History Of The French Debt. Indebtedness In Other Countries.

THE history of the French debt is naturally divided
into two parts : the former of which deals with the borrow-
ing under the Monarchy, and the latter with that under the
system founded during the Revolution. The history of the
various loans previous to the present century has been con-
cisely described as * a history of bankruptcies V All forms
of loans were tried; and all possible methods of evasion were
used to escape repayment. The costly wars and the internal
disturbances of the country partly explain this course of
policy, but ignorance of financial and economic conditions
was the great cause. Forced reductions of debt and de-
basements of the currency were frequently employed.
An extensive revision was carried out by Sully in 1604,
and further reductions were made by Mazarin. Colbert's
administration introduced some system into this part of
Finance, but after his death the older confusion reappeared.
One of the effects of the Mississippi scheme was a consoli-
dation of the diverse forms of the debt and a reduction of
its amount to a sum, estimated at 1,700,000,000 livres,
with an annual charge of 48,000,000 livres 2 .

The reign of Louis XV (1715-1774) was marked by fresh
loans and repeated forced reductions of the capital debt.
In 1764 the sum of the different liabilities was 2,360,000,000
livres and the annual charge 93,000,000 livres : at his death
the total annual charge was 120,000,000 livres, besides a
floating debt of 235,000,000 livres.

1 Viihrer, i. 320.

2 Ib. i. 181. The estimates, however, are not in agreement, ib. i. 178.



CHAP. IV.] HISTORY OF THE FRENCH DEBT. 563

The increasing embarrassments of the State, which might
have been overcome by Turgot had he remained in office,
were at least the proximate cause of the summoning of the
States-General and therefore of the Revolution.

According to the report submitted by the committee of
the Constituent Assembly in November, 1789, the annual
debt charge came to 208,000,000 livres, to which the float-
ing debt had to be added l .

2. The financial difficulties that surrounded the revolu-
tionary governments led to large issues of assignats, and to
a consolidation of the public debt on a plan arranged by
Cambon (August, 1793). By it all debt was to be inscribed
in a * Grand-book,' which was to be the conclusive evidence
of the claim. The redeemable debt with 5 per cent,
interest was first so treated, and the annuities were after-
wards added. The result was the creation of an annual
charge of 7,000,000 (174,716,000 francs), or a capital debt
of 140,000,000. Unfortunately, the use of paper money
and forced loans destroyed whatever benefit this systematic
treatment might have conferred, and the straits of the
government led to the measure of 1797 (Vendfrniaire,
Ann. vi), by which two-thirds of the debt was * paid off' (?) in
bonds to be exchanged for land, and, after some reductions
for confiscations, the balance in annual interest was ascer-
tained to be 1,600,000 (40,216,000 francs), representing a
capital debt of 32,000,000. About 250,000 was added
to the interest charge by the Directory, so that by the
opening of 1800, 46,300,000 francs was the annual payment.
The financial administration of Napoleon I, or rather of his
advisers in such matters, Gaudin and Mollien, had two
great merits. It resisted all temptations to issue incon-
vertible paper money, and it steadily refused to meet war
expenditure by the method of borrowing. The result is
to be seen in the position of the public debt at the close
of the Empire. In April, 1814, the interest had risen to
63,300,000 francs (2,530,000). After allowing for the

1 VUhrer, i. 336.
O O 2



564 PUBLIC FINANCE. [BOOK V.

debts of the annexed provinces, the net increase is less
than 300,000 interest, or 6,000,000 capital. In qualifi-
cation of this favourable situation the immense burdens
imposed on France and other countries must be taken into
account. The Napoleonic system of making war support
itself was a crushing one for the nations subjected to its
operation, and probably far heavier than a well-managed
public debt would have been l .

The government of the Restoration had a series of
difficult financial tasks to face. It had to meet the war
indemnity levied on France by the allies ; it had to compen-
sate the emigrants ; and it had to take up the unpaid balance
of the Imperial outlay. It handled these various problems
with honesty and firmness, refusing altogether to repudiate
the debts of the Empire, as some of its supporters wished.

The principal feature of debt history during the period
1815-1830 is the creation of new debts to meet the
indemnities and other outlay. The total amount required
for these purposes represented an annual charge of over
6,500,000 2 . The creation of other than 5 per cent, stock
was a second noticeable point. The emigrants' indemnity
was in 3 per cent, stock, and the conversion of 1824 was
partly in 4^ per cents, and partly in 3 per cents. At the
same time the policy of redemption was effectively carried
on. The annual charge was reduced by 54,000,000 francs
(2,160,000), and conversion removed about 6,000,000
francs. These sums, with a few small escheats to the
State, practically wiped out the debt existing in 1814,
leaving that created by the Restoration government
(though it was not responsible for it) as the actual charge.
From another point of view it may said that in the fifteen
years there was a net increase of 4,000,000 interest. The
capital of the new loans amounted to nearly 132,000,000.
less the sum of 43.000.000 redeemed, or a net capital
increase of 90,000,000.

1 On the debt system of the first Empire, see VUhrer, ii. 31-58.
3 Viihrer, ii. 160.



CHAP. IV.] HISTORY OF THE FRENCH DEBT. 565

The Orleanist government commenced its career by
borrowing. Its first loan added 280,000 to the interest
charge, and was issued in 5 per cent, stock at 84, or
nearly 6 per cent, on the actual sum received. Another loan
of 4,000,000 at par only brought in 800,000. Further
loans were made to clear off deficits, to prepare for war,
and to carry out public works, but the redemption of exist-
ing debt was also carried on, so that against 1,500,000
fresh interest created, about 1,000,000 was redeemed,
leaving a net increase of 500,000 during eighteen years,
but, it should be said, years of profound peace during which
public credit stood high 1 . The position of the stocks over
3 per cent, would have easily admitted of conversion without
any increase of capital into a 4 per cent, or even 3^ per
cent, stock, but to avoid popular hostility this evidently
prudent course was not taken 2 .

The Second Republic, short as was its duration, added
2,120,000 to the interest of the debt, and thus brought
the total charge to nearly 9,200,000. The complete dis-
organization of the financial system and the hazardous
experiments of the provisional government sufficiently
account for this state of things.

The first financial performance of the Second Empire
was the conversion of the 5 per cent, stock, amounting to
140,000,000, into 4\ per cent., with a gain to the State of
700,000 per annum. Less than 3,000,000 of the capital
had to be paid to dissenting creditors. Less satisfactory was
the management of the war expenditure. The total cost of
the Crimean War to France was 66,000,000, and of this
sum 61,500,000, or 93 per cent, of the whole, was added
to the debt. Further loans followed for the Italian and

1 In 1845 the highest and lowest prices of the several stocks were :

Highest. Lowest.

5 per cents. 122-85 116-45

4 Il6<2 5 i"

4 1 10-5 106

3 86-4 80-85

Leroy Beaulieu, ii. 498.

2 Viihrer, ii. 238.



566 PUBLIC FINANCE. [BOOK V.

Mexican wars, issued much under par. The total addition
to the debt between 1852 and July, 1870, was represented by
an increased interest charge of 5, 160,000. Thus the annual
payment had risen to 14,400,000, and the capital was a
little less than 480,000,000. Even more questionable than
the large borrowing was the conversion of 1862, under
which, for the sake of a premium, the 4! and 4 per cent,
stocks were to be converted into 3 per cents., with a pro-
portionally increased nominal capital. This unjustifiable
measure gained a premium of 6,300,000 for the State,
but on the other hand it increased the capital of the debt
by almost 64,000,000, and precluded the hope of further
speedy conversion l .

3. The Franco-German war of 1870-1 is as marked a
period in the development of the French debt, as the war with
Napoleon I was in the case of the English one. Its first
effect was to throw an enormous burden on the resources
of the new government. In addition to the terrible expense
and sacrifice due to the military operations, there was the
indemnity of 200,000,000 to the Germans. The total
expense imposed on the State has been estimated at
393,000,000. Of that sum about 340,000,000 was raised
through loans of one kind or other. Nearly 60,000,000
was received from the Bank of France by the inconvertible
paper issues. Over 40,000,000 was borrowed in 1870, and
two great loans, the first of 80,000,000, the second of
120,000,000, were raised in 1871 and 1872 2 .

The debt incurred to the Bank of France was cleared

1 For the Finance of the second Empire, see Viihrer, ii. 258-369.
' J The loans contracted were as follows :

Nominal capital Amount of

Amount received. created. interest.

Date. Millions of francs. Millions of francs. Millions of francs.

August, 1870 804 1,327 39-8

October, 1870 208 250 15

June, 1871 2,293 2,779 J 39

July, 1872 3,498 4,140 2 07

Total 6,803 8,496 400-8
Cp. Vuhrer, ii. 538 ; Leroy Beaulieu, ii. 573.



CHAP. IV.] HISTORY OF THE FRENCH DEBT. 567

off by annual payments of 8,000,000, and afterwards of
6,000.000, until in 1879 the whole was discharged.
In other respects the treatment of the debt has been
weaker. Fresh loans have been contracted for public
works and to meet budget deficits. M. Freycinet's plans
accounted for a large part of this increase in debt, which
was raised in 3 per cent, stock terminable after seventy-
five years. Thus a new category of debt was added
to the old perpetual rentes, with a nominal capital of
160,000,000, an interest charge of 4,800,000, and a
further charge of [,000,000 for redemption. The old 5 per
cents, have been in 1883 converted into 4! per cents, with-
out increase of capital, but the existing charge and capital
amount are very heavy. The consolidated debt amounts to
880,000,000, with annual interest of 30,500,000. When
the other liabilities are added we get the enormous total of
1,295,000,000, demanding the annual cost of 50,000,000,
together with about 1,750,000 applied to its redemption 1 .
The French debt is by far the largest in the world, being
more than double the English in annual charge, and over
600,000,000 greater in capital amount. This great accu-
mulation of debt has been altogether the work of the
present century. A comparison with the English debt will
show the steps by which the latter has been approached
and then passed. It is also interesting to note the widening
distribution of rentes among the French population. In
1830 the holders of stock were only 125,000 in number.

1 The constitution of the French debt in January, 1891, was as follows :

Interest. Capital.

Million francs. Million francs.

Perpetual Rates 4^ per cent. 305.5 6,789

3 456 15.204

Redeemable 3 per cents. 120-7 4> O2 3

Floating debt, January, 1891 21 I >77

Annuities for life 191 2 > 2 95

Terminable Annuities in 3,ooo



Total 1,205-2 32,388

The guarantee of 60,000,000 francs to the railway companies brings the annual
payments to over 50,000,000, Leroy Beaulieu (5 me Ed.), ii. 578-81.



568 PUBLIC FINANCE. [BOOK V.

By 1869 they had increased tenfold, while in 1881 they
numbered more than 4,000,000. The great mass of the
debt is in the hands of Frenchmen, and divided among all
classes of society. This, though in some respects desirable,
hampers a finance minister in such processes as conver-
sion or repayment, as the fundholders' interest is at once
powerful and in immediate opposition to that of the State.

Some alleviation of the burden may in the future be
reasonably expected from (i) the gradual redemption of the
3 per cent, stock created since 1878, a process to be finished
in 1952, and (2) from the falling-in of the railway property,
which, as we saw, will happen at about the same time 1 .
But the benefits to be thus received will largely depend on
the methods employed in the next sixty years. If deficits
are allowed to continue, if injudicious expenditure is carried
on, and if new public works are started, it is certain that a
fresh debt, perhaps exceeding that now in existence, will be
formed by the middle of the next century.

4. Italian unity has, from the financial point of view
at least, been purchased at a heavy price. Not only has
the weight of taxation been inordinately increased, but
a large public debt has been contracted. The new king- "
dom had to take up the debts of its predecessors, and from
its formation up to 1875 each year's budget showed an
excess of expenditure over receipts 2 . The use of loans,
either openly or by the issue of inconvertible paper, was
the inevitable result. The latter expedient was in- force
from 1866 to 1883, when it was removed by means of a
loan of over 29,000,000 in specie. Since then, however,
there have been further deficits and an increase of
liabilities, so that the total capital of the Italian debt
may now be estimated at 520,000,000, involving an
annual charge of nearly 25,000,000. About 6,000,000 of

1 SeeBk. ii. ch. 3. 13.

2 These annual deficits, 'which began with 15,000,000 for 1860 and rose to
nearly 29,000,000 in the war year 1866, became less than 3.000,000 in 1871,
and only a little over 500,000 in 1874', amounted in the aggregate for the
fifteen years 1860-1874 to 166,000,000.



CHAP. IV.] INDEBTEDNESS IN OTHER COUNTRIES. 569

this amount has been an inheritance from the earlier States,
and the war of 1 866 is accountable for part of the balance ;
but the great source has been the budget deficits in
ordinary years, that have gradually accumulated in the
present heavy burdens l .

The situation of the German States is in sharp contrast
with that of the countries already considered. They are
not weighed down by debt charges, and they have the
advantage of possessing assets against a good deal of their
apparent liabilities. As appeared in connexion with the
quasi-private income, the retention of the domain, both
agricultural and industrial, has been more marked in
Eastern Europe, and this difference in policy has affected
the position of the public debt.

The use of a state treasure prevented the employment
of loans by Prussia up to the French war of 1792. From
that time the public necessities were too pressing and some
debt was contracted, which, by 1820, came to nearly
33,000,000 with a yearly charge of .1,140,000, and a
sinking fund which brought the total annual cost up to
.1,500,000. During the next thirty years the debt was
reduced by the sale of public property, and suitable taxation,
until in 1848 the interest charge was only 650,000.
Between 1850 and 1870 there were increases both for
public works and war expenditure, that by the end of the
latter year brought the total debt to 66,700,000. Since
then fhe purchase of the railways has added 153,000,000
to the debt. The process of redemption has also been
carried on to such an extent that there is an actual
diminution of the non-productive part. Thus since 1870
the railway debt shows an increase of over 170,000,000,
and as there is a valuable property in existence by its use
the net result is a reduction of about 16,000,000. In fact
the railway receipts have in some years more than sufficed

1 Even for the present year Signer Luzzatti estimates for a trifling deficit
(40,000), but his view is generally regarded as unduly optimistic, as the real
excess of expenditure is likely to be 1,250,000.



570 PUBLIC FINANCE. [BOOK V.

to meet their expenses, and the whole cost of the interest
and sinking fund on the debt. Alike in the smallness of
its amount and the conditions of its creation, the Prussian
debt is less oppressive that that of any other European
country 1 .

The four important secondary states of Germany are
somewhat similarly placed. The whole debt of Baden is
for railway construction, as is the far greater part of those of
Saxony and Wiirtemberg. Two-thirds of the Bavarian
debt was incurred for the same object. Though the
railways hardly meet the interest on their part of the debt,
yet so far as they contribute, there is a relief to the tax-
payers, and if liquidation were necessary, there would be a
valuable asset to assist in the work.

At its commencement the German Empire took up the
debt of the North German Bund, which consisted in loans
for the war of 18701, amounting to over 30,000,000, and
which has been almost entirely paid off. New loans have,
however, been issued for extraordinary expenditure, and
they have brought the debt to over 60,000,000. The
various Imperial funds must be placed on the other side of
the account : they, as we saw 2 , come to 30,000,000 and
leave only about the same amount as the net liability.

5. The United States have, again, a still different debt
history from any of the preceding countries, and one that
suggests some points of interest. After the formation of
the Constitution, Hamilton prepared and carried a scheme
of funding by which the debts due to France and Spain,
those owed to natives by the Congress, and lastly the debts
of the States, were combined. The total debt was in 1791
$75,000,000. Notwithstanding the creation of a sinking ,
fund, the amount due increased in 1796 to $84,000,000.
By 1812 it was reduced to $45.000,000. The war with
England led to greater outlay, which was for the most part
met by loans. In 1816 the debt had reached $127,000,000.
From that point there was a steady reduction, till, in 1835,
the total debt was only $37,000, or practically nil. During
the following years some temporary loans were made, as
e. g. for the Mexican War (1848), and the total debt stood
at about $60,000,000 when the Civil War broke out 2 .