After the spending vast sums of money to fight Britain in the Seven Years War (1754-1763) and in the American Revolution from 1778-1783, France was broke. An enormous debt hung over the French monarchy like the Sword of Damocles. In the year of George Washington's historic victory at Yorktown, Virginia (1781) over General Charles Cornwallis, Jacques Necker (1732-1804), the Finance Minister, published a shocking account of the King's finances. Rather than war expenditures, it was the amount of money being paid to the nobles in the form of pensions that outraged the overworked, overtaxed and impecunious public. As payment on the interest of loans took up more and more of the budget, it became clear that only a new, comprehensive economic program could avert a complete financial meltdown. Consequently, any serious plan would have to end the state of extreme inequality by challenging the privileges of the parasitical elites..
Although the Swiss-born Necker was hailed as a financial genius, his accounting figures for government expenses were dubious and anything but transparent. For every extravagant expense and figure of bad economy revealed in his ledgers, Necker concealed five others. How could France have fought two wars without tax increases and come out with a surplus in the treasury? A simple short answer existed. It was not possible. Necker's figures were fabrications. Upon stepping down from the Finance Ministry in November 1783, his successor, Charles Alexandre de Calonne (1734-1802) arrived to find a staggering shortfall of approximately 125 million livres. Undaunted, Calonne went to work.
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Calonne's Financial Plan for Recovery
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A sound financial plan cannot be hatched overnight. In order to draw up a new system of finance, the economy must be deconstructed, analyzed and fitted back together in the shape of a more just, vibrant and stable model. One essential measure was needed to buy time, and Calonne followed his predecessor in requesting a new round of loans (i.e. raising the debt-ceiling) to keep France solvent prior to financial restructuring. As France had always enjoyed a high-reputation among the moneyed elites across Europe for paying back its loans with interest, bankers did not hesitate to extend new loans. As they were confident that Calonne and the King were serious about putting their financial house in order, France's credit was considered solid.
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After more than twenty-four months in office, Calonne finally presented his financial reform program to the King on 20 August 1786. It was worth the wait. His plan contained several major reform elements - all of which had immense potential to revive the stagnant economy and erase the debt.
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First: To increase liquidity or the ability to pay down the short-term debts, he wanted to restructure the short-term loans to be paid over twenty years instead of the scheduled ten and introduce new taxes on stamps to raise revenue and take the pressure off the treasury. Profligate government spending would be slashed as well. This was aimed not at entitlements for the citizens of France, who had none, but at the entitlements of the rich - the nobles receiving special payouts in pensions for their loyalty to the King.
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Second: Calonne argued for tax reform. Similar to the modern idea of 'closing tax loopholes' for the wealthy, he proposed a new tax on landowners with no exemptions. As only a noble or other person of some wealth could own land in France (a small percentage indeed), this measure was also aimed at the oligarchic owners of the country as well.
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Third: Rather than continuing to tax the agricultural sector in coin, Calonne asked for a new and less burdensome tax in kind. Money was a scarce commodity to French laborers. Hence, the government would be able to collect far more revenue by taking a reasonable share of grain from its farmers and re-selling it on the open market for a profit. Calonne further stipulated that the tax in kind allow for variations of productive capacity. In times of abundant harvests, the government would be justified in taking a larger share of grain. During years of poor harvests, the amount taxed in kind would be reduced accordingly. Ultimately, this was a progressive tax system that aimed to limit the gap between the 'haves' and the 'have nots' and ease the burden on struggling farmers - the backbone of the French economy.
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Fourth: In order to turn members of the petty producers into productive, tax-paying citizens, the Finance Minister proposed the creation of new local assemblies to impose the new land tax accurately, oversee public works programs and dole out relief to the indigent.
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While his plan also called for the sale of church lands, a reduction or abolition of customs duties to spur trade and convening a National Assembly, the above four points spell out the crux of his program - one designed to empower the struggling many and penalize the unproductive, avaricious few.
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History: The Future of the World Economy
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Do you remember when critics blasted President George W. Bush for taking the United States into two wars across the globe (Afghanistan and Iraq) and expanding the size of the federal government while cutting taxes - especially on the wealthy - at the same time? Their criticism was on the mark. The Bush administration had committed the same error as Necker and the French monarchy in the 1780s. Expenditures outstripped revenues, and both Necker's successor (Calonne) and Bush's successor (Obama) inherited enormous debt burdens and ominous fiscal crises. When Calonne's reforms were defeated by the privileged elites, France plunged into a deeper economic morass. He was crucified by the vested interests and forced to leave government. As a result, the rich became richer. The poor became poorer, and a toxic combination of an increasing population and bad harvests incited hungry people to riot in the streets at their unjust society. In the absence of any meaningful reform, the citizens of France rose up on 14 July 1789 and overthrew the corrupt order and announced a new nation conceived on the principles of liberty and equality.
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Recently, the President of the World Bank, Robert Zoellick, warned that the world economy was entering "a new danger zone." He is right. The Great Recession of 2007 - present may indeed become a Great Depression unless governments in North America, Europe and Asia create and implement comprehensive economic programs to reduce deficits by uplifting the struggling middle and lower classes with progressive tax reforms based on fairness - thus redressing the sizable income disparities around the globe with higher taxes on the wealthiest citizens and corporations - and using that money to invest in public works projects and other stimulative programs.
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In Switzerland, the richest 10% own 71.3% of all national financial assets, and the same top financial tier (10%) in America owns 69.8% of all the wealth in the US. Indonesia, Canada, India and Norway currently operate in national economies that allow their richest 10% to possess more than 50% of all national wealth. Not far behind, the wealthiest 10% of citizens in South Korea, Spain and China control more than 40% their respective wealth.
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Extreme wealth inequality is not only unethical but also financially ruinous. That was Calonne's genius. He recognized that recovery required a broad transfer of wealth from the financial oligarchs to the state. As the masses became richer from state investment (public works) and a lighter tax burden, they would be able to pay more in tax in the long-term. That tax money would support the state in paying down the debt and make France a more stable nation. The rich would still be rich - just not as rich.
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If governments fail to follow in the footsteps of Calonne by reforming their economies on the basis of a more equal distribution of wealth and making larger investments in its struggling citizens (now in the majority), then years of suffering lie ahead for hundred of millions of people worldwide.
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The time to learn from history is now.
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(Picture: Charles Alexandre de Calonne)
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To read a New York Times article on the study of income inequality around the world conducted by the United Nations University, please click onto the following link:
http://www.nytimes.com/2006/12/06/business/worldbusiness/06wealth.html
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Key Sources and Recommendations
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James B. Collins, The Ancien Regime and The French Revolution (Toronto: Thomson, 2002).
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A. Goodwin, The French Revolution (London: Hutchinson, 1953).
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Eduardo Porter, "Study Finds Wealth Equality Is Widening Worldwide" New York Times, 6 December 2006. See link above.
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J Roquen