looms
2
1.8
1.6
1.4
1.2
1
0.8
0.6
0.4
0.2
1715

1720

1725

1730

1735

1740

Figure : Number of working looms in the various districts of France (each series normalized by
bolts
of cloth
its sample mean).
the thick line is a national
index.
2
1.8
1.6
1.4
1.2
1
0.8
0.6
0.4
0.2
1715

1720

1725

1730

1735

1740

Figure : Number of bolts of cloth produced in the various districts of France (each series
normalized by its sample mean). the thick line is a national index.



1.5
looms
bolts
1.4

1.3

1.2

1.1

1

0.9

0.8

0.7
1715

1720

1725

1730

1735

1740

Figure : Index of working looms and index of bolts produced.

The series show little or no trend over the  years covered. Some (possibly insignificant) fluctuations appear throughout the period, but two sharp recessions are
noticeable, one in  during the collapse of John Law’s system, the second during
the period under study. The magnitude of the decline from mid- to mid- is
almost the same for both indices, about –%. This was a substantial recession, if not
a depression.
It is also interesting to note that the sharp rebound from the  crisis seemed to
peak in either the first or the second half of . This confirms the qualitative picture
given above of very strong activity up to , but it suggests that the onset of the
recession may have coincided with, or even preceded, the beginning of the deflationary
policy.
Preliminary results suggest that these aggregate series, which do not account for
differences in prices between the various bolts of cloth, nevertheless give a reasonably
good picture. I have computed a common index for  price-weighted series of ells
They are more abundant for the end of the century. Computing an index of activity in the woolen
industry up to  is feasible, but beyond the scope of this study.



ells (weighted)
ells (unweighted)
bolts

1.3

1.2

1.1

1

0.9

0.8

0.7

0.6
1715

1720

1725

1730

1735

Figure : Comparison of weighted and unweighted quantities of cloth produced for a
sub-sample of districts.

produced, as well as for the same series but unweighted, and for the corresponding
number of bolts (bolts were of different lengths depending on the type of cloth). The
comparison is shown in Figure .
Producer prices
For the same  series, I have computed a common index of quantity-weighted prices.
The quantities are are measured in ells, prices are in units of account per ell. (I ignore
differences in width). The result is shown in Figure . I also plot an index of the
diminutions, set to coincide with the price index in :s. It is apparent that prices
fell for two years, and never fully adjusted to the diminution. In :s, however, there
is a noticeable uptick in prices.
Wages
The government was particularly concerned about the evolution of wages, which it saw
as key to lowering the price of manufactured goods because high wages were a frequent



1.6
1.5
1.4
1.3
1.2
1.1
1
0.9
0.8
0.7

1715

1720

1725

1730

1735

Figure : Weighted price index of bolts for a sub-sample of districts.

1712

1716

1719

1723

July 1724

Dec 1724

1726:s1

1726:s2

wages
Carcassonne

1.00

0.91

1.25

1.27

1.26

0.82

0.78

0.88

Montagne
Mazamet
Dourgne
all

1.00
1.00
1.00
1.00

0.86
1.02
1.05
0.89

1.03
1.03
1.08
1.12

1.23
1.48
2.07
1.27

1.24
1.49
1.79
1.26

0.91
1.04
1.43
0.88

Carcassonne

1.00

0.87

1.94

1.53

1.31

0.91

0.84

1.10

w/p

1.00

1.04

0.64

0.83

0.96

0.91

0.94

0.80

ME

1.00

1.00

1.50

1.88

1.25

1.04

1.04

1.24

output prices

Table : Wages in the woolen industry of the Carcassonne district. Source: AN F//.



pretext for keeping outpur prices up.⁹⁹ Many inspectors and intendants reported
that wages remained high (although some, as in Alençon and Alsace, said they were
reasonable), and in Provence workers were said to rebel and collude against any attempt
at lowering wages. The reasons given vary. As we saw, the government believed that
collusion was at play in some instances. Many said that the high price of foodstuffs
drove up the subsistence wage. Some intendants argued that the demand for labor
was higher, either in agriculture (Provence) or in manufacturing where employers were
bidding up wages (Auch and Pau), particularly new entrants (Languedoc, Poitiers). The
intendant in Soissons pointed to a lower supply of labor, due to two causes. One was
demographic, namely an undersize age class due to the wars that occurred - years
before. The other was an income effect: since , workers were used to living well, and
it took much higher wages than before to convince them to provide additional labor:
“since day laborers earn in three days enough to feed their families for a week, they have
to be bid up and will not be moved to work the rest of the week except with high wages
and even then one does not always convince them.”¹⁰⁰ This idea, sometimes expressed
as a sort of habit persistence, is echoed by a senior official of the finance ministry during
a meeting of the the Trade Council on Oct ,  when he complained that laborers
in the textile industry had grown accustomed to living better than befits their station;
the finance minister also claimed that workers had acquired expensive consumption
habits.¹⁰¹
Although Dodun had sent detailed instructions for wages to be collected, I have
found very little data in the surviving archives. Only one report, for the district of
Carcassonne, contains abundant data not only on wages, but also on the costs of all
other inputs, and on number of laborers, for selected years.¹⁰² Carcassonne’s woolen
industry was very large. It produced a range of cloths, mostly of middle and high quality
for export to the Near East, and lower quality for domestic consumption.
 AN

G//, Aug , .

 Alençon,

G//, n.; Alsace, G//  Oct ; Auch-Pau, G//-, n.; Languedoc and
Provence, G//,  Oct ; Soissons, G//, n. . The intendant in Soissons even considered
fiscal policy to increase the labor supply, but raising the lump-sum taille levied at the parish level would
only fall on farmers and yeomen because they were outnumbered by the day laborers and tax collectors
found it easier to collect from them. This intendant, named Orry, was finance minister from  to .
 AN

F//*//; BN Fr, fol. .

 The

dates are , , , ,  before and after the September diminution. Another report
contains wage data for the first and second semesters of , although the categories of laborers and the
units in which wages are expressed do not match exactly.



The data is provided for various districts: Carcassonne and nearby towns (where the
exporters were concentrated), the Montagne of Carcassonne, Mazamet, and Dourgne.
The wage rates are mostly expressed as piece rates (by weight of wool, length or bolt of
cloth) although some are expressed as daily wages. The report also gives the quantity of
cloth produced and the quantity of wool needed for each type of cloth. I can infer the
quantity of labor provided for each type of labor; in the case of daily wages, I multiply
the known number of laborers by the number of working days in a year, assumed to be
.¹⁰³ This allows me to compute a weighted wage index, although the results are not
very different if one uses an unweighted index. The results are shown in Table ; since I
also have the price of output, I compute a ratio w/p .
The data strikingly confirm the qualitative evidence on wages. In particular, from
 to July , after the first diminutions had reduced the nominal value of currency
by a third, wages had not reacted at all. After the September diminution, they fell
by %, a substantial fall but still short of the % reduction in nominal values. In
real terms (deflated by the price of output), they had actually increased. But, after
the reversal in June , when the nominal value of coins increased by %, wages
increased by % and output prices by nearly the full amount.¹⁰⁴
From the wholesale markets
Evidence from the regional fairs is more difficult to interpret, since these were wholesale
markets which did not have to clear (merchants could and did hold inventories from
one fair to the next). Nevertheless, the quantity of cloth brought to the cloth-hall of
Paris (the main market for cloth in the city) shows the same pattern as the output series
(see Figure ).
Data from the fairs of Pézenas and Montagnac, held in the south of France near
Montpellier, in a major textile-producing area, allow me to compute a quantity-weighted index, shown in Figure . ¹⁰⁵ The pattern is consistent with the qualitative evidence:
 This

is based on a comment by the manufacturer Vanrobais that holidays take out a third of the week
on average (AD Somme, C).
 Compare

with the comment from the intendant in Dauphiné in October, , that the main cause of
high wages was the “high price of foodstuffs and the fact that workers had grown accustomed to earning
too much since  and , a habit they could not forsake and which renders them arrogant” (BN Fr
, fol. v).
 The

fairs of Pézenas and Montagnac were held five times a year after the holidays of St. Hilary (Jan. ),
mid-Lent, Whitsunday, Holy Cross (Sep. ) and St. Martin (Nov. ).



40

38

thousands of pieces

36

34

32

30

28

26

24
1714

1716

1718

1720

1722

1724

1726

1728

Figure : Number of bolts of cloth brought to the cloth-hall of Paris, by semester, :I to
:II. Source: F//A, F//, G//.

prices fell, but slowly and not by the full extent (% instead of %). They also show
a strong rebound in the month that followed the augmentation of May . The
behavior of prices seems to have been asymmetric, at least at the fairs.
Figure  is based on notations made at the cloth-hall of Rouen (halle foraine). It is
a survey of the prices of all cloths brought to be sold each month. It has the advantage
of coverage at high frequency over all types of cloth (there are  different types of
cloths, and the average ratio of dearest to cheapest is ). Unfortunately, it only starts in
January , when the deflation was already underway, and there are no quantities, so
the index cannot be weighted. I normalize all series by their sample mean, and construct
two indices, using each month’s mean and median (Figure ). Again, the pattern is the
same: slow and steady but incomplete price decrease, followed by a sharp rebound (%
for the median, % for the mean) in June , right after the augmentation.
Finally, comparisons of prices for a broad range of cloths, from low to high quality,
can be found for certain fairs and for the period of deflationary policy of  (Table ).
Prices fall on average by around %, less than the value of coins; there is even a rebound
in prices in mid-, as noted by some inspectors.



1.05

index 1 = Nov 1724

1

0.95

0.9

0.85

0.8
1724

1725

1726

1727

1728

1729

1730

Figure : Chain-weighted price index of cloths brought to the fairs of Pézenas and Montagnac,
–. Sources: AN F//, F//, AD Hérault C..

Conclusion
The peculiarities of the French monetary system allowed its government to conduct
a series of unforetold reductions in the nominal money supply by a total % over a
period of a few months. The aim of the policy was to reduce the price level to what was
thought to be an appropriate level. This rather dramatic attempt at price level targeting
was not successful. Although prices and wages did fall, they did not do so by the full
%; moreover, it took them months, if not years, to fall that far. Real wages in fact
rose, at least initially. Interest rates rose. The only market that adjusted instantaneously
and fully was the foreign exchange market. Even markets that were as close to fully
competitive as one can imagine, such as grain markets, failed to react initially. There is
also some suggestive evidence that some prices reacted more sharply to the reversal of
monetary policy that took place in .
At the same time, the industrial sector of the economy (or at any rate the textile
industry) went into a severe contraction, by about %. The onset of the recession
may have occurred before the deflationary policy began, but it was widely believed at



ME

factory prices for 16 cloths
1716–17 to Jan 1724
+72
Jan 1724 to Apr 1724
-27
Apr 1724 to Oct 1724
-17
prices at the Amiens cloth-hall for 107 cloths
Jan 1724 to Oct 1724
-40
prices in Lyon for 11 silks
Dec 1723 to May 1724
-26
prices in Lyon for 44 silks
before Sep 1724 to Nov 1724 -20
prices at the Clermont fair for 42 cloths
May 1724 to Aug 1724
0
prices at the St. Germain fair for 22 cloths
Feb 1724 to Feb 1725
-40
prices in Rouen for 36 goods
Sep 1724 to Oct 1724
-17
prices in Orléans for 34 goods
Sep 1724 to Nov 1724
-17
Sep 1724 to Dec 1724
-17
Sep 1724 to Jan 1725
-17
Sep 1724 to Feb 1725
-17
Sep 1724 to Mar 1725
-17
Sep 1724 to Apr 1725
-17

Prices
mean

median

std dev

+70
-13
-14

+67
-14
-13

11.7
5.3
6.4

-25

-25

6.5

-32

-43

5.7

-16

-16

6.5

7

5

6.7

-33

-33

6.0

-12

-12

6.1

-12
-23
-23
-26
-27
-28

-10
-18
-18
-21
-24
-24

13.6
19.8
19.6
19.8
19.7
19.1

Table : Percentage changes in cloth prices, compared with the percentage change in ME over
the same period. Sources: F//, n. , F//- (factory prices); G// n. –
(Amiens); G// n. , G//– (Lyon); G//, n. – (Orléans); G//, n. 
(Rouen); F//B (Saint-Germain); F// (Clermont).



1.15

1.1

1.05

median

1

mean

0.95

0.9
1725

1726

1727

1728

1729

1730

1731

Figure : Unweighted price indices of cloths brought to the cloth-hall of Rouen, monthly May
–Sep . Source: AN F//.

the time that the severity of the contraction was due to monetary policy, in particular
to a resulting “credit crunch” as holders of money stopped providing credit to trade
in anticipation of further price declines (the “scarcity of money” frequently blamed
by observers). Likewise, it was widely believed (on the basis of past experience) that a
policy of inflation would halt the recession, and coincidentally or not, the economy
rebounded once the nominal money supply was increased by % in May .
There are two ways one can think of this experiment. One is to view the monetary
regime as a fixed exchange rate between the French unit of account and an internationally
traded currency (silver). The experiment is an overnight change in the peg. The nominal
exchange rate adjusted immediately; but domestic prices did not respond immediately,
even for imported goods. Some intendants were not surprised by this: Orry in Soissons
thought that it the price of foodstuffs produced and consumed domestically was not set
by the nominal level of the currency, but rather their relative abundance.¹⁰⁶ Another
way to think of the experiment is an overnight reduction in the nominal quantity of
 AN

G//, n. .



money; the resulting behavior of prices appears to be a massive failure of the quantity
theory. At any rate, the determination of the price level under a commodity standard is
not as simple as one might have thought.
The experiment is not as clean as one might wish, of course. The main difficulty
is accounting for expectations of future policy. While the timing and magnitude of
the reductions in money supply (or equivalently in the nominal value of coins) was
not known in advance, it was customary for governments to attempt a return at a
“normal” price level after periods of monetary disturbances, although in previous cases
the deflation was always pre-announced and much more gradual. That the economy
would suffer from such a policy was expected from the earlier instances of deflationary
policy (particularly the most recent one, in ). The government in  wanted
to avoid prices rising in anticipation of the diminution. Only the last diminution
in September  was declared to be the last, precisely because the government had
become convinced that expectations of further diminutions were preventing prices from
falling.
After citing Hume, Lucas () presents a model that can account for Hume’s
empirical observation that money can have real effects, at least in the short run. The
model is that of Lucas (), an overlapping generations model where the old receive a
monetary injection proportional to their money holdings, and where the young do not
learn of it until after markets have cleared. But Hume’s observation is none other than
the magical experiment I have documented, and in that experiment, no one, young or
old, could plead ignorance or confusion. Another model is needed, one perhaps where
units of account matter.



Appendix A: the sources
Sources on woolens (reports of the inspectors):
Alençon : F//, A
Amiens : F//, ; AD Somme C 
Auch : F//, F//
Auvergne : F//
Aumale : F//, ; AD Rouen C; AD Somme C
Beauvais : F//, A, G//
Bourges : F//, , 
Bretagne (basse) : F//
Bretagne (haute) : F//, 
Caen : F//, B
Carcassonne : F//, , ; AD Hérault C, , 
Castres, St-Pons : F//; AD Hérault C, , , , 
Champagne : F//
Dreux : F//
Foix : F//, 
Granvilliers : F//, 
Limousin : F//, 
Montauban : F//
Montpellier : F//, ; AD Hérault C, , , , 
Moulins : F//
Nîmes : F//, ; AD Hérault C
Orléans : F//, , 
Poitiers : F//-, 
Reims : F//, 
Rouen : F//, , 
Saintonge : F//-, 
Sedan : F//-
Sologne : F//, , , 
Toulouse : F//, ; AD Hérault C, , 
Troyes : F//
Other sources:
AN G// to : letters of Dodun (–)
correspondance of the intendants with Dodun: see footnote 



G// to : minutes of matters sent to the minister (–)
G//, : coinage
G// to : misscellaneous correspondance
F// to ,  to ,  to : Bureau de commerce
F// to : fairs
Bibliothèque de l’Arsenal: , , police files ; : works of Melon
Affaires étrangères, Mémoires et Documents, France , , 

Appendix B: The Model
Let Yit be the original series (the units are either bolts of cloth or looms working). Let
yit be some transformation of the data (to be specified below). The model is
yit = λi µt + gt + it ,
gt = −

s−
X

gt−i + ωt ,

i=

µt = µt− + νt + ξt ,
νt = νt− + ζt

with it ∼ (, σ ) , ωt ∼ (, σω ) , ξt ∼ (, σξ ) , ζt ∼ (, σζ ) . The variance σζ is
normalized to , the others are estimated by maximum likelihood. The number of
seasons is s = .
Denote ȳi the sample mean of log(Yit ) and σ̄yi the sample standard deviation.
The data is transformed as
log(Yit ) − ȳi
yit =
.
σ̄yi

The loading factors are set to . The filter is initialized with a diffuse prior (Koopman
). The resulting index is scaled by the average standard deviation of the series.
When the variances σξ and σω are set to , then the series µt is the trend produced
by the Hodrick-Prescott filter.



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WP-04-04

The Dynamics of Work and Debt
Jeffrey R. Campbell and Zvi Hercowitz

WP-04-05

Fiscal Policy in the Aftermath of 9/11
Jonas Fisher and Martin Eichenbaum

WP-04-06

Merger Momentum and Investor Sentiment: The Stock Market Reaction
To Merger Announcements
Richard J. Rosen

WP-04-07

Earnings Inequality and the Business Cycle
Gadi Barlevy and Daniel Tsiddon

WP-04-08

Platform Competition in Two-Sided Markets: The Case of Payment Networks
Sujit Chakravorti and Roberto Roson

WP-04-09

Nominal Debt as a Burden on Monetary Policy
Javier Díaz-Giménez, Giorgia Giovannetti, Ramon Marimon, and Pedro Teles

WP-04-10

On the Timing of Innovation in Stochastic Schumpeterian Growth Models
Gadi Barlevy

WP-04-11

Policy Externalities: How US Antidumping Affects Japanese Exports to the EU
Chad P. Bown and Meredith A. Crowley

WP-04-12

Sibling Similarities, Differences and Economic Inequality
Bhashkar Mazumder

WP-04-13

3

Working Paper Series (continued)
Determinants of Business Cycle Comovement: A Robust Analysis
Marianne Baxter and Michael A. Kouparitsas

WP-04-14

The Occupational Assimilation of Hispanics in the U.S.: Evidence from Panel Data
Maude Toussaint-Comeau

WP-04-15

Reading, Writing, and Raisinets1: Are School Finances Contributing to Children’s Obesity?
Patricia M. Anderson and Kristin F. Butcher

WP-04-16

Learning by Observing: Information Spillovers in the Execution and Valuation
of Commercial Bank M&As
Gayle DeLong and Robert DeYoung

WP-04-17

Prospects for Immigrant-Native Wealth Assimilation:
Evidence from Financial Market Participation
Una Okonkwo Osili and Anna Paulson

WP-04-18

Individuals and Institutions: Evidence from International Migrants in the U.S.
Una Okonkwo Osili and Anna Paulson

WP-04-19

Are Technology Improvements Contractionary?
Susanto Basu, John Fernald and Miles Kimball

WP-04-20

The Minimum Wage, Restaurant Prices and Labor Market Structure
Daniel Aaronson, Eric French and James MacDonald

WP-04-21

Betcha can’t acquire just one: merger programs and compensation
Richard J. Rosen

WP-04-22

Not Working: Demographic Changes, Policy Changes,
and the Distribution of Weeks (Not) Worked
Lisa Barrow and Kristin F. Butcher

WP-04-23

The Role of Collateralized Household Debt in Macroeconomic Stabilization
Jeffrey R. Campbell and Zvi Hercowitz

WP-04-24

Advertising and Pricing at Multiple-Output Firms: Evidence from U.S. Thrift Institutions
Robert DeYoung and Evren Örs

WP-04-25

Monetary Policy with State Contingent Interest Rates
Bernardino Adão, Isabel Correia and Pedro Teles

WP-04-26

Comparing location decisions of domestic and foreign auto supplier plants
Thomas Klier, Paul Ma and Daniel P. McMillen

WP-04-27

China’s export growth and US trade policy
Chad P. Bown and Meredith A. Crowley

WP-04-28

Where do manufacturing firms locate their Headquarters?
J. Vernon Henderson and Yukako Ono

WP-04-29

Monetary Policy with Single Instrument Feedback Rules
Bernardino Adão, Isabel Correia and Pedro Teles

WP-04-30

4

Working Paper Series (continued)
Firm-Specific Capital, Nominal Rigidities and the Business Cycle
David Altig, Lawrence J. Christiano, Martin Eichenbaum and Jesper Linde

WP-05-01

Do Returns to Schooling Differ by Race and Ethnicity?
Lisa Barrow and Cecilia Elena Rouse

WP-05-02

Derivatives and Systemic Risk: Netting, Collateral, and Closeout
Robert R. Bliss and George G. Kaufman

WP-05-03

Risk Overhang and Loan Portfolio Decisions
Robert DeYoung, Anne Gron and Andrew Winton

WP-05-04

Characterizations in a random record model with a non-identically distributed initial record
Gadi Barlevy and H. N. Nagaraja

WP-05-05

Price discovery in a market under stress: the U.S. Treasury market in fall 1998
Craig H. Furfine and Eli M. Remolona

WP-05-06

Politics and Efficiency of Separating Capital and Ordinary Government Budgets
Marco Bassetto with Thomas J. Sargent

WP-05-07

Rigid Prices: Evidence from U.S. Scanner Data
Jeffrey R. Campbell and Benjamin Eden

WP-05-08

Entrepreneurship, Frictions, and Wealth
Marco Cagetti and Mariacristina De Nardi

WP-05-09

Wealth inequality: data and models
Marco Cagetti and Mariacristina De Nardi

WP-05-10

What Determines Bilateral Trade Flows?
Marianne Baxter and Michael A. Kouparitsas

WP-05-11

Intergenerational Economic Mobility in the U.S., 1940 to 2000
Daniel Aaronson and Bhashkar Mazumder

WP-05-12

Differential Mortality, Uncertain Medical Expenses, and the Saving of Elderly Singles
Mariacristina De Nardi, Eric French, and John Bailey Jones

WP-05-13

Fixed Term Employment Contracts in an Equilibrium Search Model
Fernando Alvarez and Marcelo Veracierto

WP-05-14

Causality, Causality, Causality: The View of Education Inputs and Outputs from Economics
Lisa Barrow and Cecilia Elena Rouse

WP-05-15

5

Working Paper Series (continued)
Competition in Large Markets
Jeffrey R. Campbell

WP-05-16

Why Do Firms Go Public? Evidence from the Banking Industry
Richard J. Rosen, Scott B. Smart and Chad J. Zutter

WP-05-17

Clustering of Auto Supplier Plants in the U.S.: GMM Spatial Logit for Large Samples
Thomas Klier and Daniel P. McMillen

WP-05-18

Why are Immigrants’ Incarceration Rates So Low?
Evidence on Selective Immigration, Deterrence, and Deportation
Kristin F. Butcher and Anne Morrison Piehl

WP-05-19

Constructing the Chicago Fed Income Based Economic Index – Consumer Price Index:
Inflation Experiences by Demographic Group: 1983-2005
Leslie McGranahan and Anna Paulson

WP-05-20

Universal Access, Cost Recovery, and Payment Services
Sujit Chakravorti, Jeffery W. Gunther, and Robert R. Moore

WP-05-21

Supplier Switching and Outsourcing
Yukako Ono and Victor Stango

WP-05-22

Do Enclaves Matter in Immigrants’ Self-Employment Decision?
Maude Toussaint-Comeau

WP-05-23

The Changing Pattern of Wage Growth for Low Skilled Workers
Eric French, Bhashkar Mazumder and Christopher Taber

WP-05-24

U.S. Corporate and Bank Insolvency Regimes: An Economic Comparison and Evaluation
Robert R. Bliss and George G. Kaufman

WP-06-01

Redistribution, Taxes, and the Median Voter
Marco Bassetto and Jess Benhabib

WP-06-02

Identification of Search Models with Initial Condition Problems
Gadi Barlevy and H. N. Nagaraja

WP-06-03

Tax Riots
Marco Bassetto and Christopher Phelan

WP-06-04

The Tradeoff between Mortgage Prepayments and Tax-Deferred Retirement Savings
Gene Amromin, Jennifer Huang,and Clemens Sialm

WP-06-05

Why are safeguards needed in a trade agreement?
Meredith A. Crowley

WP-06-06

6

Working Paper Series (continued)
Taxation, Entrepreneurship, and Wealth
Marco Cagetti and Mariacristina De Nardi

WP-06-07

A New Social Compact: How University Engagement Can Fuel Innovation
Laura Melle, Larry Isaak, and Richard Mattoon

WP-06-08

Mergers and Risk
Craig H. Furfine and Richard J. Rosen

WP-06-09

Two Flaws in Business Cycle Accounting
Lawrence J. Christiano and Joshua M. Davis

WP-06-10

Do Consumers Choose the Right Credit Contracts?
Sumit Agarwal, Souphala Chomsisengphet, Chunlin Liu, and Nicholas S. Souleles

WP-06-11

Chronicles of a Deflation Unforetold
François R. Velde

WP-06-12

7