Terrible 18th Century French Finances: Who was in the same boat?

One of the main causes of the French Revolution commonly cited is the poor state of the French finances at the time. It seems likely other countries would have had poorly managed finances at the time, but I haven't really heard about them.

Does anyone know the fiscal health of other major powers in this period? If they were as poor as the French, how did they get out of it?
 

Vitruvius

Donor
There definitely were other states facing financial problems at the time. Many of the smaller Italian and German states were bankrupted by the wars early in the century. Though there were some outlines. Portugal had so much gold coming in from Brazil it had little to worry about. And IIRC the Dutch problems were more linked to declining international trade than domestic tax policy. I believe Spain went through a baptism of fire in the war of Spanish Succession with reforms put in place early in Philip V's rule that helped resuscitate the state and hold it through until Charles III came along with a more aggressive reform agenda.

Most of the smaller states I referenced earlier pulled themselves together through a combination of austerity measures and drastic reforms. It should be noted that in many cases, such as Spain, Parma and Tuscany these were done concurrently with a changing in the ruling dynasty. New rulers often brought in new administrations and ways of governing and were generally more receptive to reformist I think in part because they could objectively see how broken their states were.

I think Tuscany is a good case study. The Grand Duchy had declined under the inept rule of the last of the Medics. Been fought over and then tossed as compensation to the Duke of Lorraine. He never moved there and instead used it as a convenient source of cash, bleeding it dry to support Austria. As a final insult on his death his son Joseph requisitioned the entire state treasury for Austria leaving his brother Francesco Leopoldo with a virtually bankrupt state. FL carried out a vigorous reform movement and managed to restore the state to prosperity. For example he streamlined tax collection by ending the practice of farming it out to tax collectors (as was done in France). He by default instituted austerity measures but when he did spend money it was in infrastructure like roads or draining swamps that helped the economy to grow and thus improved revenues. And, relevant to France, he liberalized the grain trade. He eliminated price controls regulations and subsidies which ultimately lead to a boon in agriculture allowing Tuscany to feed it self and export grain for profit.

It was a bumpy process. The grain trade reforms initially lead to a spike in prices and discontent from the poor. It should also be noted that Tuscany like most of Italy was neutral during the Seven Years War. Thus they avoided the cost of that conflict and focused on rebuilding their own states. Tuscany also lacked some of the entrenched interests like the robust nobility of France that had recourse in Parlement or institutions like the Tax Farmers who would resist reform. Spain had some of this but because Philip instituted many changes during war time he had more leeway and could for example suppress certain traditional rights by accusing the city or region of having sided with the enemy, the Archduke Charles.

It probably also helped that these other states reached the precipice earlier in the century so they weren't confronting financial collapse at the height of the enlightenment when traditional institutions like the church or monarchy were being challenged on other fronts. Indeed FL in Tuscany did attempt religious and governmental reforms aimed at reducing the power of the church and even granting a constitution. These proved much less successful and ultimately many were repealed or not carried out. So broad across the board reforms proved challenging for any state. France's financial crisis unfortunately devolved into a massive reformation of the French state so there's no perfect analogy out there.
 
Thanks Vitruvius - interesting stuff indeed. Did these states you mention not have equivalents of Parlements, Assemblies of Notables and Estates-Generales they had to get such tough measures through? It wasn't like France didn't try to reform. Was it just that the French parlements were particularly intransigent?

Any idea about other major states in this time? Spain, Russia, Austria?

Many thanks.
 
Was it just that the French parlements were particularly intransigent?

France was a absolutist monarchy, y'know... There was no parliament or similiar -national- legislative body. And IIRC, provincial legistatures in XVIII C. France were much better in balancing their finances than royal treasurers with central budget.
 
One of the problems for Spain and to a lesser extent Portugal was a lack of understanding of demand &s upply and the effects of inflation. They assumed that gold would always stay as valuable not realizing that the sheer quantity they brought from America completely debased it's value.

Due to the large amount of European wars in the 18th century most states tettered close to bankruptcy at some stage or another.
 

Vitruvius

Donor
I think Young Lochinvar has a good take on Spain and Portugal and the problems of constant warfare in the 17th and 18th centuries. It also helps to isolate those states that had situational problems, bad finances caused by exigent circumstances such as being invaded multiple times, from those that had systemic problems, bad finances from the way the state was governed.

In the former group I would say its fair to put many of the smaller states like Baden, Modena and Parma. The Netherlands could arguably go here or in the other group. My understanding, and I admit I'm no expert on 18th century economics so I could well be wrong, was that the Dutch economy and thus the strength of the Dutch state declined vis a vis Britain and others mainly because the Dutch lost their dominance over international trade. To a certain extent this is due to circumstances beyond their control, namely the actions of foreign states, but because they are economically dependent upon trade, its also a matter of how their state functioned and regulated its economy.

In the latter group I would say we could find France, Spain and Tuscany. This is why I referenced Tuscany. It fought in none of the Wars of the late 17th early 18th centuries not even in the War of Polish Succession that decided its fate, though it undoubtedly was indirectly affected by them. Rather it was the poor quality of the last of the Medici, notably Gian Gastone, that lead to severe decline and a moribund economy. So in some respects it makes a better example than Spain. Spain's bankruptcies were uniquely linked to the massive influx of Silver from the America's that was used to prop up the Spanish state but ultimately lead to inflation and repeated bankruptcies in the 16th and 17th centuries. Portugal has similar issues but in the 18th century it was masked by the influx of Gold from Brazil which was fortunately spent not on foreign wars but domestic expenditures like building palaces or art collections. Thus for this discussion Portugal is something of an outlier.

At any rate the states with systemic problems provide the best instruction for France. Part of Philip's success in the War of Spanish Succession was his ability to implement a series of reforms that resuscitated the state's finances. I remember reading that the Bourbon administration was able to collect more revenue during war time with parts of the country occupied by foreign powers than the previous Habsburg kings had been able to do in peace. This was part of why the allies failed to dislodge him. And as I said before Philip was able to carry out many reforms by simply suppressing institutions that would oppose him like the traditionally autonomous region of Catalonia. Philip's son Charles III would later continue these efforts at centralization in the later half of the 18th century. It was also easier to raise revenues during wartime when one could rally the nation together. Indeed France faced bankruptcy during the War of Spanish Succession forcing Louis XIV to melt down the silver at Versailles but ultimately he was able to rally the nation to his cause and to continue the war.

In Tuscany the economic problems were more serious but the opportunities greater. Unlike Spain it wasn't plagued by inflation or living beyond its means by fighting foreign wars. It was simply, fundamentally poor to the point of being nationally broke. On the plus side there were no major legislative or judicial bodies to oppose Francesco Leopoldo. The nobility was limited in size and scope and was primarily urban, descended from the old elite of the Florentine Republic. The peasantry also wasn't as abjectly poor as their French counterparts. The non-Florentine parts of the state, namely Siena, had been acquired through conquest which saw them utterly defeated and thus they were accorded no special rights. Thus the only place in which he seriously failed as a reformer was in his religious reforms when he ran into a powerful adversary in the form of the Catholic Church.

For as much as the French King was an absolute monarch there still existed in France a series of institutions that could and sometimes did prove to be obstacles. Namely the Parlements which in the 18th century saw themselves as a check on the Kings power. While the King could override a Remonstrance (refusal of the Parlement to register a royal edict) with a Lit de Justice it was a cumbersome procedure. Often the Kings resorted to exiling members of Parlement to the countryside but this only bred sympathy for the institution and resentment of the King. France also face the decentralized system of Spain in that there were multiple regional Parlement's with different jurisdictions and prerogatives. There were also institutions like the Ferme Generale that had a vested interest in preventing reforms. While FL was able to eliminate its Tuscan equivalent French Kings relied more and more upon the Tax farmers for stop gap measures to shore up French finances making the Ferme more and more powerful. One should also be careful not to discount the nobility. Encroaching on their traditional privileges is can derail reforms even when that's what's most necessary.

Joseph I ran into this in Hungary. The Hungarian nobility owned massive estates with the peasantry bound to them in serfdom but despite this they were actually quite poor in many cases. And their lands were often alloidial meaning that they could not be mortgaged or otherwise alienated from the noble who possessed them. Thus it was hard to find capital for improvements like roads, dams, mills, draining swamps, etc that would improve the productivity of the land. Yet the Hungarian nobility jealously guarded their rights and refused to countenance any reforms in that area. Admittedly there was a nationalist component to the opposition in Hungary but there are nevertheless parallels to the French nobility. Many of the old Sword Nobility of France were quite poor and relied upon traditional perks like military appointments even if they proved to be a drain on the French state.

Thus the King could have complete power in foreign affairs, could control the army and even keep most of the nobility under his thumb but reforming the fundamentals of the French state unilaterally was beyond his power. If it wasn't there wouldn't have been a French revolution because Louis XVI could have simply imposed new taxes or modest reforms by Royal fiat. So France had the problem of support massive new national state institutions like the French standing army, the royal court at Versailles and the centralized royal administration of intendants but had little way of instituting national reforms to secure adequate revenues for them. The Spanish Bourbons, by breaking down traditional regional institutions in the name of rational enlightened absolutism ensured that the Spanish state functioned economically as a single unit with fewer internal barriers to trade and administration and thus was more capable of financially supporting centralized state institutions. It probably also helped that Spain discarded its outsized role in international affairs for a more manageable stature, thus curtailing the crippling military expenditures of the Spanish Habsburgs.

So in some ways France had all the problems of Spain (decentralized institutions, traditional rights, massive military expenditures) and Tuscany (macroeconomic problems, poor tax collection system) with its only advantage being that it economic and demographic fundamentals are stronger, ie its a relatively wealthy country if it could be made to function efficiently. So unlike Spain France was never really living beyond its means per se but there was a growing disconnect between the way the state was administered and the way it functioned. At any rate its not really possible to say that 'If France had only done what State X did it could have avoided the whole mess of the Revolution'. That's not to say that there aren't some instructive examples out there of what to and what not to try.


Sorry for the essay. And of course as I said I'm not an economist but this is my understanding of the period. But if any one has more expertise in a particular area please feel free to critique, I'm always interested in learning more.
 
The only thing I'd add is interest rates, which is tangential to the question but important overall.

The British were generally able to get lower interest rates then any other major power, a rather useful thing in financing conflict.

The French, assuming taxation and economic reform, could probably get similar interest rates but of course they didn't. That left them at a distinct disadvantage.

Many smaller countries could get much better interest rates (and therefore much cheaper debt financing) with internal reform even if they kept up similar levels of spending and debt. The British, after all, kept their low interest rates even in their massive expenditure on the Napoleonic War.
 
The only thing I'd add is interest rates, which is tangential to the question but important overall.

The British were generally able to get lower interest rates then any other major power, a rather useful thing in financing conflict.

The French, assuming taxation and economic reform, could probably get similar interest rates but of course they didn't. That left them at a distinct disadvantage.

Many smaller countries could get much better interest rates (and therefore much cheaper debt financing) with internal reform even if they kept up similar levels of spending and debt. The British, after all, kept their low interest rates even in their massive expenditure on the Napoleonic War.

There is fairly good discussion of this in The Rise and Fall of the Great Powers, but covering it all would require a couple pages of text being quoted.

On interest in particular: "In both countries, servicing the debt consumed about half the state's annual expenditures, but after 1783 the Britisih immediately embarked upon a series of measures (the Sinking Fund, a consolidated revenue fund, improved public accounts) in order to stabilize that total and strengthen its credit - the greatest, perhaps, of the younger Pitt's achievements. On the French side, by contrast, large new loans were floated each year, since 'normal' revenues could never match even peacetime expenditures, and with yearly deficits growing, the government's credit weakened still further.

The startling statistical consequence was that by the late 1780s France's national debt may have been almost the same as Britain's - around 215 million pounds - but the interest payments each year were nearly double, at fourteen million pounds."
 
Hrm. Although it's interesting that all states in Europe faced a financial crisis during this period. France, Britain, Austria...

I'm always partial to the idea of a Habsburg implosion during this period. Things would get weird very quickly.
 
Please don't apologise for the essay Vitruvius - the more information the better! One thing I do not really understand is what happened to other countries when they went bankrupt? How disastrous was it? Why couldn't France have simply declared bankruptcy earlier, due to fear of calling the Estates-Generale? What would have happened if they had?

Also very intrigued at the idea of Habsburg Empire collapsing during this time. Outlines on scenarios would be much appreciated. (And for states like Russia, Spain for that matter...)
 
This period was the beginning of the stock market. Unfortunately for France during the early 1700s Scottish economist John Law used it's economy as a test run of various financial institutes like paper money. This being a test run it started of well drastically improving France's economy and saving it from impending bankruptcy. It however failed spectacularly with the advent of the war of Spanish succession leading to Further woes and inflation. To cap it all off Law made the Mississippi Company as a conglomerate of Louisiana's trading companies and then proceeded to have it unintentionally bankrupt the Banque Royale, France's equivalent to the US's Federal Reserve, and crash the French Stock Market in about 1715.

These misadventures turned France off from using cutting edge finance techniques thus stagnating it's financial development in a way other nations especially Britain and The Netherlands didn't.
 

Vitruvius

Donor
This period was the beginning of the stock market. Unfortunately for France during the early 1700s Scottish economist John Law used it's economy as a test run of various financial institutes like paper money. This being a test run it started of well drastically improving France's economy and saving it from impending bankruptcy. It however failed spectacularly with the advent of the war of Spanish succession leading to Further woes and inflation. To cap it all off Law made the Mississippi Company as a conglomerate of Louisiana's trading companies and then proceeded to have it unintentionally bankrupt the Banque Royale, France's equivalent to the US's Federal Reserve, and crash the French Stock Market in about 1715.

These misadventures turned France off from using cutting edge finance techniques thus stagnating it's financial development in a way other nations especially Britain and The Netherlands didn't.

That's a really good point. To be honest I'd forgotten about the whole Mississippi Co debacle when I was formulating my response but as you point out it had a profound effect. France was subsequently one of the last major states to establish a national bank, I believe as late as under Napoleon.

As for actually declaring bankruptcy I don't think any states actually did in 18th century. Spain had several times previously but had stabilized somewhat post-Succession War. A lot of states were at/near bankruptcy and thus were metaphorically 'bankrupt' but I don't believe any major power actually defaulted on its debt during the period. Perhaps someone can think of an example that I'm missing. The Dutch in particular were adamant that their state avoid default at all costs. Hence the widespread use of austerity measures in many states until debts were paid off or finances restored.

The Mississippi Company collapse comes closest to default as, IIRC, the massive French State debt accumulated under Louis XIV was converted to shares in the company during the Regency. When the company collapsed after the bubble burst in 1720 they became worthless. But the chaos this caused probably served to discourage people from contemplating default later in the century.

As for Austria I believe it was relatively stable under Maria Theresa and Joseph II. One reason for this was that its expenses were less. Schonbrunn was no Versailles when it came to courtly extravagance and Eugene of Savoy never believed in standing armies in the same way as France or Prussia viewed them so military expenditures in peace time were less... though often to disastrous effect in war time. Austria had a lot of peripheral areas (like Tuscany and other Italian states in held for brief periods) that it used as cash cows to support Vienna. Austria also received generous subsidies from Britain during War that somewhat offset it's war time debts. Finally the Josephine Reforms helped to build a robust centralized system for administering Austrian territory. Even if the broader aspects of Joseph's program were ultimately unsuccessful they did help it gain credit and good interest rates and efficiently finance the state.

There's also the complications of the Barrier Treaty in the Austrian Netherlands that somewhat dictated its finances. The Dutch garrisons in the barrier forts were to be supported financially by the Austrian Netherlands with the Dutch allowed to collect taxes to that end. So Vienna was not entirely in control of the situation there which perhaps was for the best. Otherwise it's likely that Brussels would have been bled white to support Austrian armies in Lombardy or Silesia.

So if you want Habsburg bankruptcy you need to get them to spend a lot more money, mainly during peace time. Eliminating the Josephine reforms and the increasing the military expenditures during the 'War' of Bavarian Succession and the First Partition of Poland and maybe even some unsuccessful fighting along the lower Danube could then push it towards insolvency by the 1780's. Basically there's a good formula for creating collapse in any realm. Take the 'reformer' and replace him with a conservative spendthrift mediocrity. So Charles III of Spain becomes an amalgam of the worst of his brother Ferdinand, Louis XVI of France and Christian VII of Denmark. Surround him with corrupt or sycophantic advisers and Spain could be on the brink by 1790. Enlightened Absolutism becomes Incompetent Absolutism. Repeat for Joseph II HRE, Francesco Leopoldo of Tuscany etc etc.
 
But the chaos this caused probably served to discourage people from contemplating default later in the century.

So what did this chaos actually look like and involve? I'm contemplating a couple of scenarios:

1) Instead of the ARW, another war, bigger and more expensive, breaks out in Europe in the 1770s-80s, with Britain, France, Spain and Holland all spending a LOT to keep going. Russia and Austria also spend a fair bit, but not as much.

2) There's no ARW and no other war takes place in its stead. This means bread riots break out before the finance issue really comes to a head, and the King is a lot more reluctant to call the Estates-Generale.

What do you think the likely economic effects are, the chances of default, and the outcome "chaos" of default if it happens? Sorry for all the questions, but you obviously have a lot of expertise on the topic, and I value it immensely.
 

Vitruvius

Donor
Thanks for the praise but I'm NOT an expert. So while I know a lot of what happened in the period in question I'm not the best person to try to explain the details of emerging financial systems, especially as concerns Britain which is admittedly my blindspot (the legacy of my juvenile anglophobia).

I can give you the basics of the Mississippi Company Bubble but perhaps Young Lochinvar could go into more detail. It was very similar to the British South Seas Company and associated bubble. Essential as I remember it John Law was given great powers to straighten out French finances after the War of Spanish Succession. Louis XIV racked up huge debts and the Regent Duc d'Orleans entrusted Law to sort it out. Law had charge of two separate entities the Mississippi Co and the Banque Royale. Paper money issued by the Banque or state debt in the form of bonds were used to by shares in the former thus retiring most of the debt (people who owned government bonds now owned MS Co stock). Speculation caused a bubble which caused share prices to soar. Meanwhile the Banque he set up kept issuing paper money, eventually more than could actually be backed by its gold reserves.

So when prices peaked on MS Co shares people attempted to cash out and covert the stock to paper money then to Gold to redeem their capital gains. This caused a run on the bank. So Law attempted to have people redeem bank notes for shares in the MS Co, basically converting stock shares into currency and thus greatly expanding the money supply and leading to runaway inflation. French currency was devalued vis a vis the Pound and Guilder. And when it was realized that the MS Co was never going to make the money in North America that was promised the Co finally collapsed.

So the 'chaos' part would be the fact that many people lost investments in the company. Due to its perceived potential people from across all stratums of society invested money in large and small amounts. The former gov bond holders were also left with worthless stock in place of the bonds. I'm not sure on this but I think the French state came to some arrangement with them regarding their losses on the conversion of the bonds. This is the major difference from the South Seas Co, the French handled the aftermath worse.

The biggest effect was to thoroughly discredit paper money and publicly funded debts and national banks, basically all the organs of the modern financial system that most other states were using or would be using by the end of the century. I don't have details but I would assume it also affected interest rates on future French state borrowing and probably discouraged foreign direct investment. The Dutch, for example, bought a great deal of British bonds and thus helped to finance Britain but all politics aside after the bubble no investor would trust the value of a French bond in the same way.

But this situation isn't likely to be repeated just for that reason, the French distrusted the system so it wouldn't be used to finance a future war. So a POD that has someone convince Louis XVI to set up a Banque or Company of some sort to finance this major European War only to have the bank collapse could create a similar default situation. This would most likely hurt the Bourgeosie the most as the nobility still has income from their estates, largely tax exempt, to fall back on.

IOTL the French outsourced tax collection to the Ferme Generale, basically issuing a contract whereby the Ferme guaranteed a given amount the state in exchange for the right to collect taxes, tolls and tariffs. It was a private for profit company that made a profit by collecting more in taxes than it turned over to the state. To make up the deficit the French government took out loans. Interest on this debt only contributed to the deficit. Default is still possible but it wouldn't cut across society in the same way.

As for the other participants in this War all things being equal they would probably fair better bc most of them had their affairs in order by that time. With a POD as late as the 1770's most European states have already had or at least begun their major rational enlightment reforms and have secured their finances at least to the extent they did OTL.
 
You seem to have gotten the details of the MS Co. Down pretty well.

Even during the period it was understood that the absolute monarchy of France was something that was hindering it's financial growth. The Duke of Saint-Simon recognized that the power of the king to overthrow the Banks as he saw fit through fiat law would ensure that no stability would emerge in the system. Thus l'état c'est moi and absolutism was a major roadblock particularly when you consider the notion that state's finances were really the personal finaces of the monaerch. This is indicative by the relative financial success of the (then) republican United Provinces and the Parliamentary UK.

If I may make a comment about the state of the Netherlands. Despite their financial success during the 18th century they had a significant debt holding it all up. In the later 1700s the Dutch debt was up to the higher 200millions of Guilders. If you wanted to collapse a nation during this period I suggest having the Dutch VOC generate a bubble that isn't checked by the Amsterdam Exchange Bank. Actually if this happened it might bankrupt all of west Europe due to Dutch interest in everything, but I exaggerate.

If France wants to avoid the revolution by improving it's financial situation it will generate a larger middle class. Unless there is a similar situation of slow encroachment of the middle class into political power and the desire of the middle class to emulate the upper class as happened in other nations it seems some sort of class conflict is going to arise.

We must also remember the existence of the serfs in Europe. Most of Europe stilled used them uptil the 1820s with the Austria and Russia retaining them for even longer. This institutionalized economic bondage is going to create tension regardless of the countries overall financial health.

A war to Bankrupt a European nation(s) would need to be heavily involving and preferable with most of the fighting taking place within the country you want ruined. After all it's difficult to sustain a financial system when all the banks are literally on fire.

Hope some of these help you in your efforts.
 
If France wants to avoid the revolution by improving it's financial situation it will generate a larger middle class. Unless there is a similar situation of slow encroachment of the middle class into political power and the desire of the middle class to emulate the upper class as happened in other nations it seems some sort of class conflict is going to arise.

It's a bit late to do that by the 1780s though. You'd need some immediate reforms that don't invite the commoners into policy-making. If the situation is bad enough, and if they fear revolt, do you think the parlements would accept tax rises?

Would also be interested in thinking about which scenario is more likely. If France knows its finances are in trouble in the early 1780s, is it going to try to avoid any war? Or would that be too obviously a sign of weakness, which would just encourage Britain and others to be more provocative? What about Spain?
 
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