From The Daily Reckoning, 7/15/02

By Bill Bonner

"One man has a skinny wife, and wants a fat one... another has a fat wife and wants a skinny one."

- The Marquis de Sade explains why people join revolutions
Marat/Sade by Peter Weir

"They've gone mad.
George III

"Vive la revolution!"

Only an American would say such a thing at a Bastille Day celebration. Raising our glasses at yesterday's picnic, the Frenchmen looked puzzled, then amused, at my toast. Everybody celebrates the 14th July in France. But no one would want to see a return of the revolution.

"Oh...there were some good things and some bad things that came out of it," said a friend on Sunday. Asked what the good things were, he couldn't think of any.

We wonder from time to time how it will all turn out - we mean the Great Bear Market and the long, soft, slow depression that America seems to be entering. What happens when a great people get themselves into a great mess?

The French Revolution was a terrible mess. By the 18th century, France had become the greatest power in Europe, the richest and most populous country in the western world, and the clear leader in art, science, philosophy, education, cuisine, fashion, architecture...and, of course, viticulture. It had the richest people in the world, the prettiest women, and the best booze.

It also had the most enlightened economists - the physiocrats - from whom Adam Smith was boosting some of his best ideas.

A poll taken in the early 1780s might have shown the French to be extremely optimistic and confident. And why shouldn't they be? The last major financial crisis - caused by John Law's Mississippi Bubble - blew up over 60 years before. And had the world ever seen anything approaching the splendor of Versailles?

But in 1789, Paris mobs came to the crossroads of history and veered left. They replaced an absolute monarch who had very limited power, with a people's republic restrained neither by common sense nor common decency.

The uprising began on July 14th, 1989, at the old prison, the Bastille, which was seen as an emblem of the ancien regime. The prison was stormed by the Paris proles, who took the guards hostage (promising they could go unharmed if they laid down their guns) and released a handful of lunatics and hoodlums from their cells. Then, the crowd hacked the unarmed guards to pieces and paraded around the city with body parts on the end of pikes. Not long after, the "law of the lamppost" became the ruling order in Paris: aristocrats, CEOs, government officials and army officers were hung from streetlights. The Marquis de Lafayette, the liberator of the American colonies, tried to maintain order at the command of the National Guard. Lafayette was supposed to be guarding Louis XVI when a mob attacked the palace at Versailles on the 4th of October, 1789. A few raggedy women broke into the palace trying to kill Marie-Antoinette, who fled to her husband's bedchamber. There, the attackers backed off. They may have doubted that Louis was put in his place by God himself...maybe God wouldn't mind if they cut up the Bourbon king; but the femmes decided not to take a chance.

Lafayette intervened, telling the crowd that he would make sure Louis returned to Paris - where the king would be at the mercy of the radical new government. A few years later, Louis and his family went to the scaffold...along with thousands of others. France was soon at war with nearly all its neighbors, and with the Vendee, a region in west of the country that refused to go along with the revolution. Church property was confiscated, a new paper currency - the assignat - was created, and then destroyed, by inflation. Outrages to the clergy, the aristocracy, the language, and even the calendar were perpetrated.

None of this might have happened, however, except for the efforts of the Alan Greenspan of the late 18th century - Jacques Necker. It was Necker who replaced laissez-faire economist, Jacques Turgot, as French finance minister in 1776.

Turgot's free-trade policies had the fatal flaw of all sensible rules - they benefited everybody to the advantage of nobody in particular. Turgot dissolved the guild system, eliminated the corvee (the forced labor of the peasants), imposed a simple property tax and opposed all forms of economic privilege at the expense of the common good. He even set himself against Marie Antoinette, by refusing to grant favors to her cronies. Since everybody in France in the 18th century as well as every American in the 21st wanted the privilege of picking someone else's pocket, Turgot eventually made enemies of nearly every class. Louis XVI, though responsible for the well-being of the entire nation, had not the strength to stand up to the special interests.

Turgot even had a prophetic intuition and a view of history similar to our own. Periods of civilized progress are followed, he noted, by periods of barbarism and madness. Dismissed in 1776, he warned Louis XVI: "Do not forget, Sire, that it was feebleness that placed the head of Charles II on the block."

Necker made enemies of no one. His program was the opposite of Turgot's; he favored particular privileges at the expense of everybody else. Rather than tax people to pay for state expenses, Necker borrowed - taking short-term, high-interest loans that brought the government close to bankruptcy. Then, Necker turned to accounting tricks to show that the government was actually running a surplus! The patsies loved it.

Pushed out for the first time in 1781, Necker was called back on the eve of revolution in 1788 for another dose of his financial magic. But it was too late. The old miracle elixirs - heavier debt and cooked books - wouldn't work any longer; bankruptcy was unavoidable. The aristocrats got rid of him again - on July 14, 1789. The mob, which still had faith, was so headed for the Bastille.

Your correspondent,

Bill Bonner

P.S. The American revolution was not a revolution at all - but just a revolt. The American colonists had gotten used to having their own way in the wilderness of North America. When King George III tried to reassert his control, Americans took up arms. An American in Baltimore or Philadelphia might have gone about his business before the War of Independence, during and after, and hardly have noticed the change.

Not so in France, where the revolution left hardly anyone undisturbed. Even my house in rural France - 200 miles from Paris - changed hands when the owners fled the country to avoid the guillotine.

P.P.S. King George III was no stranger to madness. He was already going mad from porphyria when the French revolution began. Thought cured on more than one occasion, George went mad permanently in the early 19th century and was replaced by his son, George IV.