From 320065159ce9766d4db09f36f74b9a4b16824d50 Mon Sep 17 00:00:00 2001 From: Humphrey Yang Date: Wed, 26 Jun 2024 09:53:37 +0800 Subject: [PATCH 01/15] upload french_rev from tom_edits --- lectures/french_rev.md | 257 +++++++++++++++++++++++++++-------------- 1 file changed, 169 insertions(+), 88 deletions(-) diff --git a/lectures/french_rev.md b/lectures/french_rev.md index 780f4317..359275f8 100644 --- a/lectures/french_rev.md +++ b/lectures/french_rev.md @@ -20,120 +20,78 @@ kernelspec: This lecture describes some monetary and fiscal features of the French Revolution described by {cite}`sargent_velde1995`. -We use matplotlib to replicate several of the graphs that they used to present salient patterns. +In order to finance public expenditures and service debts issued by earlier French governments, +successive French governments performed several policy experiments. +Authors of these experiments were guided by their having decided to put in place monetary-fiscal policies recommended by particular theories. +As a consequence, data on money growth and inflation from the period 1789 to 1787 at least temorarily illustrated outcomes predicted by these arrangements: -## Fiscal Situation and Response of National Assembly +* some *unpleasant monetarist arithmetic* like that described in this quanteon lecture XXXX +that governed French government debt dynamics in the decades preceding 1789 +* a *real bills* theory of the effects of government open market operations in which the government *backs* its issues of paper money with valuable real property or financial assets -In response to a motion by Catholic Bishop Talleyrand, -the National Assembly confiscated and nationalized Church lands. +* a classical **gold** or **silver** standard -But the National Assembly was dominated by free market advocates, not socialists. +* a classical inflation-tax theory of inflation in which Philip Cagan's demand for money studied +in this lecture XXXX is a key component -The National Assembly intended to use earnings from Church lands to service its national debt. +* a *legal restrictions* or *financial repression* theory of the demand for real balances -To do this, it began to implement a ''privatization plan'' that would let it service its debt while -not raising taxes. +We use matplotlib to replicate several of the graphs that they used to present salient patterns. -Their plan involved issuing paper notes called ''assignats'' that entitled bearers to use them to purchase state lands. +Certainly! Here's a 3-page summary of Thomas Sargent and Francois Velde's paper "Macroeconomic Features of the French Revolution" from the 1995 Journal of Political Economy: -These paper notes would be ''as good as silver coins'' in the sense that both were acceptable means of payment in exchange for those (formerly) church lands. +--- -Finance Minister Necker and the Constituants planned -to solve the privatization problem **and** the debt problem simultaneously -by creating a new currency. +### Introduction -They devised a scheme to raise revenues by auctioning -the confiscated lands, thereby withdrawing paper notes issued on the security of -the lands sold by the government. +Sargent and Velde's study delves into the macroeconomic implications of the French Revolution, focusing on the tumultuous period between 1789 and 1796. This era is marked by significant political upheaval, monetary instability, and economic transformation. The paper seeks to analyze the macroeconomic policies, particularly those related to the issuance of paper money (assignats), and their impact on the economy, including inflation, public finance, and economic activity. - This ''tax-backed money'' scheme propelled the National Assembly into the domain of monetary experimentation. - -Records of their debates show -how members of the Assembly marshaled theory and evidence to assess the likely -effects of their innovation. +### Historical Context and Monetary Policies -They quoted David Hume and Adam Smith and cited John -Law's System of 1720 and the American experiences with paper money fifteen years -earlier as examples of how paper money schemes can go awry. +**Pre-Revolutionary Fiscal Crisis:** +France entered the revolutionary period with a significant fiscal deficit, primarily due to extensive war expenditures and a cumbersome taxation system. The monarchy's inability to reform taxes and control expenditures led to escalating debts and the eventual fiscal crisis. +**Introduction of Assignats:** +In response to the financial crisis, the revolutionary government introduced assignats in 1789. Initially, these were land-backed paper money intended to be a temporary solution for fiscal shortages. Assignats were first issued as interest-bearing notes but soon became non-interest-bearing and were used as legal tender. -### Necker's plan and how it was tweaked +### Macroeconomic Consequences of Assignat Issuance -Necker's original plan embodied two components: a national bank and a new -financial instrument, the ''assignat''. +**Inflation Dynamics:** +The uncontrolled issuance of assignats led to severe inflation. Sargent and Velde highlight how the overproduction of these notes eroded their value, causing hyperinflation. The price level skyrocketed, creating widespread economic disarray and reducing the real value of debts and savings. +**Impact on Public Finance:** +The revolutionary government's reliance on assignats to finance its expenditures without corresponding fiscal reforms exacerbated the fiscal imbalance. While initially providing temporary relief, the overissuance undermined confidence in the currency, leading to a vicious cycle of devaluation and increasing monetary emissions. -Necker's national -bank was patterned after the Bank of England. He proposed to transform the *Caisse d'Escompte* into a national bank by granting it a monopoly on issuing -notes and marketing government debt. The *Caisse* was a -discount bank founded in 1776 whose main function was to discount commercial bills -and issue convertible notes. Although independent of the government in principle, -it had occasionally been used as a source of loans. Its notes had been declared -inconvertible in August 1788, and by the time of Necker's proposal, its reserves -were exhausted. Necker's plan placed the National Estates (as the Church lands -became known after the addition of the royal demesne) at the center of the financial -picture: a ''Bank of France'' would issue a $5\%$ security mortgaged on the prospective -receipts from the modest sale of some 400 millions' worth of National Estates in -the years 1791 to 1793. -```{note} - Only 170 million was to be used initially -to cover the deficits of 1789 and 1790. -``` +**Price Controls and Economic Distortions:** +In an attempt to control inflation, the government imposed price controls, notably the "Law of the Maximum." These measures, however, led to market distortions, shortages, and black markets. The disruption of traditional economic activities further aggravated the economic crisis. +### The Role of War and Political Instability -By mid-1790, members of the National Assembly had agreed to sell the National -Estates and to use the proceeds to service the debt in a ``tax-backed money'' scheme -```{note} -Debt service costs absorbed - over 60\% of French government expenditures. -``` +**War Financing:** +The Revolutionary Wars significantly influenced economic policy. The need to finance military expenditures drove the government to print more assignats, exacerbating inflationary pressures. The war effort also disrupted trade and agricultural production, further straining the economy. -The government would issue securities with which it would reimburse debt. +**Political Instability:** +The period was marked by rapid political changes, with various factions vying for control. This instability affected economic policy consistency and enforcement, contributing to the chaotic economic environment. The lack of a stable government made it challenging to implement long-term economic reforms. -The securities -were acceptable as payment for National Estates purchased at auctions; once received -in payment, they were to be burned. +### Consequences and Reforms -```{note} -The appendix to {cite}`sargent_velde1995` describes the -auction rules in detail. -``` -The Estates available for sale were thought to be worth about 2,400 -million, while the exactable debt (essentially fixed-term loans, unpaid arrears, -and liquidated offices) stood at about 2,000 million. The value of the land was -sufficient to let the Assembly retire all of the exactable debt and thereby eliminate -the interest payments on it. After lengthy debates, in August 1790, the Assembly set the denomination -and interest rate structure of the debt. +**Economic Collapse and Recovery Attempts:** +By 1796, the assignats had become nearly worthless, leading to a collapse of the monetary system. In response, the government introduced the mandats territoriaux, another form of land-backed currency, which also failed due to similar overissuance and loss of confidence. +**Fiscal and Monetary Reforms:** +The eventual stabilization of the French economy required substantial reforms. The Directory government initiated measures to restore fiscal discipline, including tax reforms and reducing the reliance on paper money. The establishment of the Banque de France in 1800 under Napoleon provided a more stable monetary system, which helped in the recovery. -```{note} Two distinct -aspects of monetary theory help in thinking about the assignat plan. First, a system -beginning with a commodity standard typically has room for a once-and-for-all emission -of (an unbacked) paper currency that can replace the commodity money without generating -inflation. \citet{Sargent/Wallace:1983} describe models with this property. That -commodity money systems are wasteful underlies Milton Friedman's (1960) TOM:ADD REFERENCE preference -for a fiat money regime over a commodity money. Second, in a small country on a -commodity money system that starts with restrictions on intermediation, those restrictions -can be relaxed by letting the government issue bank notes on the security of safe -private indebtedness, while leaving bank notes convertible into gold at par. See -Adam Smith and Sargent and Wallace (1982) for expressions of this idea. TOM: ADD REFERENCES HEREAND IN BIBTEX FILE. -``` +### Conclusion +Sargent and Velde's analysis illustrates the complex interplay between monetary policy, political stability, and economic performance during the French Revolution. The experience of the assignats serves as a cautionary tale about the dangers of excessive reliance on fiat money without adequate fiscal backing. The authors emphasize the importance of credible and consistent economic policies in maintaining monetary stability and fostering economic growth. + +--- + +This summary encapsulates the main points and findings of Sargent and Velde's paper, providing an overview of the macroeconomic challenges and policies during the French Revolution. -```{note} -The -National Assembly debated many now classic questions in monetary economics. Under -what conditions would money creation generate inflation, with what consequences -for business conditions? Distinctions were made between issue of money to pay off -debt, on one hand, and monetization of deficits, on the other. Would *assignats* be akin -to notes emitted under a real bills regime, and cause loss of specie, or would -they circulate alongside specie, thus increasing the money stock? Would inflation -affect real wages? How would it impact foreign trade, competitiveness of French -industry and agriculture, balance of trade, foreign exchange? -``` ## Data Sources @@ -194,7 +152,7 @@ plt.show() ``` -TO TEACH TOM: By staring at {numref}`fig1` carefully +TOM ADD MORE: By staring at {numref}`fig1` carefully ## Figure 2 @@ -239,6 +197,8 @@ plt.show() #plt.savefig('frfinfig2.pdf', dpi=600) ``` + +TOM ADD MORE: Figure {numref}`fig2` shows blah ## Figure 3 @@ -287,9 +247,15 @@ plt.show() ``` -TO TEACH TOM: By staring at {numref}`fr_fig3` carefully +TO TEACH TOM: Figure {numref}`fr_fig3` shows ```{code-cell} ipython3 +--- +mystnb: + figure: + caption: "Government Spending and Tax Revenues in France" + name: fr_fig3a +--- # Plot the data plt.figure() @@ -316,6 +282,7 @@ plt.show() #plt.savefig('frfinfig3_ignore_nan.jpg', dpi=600) ``` +TO TEACH TOM: Figure {numref}`fr_fig3a` shows ## Figure 4 @@ -1029,3 +996,117 @@ plt.show() ```{code-cell} ipython3 ``` + +STUFF FROM SV 1995 + + +## Fiscal Situation and Response of National Assembly + + +In response to a motion by Catholic Bishop Talleyrand, +the National Assembly confiscated and nationalized Church lands. + +But the National Assembly was dominated by free market advocates, not socialists. + +The National Assembly intended to use earnings from Church lands to service its national debt. + +To do this, it began to implement a ''privatization plan'' that would let it service its debt while +not raising taxes. + +Their plan involved issuing paper notes called ''assignats'' that entitled bearers to use them to purchase state lands. + +These paper notes would be ''as good as silver coins'' in the sense that both were acceptable means of payment in exchange for those (formerly) church lands. + +Finance Minister Necker and the Constituants planned +to solve the privatization problem **and** the debt problem simultaneously +by creating a new currency. + +They devised a scheme to raise revenues by auctioning +the confiscated lands, thereby withdrawing paper notes issued on the security of +the lands sold by the government. + + This ''tax-backed money'' scheme propelled the National Assembly into the domain of monetary experimentation. + +Records of their debates show +how members of the Assembly marshaled theory and evidence to assess the likely +effects of their innovation. + +They quoted David Hume and Adam Smith and cited John +Law's System of 1720 and the American experiences with paper money fifteen years +earlier as examples of how paper money schemes can go awry. + + +### Necker's plan and how it was tweaked + +Necker's original plan embodied two components: a national bank and a new +financial instrument, the ''assignat''. + + +Necker's national +bank was patterned after the Bank of England. He proposed to transform the *Caisse d'Escompte* into a national bank by granting it a monopoly on issuing +notes and marketing government debt. The *Caisse* was a +discount bank founded in 1776 whose main function was to discount commercial bills +and issue convertible notes. Although independent of the government in principle, +it had occasionally been used as a source of loans. Its notes had been declared +inconvertible in August 1788, and by the time of Necker's proposal, its reserves +were exhausted. Necker's plan placed the National Estates (as the Church lands +became known after the addition of the royal demesne) at the center of the financial +picture: a ''Bank of France'' would issue a $5\%$ security mortgaged on the prospective +receipts from the modest sale of some 400 millions' worth of National Estates in +the years 1791 to 1793. +```{note} + Only 170 million was to be used initially +to cover the deficits of 1789 and 1790. +``` + + +By mid-1790, members of the National Assembly had agreed to sell the National +Estates and to use the proceeds to service the debt in a ``tax-backed money'' scheme +```{note} +Debt service costs absorbed + over 60\% of French government expenditures. +``` + +The government would issue securities with which it would reimburse debt. + +The securities +were acceptable as payment for National Estates purchased at auctions; once received +in payment, they were to be burned. + +```{note} +The appendix to {cite}`sargent_velde1995` describes the +auction rules in detail. +``` +The Estates available for sale were thought to be worth about 2,400 +million, while the exactable debt (essentially fixed-term loans, unpaid arrears, +and liquidated offices) stood at about 2,000 million. The value of the land was +sufficient to let the Assembly retire all of the exactable debt and thereby eliminate +the interest payments on it. After lengthy debates, in August 1790, the Assembly set the denomination +and interest rate structure of the debt. + + +```{note} Two distinct +aspects of monetary theory help in thinking about the assignat plan. First, a system +beginning with a commodity standard typically has room for a once-and-for-all emission +of (an unbacked) paper currency that can replace the commodity money without generating +inflation. \citet{Sargent/Wallace:1983} describe models with this property. That +commodity money systems are wasteful underlies Milton Friedman's (1960) TOM:ADD REFERENCE preference +for a fiat money regime over a commodity money. Second, in a small country on a +commodity money system that starts with restrictions on intermediation, those restrictions +can be relaxed by letting the government issue bank notes on the security of safe +private indebtedness, while leaving bank notes convertible into gold at par. See +Adam Smith and Sargent and Wallace (1982) for expressions of this idea. TOM: ADD REFERENCES HEREAND IN BIBTEX FILE. +``` + + +```{note} +The +National Assembly debated many now classic questions in monetary economics. Under +what conditions would money creation generate inflation, with what consequences +for business conditions? Distinctions were made between issue of money to pay off +debt, on one hand, and monetization of deficits, on the other. Would *assignats* be akin +to notes emitted under a real bills regime, and cause loss of specie, or would +they circulate alongside specie, thus increasing the money stock? Would inflation +affect real wages? How would it impact foreign trade, competitiveness of French +industry and agriculture, balance of trade, foreign exchange? +``` \ No newline at end of file From 28abb39c153c04dd37efa4e706e8cd1370b06001 Mon Sep 17 00:00:00 2001 From: Humphrey Yang Date: Wed, 26 Jun 2024 09:54:04 +0800 Subject: [PATCH 02/15] remove redundent files --- lectures/french_rev copy.md | 1078 ----------------------------------- lectures/french_rev_tom.md | 1078 ----------------------------------- 2 files changed, 2156 deletions(-) delete mode 100644 lectures/french_rev copy.md delete mode 100644 lectures/french_rev_tom.md diff --git a/lectures/french_rev copy.md b/lectures/french_rev copy.md deleted file mode 100644 index e6c19e22..00000000 --- a/lectures/french_rev copy.md +++ /dev/null @@ -1,1078 +0,0 @@ ---- -jupytext: - text_representation: - extension: .md - format_name: myst - format_version: 0.13 - jupytext_version: 1.16.1 -kernelspec: - display_name: Python 3 (ipykernel) - language: python - name: python3 ---- - - -# Inflation During French Revolution - - -## Overview - -This lecture describes some monetary and fiscal features of the French Revolution -described by {cite}`sargent_velde1995`. - -In order to finance public expenditures and service debts issued by earlier French governments, -successive French governments performed several policy experiments. - -Authors of these experiments were guided by their having decided to put in place monetary-fiscal policies recommended by particular theories. - -As a consequence, data on money growth and inflation from the period 1789 to 1787 at least temorarily illustrated outcomes predicted by these arrangements: - -* some *unpleasant monetarist arithmetic* like that described in this quanteon lecture XXX -that governed French government debt dynamics in the decades preceding 1789 - -* a *real bills* theory of the effects of government open market operations in which the government *backs* its issues of paper money with valuable real property or financial assets - -* a classical ``gold or silver'' standard - -* a classical inflation-tax theory of inflation in which Philip Cagan's demand for money studied -in this lecture is a key component - -* a *legal restrictions* or *financial repression* theory of the demand for real balances - -We use matplotlib to replicate several of the graphs that they used to present salient patterns. - - - -## Data Sources - -This notebook uses data from three spreadsheets: - - * datasets/fig_3.ods - * datasets/dette.xlsx - * datasets/assignat.xlsx - -```{code-cell} ipython3 -import numpy as np -import pandas as pd -import matplotlib.pyplot as plt -plt.rcParams.update({'font.size': 12}) -``` - - -## Figure 1 - - -```{code-cell} ipython3 ---- -mystnb: - figure: - caption: "Ratio of debt service to taxes, Britain and France" - name: fig1 ---- - -# Read the data from the Excel file -data1 = pd.read_excel('datasets/dette.xlsx', sheet_name='Debt', usecols='R:S', skiprows=5, nrows=99, header=None) -data1a = pd.read_excel('datasets/dette.xlsx', sheet_name='Debt', usecols='P', skiprows=89, nrows=15, header=None) - -# Plot the data -plt.figure() -plt.plot(range(1690, 1789), 100 * data1.iloc[:, 1], linewidth=0.8) - -date = np.arange(1690, 1789) -index = (date < 1774) & (data1.iloc[:, 0] > 0) -plt.plot(date[index], 100 * data1[index].iloc[:, 0], '*:', color='r', linewidth=0.8) - -# Plot the additional data -plt.plot(range(1774, 1789), 100 * data1a, '*:', color='orange') - -# Note about the data -# The French data before 1720 don't match up with the published version -# Set the plot properties -plt.gca().spines['top'].set_visible(False) -plt.gca().spines['right'].set_visible(False) -plt.gca().set_facecolor('white') -plt.gca().set_xlim([1688, 1788]) -plt.ylabel('% of Taxes') - -plt.tight_layout() -plt.show() - -#plt.savefig('frfinfig1.pdf', dpi=600) -#plt.savefig('frfinfig1.jpg', dpi=600) -``` - - - {numref}`fig1` plots ratios of debt service to total taxes collected for Great Britain and France. - The figure shows - - * ratios of debt service to taxes rise for both countries at the beginning of the century and at the end of the century - * ratios that are similar for both countries in most years - - - - - -## Figure 2 - - -```{code-cell} ipython3 ---- -mystnb: - figure: - caption: "Government Expenditures and Tax Revenues in Britain" - name: fig2 ---- - -# Read the data from Excel file -data2 = pd.read_excel('datasets/dette.xlsx', sheet_name='Militspe', usecols='M:X', skiprows=7, nrows=102, header=None) - -# Plot the data -plt.figure() -plt.plot(range(1689, 1791), data2.iloc[:, 5], linewidth=0.8) -plt.plot(range(1689, 1791), data2.iloc[:, 11], linewidth=0.8, color='red') -plt.plot(range(1689, 1791), data2.iloc[:, 9], linewidth=0.8, color='orange') -plt.plot(range(1689, 1791), data2.iloc[:, 8], 'o-', markerfacecolor='none', linewidth=0.8, color='purple') - -# Customize the plot -plt.gca().spines['top'].set_visible(False) -plt.gca().spines['right'].set_visible(False) -plt.gca().tick_params(labelsize=12) -plt.xlim([1689, 1790]) -plt.ylabel('millions of pounds', fontsize=12) - -# Add text annotations -plt.text(1765, 1.5, 'civil', fontsize=10) -plt.text(1760, 4.2, 'civil plus debt service', fontsize=10) -plt.text(1708, 15.5, 'total govt spending', fontsize=10) -plt.text(1759, 7.3, 'revenues', fontsize=10) - - -plt.tight_layout() -plt.show() - -# Save the figure as a PDF -#plt.savefig('frfinfig2.pdf', dpi=600) -``` - - - -{numref}`fig2` plots total taxes, total government expenditures, and the composition of government expenditures in Great Britain during much of the 18th century. - -## Figure 3 - - - - -```{code-cell} ipython3 -# Read the data from the Excel file -data1 = pd.read_excel('datasets/fig_3.xlsx', sheet_name='Sheet1', usecols='C:F', skiprows=5, nrows=30, header=None) - -data1.replace(0, np.nan, inplace=True) -``` - -```{code-cell} ipython3 ---- -mystnb: - figure: - caption: "Government Spending and Tax Revenues in France" - name: fr_fig3 ---- -# Plot the data -plt.figure() - -plt.plot(range(1759, 1789, 1), data1.iloc[:, 0], '-x', linewidth=0.8) -plt.plot(range(1759, 1789, 1), data1.iloc[:, 1], '--*', linewidth=0.8) -plt.plot(range(1759, 1789, 1), data1.iloc[:, 2], '-o', linewidth=0.8, markerfacecolor='none') -plt.plot(range(1759, 1789, 1), data1.iloc[:, 3], '-*', linewidth=0.8) - -plt.text(1775, 610, 'total spending', fontsize=10) -plt.text(1773, 325, 'military', fontsize=10) -plt.text(1773, 220, 'civil plus debt service', fontsize=10) -plt.text(1773, 80, 'debt service', fontsize=10) -plt.text(1785, 500, 'revenues', fontsize=10) - - - -plt.gca().spines['top'].set_visible(False) -plt.gca().spines['right'].set_visible(False) -plt.ylim([0, 700]) -plt.ylabel('millions of livres') - -plt.tight_layout() -plt.show() - -#plt.savefig('frfinfig3.jpg', dpi=600) -``` - - -TO TEACH TOM: By staring at {numref}`fr_fig3` carefully - -{numref}`fr_fig3` plots total taxes, total government expenditures, and the composition of government expenditures in France during much of the 18th century. - -```{code-cell} ipython3 - ---- -mystnb: - figure: - caption: "Government Spending and Tax Revenues in France" - name: fr_fig3b ---- -# Plot the data -plt.figure() - -plt.plot(np.arange(1759, 1789, 1)[~np.isnan(data1.iloc[:, 0])], data1.iloc[:, 0][~np.isnan(data1.iloc[:, 0])], '-x', linewidth=0.8) -plt.plot(np.arange(1759, 1789, 1)[~np.isnan(data1.iloc[:, 1])], data1.iloc[:, 1][~np.isnan(data1.iloc[:, 1])], '--*', linewidth=0.8) -plt.plot(np.arange(1759, 1789, 1)[~np.isnan(data1.iloc[:, 2])], data1.iloc[:, 2][~np.isnan(data1.iloc[:, 2])], '-o', linewidth=0.8, markerfacecolor='none') -plt.plot(np.arange(1759, 1789, 1)[~np.isnan(data1.iloc[:, 3])], data1.iloc[:, 3][~np.isnan(data1.iloc[:, 3])], '-*', linewidth=0.8) - -plt.text(1775, 610, 'total spending', fontsize=10) -plt.text(1773, 325, 'military', fontsize=10) -plt.text(1773, 220, 'civil plus debt service', fontsize=10) -plt.text(1773, 80, 'debt service', fontsize=10) -plt.text(1785, 500, 'revenues', fontsize=10) - - -plt.gca().spines['top'].set_visible(False) -plt.gca().spines['right'].set_visible(False) -plt.ylim([0, 700]) -plt.ylabel('millions of livres') - -plt.tight_layout() -plt.show() - -#plt.savefig('frfinfig3_ignore_nan.jpg', dpi=600) -``` - -{numref}`fr_fig3b` plots total taxes, total government expenditures, and the composition of government expenditures in France during much of the 18th century. - - - - -## Figure 4 - - -```{code-cell} ipython3 ---- -mystnb: - figure: - caption: "Military Spending in Britain and France" - name: fig4 ---- -# French military spending, 1685-1789, in 1726 livres -data4 = pd.read_excel('datasets/dette.xlsx', sheet_name='Militspe', usecols='D', skiprows=3, nrows=105, header=None).squeeze() -years = range(1685, 1790) - -plt.figure() -plt.plot(years, data4, '*-', linewidth=0.8) - -plt.plot(range(1689, 1791), data2.iloc[:, 4], linewidth=0.8) - -plt.gca().spines['top'].set_visible(False) -plt.gca().spines['right'].set_visible(False) -plt.gca().tick_params(labelsize=12) -plt.xlim([1689, 1790]) -plt.xlabel('*: France') -plt.ylabel('Millions of livres') -plt.ylim([0, 475]) - -plt.tight_layout() -plt.show() - -#plt.savefig('frfinfig4.pdf', dpi=600) -``` - - -{numref}`fig4` plots total taxes, total government expenditures, and the composition of government expenditures in France during much of the 18th century. - -TO TEACH TOM: By staring at {numref}`fig4` carefully - - -## Figure 5 - - -```{code-cell} ipython3 ---- -mystnb: - figure: - caption: "Index of real per capital revenues, France" - name: fig5 ---- -# Read data from Excel file -data5 = pd.read_excel('datasets/dette.xlsx', sheet_name='Debt', usecols='K', skiprows=41, nrows=120, header=None) - -# Plot the data -plt.figure() -plt.plot(range(1726, 1846), data5.iloc[:, 0], linewidth=0.8) - -plt.gca().spines['top'].set_visible(False) -plt.gca().spines['right'].set_visible(False) -plt.gca().set_facecolor('white') -plt.gca().tick_params(labelsize=12) -plt.xlim([1726, 1845]) -plt.ylabel('1726 = 1', fontsize=12) - -plt.tight_layout() -plt.show() - -# Save the figure as a PDF -#plt.savefig('frfinfig5.pdf', dpi=600) -``` - -TO TEACH TOM: By staring at {numref}`fig5` carefully - -## Rise and Fall of the *Assignat* - - - - We have partitioned Figures~\ref{fig:fig7}, \ref{fig:fig8}, and \ref{fig:fig9} - into three periods, corresponding -to different monetary regimes or episodes. The three clouds of points in -Figure~\ref{fig:fig7} - depict different real balance-inflation relationships. Only the cloud for the -third period has the inverse relationship familiar to us now from twentieth-century -hyperinflations. The first period ends in the late summer of 1793, and is characterized -by growing real balances and moderate inflation. The second period begins and ends -with the Terror. It is marked by high real balances, around 2,500 millions, and -roughly stable prices. The fall of Robespierre in late July 1794 begins the third -of our episodes, in which real balances decline and prices rise rapidly. We interpret -these three episodes in terms of three separate theories about money: a ``backing'' -or ''real bills'' theory (the text is Adam Smith (1776)), -a legal restrictions theory (TOM: HERE PLEASE CITE -Keynes,1940, AS WELL AS Bryant/Wallace:1984 and Villamil:1988) -and a classical hyperinflation theory.% -```{note} -According to the empirical definition of hyperinflation adopted by {cite}`Cagan`, -beginning in the month that inflation exceeds 50 percent -per month and ending in the month before inflation drops below 50 percent per month -for at least a year, the *assignat* experienced a hyperinflation from May to December -1795. -``` -We view these -theories not as competitors but as alternative collections of ``if-then'' -statements about government note issues, each of which finds its conditions more -nearly met in one of these episodes than in the other two. - - - - - -## Figure 7 - - -## To Do for Zejin - -I want to tweak and consolidate the extra lines that Zejin drew on the beautiful **Figure 7**. - -I'd like to experiment in plotting the **six** extra lines all on one graph -- a pair of lines for each of our subsamples - - * one for the $y$ on $x$ regression line - * another for the $x$ on $y$ regression line - -I'd like the $y$ on $x$ and $x$ on $y$ lines to be in separate colors. - -Once we are satisfied with this new graph with its six additional lines, we can dispense with the other graphs that add one line at a time. - -Zejin, I can explain on zoom the lessons I want to convey with this. - - - -Just to recall, to compute the regression lines, Zejin wrote a function that use standard formulas -for a and b in a least squares regression y = a + b x + residual -- i.e., b is ratio of sample covariance of y,x to sample variance of x; while a is then computed from a = sample mean of y - \hat b *sample mean of x - -We could presumably tell students how to do this with a couple of numpy lines -I'd like to create three additional versions of the following figure. - -To remind you, we focused on three subperiods: - - -* subperiod 1: ("real bills period): January 1791 to July 1793 - -* subperiod 2: ("terror:): August 1793 - July 1794 - -* subperiod 3: ("classic Cagan hyperinflation): August 1794 - March 1796 - - -I can explain what this is designed to show. - - - -```{code-cell} ipython3 -def fit(x, y): - - b = np.cov(x, y)[0, 1] / np.var(x) - a = y.mean() - b * x.mean() - - return a, b -``` - -```{code-cell} ipython3 -# load data -caron = np.load('datasets/caron.npy') -nom_balances = np.load('datasets/nom_balances.npy') - -infl = np.concatenate(([np.nan], -np.log(caron[1:63, 1] / caron[0:62, 1]))) -bal = nom_balances[14:77, 1] * caron[:, 1] / 1000 -``` - -```{code-cell} ipython3 -# fit data - -# reg y on x for three periods -a1, b1 = fit(bal[1:31], infl[1:31]) -a2, b2 = fit(bal[31:44], infl[31:44]) -a3, b3 = fit(bal[44:63], infl[44:63]) - -# reg x on y for three periods -a1_rev, b1_rev = fit(infl[1:31], bal[1:31]) -a2_rev, b2_rev = fit(infl[31:44], bal[31:44]) -a3_rev, b3_rev = fit(infl[44:63], bal[44:63]) -``` - -```{code-cell} ipython3 -plt.figure() -plt.gca().spines['top'].set_visible(False) -plt.gca().spines['right'].set_visible(False) - -# first subsample -plt.plot(bal[1:31], infl[1:31], 'o', markerfacecolor='none', color='blue', label='real bills period') - -# second subsample -plt.plot(bal[31:44], infl[31:44], '+', color='red', label='terror') - -# third subsample -plt.plot(bal[44:63], infl[44:63], '*', color='orange', label='classic Cagan hyperinflation') - -plt.xlabel('real balances') -plt.ylabel('inflation') -plt.legend() - -plt.tight_layout() -plt.show() -#plt.savefig('frfinfig7.pdf', dpi=600) -``` - - - -```{code-cell} ipython3 -# fit data - -# reg y on x for three periods -a1, b1 = fit(bal[1:31], infl[1:31]) -a2, b2 = fit(bal[31:44], infl[31:44]) -a3, b3 = fit(bal[44:63], infl[44:63]) - -# reg x on y for three periods -a1_rev, b1_rev = fit(infl[1:31], bal[1:31]) -a2_rev, b2_rev = fit(infl[31:44], bal[31:44]) -a3_rev, b3_rev = fit(infl[44:63], bal[44:63]) -``` - -```{code-cell} ipython3 -plt.figure() -plt.gca().spines['top'].set_visible(False) -plt.gca().spines['right'].set_visible(False) - -# first subsample -plt.plot(bal[1:31], infl[1:31], 'o', markerfacecolor='none', color='blue', label='real bills period') - -# second subsample -plt.plot(bal[34:44], infl[34:44], '+', color='red', label='terror') - -# third subsample # Tom tinkered with subsample period -plt.plot(bal[44:63], infl[44:63], '*', color='orange', label='classic Cagan hyperinflation') - -plt.xlabel('real balances') -plt.ylabel('inflation') -plt.legend() - -plt.tight_layout() -plt.show() -#plt.savefig('frfinfig7.pdf', dpi=600) -``` - - -

The above graph is Tom's experimental lab. We'll delete it eventually.

- -

Zejin: below is the grapth with six lines in one graph. The lines generated by regressing y on x have the same color as the corresponding data points, while the lines generated by regressing x on y are all in green.

- -```{code-cell} ipython3 -plt.figure() -plt.gca().spines['top'].set_visible(False) -plt.gca().spines['right'].set_visible(False) - -# first subsample -plt.plot(bal[1:31], infl[1:31], 'o', markerfacecolor='none', color='blue', label='real bills period') -plt.plot(bal[1:31], a1 + bal[1:31] * b1, color='blue', linewidth=0.8) -plt.plot(a1_rev + b1_rev * infl[1:31], infl[1:31], color='green', linewidth=0.8) - -# second subsample -plt.plot(bal[31:44], infl[31:44], '+', color='red', label='terror') -plt.plot(bal[31:44], a2 + bal[31:44] * b2, color='red', linewidth=0.8) -plt.plot(a2_rev + b2_rev * infl[31:44], infl[31:44], color='green', linewidth=0.8) - -# third subsample -plt.plot(bal[44:63], infl[44:63], '*', color='orange', label='classic Cagan hyperinflation') -plt.plot(bal[44:63], a3 + bal[44:63] * b3, color='orange', linewidth=0.8) -plt.plot(a3_rev + b3_rev * infl[44:63], infl[44:63], color='green', linewidth=0.8) - -plt.xlabel('real balances') -plt.ylabel('inflation') -plt.legend() -#plt.savefig('frfinfig7.pdf', dpi=600) -``` - - - -

The graph below is Tom's version of the six lines in one graph. The lines generated by regressing y on x have the same color as the corresponding data points, while the lines generated by regressing x on y are all in green.

- -```{code-cell} ipython3 -plt.figure() -plt.gca().spines['top'].set_visible(False) -plt.gca().spines['right'].set_visible(False) - -# first subsample -plt.plot(bal[1:31], infl[1:31], 'o', markerfacecolor='none', color='blue', label='real bills period') -plt.plot(bal[1:31], a1 + bal[1:31] * b1, color='blue', linewidth=0.8) -plt.plot(a1_rev + b1_rev * infl[1:31], infl[1:31], color='green', linewidth=0.8) - -# second subsample -plt.plot(bal[31:44], infl[31:44], '+', color='red', label='terror') -plt.plot(bal[34:44], a2 + bal[34:44] * b2, color='red', linewidth=0.8) -plt.plot(a2_rev + b2_rev * infl[34:44], infl[34:44], color='green', linewidth=0.8) - -# third subsample -plt.plot(bal[44:63], infl[44:63], '*', color='orange', label='classic Cagan hyperinflation') -plt.plot(bal[44:63], a3 + bal[44:63] * b3, color='orange', linewidth=0.8) -plt.plot(a3_rev + b3_rev * infl[44:63], infl[44:63], color='green', linewidth=0.8) - -plt.xlabel('real balances') -plt.ylabel('inflation') -plt.legend() - -plt.tight_layout() -plt.show() -#plt.savefig('frfinfig7.pdf', dpi=600) -``` - -```{code-cell} ipython3 -plt.figure() -plt.gca().spines['top'].set_visible(False) -plt.gca().spines['right'].set_visible(False) - -# first subsample -plt.plot(bal[1:31], infl[1:31], 'o', markerfacecolor='none', color='blue', label='real bills period') -plt.plot(bal[1:31], a1 + bal[1:31] * b1, color='blue') - -# second subsample -plt.plot(bal[31:44], infl[31:44], '+', color='red', label='terror') - -# third subsample -plt.plot(bal[44:63], infl[44:63], '*', color='orange', label='classic Cagan hyperinflation') - -plt.xlabel('real balances') -plt.ylabel('inflation') -plt.legend() - -plt.tight_layout() -plt.show() -#plt.savefig('frfinfig7_line1.pdf', dpi=600) -``` - -```{code-cell} ipython3 -plt.figure() -plt.gca().spines['top'].set_visible(False) -plt.gca().spines['right'].set_visible(False) - -# first subsample -plt.plot(bal[1:31], infl[1:31], 'o', markerfacecolor='none', color='blue', label='real bills period') -plt.plot(a1_rev + b1_rev * infl[1:31], infl[1:31], color='blue') - -# second subsample -plt.plot(bal[31:44], infl[31:44], '+', color='red', label='terror') - -# third subsample -plt.plot(bal[44:63], infl[44:63], '*', color='orange', label='classic Cagan hyperinflation') - -plt.xlabel('real balances') -plt.ylabel('inflation') -plt.legend() - -plt.tight_layout() -plt.show() -#plt.savefig('frfinfig7_line1_rev.pdf', dpi=600) -``` - -```{code-cell} ipython3 -plt.figure() -plt.gca().spines['top'].set_visible(False) -plt.gca().spines['right'].set_visible(False) - -# first subsample -plt.plot(bal[1:31], infl[1:31], 'o', markerfacecolor='none', color='blue', label='real bills period') - -# second subsample -plt.plot(bal[31:44], infl[31:44], '+', color='red', label='terror') -plt.plot(bal[31:44], a2 + bal[31:44] * b2, color='red') - -# third subsample -plt.plot(bal[44:63], infl[44:63], '*', color='orange', label='classic Cagan hyperinflation') - -plt.xlabel('real balances') -plt.ylabel('inflation') -plt.legend() - -plt.tight_layout() -plt.show() -#plt.savefig('frfinfig7_line2.pdf', dpi=600) -``` - -```{code-cell} ipython3 -plt.figure() -plt.gca().spines['top'].set_visible(False) -plt.gca().spines['right'].set_visible(False) - -# first subsample -plt.plot(bal[1:31], infl[1:31], 'o', markerfacecolor='none', color='blue', label='real bills period') - -# second subsample -plt.plot(bal[31:44], infl[31:44], '+', color='red', label='terror') -plt.plot(a2_rev + b2_rev * infl[31:44], infl[31:44], color='red') - -# third subsample -plt.plot(bal[44:63], infl[44:63], '*', color='orange', label='classic Cagan hyperinflation') - -plt.xlabel('real balances') -plt.ylabel('inflation') -plt.legend() - -plt.tight_layout() -plt.show() -#plt.savefig('frfinfig7_line2_rev.pdf', dpi=600) -``` - -```{code-cell} ipython3 -plt.figure() -plt.gca().spines['top'].set_visible(False) -plt.gca().spines['right'].set_visible(False) - -# first subsample -plt.plot(bal[1:31], infl[1:31], 'o', markerfacecolor='none', color='blue', label='real bills period') - -# second subsample -plt.plot(bal[31:44], infl[31:44], '+', color='red', label='terror') - -# third subsample -plt.plot(bal[44:63], infl[44:63], '*', color='orange', label='classic Cagan hyperinflation') -plt.plot(bal[44:63], a3 + bal[44:63] * b3, color='orange') - -plt.xlabel('real balances') -plt.ylabel('inflation') -plt.legend() - -plt.tight_layout() -plt.show() -#plt.savefig('frfinfig7_line3.pdf', dpi=600) -``` - -```{code-cell} ipython3 -plt.figure() -plt.gca().spines['top'].set_visible(False) -plt.gca().spines['right'].set_visible(False) - -# first subsample -plt.plot(bal[1:31], infl[1:31], 'o', markerfacecolor='none', color='blue', label='real bills period') - -# second subsample -plt.plot(bal[31:44], infl[31:44], '+', color='red', label='terror') - -# third subsample -plt.plot(bal[44:63], infl[44:63], '*', color='orange', label='classic Cagan hyperinflation') -plt.plot(a3_rev + b3_rev * infl[44:63], infl[44:63], color='orange') - -plt.xlabel('real balances') -plt.ylabel('inflation') -plt.legend() - -plt.tight_layout() -plt.show() -#plt.savefig('frfinfig7_line3_rev.pdf', dpi=600) -``` - - -## Figure 8 - - -```{code-cell} ipython3 ---- -mystnb: - figure: - caption: "Real balances of assignats (in gold and goods)" - name: fig8 ---- -# Read the data from Excel file -data7 = pd.read_excel('datasets/assignat.xlsx', sheet_name='Data', usecols='P:Q', skiprows=4, nrows=80, header=None) -data7a = pd.read_excel('datasets/assignat.xlsx', sheet_name='Data', usecols='L', skiprows=4, nrows=80, header=None) - -# Create the figure and plot -plt.figure() -h = plt.plot(pd.date_range(start='1789-11-01', periods=len(data7), freq='M'), (data7a.values * [1, 1]) * data7.values, linewidth=1.) -plt.setp(h[1], linestyle='--', color='red') - -plt.vlines([pd.Timestamp('1793-07-15'), pd.Timestamp('1793-07-15')], 0, 3000, linewidth=0.8, color='orange') -plt.vlines([pd.Timestamp('1794-07-15'), pd.Timestamp('1794-07-15')], 0, 3000, linewidth=0.8, color='purple') - -plt.ylim([0, 3000]) - -# Set properties of the plot -plt.gca().spines['top'].set_visible(False) -plt.gca().spines['right'].set_visible(False) -plt.gca().set_facecolor('white') -plt.gca().tick_params(labelsize=12) -plt.xlim(pd.Timestamp('1789-11-01'), pd.Timestamp('1796-06-01')) -plt.ylabel('millions of livres', fontsize=12) - -# Add text annotations -plt.text(pd.Timestamp('1793-09-01'), 200, 'Terror', fontsize=12) -plt.text(pd.Timestamp('1791-05-01'), 750, 'gold value', fontsize=12) -plt.text(pd.Timestamp('1794-10-01'), 2500, 'real value', fontsize=12) - - -plt.tight_layout() -plt.show() - -# Save the figure as a PDF -#plt.savefig('frfinfig8.pdf', dpi=600) -``` - -TO TEACH TOM: By staring at {numref}`fig8` carefully - - -## Figure 9 - - -```{code-cell} ipython3 ---- -mystnb: - figure: - caption: "Price Level and Price of Gold (log scale)" - name: fig9 ---- -# Create the figure and plot -plt.figure() -x = np.arange(1789 + 10/12, 1796 + 5/12, 1/12) -h, = plt.plot(x, 1. / data7.iloc[:, 0], linestyle='--') -h, = plt.plot(x, 1. / data7.iloc[:, 1], color='r') - -# Set properties of the plot -plt.gca().tick_params(labelsize=12) -plt.yscale('log') -plt.xlim([1789 + 10/12, 1796 + 5/12]) -plt.gca().spines['top'].set_visible(False) -plt.gca().spines['right'].set_visible(False) - -# Add vertical lines -plt.axvline(x=1793 + 6.5/12, linestyle='-', linewidth=0.8, color='orange') -plt.axvline(x=1794 + 6.5/12, linestyle='-', linewidth=0.8, color='purple') - -# Add text -plt.text(1793.75, 120, 'Terror', fontsize=12) -plt.text(1795, 2.8, 'price level', fontsize=12) -plt.text(1794.9, 40, 'gold', fontsize=12) - - -plt.tight_layout() -plt.show() -#plt.savefig('frfinfig9.pdf', dpi=600) -``` - -TO TEACH TOM: By staring at {numref}`fig9` carefully - - -## Figure 11 - - - - -```{code-cell} ipython3 ---- -mystnb: - figure: - caption: "Spending (blue) and Revenues (orange), (real values)" - name: fig11 ---- -# Read data from Excel file -data11 = pd.read_excel('datasets/assignat.xlsx', sheet_name='Budgets', usecols='J:K', skiprows=22, nrows=52, header=None) - -# Prepare the x-axis data -x_data = np.concatenate([ - np.arange(1791, 1794 + 8/12, 1/12), - np.arange(1794 + 9/12, 1795 + 3/12, 1/12) -]) - -# Remove NaN values from the data -data11_clean = data11.dropna() - -# Plot the data -plt.figure() -h = plt.plot(x_data, data11_clean.values[:, 0], linewidth=0.8) -h = plt.plot(x_data, data11_clean.values[:, 1], '--', linewidth=0.8) - - - -# Set plot properties -plt.gca().spines['top'].set_visible(False) -plt.gca().spines['right'].set_visible(False) -plt.gca().set_facecolor('white') -plt.gca().tick_params(axis='both', which='major', labelsize=12) -plt.xlim([1791, 1795 + 3/12]) -plt.xticks(np.arange(1791, 1796)) -plt.yticks(np.arange(0, 201, 20)) - -# Set the y-axis label -plt.ylabel('millions of livres', fontsize=12) - - - -plt.tight_layout() -plt.show() - -#plt.savefig('frfinfig11.pdf', dpi=600) -``` -TO TEACH TOM: By staring at {numref}`fig11` carefully - - -## Figure 12 - - -```{code-cell} ipython3 -# Read data from Excel file -data12 = pd.read_excel('datasets/assignat.xlsx', sheet_name='seignor', usecols='F', skiprows=6, nrows=75, header=None).squeeze() - - -# Create a figure and plot the data -plt.figure() -plt.plot(pd.date_range(start='1790', periods=len(data12), freq='M'), data12, linewidth=0.8) - -plt.gca().spines['top'].set_visible(False) -plt.gca().spines['right'].set_visible(False) - -plt.axhline(y=472.42/12, color='r', linestyle=':') -plt.xticks(ticks=pd.date_range(start='1790', end='1796', freq='AS'), labels=range(1790, 1797)) -plt.xlim(pd.Timestamp('1791'), pd.Timestamp('1796-02') + pd.DateOffset(months=2)) -plt.ylabel('millions of livres', fontsize=12) -plt.text(pd.Timestamp('1793-11'), 39.5, 'revenues in 1788', verticalalignment='top', fontsize=12) - - -plt.tight_layout() -plt.show() - -#plt.savefig('frfinfig12.pdf', dpi=600) -``` - - -## Figure 13 - - -```{code-cell} ipython3 -# Read data from Excel file -data13 = pd.read_excel('datasets/assignat.xlsx', sheet_name='Exchge', usecols='P:T', skiprows=3, nrows=502, header=None) - -# Plot the last column of the data -plt.figure() -plt.plot(data13.iloc[:, -1], linewidth=0.8) - -# Set properties of the plot -plt.gca().spines['top'].set_visible(False) -plt.gca().spines['right'].set_visible(False) -plt.gca().set_xlim([1, len(data13)]) - -# Set x-ticks and x-tick labels -ttt = np.arange(1, len(data13) + 1) -plt.xticks(ttt[~np.isnan(data13.iloc[:, 0])], - ['Mar', 'Apr', 'May', 'Jun', 'Jul', 'Aug', 'Sep', 'Oct', 'Nov', 'Dec', 'Jan', 'Feb', - 'Mar', 'Apr', 'May', 'Jun', 'Jul', 'Aug', 'Sep']) - -# Add text to the plot -plt.text(1, 120, '1795', fontsize=12, ha='center') -plt.text(262, 120, '1796', fontsize=12, ha='center') - -# Draw a horizontal line and add text -plt.axhline(y=186.7, color='red', linestyle='-', linewidth=0.8) -plt.text(150, 190, 'silver parity', fontsize=12) - -# Add an annotation with an arrow -plt.annotate('end of the assignat', xy=(340, 172), xytext=(380, 160), - arrowprops=dict(facecolor='black', arrowstyle='->'), fontsize=12) - - -plt.tight_layout() -plt.show() -#plt.savefig('frfinfig13.pdf', dpi=600) -``` - - -## Figure 14 - - -```{code-cell} ipython3 -# figure 14 -data14 = pd.read_excel('datasets/assignat.xlsx', sheet_name='Post-95', usecols='I', skiprows=9, nrows=91, header=None).squeeze() -data14a = pd.read_excel('datasets/assignat.xlsx', sheet_name='Post-95', usecols='F', skiprows=100, nrows=151, header=None).squeeze() - -plt.figure() -h = plt.plot(data14, '*-', markersize=2, linewidth=0.8) -plt.plot(np.concatenate([np.full(data14.shape, np.nan), data14a]), linewidth=0.8) -plt.gca().spines['top'].set_visible(False) -plt.gca().spines['right'].set_visible(False) -plt.gca().set_xticks(range(20, 237, 36)) -plt.gca().set_xticklabels(range(1796, 1803)) -plt.xlabel('*: Before the 2/3 bankruptcy') -plt.ylabel('Francs') - -plt.tight_layout() -plt.show() -#plt.savefig('frfinfig14.pdf', dpi=600) -``` - - -## Figure 15 - - -```{code-cell} ipython3 -# figure 15 -data15 = pd.read_excel('datasets/assignat.xlsx', sheet_name='Post-95', usecols='N', skiprows=4, nrows=88, header=None).squeeze() - -plt.figure() -h = plt.plot(range(2, 90), data15, '*-', linewidth=0.8) -plt.setp(h, markersize=2) -plt.gca().spines['top'].set_visible(False) -plt.gca().spines['right'].set_visible(False) -plt.text(47.5, 11.4, '17 brumaire', horizontalalignment='left', fontsize=12) -plt.text(49.5, 14.75, '19 brumaire', horizontalalignment='left', fontsize=12) -plt.text(15, -1, 'Vendémiaire 8', fontsize=12, horizontalalignment='center') -plt.text(45, -1, 'Brumaire', fontsize=12, horizontalalignment='center') -plt.text(75, -1, 'Frimaire', fontsize=12, horizontalalignment='center') -plt.ylim([0, 25]) -plt.xticks([], []) -plt.ylabel('Francs') - -plt.tight_layout() -plt.show() -#plt.savefig('frfinfig15.pdf', dpi=600) -``` - -```{code-cell} ipython3 - -``` - - -## Fiscal Situation and Response of National Assembly - - -In response to a motion by Catholic Bishop Talleyrand, -the National Assembly confiscated and nationalized Church lands. - -But the National Assembly was dominated by free market advocates, not socialists. - -The National Assembly intended to use earnings from Church lands to service its national debt. - -To do this, it began to implement a ''privatization plan'' that would let it service its debt while -not raising taxes. - -Their plan involved issuing paper notes called ''assignats'' that entitled bearers to use them to purchase state lands. - -These paper notes would be ''as good as silver coins'' in the sense that both were acceptable means of payment in exchange for those (formerly) church lands. - -Finance Minister Necker and the Constituants planned -to solve the privatization problem **and** the debt problem simultaneously -by creating a new currency. - -They devised a scheme to raise revenues by auctioning -the confiscated lands, thereby withdrawing paper notes issued on the security of -the lands sold by the government. - - This ''tax-backed money'' scheme propelled the National Assembly into the domain of monetary experimentation. - -Records of their debates show -how members of the Assembly marshaled theory and evidence to assess the likely -effects of their innovation. - -They quoted David Hume and Adam Smith and cited John -Law's System of 1720 and the American experiences with paper money fifteen years -earlier as examples of how paper money schemes can go awry. - - -### Necker's plan and how it was tweaked - -Necker's original plan embodied two components: a national bank and a new -financial instrument, the ''assignat''. - - -Necker's national -bank was patterned after the Bank of England. He proposed to transform the *Caisse d'Escompte* into a national bank by granting it a monopoly on issuing -notes and marketing government debt. The *Caisse* was a -discount bank founded in 1776 whose main function was to discount commercial bills -and issue convertible notes. Although independent of the government in principle, -it had occasionally been used as a source of loans. Its notes had been declared -inconvertible in August 1788, and by the time of Necker's proposal, its reserves -were exhausted. Necker's plan placed the National Estates (as the Church lands -became known after the addition of the royal demesne) at the center of the financial -picture: a ''Bank of France'' would issue a $5\%$ security mortgaged on the prospective -receipts from the modest sale of some 400 millions' worth of National Estates in -the years 1791 to 1793. -```{note} - Only 170 million was to be used initially -to cover the deficits of 1789 and 1790. -``` - - -By mid-1790, members of the National Assembly had agreed to sell the National -Estates and to use the proceeds to service the debt in a ``tax-backed money'' scheme -```{note} -Debt service costs absorbed - over 60\% of French government expenditures. -``` - -The government would issue securities with which it would reimburse debt. - -The securities -were acceptable as payment for National Estates purchased at auctions; once received -in payment, they were to be burned. - -```{note} -The appendix to {cite}`sargent_velde1995` describes the -auction rules in detail. -``` -The Estates available for sale were thought to be worth about 2,400 -million, while the exactable debt (essentially fixed-term loans, unpaid arrears, -and liquidated offices) stood at about 2,000 million. The value of the land was -sufficient to let the Assembly retire all of the exactable debt and thereby eliminate -the interest payments on it. After lengthy debates, in August 1790, the Assembly set the denomination -and interest rate structure of the debt. - - -```{note} Two distinct -aspects of monetary theory help in thinking about the assignat plan. First, a system -beginning with a commodity standard typically has room for a once-and-for-all emission -of (an unbacked) paper currency that can replace the commodity money without generating -inflation. \citet{Sargent/Wallace:1983} describe models with this property. That -commodity money systems are wasteful underlies Milton Friedman's (1960) TOM:ADD REFERENCE preference -for a fiat money regime over a commodity money. Second, in a small country on a -commodity money system that starts with restrictions on intermediation, those restrictions -can be relaxed by letting the government issue bank notes on the security of safe -private indebtedness, while leaving bank notes convertible into gold at par. See -Adam Smith and Sargent and Wallace (1982) for expressions of this idea. TOM: ADD REFERENCES HEREAND IN BIBTEX FILE. -``` - - -```{note} -The -National Assembly debated many now classic questions in monetary economics. Under -what conditions would money creation generate inflation, with what consequences -for business conditions? Distinctions were made between issue of money to pay off -debt, on one hand, and monetization of deficits, on the other. Would *assignats* be akin -to notes emitted under a real bills regime, and cause loss of specie, or would -they circulate alongside specie, thus increasing the money stock? Would inflation -affect real wages? How would it impact foreign trade, competitiveness of French -industry and agriculture, balance of trade, foreign exchange? -``` diff --git a/lectures/french_rev_tom.md b/lectures/french_rev_tom.md deleted file mode 100644 index e6c19e22..00000000 --- a/lectures/french_rev_tom.md +++ /dev/null @@ -1,1078 +0,0 @@ ---- -jupytext: - text_representation: - extension: .md - format_name: myst - format_version: 0.13 - jupytext_version: 1.16.1 -kernelspec: - display_name: Python 3 (ipykernel) - language: python - name: python3 ---- - - -# Inflation During French Revolution - - -## Overview - -This lecture describes some monetary and fiscal features of the French Revolution -described by {cite}`sargent_velde1995`. - -In order to finance public expenditures and service debts issued by earlier French governments, -successive French governments performed several policy experiments. - -Authors of these experiments were guided by their having decided to put in place monetary-fiscal policies recommended by particular theories. - -As a consequence, data on money growth and inflation from the period 1789 to 1787 at least temorarily illustrated outcomes predicted by these arrangements: - -* some *unpleasant monetarist arithmetic* like that described in this quanteon lecture XXX -that governed French government debt dynamics in the decades preceding 1789 - -* a *real bills* theory of the effects of government open market operations in which the government *backs* its issues of paper money with valuable real property or financial assets - -* a classical ``gold or silver'' standard - -* a classical inflation-tax theory of inflation in which Philip Cagan's demand for money studied -in this lecture is a key component - -* a *legal restrictions* or *financial repression* theory of the demand for real balances - -We use matplotlib to replicate several of the graphs that they used to present salient patterns. - - - -## Data Sources - -This notebook uses data from three spreadsheets: - - * datasets/fig_3.ods - * datasets/dette.xlsx - * datasets/assignat.xlsx - -```{code-cell} ipython3 -import numpy as np -import pandas as pd -import matplotlib.pyplot as plt -plt.rcParams.update({'font.size': 12}) -``` - - -## Figure 1 - - -```{code-cell} ipython3 ---- -mystnb: - figure: - caption: "Ratio of debt service to taxes, Britain and France" - name: fig1 ---- - -# Read the data from the Excel file -data1 = pd.read_excel('datasets/dette.xlsx', sheet_name='Debt', usecols='R:S', skiprows=5, nrows=99, header=None) -data1a = pd.read_excel('datasets/dette.xlsx', sheet_name='Debt', usecols='P', skiprows=89, nrows=15, header=None) - -# Plot the data -plt.figure() -plt.plot(range(1690, 1789), 100 * data1.iloc[:, 1], linewidth=0.8) - -date = np.arange(1690, 1789) -index = (date < 1774) & (data1.iloc[:, 0] > 0) -plt.plot(date[index], 100 * data1[index].iloc[:, 0], '*:', color='r', linewidth=0.8) - -# Plot the additional data -plt.plot(range(1774, 1789), 100 * data1a, '*:', color='orange') - -# Note about the data -# The French data before 1720 don't match up with the published version -# Set the plot properties -plt.gca().spines['top'].set_visible(False) -plt.gca().spines['right'].set_visible(False) -plt.gca().set_facecolor('white') -plt.gca().set_xlim([1688, 1788]) -plt.ylabel('% of Taxes') - -plt.tight_layout() -plt.show() - -#plt.savefig('frfinfig1.pdf', dpi=600) -#plt.savefig('frfinfig1.jpg', dpi=600) -``` - - - {numref}`fig1` plots ratios of debt service to total taxes collected for Great Britain and France. - The figure shows - - * ratios of debt service to taxes rise for both countries at the beginning of the century and at the end of the century - * ratios that are similar for both countries in most years - - - - - -## Figure 2 - - -```{code-cell} ipython3 ---- -mystnb: - figure: - caption: "Government Expenditures and Tax Revenues in Britain" - name: fig2 ---- - -# Read the data from Excel file -data2 = pd.read_excel('datasets/dette.xlsx', sheet_name='Militspe', usecols='M:X', skiprows=7, nrows=102, header=None) - -# Plot the data -plt.figure() -plt.plot(range(1689, 1791), data2.iloc[:, 5], linewidth=0.8) -plt.plot(range(1689, 1791), data2.iloc[:, 11], linewidth=0.8, color='red') -plt.plot(range(1689, 1791), data2.iloc[:, 9], linewidth=0.8, color='orange') -plt.plot(range(1689, 1791), data2.iloc[:, 8], 'o-', markerfacecolor='none', linewidth=0.8, color='purple') - -# Customize the plot -plt.gca().spines['top'].set_visible(False) -plt.gca().spines['right'].set_visible(False) -plt.gca().tick_params(labelsize=12) -plt.xlim([1689, 1790]) -plt.ylabel('millions of pounds', fontsize=12) - -# Add text annotations -plt.text(1765, 1.5, 'civil', fontsize=10) -plt.text(1760, 4.2, 'civil plus debt service', fontsize=10) -plt.text(1708, 15.5, 'total govt spending', fontsize=10) -plt.text(1759, 7.3, 'revenues', fontsize=10) - - -plt.tight_layout() -plt.show() - -# Save the figure as a PDF -#plt.savefig('frfinfig2.pdf', dpi=600) -``` - - - -{numref}`fig2` plots total taxes, total government expenditures, and the composition of government expenditures in Great Britain during much of the 18th century. - -## Figure 3 - - - - -```{code-cell} ipython3 -# Read the data from the Excel file -data1 = pd.read_excel('datasets/fig_3.xlsx', sheet_name='Sheet1', usecols='C:F', skiprows=5, nrows=30, header=None) - -data1.replace(0, np.nan, inplace=True) -``` - -```{code-cell} ipython3 ---- -mystnb: - figure: - caption: "Government Spending and Tax Revenues in France" - name: fr_fig3 ---- -# Plot the data -plt.figure() - -plt.plot(range(1759, 1789, 1), data1.iloc[:, 0], '-x', linewidth=0.8) -plt.plot(range(1759, 1789, 1), data1.iloc[:, 1], '--*', linewidth=0.8) -plt.plot(range(1759, 1789, 1), data1.iloc[:, 2], '-o', linewidth=0.8, markerfacecolor='none') -plt.plot(range(1759, 1789, 1), data1.iloc[:, 3], '-*', linewidth=0.8) - -plt.text(1775, 610, 'total spending', fontsize=10) -plt.text(1773, 325, 'military', fontsize=10) -plt.text(1773, 220, 'civil plus debt service', fontsize=10) -plt.text(1773, 80, 'debt service', fontsize=10) -plt.text(1785, 500, 'revenues', fontsize=10) - - - -plt.gca().spines['top'].set_visible(False) -plt.gca().spines['right'].set_visible(False) -plt.ylim([0, 700]) -plt.ylabel('millions of livres') - -plt.tight_layout() -plt.show() - -#plt.savefig('frfinfig3.jpg', dpi=600) -``` - - -TO TEACH TOM: By staring at {numref}`fr_fig3` carefully - -{numref}`fr_fig3` plots total taxes, total government expenditures, and the composition of government expenditures in France during much of the 18th century. - -```{code-cell} ipython3 - ---- -mystnb: - figure: - caption: "Government Spending and Tax Revenues in France" - name: fr_fig3b ---- -# Plot the data -plt.figure() - -plt.plot(np.arange(1759, 1789, 1)[~np.isnan(data1.iloc[:, 0])], data1.iloc[:, 0][~np.isnan(data1.iloc[:, 0])], '-x', linewidth=0.8) -plt.plot(np.arange(1759, 1789, 1)[~np.isnan(data1.iloc[:, 1])], data1.iloc[:, 1][~np.isnan(data1.iloc[:, 1])], '--*', linewidth=0.8) -plt.plot(np.arange(1759, 1789, 1)[~np.isnan(data1.iloc[:, 2])], data1.iloc[:, 2][~np.isnan(data1.iloc[:, 2])], '-o', linewidth=0.8, markerfacecolor='none') -plt.plot(np.arange(1759, 1789, 1)[~np.isnan(data1.iloc[:, 3])], data1.iloc[:, 3][~np.isnan(data1.iloc[:, 3])], '-*', linewidth=0.8) - -plt.text(1775, 610, 'total spending', fontsize=10) -plt.text(1773, 325, 'military', fontsize=10) -plt.text(1773, 220, 'civil plus debt service', fontsize=10) -plt.text(1773, 80, 'debt service', fontsize=10) -plt.text(1785, 500, 'revenues', fontsize=10) - - -plt.gca().spines['top'].set_visible(False) -plt.gca().spines['right'].set_visible(False) -plt.ylim([0, 700]) -plt.ylabel('millions of livres') - -plt.tight_layout() -plt.show() - -#plt.savefig('frfinfig3_ignore_nan.jpg', dpi=600) -``` - -{numref}`fr_fig3b` plots total taxes, total government expenditures, and the composition of government expenditures in France during much of the 18th century. - - - - -## Figure 4 - - -```{code-cell} ipython3 ---- -mystnb: - figure: - caption: "Military Spending in Britain and France" - name: fig4 ---- -# French military spending, 1685-1789, in 1726 livres -data4 = pd.read_excel('datasets/dette.xlsx', sheet_name='Militspe', usecols='D', skiprows=3, nrows=105, header=None).squeeze() -years = range(1685, 1790) - -plt.figure() -plt.plot(years, data4, '*-', linewidth=0.8) - -plt.plot(range(1689, 1791), data2.iloc[:, 4], linewidth=0.8) - -plt.gca().spines['top'].set_visible(False) -plt.gca().spines['right'].set_visible(False) -plt.gca().tick_params(labelsize=12) -plt.xlim([1689, 1790]) -plt.xlabel('*: France') -plt.ylabel('Millions of livres') -plt.ylim([0, 475]) - -plt.tight_layout() -plt.show() - -#plt.savefig('frfinfig4.pdf', dpi=600) -``` - - -{numref}`fig4` plots total taxes, total government expenditures, and the composition of government expenditures in France during much of the 18th century. - -TO TEACH TOM: By staring at {numref}`fig4` carefully - - -## Figure 5 - - -```{code-cell} ipython3 ---- -mystnb: - figure: - caption: "Index of real per capital revenues, France" - name: fig5 ---- -# Read data from Excel file -data5 = pd.read_excel('datasets/dette.xlsx', sheet_name='Debt', usecols='K', skiprows=41, nrows=120, header=None) - -# Plot the data -plt.figure() -plt.plot(range(1726, 1846), data5.iloc[:, 0], linewidth=0.8) - -plt.gca().spines['top'].set_visible(False) -plt.gca().spines['right'].set_visible(False) -plt.gca().set_facecolor('white') -plt.gca().tick_params(labelsize=12) -plt.xlim([1726, 1845]) -plt.ylabel('1726 = 1', fontsize=12) - -plt.tight_layout() -plt.show() - -# Save the figure as a PDF -#plt.savefig('frfinfig5.pdf', dpi=600) -``` - -TO TEACH TOM: By staring at {numref}`fig5` carefully - -## Rise and Fall of the *Assignat* - - - - We have partitioned Figures~\ref{fig:fig7}, \ref{fig:fig8}, and \ref{fig:fig9} - into three periods, corresponding -to different monetary regimes or episodes. The three clouds of points in -Figure~\ref{fig:fig7} - depict different real balance-inflation relationships. Only the cloud for the -third period has the inverse relationship familiar to us now from twentieth-century -hyperinflations. The first period ends in the late summer of 1793, and is characterized -by growing real balances and moderate inflation. The second period begins and ends -with the Terror. It is marked by high real balances, around 2,500 millions, and -roughly stable prices. The fall of Robespierre in late July 1794 begins the third -of our episodes, in which real balances decline and prices rise rapidly. We interpret -these three episodes in terms of three separate theories about money: a ``backing'' -or ''real bills'' theory (the text is Adam Smith (1776)), -a legal restrictions theory (TOM: HERE PLEASE CITE -Keynes,1940, AS WELL AS Bryant/Wallace:1984 and Villamil:1988) -and a classical hyperinflation theory.% -```{note} -According to the empirical definition of hyperinflation adopted by {cite}`Cagan`, -beginning in the month that inflation exceeds 50 percent -per month and ending in the month before inflation drops below 50 percent per month -for at least a year, the *assignat* experienced a hyperinflation from May to December -1795. -``` -We view these -theories not as competitors but as alternative collections of ``if-then'' -statements about government note issues, each of which finds its conditions more -nearly met in one of these episodes than in the other two. - - - - - -## Figure 7 - - -## To Do for Zejin - -I want to tweak and consolidate the extra lines that Zejin drew on the beautiful **Figure 7**. - -I'd like to experiment in plotting the **six** extra lines all on one graph -- a pair of lines for each of our subsamples - - * one for the $y$ on $x$ regression line - * another for the $x$ on $y$ regression line - -I'd like the $y$ on $x$ and $x$ on $y$ lines to be in separate colors. - -Once we are satisfied with this new graph with its six additional lines, we can dispense with the other graphs that add one line at a time. - -Zejin, I can explain on zoom the lessons I want to convey with this. - - - -Just to recall, to compute the regression lines, Zejin wrote a function that use standard formulas -for a and b in a least squares regression y = a + b x + residual -- i.e., b is ratio of sample covariance of y,x to sample variance of x; while a is then computed from a = sample mean of y - \hat b *sample mean of x - -We could presumably tell students how to do this with a couple of numpy lines -I'd like to create three additional versions of the following figure. - -To remind you, we focused on three subperiods: - - -* subperiod 1: ("real bills period): January 1791 to July 1793 - -* subperiod 2: ("terror:): August 1793 - July 1794 - -* subperiod 3: ("classic Cagan hyperinflation): August 1794 - March 1796 - - -I can explain what this is designed to show. - - - -```{code-cell} ipython3 -def fit(x, y): - - b = np.cov(x, y)[0, 1] / np.var(x) - a = y.mean() - b * x.mean() - - return a, b -``` - -```{code-cell} ipython3 -# load data -caron = np.load('datasets/caron.npy') -nom_balances = np.load('datasets/nom_balances.npy') - -infl = np.concatenate(([np.nan], -np.log(caron[1:63, 1] / caron[0:62, 1]))) -bal = nom_balances[14:77, 1] * caron[:, 1] / 1000 -``` - -```{code-cell} ipython3 -# fit data - -# reg y on x for three periods -a1, b1 = fit(bal[1:31], infl[1:31]) -a2, b2 = fit(bal[31:44], infl[31:44]) -a3, b3 = fit(bal[44:63], infl[44:63]) - -# reg x on y for three periods -a1_rev, b1_rev = fit(infl[1:31], bal[1:31]) -a2_rev, b2_rev = fit(infl[31:44], bal[31:44]) -a3_rev, b3_rev = fit(infl[44:63], bal[44:63]) -``` - -```{code-cell} ipython3 -plt.figure() -plt.gca().spines['top'].set_visible(False) -plt.gca().spines['right'].set_visible(False) - -# first subsample -plt.plot(bal[1:31], infl[1:31], 'o', markerfacecolor='none', color='blue', label='real bills period') - -# second subsample -plt.plot(bal[31:44], infl[31:44], '+', color='red', label='terror') - -# third subsample -plt.plot(bal[44:63], infl[44:63], '*', color='orange', label='classic Cagan hyperinflation') - -plt.xlabel('real balances') -plt.ylabel('inflation') -plt.legend() - -plt.tight_layout() -plt.show() -#plt.savefig('frfinfig7.pdf', dpi=600) -``` - - - -```{code-cell} ipython3 -# fit data - -# reg y on x for three periods -a1, b1 = fit(bal[1:31], infl[1:31]) -a2, b2 = fit(bal[31:44], infl[31:44]) -a3, b3 = fit(bal[44:63], infl[44:63]) - -# reg x on y for three periods -a1_rev, b1_rev = fit(infl[1:31], bal[1:31]) -a2_rev, b2_rev = fit(infl[31:44], bal[31:44]) -a3_rev, b3_rev = fit(infl[44:63], bal[44:63]) -``` - -```{code-cell} ipython3 -plt.figure() -plt.gca().spines['top'].set_visible(False) -plt.gca().spines['right'].set_visible(False) - -# first subsample -plt.plot(bal[1:31], infl[1:31], 'o', markerfacecolor='none', color='blue', label='real bills period') - -# second subsample -plt.plot(bal[34:44], infl[34:44], '+', color='red', label='terror') - -# third subsample # Tom tinkered with subsample period -plt.plot(bal[44:63], infl[44:63], '*', color='orange', label='classic Cagan hyperinflation') - -plt.xlabel('real balances') -plt.ylabel('inflation') -plt.legend() - -plt.tight_layout() -plt.show() -#plt.savefig('frfinfig7.pdf', dpi=600) -``` - - -

The above graph is Tom's experimental lab. We'll delete it eventually.

- -

Zejin: below is the grapth with six lines in one graph. The lines generated by regressing y on x have the same color as the corresponding data points, while the lines generated by regressing x on y are all in green.

- -```{code-cell} ipython3 -plt.figure() -plt.gca().spines['top'].set_visible(False) -plt.gca().spines['right'].set_visible(False) - -# first subsample -plt.plot(bal[1:31], infl[1:31], 'o', markerfacecolor='none', color='blue', label='real bills period') -plt.plot(bal[1:31], a1 + bal[1:31] * b1, color='blue', linewidth=0.8) -plt.plot(a1_rev + b1_rev * infl[1:31], infl[1:31], color='green', linewidth=0.8) - -# second subsample -plt.plot(bal[31:44], infl[31:44], '+', color='red', label='terror') -plt.plot(bal[31:44], a2 + bal[31:44] * b2, color='red', linewidth=0.8) -plt.plot(a2_rev + b2_rev * infl[31:44], infl[31:44], color='green', linewidth=0.8) - -# third subsample -plt.plot(bal[44:63], infl[44:63], '*', color='orange', label='classic Cagan hyperinflation') -plt.plot(bal[44:63], a3 + bal[44:63] * b3, color='orange', linewidth=0.8) -plt.plot(a3_rev + b3_rev * infl[44:63], infl[44:63], color='green', linewidth=0.8) - -plt.xlabel('real balances') -plt.ylabel('inflation') -plt.legend() -#plt.savefig('frfinfig7.pdf', dpi=600) -``` - - - -

The graph below is Tom's version of the six lines in one graph. The lines generated by regressing y on x have the same color as the corresponding data points, while the lines generated by regressing x on y are all in green.

- -```{code-cell} ipython3 -plt.figure() -plt.gca().spines['top'].set_visible(False) -plt.gca().spines['right'].set_visible(False) - -# first subsample -plt.plot(bal[1:31], infl[1:31], 'o', markerfacecolor='none', color='blue', label='real bills period') -plt.plot(bal[1:31], a1 + bal[1:31] * b1, color='blue', linewidth=0.8) -plt.plot(a1_rev + b1_rev * infl[1:31], infl[1:31], color='green', linewidth=0.8) - -# second subsample -plt.plot(bal[31:44], infl[31:44], '+', color='red', label='terror') -plt.plot(bal[34:44], a2 + bal[34:44] * b2, color='red', linewidth=0.8) -plt.plot(a2_rev + b2_rev * infl[34:44], infl[34:44], color='green', linewidth=0.8) - -# third subsample -plt.plot(bal[44:63], infl[44:63], '*', color='orange', label='classic Cagan hyperinflation') -plt.plot(bal[44:63], a3 + bal[44:63] * b3, color='orange', linewidth=0.8) -plt.plot(a3_rev + b3_rev * infl[44:63], infl[44:63], color='green', linewidth=0.8) - -plt.xlabel('real balances') -plt.ylabel('inflation') -plt.legend() - -plt.tight_layout() -plt.show() -#plt.savefig('frfinfig7.pdf', dpi=600) -``` - -```{code-cell} ipython3 -plt.figure() -plt.gca().spines['top'].set_visible(False) -plt.gca().spines['right'].set_visible(False) - -# first subsample -plt.plot(bal[1:31], infl[1:31], 'o', markerfacecolor='none', color='blue', label='real bills period') -plt.plot(bal[1:31], a1 + bal[1:31] * b1, color='blue') - -# second subsample -plt.plot(bal[31:44], infl[31:44], '+', color='red', label='terror') - -# third subsample -plt.plot(bal[44:63], infl[44:63], '*', color='orange', label='classic Cagan hyperinflation') - -plt.xlabel('real balances') -plt.ylabel('inflation') -plt.legend() - -plt.tight_layout() -plt.show() -#plt.savefig('frfinfig7_line1.pdf', dpi=600) -``` - -```{code-cell} ipython3 -plt.figure() -plt.gca().spines['top'].set_visible(False) -plt.gca().spines['right'].set_visible(False) - -# first subsample -plt.plot(bal[1:31], infl[1:31], 'o', markerfacecolor='none', color='blue', label='real bills period') -plt.plot(a1_rev + b1_rev * infl[1:31], infl[1:31], color='blue') - -# second subsample -plt.plot(bal[31:44], infl[31:44], '+', color='red', label='terror') - -# third subsample -plt.plot(bal[44:63], infl[44:63], '*', color='orange', label='classic Cagan hyperinflation') - -plt.xlabel('real balances') -plt.ylabel('inflation') -plt.legend() - -plt.tight_layout() -plt.show() -#plt.savefig('frfinfig7_line1_rev.pdf', dpi=600) -``` - -```{code-cell} ipython3 -plt.figure() -plt.gca().spines['top'].set_visible(False) -plt.gca().spines['right'].set_visible(False) - -# first subsample -plt.plot(bal[1:31], infl[1:31], 'o', markerfacecolor='none', color='blue', label='real bills period') - -# second subsample -plt.plot(bal[31:44], infl[31:44], '+', color='red', label='terror') -plt.plot(bal[31:44], a2 + bal[31:44] * b2, color='red') - -# third subsample -plt.plot(bal[44:63], infl[44:63], '*', color='orange', label='classic Cagan hyperinflation') - -plt.xlabel('real balances') -plt.ylabel('inflation') -plt.legend() - -plt.tight_layout() -plt.show() -#plt.savefig('frfinfig7_line2.pdf', dpi=600) -``` - -```{code-cell} ipython3 -plt.figure() -plt.gca().spines['top'].set_visible(False) -plt.gca().spines['right'].set_visible(False) - -# first subsample -plt.plot(bal[1:31], infl[1:31], 'o', markerfacecolor='none', color='blue', label='real bills period') - -# second subsample -plt.plot(bal[31:44], infl[31:44], '+', color='red', label='terror') -plt.plot(a2_rev + b2_rev * infl[31:44], infl[31:44], color='red') - -# third subsample -plt.plot(bal[44:63], infl[44:63], '*', color='orange', label='classic Cagan hyperinflation') - -plt.xlabel('real balances') -plt.ylabel('inflation') -plt.legend() - -plt.tight_layout() -plt.show() -#plt.savefig('frfinfig7_line2_rev.pdf', dpi=600) -``` - -```{code-cell} ipython3 -plt.figure() -plt.gca().spines['top'].set_visible(False) -plt.gca().spines['right'].set_visible(False) - -# first subsample -plt.plot(bal[1:31], infl[1:31], 'o', markerfacecolor='none', color='blue', label='real bills period') - -# second subsample -plt.plot(bal[31:44], infl[31:44], '+', color='red', label='terror') - -# third subsample -plt.plot(bal[44:63], infl[44:63], '*', color='orange', label='classic Cagan hyperinflation') -plt.plot(bal[44:63], a3 + bal[44:63] * b3, color='orange') - -plt.xlabel('real balances') -plt.ylabel('inflation') -plt.legend() - -plt.tight_layout() -plt.show() -#plt.savefig('frfinfig7_line3.pdf', dpi=600) -``` - -```{code-cell} ipython3 -plt.figure() -plt.gca().spines['top'].set_visible(False) -plt.gca().spines['right'].set_visible(False) - -# first subsample -plt.plot(bal[1:31], infl[1:31], 'o', markerfacecolor='none', color='blue', label='real bills period') - -# second subsample -plt.plot(bal[31:44], infl[31:44], '+', color='red', label='terror') - -# third subsample -plt.plot(bal[44:63], infl[44:63], '*', color='orange', label='classic Cagan hyperinflation') -plt.plot(a3_rev + b3_rev * infl[44:63], infl[44:63], color='orange') - -plt.xlabel('real balances') -plt.ylabel('inflation') -plt.legend() - -plt.tight_layout() -plt.show() -#plt.savefig('frfinfig7_line3_rev.pdf', dpi=600) -``` - - -## Figure 8 - - -```{code-cell} ipython3 ---- -mystnb: - figure: - caption: "Real balances of assignats (in gold and goods)" - name: fig8 ---- -# Read the data from Excel file -data7 = pd.read_excel('datasets/assignat.xlsx', sheet_name='Data', usecols='P:Q', skiprows=4, nrows=80, header=None) -data7a = pd.read_excel('datasets/assignat.xlsx', sheet_name='Data', usecols='L', skiprows=4, nrows=80, header=None) - -# Create the figure and plot -plt.figure() -h = plt.plot(pd.date_range(start='1789-11-01', periods=len(data7), freq='M'), (data7a.values * [1, 1]) * data7.values, linewidth=1.) -plt.setp(h[1], linestyle='--', color='red') - -plt.vlines([pd.Timestamp('1793-07-15'), pd.Timestamp('1793-07-15')], 0, 3000, linewidth=0.8, color='orange') -plt.vlines([pd.Timestamp('1794-07-15'), pd.Timestamp('1794-07-15')], 0, 3000, linewidth=0.8, color='purple') - -plt.ylim([0, 3000]) - -# Set properties of the plot -plt.gca().spines['top'].set_visible(False) -plt.gca().spines['right'].set_visible(False) -plt.gca().set_facecolor('white') -plt.gca().tick_params(labelsize=12) -plt.xlim(pd.Timestamp('1789-11-01'), pd.Timestamp('1796-06-01')) -plt.ylabel('millions of livres', fontsize=12) - -# Add text annotations -plt.text(pd.Timestamp('1793-09-01'), 200, 'Terror', fontsize=12) -plt.text(pd.Timestamp('1791-05-01'), 750, 'gold value', fontsize=12) -plt.text(pd.Timestamp('1794-10-01'), 2500, 'real value', fontsize=12) - - -plt.tight_layout() -plt.show() - -# Save the figure as a PDF -#plt.savefig('frfinfig8.pdf', dpi=600) -``` - -TO TEACH TOM: By staring at {numref}`fig8` carefully - - -## Figure 9 - - -```{code-cell} ipython3 ---- -mystnb: - figure: - caption: "Price Level and Price of Gold (log scale)" - name: fig9 ---- -# Create the figure and plot -plt.figure() -x = np.arange(1789 + 10/12, 1796 + 5/12, 1/12) -h, = plt.plot(x, 1. / data7.iloc[:, 0], linestyle='--') -h, = plt.plot(x, 1. / data7.iloc[:, 1], color='r') - -# Set properties of the plot -plt.gca().tick_params(labelsize=12) -plt.yscale('log') -plt.xlim([1789 + 10/12, 1796 + 5/12]) -plt.gca().spines['top'].set_visible(False) -plt.gca().spines['right'].set_visible(False) - -# Add vertical lines -plt.axvline(x=1793 + 6.5/12, linestyle='-', linewidth=0.8, color='orange') -plt.axvline(x=1794 + 6.5/12, linestyle='-', linewidth=0.8, color='purple') - -# Add text -plt.text(1793.75, 120, 'Terror', fontsize=12) -plt.text(1795, 2.8, 'price level', fontsize=12) -plt.text(1794.9, 40, 'gold', fontsize=12) - - -plt.tight_layout() -plt.show() -#plt.savefig('frfinfig9.pdf', dpi=600) -``` - -TO TEACH TOM: By staring at {numref}`fig9` carefully - - -## Figure 11 - - - - -```{code-cell} ipython3 ---- -mystnb: - figure: - caption: "Spending (blue) and Revenues (orange), (real values)" - name: fig11 ---- -# Read data from Excel file -data11 = pd.read_excel('datasets/assignat.xlsx', sheet_name='Budgets', usecols='J:K', skiprows=22, nrows=52, header=None) - -# Prepare the x-axis data -x_data = np.concatenate([ - np.arange(1791, 1794 + 8/12, 1/12), - np.arange(1794 + 9/12, 1795 + 3/12, 1/12) -]) - -# Remove NaN values from the data -data11_clean = data11.dropna() - -# Plot the data -plt.figure() -h = plt.plot(x_data, data11_clean.values[:, 0], linewidth=0.8) -h = plt.plot(x_data, data11_clean.values[:, 1], '--', linewidth=0.8) - - - -# Set plot properties -plt.gca().spines['top'].set_visible(False) -plt.gca().spines['right'].set_visible(False) -plt.gca().set_facecolor('white') -plt.gca().tick_params(axis='both', which='major', labelsize=12) -plt.xlim([1791, 1795 + 3/12]) -plt.xticks(np.arange(1791, 1796)) -plt.yticks(np.arange(0, 201, 20)) - -# Set the y-axis label -plt.ylabel('millions of livres', fontsize=12) - - - -plt.tight_layout() -plt.show() - -#plt.savefig('frfinfig11.pdf', dpi=600) -``` -TO TEACH TOM: By staring at {numref}`fig11` carefully - - -## Figure 12 - - -```{code-cell} ipython3 -# Read data from Excel file -data12 = pd.read_excel('datasets/assignat.xlsx', sheet_name='seignor', usecols='F', skiprows=6, nrows=75, header=None).squeeze() - - -# Create a figure and plot the data -plt.figure() -plt.plot(pd.date_range(start='1790', periods=len(data12), freq='M'), data12, linewidth=0.8) - -plt.gca().spines['top'].set_visible(False) -plt.gca().spines['right'].set_visible(False) - -plt.axhline(y=472.42/12, color='r', linestyle=':') -plt.xticks(ticks=pd.date_range(start='1790', end='1796', freq='AS'), labels=range(1790, 1797)) -plt.xlim(pd.Timestamp('1791'), pd.Timestamp('1796-02') + pd.DateOffset(months=2)) -plt.ylabel('millions of livres', fontsize=12) -plt.text(pd.Timestamp('1793-11'), 39.5, 'revenues in 1788', verticalalignment='top', fontsize=12) - - -plt.tight_layout() -plt.show() - -#plt.savefig('frfinfig12.pdf', dpi=600) -``` - - -## Figure 13 - - -```{code-cell} ipython3 -# Read data from Excel file -data13 = pd.read_excel('datasets/assignat.xlsx', sheet_name='Exchge', usecols='P:T', skiprows=3, nrows=502, header=None) - -# Plot the last column of the data -plt.figure() -plt.plot(data13.iloc[:, -1], linewidth=0.8) - -# Set properties of the plot -plt.gca().spines['top'].set_visible(False) -plt.gca().spines['right'].set_visible(False) -plt.gca().set_xlim([1, len(data13)]) - -# Set x-ticks and x-tick labels -ttt = np.arange(1, len(data13) + 1) -plt.xticks(ttt[~np.isnan(data13.iloc[:, 0])], - ['Mar', 'Apr', 'May', 'Jun', 'Jul', 'Aug', 'Sep', 'Oct', 'Nov', 'Dec', 'Jan', 'Feb', - 'Mar', 'Apr', 'May', 'Jun', 'Jul', 'Aug', 'Sep']) - -# Add text to the plot -plt.text(1, 120, '1795', fontsize=12, ha='center') -plt.text(262, 120, '1796', fontsize=12, ha='center') - -# Draw a horizontal line and add text -plt.axhline(y=186.7, color='red', linestyle='-', linewidth=0.8) -plt.text(150, 190, 'silver parity', fontsize=12) - -# Add an annotation with an arrow -plt.annotate('end of the assignat', xy=(340, 172), xytext=(380, 160), - arrowprops=dict(facecolor='black', arrowstyle='->'), fontsize=12) - - -plt.tight_layout() -plt.show() -#plt.savefig('frfinfig13.pdf', dpi=600) -``` - - -## Figure 14 - - -```{code-cell} ipython3 -# figure 14 -data14 = pd.read_excel('datasets/assignat.xlsx', sheet_name='Post-95', usecols='I', skiprows=9, nrows=91, header=None).squeeze() -data14a = pd.read_excel('datasets/assignat.xlsx', sheet_name='Post-95', usecols='F', skiprows=100, nrows=151, header=None).squeeze() - -plt.figure() -h = plt.plot(data14, '*-', markersize=2, linewidth=0.8) -plt.plot(np.concatenate([np.full(data14.shape, np.nan), data14a]), linewidth=0.8) -plt.gca().spines['top'].set_visible(False) -plt.gca().spines['right'].set_visible(False) -plt.gca().set_xticks(range(20, 237, 36)) -plt.gca().set_xticklabels(range(1796, 1803)) -plt.xlabel('*: Before the 2/3 bankruptcy') -plt.ylabel('Francs') - -plt.tight_layout() -plt.show() -#plt.savefig('frfinfig14.pdf', dpi=600) -``` - - -## Figure 15 - - -```{code-cell} ipython3 -# figure 15 -data15 = pd.read_excel('datasets/assignat.xlsx', sheet_name='Post-95', usecols='N', skiprows=4, nrows=88, header=None).squeeze() - -plt.figure() -h = plt.plot(range(2, 90), data15, '*-', linewidth=0.8) -plt.setp(h, markersize=2) -plt.gca().spines['top'].set_visible(False) -plt.gca().spines['right'].set_visible(False) -plt.text(47.5, 11.4, '17 brumaire', horizontalalignment='left', fontsize=12) -plt.text(49.5, 14.75, '19 brumaire', horizontalalignment='left', fontsize=12) -plt.text(15, -1, 'Vendémiaire 8', fontsize=12, horizontalalignment='center') -plt.text(45, -1, 'Brumaire', fontsize=12, horizontalalignment='center') -plt.text(75, -1, 'Frimaire', fontsize=12, horizontalalignment='center') -plt.ylim([0, 25]) -plt.xticks([], []) -plt.ylabel('Francs') - -plt.tight_layout() -plt.show() -#plt.savefig('frfinfig15.pdf', dpi=600) -``` - -```{code-cell} ipython3 - -``` - - -## Fiscal Situation and Response of National Assembly - - -In response to a motion by Catholic Bishop Talleyrand, -the National Assembly confiscated and nationalized Church lands. - -But the National Assembly was dominated by free market advocates, not socialists. - -The National Assembly intended to use earnings from Church lands to service its national debt. - -To do this, it began to implement a ''privatization plan'' that would let it service its debt while -not raising taxes. - -Their plan involved issuing paper notes called ''assignats'' that entitled bearers to use them to purchase state lands. - -These paper notes would be ''as good as silver coins'' in the sense that both were acceptable means of payment in exchange for those (formerly) church lands. - -Finance Minister Necker and the Constituants planned -to solve the privatization problem **and** the debt problem simultaneously -by creating a new currency. - -They devised a scheme to raise revenues by auctioning -the confiscated lands, thereby withdrawing paper notes issued on the security of -the lands sold by the government. - - This ''tax-backed money'' scheme propelled the National Assembly into the domain of monetary experimentation. - -Records of their debates show -how members of the Assembly marshaled theory and evidence to assess the likely -effects of their innovation. - -They quoted David Hume and Adam Smith and cited John -Law's System of 1720 and the American experiences with paper money fifteen years -earlier as examples of how paper money schemes can go awry. - - -### Necker's plan and how it was tweaked - -Necker's original plan embodied two components: a national bank and a new -financial instrument, the ''assignat''. - - -Necker's national -bank was patterned after the Bank of England. He proposed to transform the *Caisse d'Escompte* into a national bank by granting it a monopoly on issuing -notes and marketing government debt. The *Caisse* was a -discount bank founded in 1776 whose main function was to discount commercial bills -and issue convertible notes. Although independent of the government in principle, -it had occasionally been used as a source of loans. Its notes had been declared -inconvertible in August 1788, and by the time of Necker's proposal, its reserves -were exhausted. Necker's plan placed the National Estates (as the Church lands -became known after the addition of the royal demesne) at the center of the financial -picture: a ''Bank of France'' would issue a $5\%$ security mortgaged on the prospective -receipts from the modest sale of some 400 millions' worth of National Estates in -the years 1791 to 1793. -```{note} - Only 170 million was to be used initially -to cover the deficits of 1789 and 1790. -``` - - -By mid-1790, members of the National Assembly had agreed to sell the National -Estates and to use the proceeds to service the debt in a ``tax-backed money'' scheme -```{note} -Debt service costs absorbed - over 60\% of French government expenditures. -``` - -The government would issue securities with which it would reimburse debt. - -The securities -were acceptable as payment for National Estates purchased at auctions; once received -in payment, they were to be burned. - -```{note} -The appendix to {cite}`sargent_velde1995` describes the -auction rules in detail. -``` -The Estates available for sale were thought to be worth about 2,400 -million, while the exactable debt (essentially fixed-term loans, unpaid arrears, -and liquidated offices) stood at about 2,000 million. The value of the land was -sufficient to let the Assembly retire all of the exactable debt and thereby eliminate -the interest payments on it. After lengthy debates, in August 1790, the Assembly set the denomination -and interest rate structure of the debt. - - -```{note} Two distinct -aspects of monetary theory help in thinking about the assignat plan. First, a system -beginning with a commodity standard typically has room for a once-and-for-all emission -of (an unbacked) paper currency that can replace the commodity money without generating -inflation. \citet{Sargent/Wallace:1983} describe models with this property. That -commodity money systems are wasteful underlies Milton Friedman's (1960) TOM:ADD REFERENCE preference -for a fiat money regime over a commodity money. Second, in a small country on a -commodity money system that starts with restrictions on intermediation, those restrictions -can be relaxed by letting the government issue bank notes on the security of safe -private indebtedness, while leaving bank notes convertible into gold at par. See -Adam Smith and Sargent and Wallace (1982) for expressions of this idea. TOM: ADD REFERENCES HEREAND IN BIBTEX FILE. -``` - - -```{note} -The -National Assembly debated many now classic questions in monetary economics. Under -what conditions would money creation generate inflation, with what consequences -for business conditions? Distinctions were made between issue of money to pay off -debt, on one hand, and monetization of deficits, on the other. Would *assignats* be akin -to notes emitted under a real bills regime, and cause loss of specie, or would -they circulate alongside specie, thus increasing the money stock? Would inflation -affect real wages? How would it impact foreign trade, competitiveness of French -industry and agriculture, balance of trade, foreign exchange? -``` From 323e46536258f8804505bd16adc6be851f9f4aa3 Mon Sep 17 00:00:00 2001 From: Humphrey Yang Date: Wed, 26 Jun 2024 09:54:28 +0800 Subject: [PATCH 03/15] update TOC --- lectures/_toc.yml | 2 +- 1 file changed, 1 insertion(+), 1 deletion(-) diff --git a/lectures/_toc.yml b/lectures/_toc.yml index 1c33f277..b0ee69cb 100644 --- a/lectures/_toc.yml +++ b/lectures/_toc.yml @@ -55,7 +55,7 @@ parts: - file: unpleasant - file: money_inflation_nonlinear - file: laffer_adaptive - # - file: french_rev + - file: french_rev - file: ak2 - caption: Stochastic Dynamics numbered: true From 6eb247d3eeec5a95ccb70172f2898163cc06e6ee Mon Sep 17 00:00:00 2001 From: thomassargent30 Date: Sat, 6 Jul 2024 18:53:56 +0800 Subject: [PATCH 04/15] Tom's July 6 edits of french revolution lecture --- lectures/_static/quant-econ.bib | 22 + lectures/french_rev copy.md | 1075 +++++++++++++++ lectures/french_rev.md | 2159 +++++++++++++++---------------- 3 files changed, 2145 insertions(+), 1111 deletions(-) create mode 100644 lectures/french_rev copy.md diff --git a/lectures/_static/quant-econ.bib b/lectures/_static/quant-econ.bib index ce5c6e1c..34cad8c4 100644 --- a/lectures/_static/quant-econ.bib +++ b/lectures/_static/quant-econ.bib @@ -2,6 +2,28 @@ QuantEcon Bibliography File used in conjuction with sphinxcontrib-bibtex package Note: Extended Information (like abstracts, doi, url's etc.) can be found in quant-econ-extendedinfo.bib file in _static/ ### + +@incollection{keynes1940pay, + title={How to Pay for the War}, + author={Keynes, John Maynard}, + booktitle={Essays in persuasion}, + pages={367--439}, + year={1940}, + publisher={Springer} +} + +@article{bryant1984price, + title={A price discrimination analysis of monetary policy}, + author={Bryant, John and Wallace, Neil}, + journal={The Review of Economic Studies}, + volume={51}, + number={2}, + pages={279--288}, + year={1984}, + publisher={Wiley-Blackwell} +} + + @article{levitt2019did, title={Why did ancient states collapse?: the dysfunctional state}, author={Levitt, Malcolm}, diff --git a/lectures/french_rev copy.md b/lectures/french_rev copy.md new file mode 100644 index 00000000..fef98e78 --- /dev/null +++ b/lectures/french_rev copy.md @@ -0,0 +1,1075 @@ +--- +jupytext: + text_representation: + extension: .md + format_name: myst + format_version: 0.13 + jupytext_version: 1.16.1 +kernelspec: + display_name: Python 3 (ipykernel) + language: python + name: python3 +--- + + +# Inflation During French Revolution + + +## Overview + +This lecture describes some monetary and fiscal features of the French Revolution +described by {cite}`sargent_velde1995`. + +In order to finance public expenditures and service debts issued by earlier French governments, +successive French governments performed several policy experiments. + +Authors of these experiments were guided by their having decided to put in place monetary-fiscal policies recommended by particular theories. + +As a consequence, data on money growth and inflation from the period 1789 to 1787 at least temorarily illustrated outcomes predicted by these arrangements: + +* some *unpleasant monetarist arithmetic* like that described in this quanteon lecture XXXX +that governed French government debt dynamics in the decades preceding 1789 + +* a *real bills* theory of the effects of government open market operations in which the government *backs* its issues of paper money with valuable real property or financial assets + +* a classical **gold** or **silver** standard + +* a classical inflation-tax theory of inflation in which Philip Cagan's demand for money studied +in this lecture XXXX is a key component + +* a *legal restrictions* or *financial repression* theory of the demand for real balances + +We use matplotlib to replicate several of the graphs that they used to present salient patterns. + +Certainly! Here's a 3-page summary of Thomas Sargent and Francois Velde's paper "Macroeconomic Features of the French Revolution" from the 1995 Journal of Political Economy: + +--- + +### Introduction + +Sargent and Velde's study delves into the macroeconomic implications of the French Revolution, focusing on the tumultuous period between 1789 and 1796. This era is marked by significant political upheaval, monetary instability, and economic transformation. The paper seeks to analyze the macroeconomic policies, particularly those related to the issuance of paper money (assignats), and their impact on the economy, including inflation, public finance, and economic activity. + +### Historical Context and Monetary Policies + +**Pre-Revolutionary Fiscal Crisis:** +France entered the revolutionary period with a significant fiscal deficit, primarily due to extensive war expenditures and a cumbersome taxation system. The monarchy's inability to reform taxes and control expenditures led to escalating debts and the eventual fiscal crisis. + +**Introduction of Assignats:** +In response to the financial crisis, the revolutionary government introduced assignats in 1789. Initially, these were land-backed paper money intended to be a temporary solution for fiscal shortages. Assignats were first issued as interest-bearing notes but soon became non-interest-bearing and were used as legal tender. + +### Macroeconomic Consequences of Assignat Issuance + +**Inflation Dynamics:** +The uncontrolled issuance of assignats led to severe inflation. Sargent and Velde highlight how the overproduction of these notes eroded their value, causing hyperinflation. The price level skyrocketed, creating widespread economic disarray and reducing the real value of debts and savings. + +**Impact on Public Finance:** +The revolutionary government's reliance on assignats to finance its expenditures without corresponding fiscal reforms exacerbated the fiscal imbalance. While initially providing temporary relief, the overissuance undermined confidence in the currency, leading to a vicious cycle of devaluation and increasing monetary emissions. + +**Price Controls and Economic Distortions:** +In an attempt to control inflation, the government imposed price controls, notably the "Law of the Maximum." These measures, however, led to market distortions, shortages, and black markets. The disruption of traditional economic activities further aggravated the economic crisis. + +### The Role of War and Political Instability + +**War Financing:** +The Revolutionary Wars significantly influenced economic policy. The need to finance military expenditures drove the government to print more assignats, exacerbating inflationary pressures. The war effort also disrupted trade and agricultural production, further straining the economy. + +**Political Instability:** +The period was marked by rapid political changes, with various factions vying for control. This instability affected economic policy consistency and enforcement, contributing to the chaotic economic environment. The lack of a stable government made it challenging to implement long-term economic reforms. + +### Consequences and Reforms + +**Economic Collapse and Recovery Attempts:** +By 1796, the assignats had become nearly worthless, leading to a collapse of the monetary system. In response, the government introduced the mandats territoriaux, another form of land-backed currency, which also failed due to similar overissuance and loss of confidence. + +**Fiscal and Monetary Reforms:** +The eventual stabilization of the French economy required substantial reforms. The Directory government initiated measures to restore fiscal discipline, including tax reforms and reducing the reliance on paper money. The establishment of the Banque de France in 1800 under Napoleon provided a more stable monetary system, which helped in the recovery. + +### Conclusion + +Sargent and Velde's analysis illustrates the complex interplay between monetary policy, political stability, and economic performance during the French Revolution. The experience of the assignats serves as a cautionary tale about the dangers of excessive reliance on fiat money without adequate fiscal backing. The authors emphasize the importance of credible and consistent economic policies in maintaining monetary stability and fostering economic growth. + +--- + +This summary encapsulates the main points and findings of Sargent and Velde's paper, providing an overview of the macroeconomic challenges and policies during the French Revolution. + + +## Data Sources + +This notebook uses data from three spreadsheets: + + * datasets/fig_3.ods + * datasets/dette.xlsx + * datasets/assignat.xlsx + +```{code-cell} ipython3 +import numpy as np +import pandas as pd +import matplotlib.pyplot as plt +plt.rcParams.update({'font.size': 12}) +``` + +## Figure 1 + + +```{code-cell} ipython3 +--- +mystnb: + figure: + caption: "Government Expenditures and Tax Revenues in Britain" + name: fig2 +--- + +# Read the data from Excel file +data2 = pd.read_excel('datasets/dette.xlsx', sheet_name='Militspe', usecols='M:X', skiprows=7, nrows=102, header=None) + +# Plot the data +plt.figure() +plt.plot(range(1689, 1791), data2.iloc[:, 5], linewidth=0.8) +plt.plot(range(1689, 1791), data2.iloc[:, 11], linewidth=0.8, color='red') +plt.plot(range(1689, 1791), data2.iloc[:, 9], linewidth=0.8, color='orange') +plt.plot(range(1689, 1791), data2.iloc[:, 8], 'o-', markerfacecolor='none', linewidth=0.8, color='purple') + +# Customize the plot +plt.gca().spines['top'].set_visible(False) +plt.gca().spines['right'].set_visible(False) +plt.gca().tick_params(labelsize=12) +plt.xlim([1689, 1790]) +plt.ylabel('millions of pounds', fontsize=12) + +# Add text annotations +plt.text(1765, 1.5, 'civil', fontsize=10) +plt.text(1760, 4.2, 'civil plus debt service', fontsize=10) +plt.text(1708, 15.5, 'total govt spending', fontsize=10) +plt.text(1759, 7.3, 'revenues', fontsize=10) + + +plt.tight_layout() +plt.show() + +# Save the figure as a PDF +#plt.savefig('frfinfig2.pdf', dpi=600) +``` + + +TOM ADD MORE: Figure {numref}`fig2` shows blah + +## Figure 2 + + + + +```{code-cell} ipython3 +# Read the data from the Excel file +data1 = pd.read_excel('datasets/fig_3.xlsx', sheet_name='Sheet1', usecols='C:F', skiprows=5, nrows=30, header=None) + +data1.replace(0, np.nan, inplace=True) +``` + +```{code-cell} ipython3 +--- +mystnb: + figure: + caption: "Government Spending and Tax Revenues in France" + name: fr_fig3 +--- +# Plot the data +plt.figure() + +plt.plot(range(1759, 1789, 1), data1.iloc[:, 0], '-x', linewidth=0.8) +plt.plot(range(1759, 1789, 1), data1.iloc[:, 1], '--*', linewidth=0.8) +plt.plot(range(1759, 1789, 1), data1.iloc[:, 2], '-o', linewidth=0.8, markerfacecolor='none') +plt.plot(range(1759, 1789, 1), data1.iloc[:, 3], '-*', linewidth=0.8) + +plt.text(1775, 610, 'total spending', fontsize=10) +plt.text(1773, 325, 'military', fontsize=10) +plt.text(1773, 220, 'civil plus debt service', fontsize=10) +plt.text(1773, 80, 'debt service', fontsize=10) +plt.text(1785, 500, 'revenues', fontsize=10) + + + +plt.gca().spines['top'].set_visible(False) +plt.gca().spines['right'].set_visible(False) +plt.ylim([0, 700]) +plt.ylabel('millions of livres') + +plt.tight_layout() +plt.show() + +#plt.savefig('frfinfig3.jpg', dpi=600) +``` + + +TO TEACH TOM: Figure {numref}`fr_fig3` shows + + + + +## Figure 3 + + +```{code-cell} ipython3 +--- +mystnb: + figure: + caption: "Ratio of debt service to taxes, Britain and France" + name: fig1 +--- + +# Read the data from the Excel file +data1 = pd.read_excel('datasets/dette.xlsx', sheet_name='Debt', usecols='R:S', skiprows=5, nrows=99, header=None) +data1a = pd.read_excel('datasets/dette.xlsx', sheet_name='Debt', usecols='P', skiprows=89, nrows=15, header=None) + +# Plot the data +plt.figure() +plt.plot(range(1690, 1789), 100 * data1.iloc[:, 1], linewidth=0.8) + +date = np.arange(1690, 1789) +index = (date < 1774) & (data1.iloc[:, 0] > 0) +plt.plot(date[index], 100 * data1[index].iloc[:, 0], '*:', color='r', linewidth=0.8) + +# Plot the additional data +plt.plot(range(1774, 1789), 100 * data1a, '*:', color='orange') + +# Note about the data +# The French data before 1720 don't match up with the published version +# Set the plot properties +plt.gca().spines['top'].set_visible(False) +plt.gca().spines['right'].set_visible(False) +plt.gca().set_facecolor('white') +plt.gca().set_xlim([1688, 1788]) +plt.ylabel('% of Taxes') + +plt.tight_layout() +plt.show() + +#plt.savefig('frfinfig1.pdf', dpi=600) +#plt.savefig('frfinfig1.jpg', dpi=600) +``` + + +TOM ADD MORE: By staring at {numref}`fig1` carefully + + + + +## Figure 4 + + +```{code-cell} ipython3 +--- +mystnb: + figure: + caption: "Military Spending in Britain and France" + name: fig4 +--- +# French military spending, 1685-1789, in 1726 livres +data4 = pd.read_excel('datasets/dette.xlsx', sheet_name='Militspe', usecols='D', skiprows=3, nrows=105, header=None).squeeze() +years = range(1685, 1790) + +plt.figure() +plt.plot(years, data4, '*-', linewidth=0.8) + +plt.plot(range(1689, 1791), data2.iloc[:, 4], linewidth=0.8) + +plt.gca().spines['top'].set_visible(False) +plt.gca().spines['right'].set_visible(False) +plt.gca().tick_params(labelsize=12) +plt.xlim([1689, 1790]) +plt.xlabel('*: France') +plt.ylabel('Millions of livres') +plt.ylim([0, 475]) + +plt.tight_layout() +plt.show() + +#plt.savefig('frfinfig4.pdf', dpi=600) +``` + +TO TEACH TOM: By staring at {numref}`fig4` carefully + +## Figure 5 + + +```{code-cell} ipython3 +--- +mystnb: + figure: + caption: "Index of real per capital revenues, France" + name: fig5 +--- +# Read data from Excel file +data5 = pd.read_excel('datasets/dette.xlsx', sheet_name='Debt', usecols='K', skiprows=41, nrows=120, header=None) + +# Plot the data +plt.figure() +plt.plot(range(1726, 1846), data5.iloc[:, 0], linewidth=0.8) + +plt.gca().spines['top'].set_visible(False) +plt.gca().spines['right'].set_visible(False) +plt.gca().set_facecolor('white') +plt.gca().tick_params(labelsize=12) +plt.xlim([1726, 1845]) +plt.ylabel('1726 = 1', fontsize=12) + +plt.tight_layout() +plt.show() + +# Save the figure as a PDF +#plt.savefig('frfinfig5.pdf', dpi=600) +``` + +TO TEACH TOM: By staring at {numref}`fig5` carefully + +## Rise and Fall of the *Assignat* + + + + We have partitioned Figures~\ref{fig:fig7}, \ref{fig:fig8}, and \ref{fig:fig9} + into three periods, corresponding +to different monetary regimes or episodes. The three clouds of points in +Figure~\ref{fig:fig7} + depict different real balance-inflation relationships. Only the cloud for the +third period has the inverse relationship familiar to us now from twentieth-century +hyperinflations. The first period ends in the late summer of 1793, and is characterized +by growing real balances and moderate inflation. The second period begins and ends +with the Terror. It is marked by high real balances, around 2,500 millions, and +roughly stable prices. The fall of Robespierre in late July 1794 begins the third +of our episodes, in which real balances decline and prices rise rapidly. We interpret +these three episodes in terms of three separate theories about money: a ``backing'' +or ''real bills'' theory (the text is Adam Smith (1776)), +a legal restrictions theory (TOM: HERE PLEASE CITE +Keynes,1940, AS WELL AS Bryant/Wallace:1984 and Villamil:1988) +and a classical hyperinflation theory.% +```{note} +According to the empirical definition of hyperinflation adopted by {cite}`Cagan`, +beginning in the month that inflation exceeds 50 percent +per month and ending in the month before inflation drops below 50 percent per month +for at least a year, the *assignat* experienced a hyperinflation from May to December +1795. +``` +We view these +theories not as competitors but as alternative collections of ``if-then'' +statements about government note issues, each of which finds its conditions more +nearly met in one of these episodes than in the other two. + + + + + + + +## Three subperiods + + + + +* subperiod 1: ("real bills period): January 1791 to July 1793 + +* subperiod 2: ("terror:): August 1793 - July 1794 + +* subperiod 3: ("classic Cagan hyperinflation): August 1794 - March 1796 + + + + + + +## Figure 6 + +```{code-cell} ipython3 +def fit(x, y): + + b = np.cov(x, y)[0, 1] / np.var(x) + a = y.mean() - b * x.mean() + + return a, b +``` + +```{code-cell} ipython3 +# load data +caron = np.load('datasets/caron.npy') +nom_balances = np.load('datasets/nom_balances.npy') + +infl = np.concatenate(([np.nan], -np.log(caron[1:63, 1] / caron[0:62, 1]))) +bal = nom_balances[14:77, 1] * caron[:, 1] / 1000 +``` + +```{code-cell} ipython3 +# fit data + +# reg y on x for three periods +a1, b1 = fit(bal[1:31], infl[1:31]) +a2, b2 = fit(bal[31:44], infl[31:44]) +a3, b3 = fit(bal[44:63], infl[44:63]) + +# reg x on y for three periods +a1_rev, b1_rev = fit(infl[1:31], bal[1:31]) +a2_rev, b2_rev = fit(infl[31:44], bal[31:44]) +a3_rev, b3_rev = fit(infl[44:63], bal[44:63]) +``` + +```{code-cell} ipython3 +plt.figure() +plt.gca().spines['top'].set_visible(False) +plt.gca().spines['right'].set_visible(False) + +# first subsample +plt.plot(bal[1:31], infl[1:31], 'o', markerfacecolor='none', color='blue', label='real bills period') + +# second subsample +plt.plot(bal[31:44], infl[31:44], '+', color='red', label='terror') + +# third subsample +plt.plot(bal[44:63], infl[44:63], '*', color='orange', label='classic Cagan hyperinflation') + +plt.xlabel('real balances') +plt.ylabel('inflation') +plt.legend() + +plt.tight_layout() +plt.show() +#plt.savefig('frfinfig7.pdf', dpi=600) +``` + +## Figure 7 + +```{code-cell} ipython3 +# fit data + +# reg y on x for three periods +a1, b1 = fit(bal[1:31], infl[1:31]) +a2, b2 = fit(bal[31:44], infl[31:44]) +a3, b3 = fit(bal[44:63], infl[44:63]) + +# reg x on y for three periods +a1_rev, b1_rev = fit(infl[1:31], bal[1:31]) +a2_rev, b2_rev = fit(infl[31:44], bal[31:44]) +a3_rev, b3_rev = fit(infl[44:63], bal[44:63]) +``` + +```{code-cell} ipython3 +plt.figure() +plt.gca().spines['top'].set_visible(False) +plt.gca().spines['right'].set_visible(False) + +# first subsample +plt.plot(bal[1:31], infl[1:31], 'o', markerfacecolor='none', color='blue', label='real bills period') + +# second subsample +plt.plot(bal[34:44], infl[34:44], '+', color='red', label='terror') + +# third subsample # Tom tinkered with subsample period +plt.plot(bal[44:63], infl[44:63], '*', color='orange', label='classic Cagan hyperinflation') + +plt.xlabel('real balances') +plt.ylabel('inflation') +plt.legend() + +plt.tight_layout() +plt.show() +#plt.savefig('frfinfig7.pdf', dpi=600) +``` + + +

The above graph is Tom's experimental lab. We'll delete it eventually.

+ +

Zejin: below is the grapth with six lines in one graph. The lines generated by regressing y on x have the same color as the corresponding data points, while the lines generated by regressing x on y are all in green.

+ +## Figure 8 + +```{code-cell} ipython3 +plt.figure() +plt.gca().spines['top'].set_visible(False) +plt.gca().spines['right'].set_visible(False) + +# first subsample +plt.plot(bal[1:31], infl[1:31], 'o', markerfacecolor='none', color='blue', label='real bills period') +plt.plot(bal[1:31], a1 + bal[1:31] * b1, color='blue', linewidth=0.8) +plt.plot(a1_rev + b1_rev * infl[1:31], infl[1:31], color='green', linewidth=0.8) + +# second subsample +plt.plot(bal[31:44], infl[31:44], '+', color='red', label='terror') +plt.plot(bal[31:44], a2 + bal[31:44] * b2, color='red', linewidth=0.8) +plt.plot(a2_rev + b2_rev * infl[31:44], infl[31:44], color='green', linewidth=0.8) + +# third subsample +plt.plot(bal[44:63], infl[44:63], '*', color='orange', label='classic Cagan hyperinflation') +plt.plot(bal[44:63], a3 + bal[44:63] * b3, color='orange', linewidth=0.8) +plt.plot(a3_rev + b3_rev * infl[44:63], infl[44:63], color='green', linewidth=0.8) + +plt.xlabel('real balances') +plt.ylabel('inflation') +plt.legend() +#plt.savefig('frfinfig7.pdf', dpi=600) +``` + +## Figure 9 + +

The graph below is Tom's version of the six lines in one graph. The lines generated by regressing y on x have the same color as the corresponding data points, while the lines generated by regressing x on y are all in green.

+ +```{code-cell} ipython3 +plt.figure() +plt.gca().spines['top'].set_visible(False) +plt.gca().spines['right'].set_visible(False) + +# first subsample +plt.plot(bal[1:31], infl[1:31], 'o', markerfacecolor='none', color='blue', label='real bills period') +plt.plot(bal[1:31], a1 + bal[1:31] * b1, color='blue', linewidth=0.8) +plt.plot(a1_rev + b1_rev * infl[1:31], infl[1:31], color='green', linewidth=0.8) + +# second subsample +plt.plot(bal[31:44], infl[31:44], '+', color='red', label='terror') +plt.plot(bal[34:44], a2 + bal[34:44] * b2, color='red', linewidth=0.8) +plt.plot(a2_rev + b2_rev * infl[34:44], infl[34:44], color='green', linewidth=0.8) + +# third subsample +plt.plot(bal[44:63], infl[44:63], '*', color='orange', label='classic Cagan hyperinflation') +plt.plot(bal[44:63], a3 + bal[44:63] * b3, color='orange', linewidth=0.8) +plt.plot(a3_rev + b3_rev * infl[44:63], infl[44:63], color='green', linewidth=0.8) + +plt.xlabel('real balances') +plt.ylabel('inflation') +plt.legend() + +plt.tight_layout() +plt.show() +#plt.savefig('frfinfig7.pdf', dpi=600) +``` + +## Figure 10 + +```{code-cell} ipython3 +plt.figure() +plt.gca().spines['top'].set_visible(False) +plt.gca().spines['right'].set_visible(False) + +# first subsample +plt.plot(bal[1:31], infl[1:31], 'o', markerfacecolor='none', color='blue', label='real bills period') +plt.plot(bal[1:31], a1 + bal[1:31] * b1, color='blue') + +# second subsample +plt.plot(bal[31:44], infl[31:44], '+', color='red', label='terror') + +# third subsample +plt.plot(bal[44:63], infl[44:63], '*', color='orange', label='classic Cagan hyperinflation') + +plt.xlabel('real balances') +plt.ylabel('inflation') +plt.legend() + +plt.tight_layout() +plt.show() +#plt.savefig('frfinfig7_line1.pdf', dpi=600) +``` + +## Figure 11 + +```{code-cell} ipython3 +plt.figure() +plt.gca().spines['top'].set_visible(False) +plt.gca().spines['right'].set_visible(False) + +# first subsample +plt.plot(bal[1:31], infl[1:31], 'o', markerfacecolor='none', color='blue', label='real bills period') +plt.plot(a1_rev + b1_rev * infl[1:31], infl[1:31], color='blue') + +# second subsample +plt.plot(bal[31:44], infl[31:44], '+', color='red', label='terror') + +# third subsample +plt.plot(bal[44:63], infl[44:63], '*', color='orange', label='classic Cagan hyperinflation') + +plt.xlabel('real balances') +plt.ylabel('inflation') +plt.legend() + +plt.tight_layout() +plt.show() +#plt.savefig('frfinfig7_line1_rev.pdf', dpi=600) +``` + +## Figure 12 + +```{code-cell} ipython3 +plt.figure() +plt.gca().spines['top'].set_visible(False) +plt.gca().spines['right'].set_visible(False) + +# first subsample +plt.plot(bal[1:31], infl[1:31], 'o', markerfacecolor='none', color='blue', label='real bills period') + +# second subsample +plt.plot(bal[31:44], infl[31:44], '+', color='red', label='terror') +plt.plot(bal[31:44], a2 + bal[31:44] * b2, color='red') + +# third subsample +plt.plot(bal[44:63], infl[44:63], '*', color='orange', label='classic Cagan hyperinflation') + +plt.xlabel('real balances') +plt.ylabel('inflation') +plt.legend() + +plt.tight_layout() +plt.show() +#plt.savefig('frfinfig7_line2.pdf', dpi=600) +``` + +## Figure 13 + +```{code-cell} ipython3 +plt.figure() +plt.gca().spines['top'].set_visible(False) +plt.gca().spines['right'].set_visible(False) + +# first subsample +plt.plot(bal[1:31], infl[1:31], 'o', markerfacecolor='none', color='blue', label='real bills period') + +# second subsample +plt.plot(bal[31:44], infl[31:44], '+', color='red', label='terror') +plt.plot(a2_rev + b2_rev * infl[31:44], infl[31:44], color='red') + +# third subsample +plt.plot(bal[44:63], infl[44:63], '*', color='orange', label='classic Cagan hyperinflation') + +plt.xlabel('real balances') +plt.ylabel('inflation') +plt.legend() + +plt.tight_layout() +plt.show() +#plt.savefig('frfinfig7_line2_rev.pdf', dpi=600) +``` + +## Figure 14 + +```{code-cell} ipython3 +plt.figure() +plt.gca().spines['top'].set_visible(False) +plt.gca().spines['right'].set_visible(False) + +# first subsample +plt.plot(bal[1:31], infl[1:31], 'o', markerfacecolor='none', color='blue', label='real bills period') + +# second subsample +plt.plot(bal[31:44], infl[31:44], '+', color='red', label='terror') + +# third subsample +plt.plot(bal[44:63], infl[44:63], '*', color='orange', label='classic Cagan hyperinflation') +plt.plot(bal[44:63], a3 + bal[44:63] * b3, color='orange') + +plt.xlabel('real balances') +plt.ylabel('inflation') +plt.legend() + +plt.tight_layout() +plt.show() +#plt.savefig('frfinfig7_line3.pdf', dpi=600) +``` + +## Figure 15 + +```{code-cell} ipython3 +plt.figure() +plt.gca().spines['top'].set_visible(False) +plt.gca().spines['right'].set_visible(False) + +# first subsample +plt.plot(bal[1:31], infl[1:31], 'o', markerfacecolor='none', color='blue', label='real bills period') + +# second subsample +plt.plot(bal[31:44], infl[31:44], '+', color='red', label='terror') + +# third subsample +plt.plot(bal[44:63], infl[44:63], '*', color='orange', label='classic Cagan hyperinflation') +plt.plot(a3_rev + b3_rev * infl[44:63], infl[44:63], color='orange') + +plt.xlabel('real balances') +plt.ylabel('inflation') +plt.legend() + +plt.tight_layout() +plt.show() +#plt.savefig('frfinfig7_line3_rev.pdf', dpi=600) +``` + + +## Figure 21 + + +```{code-cell} ipython3 +--- +mystnb: + figure: + caption: "Real balances of assignats (in gold and goods)" + name: fig8 +--- +# Read the data from Excel file +data7 = pd.read_excel('datasets/assignat.xlsx', sheet_name='Data', usecols='P:Q', skiprows=4, nrows=80, header=None) +data7a = pd.read_excel('datasets/assignat.xlsx', sheet_name='Data', usecols='L', skiprows=4, nrows=80, header=None) + +# Create the figure and plot +plt.figure() +h = plt.plot(pd.date_range(start='1789-11-01', periods=len(data7), freq='M'), (data7a.values * [1, 1]) * data7.values, linewidth=1.) +plt.setp(h[1], linestyle='--', color='red') + +plt.vlines([pd.Timestamp('1793-07-15'), pd.Timestamp('1793-07-15')], 0, 3000, linewidth=0.8, color='orange') +plt.vlines([pd.Timestamp('1794-07-15'), pd.Timestamp('1794-07-15')], 0, 3000, linewidth=0.8, color='purple') + +plt.ylim([0, 3000]) + +# Set properties of the plot +plt.gca().spines['top'].set_visible(False) +plt.gca().spines['right'].set_visible(False) +plt.gca().set_facecolor('white') +plt.gca().tick_params(labelsize=12) +plt.xlim(pd.Timestamp('1789-11-01'), pd.Timestamp('1796-06-01')) +plt.ylabel('millions of livres', fontsize=12) + +# Add text annotations +plt.text(pd.Timestamp('1793-09-01'), 200, 'Terror', fontsize=12) +plt.text(pd.Timestamp('1791-05-01'), 750, 'gold value', fontsize=12) +plt.text(pd.Timestamp('1794-10-01'), 2500, 'real value', fontsize=12) + + +plt.tight_layout() +plt.show() + +# Save the figure as a PDF +#plt.savefig('frfinfig8.pdf', dpi=600) +``` + +TO TEACH TOM: By staring at {numref}`fig8` carefully + + +## Figure 22 + + +```{code-cell} ipython3 +--- +mystnb: + figure: + caption: "Price Level and Price of Gold (log scale)" + name: fig9 +--- +# Create the figure and plot +plt.figure() +x = np.arange(1789 + 10/12, 1796 + 5/12, 1/12) +h, = plt.plot(x, 1. / data7.iloc[:, 0], linestyle='--') +h, = plt.plot(x, 1. / data7.iloc[:, 1], color='r') + +# Set properties of the plot +plt.gca().tick_params(labelsize=12) +plt.yscale('log') +plt.xlim([1789 + 10/12, 1796 + 5/12]) +plt.gca().spines['top'].set_visible(False) +plt.gca().spines['right'].set_visible(False) + +# Add vertical lines +plt.axvline(x=1793 + 6.5/12, linestyle='-', linewidth=0.8, color='orange') +plt.axvline(x=1794 + 6.5/12, linestyle='-', linewidth=0.8, color='purple') + +# Add text +plt.text(1793.75, 120, 'Terror', fontsize=12) +plt.text(1795, 2.8, 'price level', fontsize=12) +plt.text(1794.9, 40, 'gold', fontsize=12) + + +plt.tight_layout() +plt.show() +#plt.savefig('frfinfig9.pdf', dpi=600) +``` + +TO TEACH TOM: By staring at {numref}`fig9` carefully + + +## Figure 23 + + + + +```{code-cell} ipython3 +--- +mystnb: + figure: + caption: "Spending (blue) and Revenues (orange), (real values)" + name: fig11 +--- +# Read data from Excel file +data11 = pd.read_excel('datasets/assignat.xlsx', sheet_name='Budgets', usecols='J:K', skiprows=22, nrows=52, header=None) + +# Prepare the x-axis data +x_data = np.concatenate([ + np.arange(1791, 1794 + 8/12, 1/12), + np.arange(1794 + 9/12, 1795 + 3/12, 1/12) +]) + +# Remove NaN values from the data +data11_clean = data11.dropna() + +# Plot the data +plt.figure() +h = plt.plot(x_data, data11_clean.values[:, 0], linewidth=0.8) +h = plt.plot(x_data, data11_clean.values[:, 1], '--', linewidth=0.8) + + + +# Set plot properties +plt.gca().spines['top'].set_visible(False) +plt.gca().spines['right'].set_visible(False) +plt.gca().set_facecolor('white') +plt.gca().tick_params(axis='both', which='major', labelsize=12) +plt.xlim([1791, 1795 + 3/12]) +plt.xticks(np.arange(1791, 1796)) +plt.yticks(np.arange(0, 201, 20)) + +# Set the y-axis label +plt.ylabel('millions of livres', fontsize=12) + + + +plt.tight_layout() +plt.show() + +#plt.savefig('frfinfig11.pdf', dpi=600) +``` +TO TEACH TOM: By staring at {numref}`fig11` carefully + + +## Figure 24 + + +```{code-cell} ipython3 +# Read data from Excel file +data12 = pd.read_excel('datasets/assignat.xlsx', sheet_name='seignor', usecols='F', skiprows=6, nrows=75, header=None).squeeze() + + +# Create a figure and plot the data +plt.figure() +plt.plot(pd.date_range(start='1790', periods=len(data12), freq='M'), data12, linewidth=0.8) + +plt.gca().spines['top'].set_visible(False) +plt.gca().spines['right'].set_visible(False) + +plt.axhline(y=472.42/12, color='r', linestyle=':') +plt.xticks(ticks=pd.date_range(start='1790', end='1796', freq='AS'), labels=range(1790, 1797)) +plt.xlim(pd.Timestamp('1791'), pd.Timestamp('1796-02') + pd.DateOffset(months=2)) +plt.ylabel('millions of livres', fontsize=12) +plt.text(pd.Timestamp('1793-11'), 39.5, 'revenues in 1788', verticalalignment='top', fontsize=12) + + +plt.tight_layout() +plt.show() + +#plt.savefig('frfinfig12.pdf', dpi=600) +``` + + +## Figure 25 + + +```{code-cell} ipython3 +# Read data from Excel file +data13 = pd.read_excel('datasets/assignat.xlsx', sheet_name='Exchge', usecols='P:T', skiprows=3, nrows=502, header=None) + +# Plot the last column of the data +plt.figure() +plt.plot(data13.iloc[:, -1], linewidth=0.8) + +# Set properties of the plot +plt.gca().spines['top'].set_visible(False) +plt.gca().spines['right'].set_visible(False) +plt.gca().set_xlim([1, len(data13)]) + +# Set x-ticks and x-tick labels +ttt = np.arange(1, len(data13) + 1) +plt.xticks(ttt[~np.isnan(data13.iloc[:, 0])], + ['Mar', 'Apr', 'May', 'Jun', 'Jul', 'Aug', 'Sep', 'Oct', 'Nov', 'Dec', 'Jan', 'Feb', + 'Mar', 'Apr', 'May', 'Jun', 'Jul', 'Aug', 'Sep']) + +# Add text to the plot +plt.text(1, 120, '1795', fontsize=12, ha='center') +plt.text(262, 120, '1796', fontsize=12, ha='center') + +# Draw a horizontal line and add text +plt.axhline(y=186.7, color='red', linestyle='-', linewidth=0.8) +plt.text(150, 190, 'silver parity', fontsize=12) + +# Add an annotation with an arrow +plt.annotate('end of the assignat', xy=(340, 172), xytext=(380, 160), + arrowprops=dict(facecolor='black', arrowstyle='->'), fontsize=12) + + +plt.tight_layout() +plt.show() +#plt.savefig('frfinfig13.pdf', dpi=600) +``` + + +## Figure 14 + + +```{code-cell} ipython3 +# figure 14 +data14 = pd.read_excel('datasets/assignat.xlsx', sheet_name='Post-95', usecols='I', skiprows=9, nrows=91, header=None).squeeze() +data14a = pd.read_excel('datasets/assignat.xlsx', sheet_name='Post-95', usecols='F', skiprows=100, nrows=151, header=None).squeeze() + +plt.figure() +h = plt.plot(data14, '*-', markersize=2, linewidth=0.8) +plt.plot(np.concatenate([np.full(data14.shape, np.nan), data14a]), linewidth=0.8) +plt.gca().spines['top'].set_visible(False) +plt.gca().spines['right'].set_visible(False) +plt.gca().set_xticks(range(20, 237, 36)) +plt.gca().set_xticklabels(range(1796, 1803)) +plt.xlabel('*: Before the 2/3 bankruptcy') +plt.ylabel('Francs') + +plt.tight_layout() +plt.show() +#plt.savefig('frfinfig14.pdf', dpi=600) +``` + + +## Figure 15 + + +```{code-cell} ipython3 +# figure 15 +data15 = pd.read_excel('datasets/assignat.xlsx', sheet_name='Post-95', usecols='N', skiprows=4, nrows=88, header=None).squeeze() + +plt.figure() +h = plt.plot(range(2, 90), data15, '*-', linewidth=0.8) +plt.setp(h, markersize=2) +plt.gca().spines['top'].set_visible(False) +plt.gca().spines['right'].set_visible(False) +plt.text(47.5, 11.4, '17 brumaire', horizontalalignment='left', fontsize=12) +plt.text(49.5, 14.75, '19 brumaire', horizontalalignment='left', fontsize=12) +plt.text(15, -1, 'Vendémiaire 8', fontsize=12, horizontalalignment='center') +plt.text(45, -1, 'Brumaire', fontsize=12, horizontalalignment='center') +plt.text(75, -1, 'Frimaire', fontsize=12, horizontalalignment='center') +plt.ylim([0, 25]) +plt.xticks([], []) +plt.ylabel('Francs') + +plt.tight_layout() +plt.show() +#plt.savefig('frfinfig15.pdf', dpi=600) +``` + +```{code-cell} ipython3 + +``` + +STUFF FROM SV 1995 + + +## Fiscal Situation and Response of National Assembly + + +In response to a motion by Catholic Bishop Talleyrand, +the National Assembly confiscated and nationalized Church lands. + +But the National Assembly was dominated by free market advocates, not socialists. + +The National Assembly intended to use earnings from Church lands to service its national debt. + +To do this, it began to implement a ''privatization plan'' that would let it service its debt while +not raising taxes. + +Their plan involved issuing paper notes called ''assignats'' that entitled bearers to use them to purchase state lands. + +These paper notes would be ''as good as silver coins'' in the sense that both were acceptable means of payment in exchange for those (formerly) church lands. + +Finance Minister Necker and the Constituants planned +to solve the privatization problem **and** the debt problem simultaneously +by creating a new currency. + +They devised a scheme to raise revenues by auctioning +the confiscated lands, thereby withdrawing paper notes issued on the security of +the lands sold by the government. + + This ''tax-backed money'' scheme propelled the National Assembly into the domain of monetary experimentation. + +Records of their debates show +how members of the Assembly marshaled theory and evidence to assess the likely +effects of their innovation. + +They quoted David Hume and Adam Smith and cited John +Law's System of 1720 and the American experiences with paper money fifteen years +earlier as examples of how paper money schemes can go awry. + + +### Necker's plan and how it was tweaked + +Necker's original plan embodied two components: a national bank and a new +financial instrument, the ''assignat''. + + +Necker's national +bank was patterned after the Bank of England. He proposed to transform the *Caisse d'Escompte* into a national bank by granting it a monopoly on issuing +notes and marketing government debt. The *Caisse* was a +discount bank founded in 1776 whose main function was to discount commercial bills +and issue convertible notes. Although independent of the government in principle, +it had occasionally been used as a source of loans. Its notes had been declared +inconvertible in August 1788, and by the time of Necker's proposal, its reserves +were exhausted. Necker's plan placed the National Estates (as the Church lands +became known after the addition of the royal demesne) at the center of the financial +picture: a ''Bank of France'' would issue a $5\%$ security mortgaged on the prospective +receipts from the modest sale of some 400 millions' worth of National Estates in +the years 1791 to 1793. +```{note} + Only 170 million was to be used initially +to cover the deficits of 1789 and 1790. +``` + + +By mid-1790, members of the National Assembly had agreed to sell the National +Estates and to use the proceeds to service the debt in a ``tax-backed money'' scheme +```{note} +Debt service costs absorbed + over 60\% of French government expenditures. +``` + +The government would issue securities with which it would reimburse debt. + +The securities +were acceptable as payment for National Estates purchased at auctions; once received +in payment, they were to be burned. + +```{note} +The appendix to {cite}`sargent_velde1995` describes the +auction rules in detail. +``` +The Estates available for sale were thought to be worth about 2,400 +million, while the exactable debt (essentially fixed-term loans, unpaid arrears, +and liquidated offices) stood at about 2,000 million. The value of the land was +sufficient to let the Assembly retire all of the exactable debt and thereby eliminate +the interest payments on it. After lengthy debates, in August 1790, the Assembly set the denomination +and interest rate structure of the debt. + + +```{note} Two distinct +aspects of monetary theory help in thinking about the assignat plan. First, a system +beginning with a commodity standard typically has room for a once-and-for-all emission +of (an unbacked) paper currency that can replace the commodity money without generating +inflation. \citet{Sargent/Wallace:1983} describe models with this property. That +commodity money systems are wasteful underlies Milton Friedman's (1960) TOM:ADD REFERENCE preference +for a fiat money regime over a commodity money. Second, in a small country on a +commodity money system that starts with restrictions on intermediation, those restrictions +can be relaxed by letting the government issue bank notes on the security of safe +private indebtedness, while leaving bank notes convertible into gold at par. See +Adam Smith and Sargent and Wallace (1982) for expressions of this idea. TOM: ADD REFERENCES HEREAND IN BIBTEX FILE. +``` + + +```{note} +The +National Assembly debated many now classic questions in monetary economics. Under +what conditions would money creation generate inflation, with what consequences +for business conditions? Distinctions were made between issue of money to pay off +debt, on one hand, and monetization of deficits, on the other. Would *assignats* be akin +to notes emitted under a real bills regime, and cause loss of specie, or would +they circulate alongside specie, thus increasing the money stock? Would inflation +affect real wages? How would it impact foreign trade, competitiveness of French +industry and agriculture, balance of trade, foreign exchange? +``` \ No newline at end of file diff --git a/lectures/french_rev.md b/lectures/french_rev.md index 359275f8..d13addb4 100644 --- a/lectures/french_rev.md +++ b/lectures/french_rev.md @@ -1,1112 +1,1049 @@ ---- -jupytext: - text_representation: - extension: .md - format_name: myst - format_version: 0.13 - jupytext_version: 1.16.1 -kernelspec: - display_name: Python 3 (ipykernel) - language: python - name: python3 ---- - - -# Inflation During French Revolution - - -## Overview - -This lecture describes some monetary and fiscal features of the French Revolution -described by {cite}`sargent_velde1995`. - -In order to finance public expenditures and service debts issued by earlier French governments, -successive French governments performed several policy experiments. - -Authors of these experiments were guided by their having decided to put in place monetary-fiscal policies recommended by particular theories. - -As a consequence, data on money growth and inflation from the period 1789 to 1787 at least temorarily illustrated outcomes predicted by these arrangements: - -* some *unpleasant monetarist arithmetic* like that described in this quanteon lecture XXXX -that governed French government debt dynamics in the decades preceding 1789 - -* a *real bills* theory of the effects of government open market operations in which the government *backs* its issues of paper money with valuable real property or financial assets - -* a classical **gold** or **silver** standard - -* a classical inflation-tax theory of inflation in which Philip Cagan's demand for money studied -in this lecture XXXX is a key component - -* a *legal restrictions* or *financial repression* theory of the demand for real balances - -We use matplotlib to replicate several of the graphs that they used to present salient patterns. - -Certainly! Here's a 3-page summary of Thomas Sargent and Francois Velde's paper "Macroeconomic Features of the French Revolution" from the 1995 Journal of Political Economy: - ---- - -### Introduction - -Sargent and Velde's study delves into the macroeconomic implications of the French Revolution, focusing on the tumultuous period between 1789 and 1796. This era is marked by significant political upheaval, monetary instability, and economic transformation. The paper seeks to analyze the macroeconomic policies, particularly those related to the issuance of paper money (assignats), and their impact on the economy, including inflation, public finance, and economic activity. - -### Historical Context and Monetary Policies - -**Pre-Revolutionary Fiscal Crisis:** -France entered the revolutionary period with a significant fiscal deficit, primarily due to extensive war expenditures and a cumbersome taxation system. The monarchy's inability to reform taxes and control expenditures led to escalating debts and the eventual fiscal crisis. - -**Introduction of Assignats:** -In response to the financial crisis, the revolutionary government introduced assignats in 1789. Initially, these were land-backed paper money intended to be a temporary solution for fiscal shortages. Assignats were first issued as interest-bearing notes but soon became non-interest-bearing and were used as legal tender. - -### Macroeconomic Consequences of Assignat Issuance - -**Inflation Dynamics:** -The uncontrolled issuance of assignats led to severe inflation. Sargent and Velde highlight how the overproduction of these notes eroded their value, causing hyperinflation. The price level skyrocketed, creating widespread economic disarray and reducing the real value of debts and savings. - -**Impact on Public Finance:** -The revolutionary government's reliance on assignats to finance its expenditures without corresponding fiscal reforms exacerbated the fiscal imbalance. While initially providing temporary relief, the overissuance undermined confidence in the currency, leading to a vicious cycle of devaluation and increasing monetary emissions. - -**Price Controls and Economic Distortions:** -In an attempt to control inflation, the government imposed price controls, notably the "Law of the Maximum." These measures, however, led to market distortions, shortages, and black markets. The disruption of traditional economic activities further aggravated the economic crisis. - -### The Role of War and Political Instability - -**War Financing:** -The Revolutionary Wars significantly influenced economic policy. The need to finance military expenditures drove the government to print more assignats, exacerbating inflationary pressures. The war effort also disrupted trade and agricultural production, further straining the economy. - -**Political Instability:** -The period was marked by rapid political changes, with various factions vying for control. This instability affected economic policy consistency and enforcement, contributing to the chaotic economic environment. The lack of a stable government made it challenging to implement long-term economic reforms. - -### Consequences and Reforms - -**Economic Collapse and Recovery Attempts:** -By 1796, the assignats had become nearly worthless, leading to a collapse of the monetary system. In response, the government introduced the mandats territoriaux, another form of land-backed currency, which also failed due to similar overissuance and loss of confidence. - -**Fiscal and Monetary Reforms:** -The eventual stabilization of the French economy required substantial reforms. The Directory government initiated measures to restore fiscal discipline, including tax reforms and reducing the reliance on paper money. The establishment of the Banque de France in 1800 under Napoleon provided a more stable monetary system, which helped in the recovery. - -### Conclusion - -Sargent and Velde's analysis illustrates the complex interplay between monetary policy, political stability, and economic performance during the French Revolution. The experience of the assignats serves as a cautionary tale about the dangers of excessive reliance on fiat money without adequate fiscal backing. The authors emphasize the importance of credible and consistent economic policies in maintaining monetary stability and fostering economic growth. - ---- - -This summary encapsulates the main points and findings of Sargent and Velde's paper, providing an overview of the macroeconomic challenges and policies during the French Revolution. - - -## Data Sources - -This notebook uses data from three spreadsheets: - - * datasets/fig_3.ods - * datasets/dette.xlsx - * datasets/assignat.xlsx - -```{code-cell} ipython3 -import numpy as np -import pandas as pd -import matplotlib.pyplot as plt -plt.rcParams.update({'font.size': 12}) -``` - - -## Figure 1 - - -```{code-cell} ipython3 ---- -mystnb: - figure: - caption: "Ratio of debt service to taxes, Britain and France" - name: fig1 ---- - -# Read the data from the Excel file -data1 = pd.read_excel('datasets/dette.xlsx', sheet_name='Debt', usecols='R:S', skiprows=5, nrows=99, header=None) -data1a = pd.read_excel('datasets/dette.xlsx', sheet_name='Debt', usecols='P', skiprows=89, nrows=15, header=None) - -# Plot the data -plt.figure() -plt.plot(range(1690, 1789), 100 * data1.iloc[:, 1], linewidth=0.8) - -date = np.arange(1690, 1789) -index = (date < 1774) & (data1.iloc[:, 0] > 0) -plt.plot(date[index], 100 * data1[index].iloc[:, 0], '*:', color='r', linewidth=0.8) - -# Plot the additional data -plt.plot(range(1774, 1789), 100 * data1a, '*:', color='orange') - -# Note about the data -# The French data before 1720 don't match up with the published version -# Set the plot properties -plt.gca().spines['top'].set_visible(False) -plt.gca().spines['right'].set_visible(False) -plt.gca().set_facecolor('white') -plt.gca().set_xlim([1688, 1788]) -plt.ylabel('% of Taxes') - -plt.tight_layout() -plt.show() - -#plt.savefig('frfinfig1.pdf', dpi=600) -#plt.savefig('frfinfig1.jpg', dpi=600) -``` - - -TOM ADD MORE: By staring at {numref}`fig1` carefully - - -## Figure 2 - - -```{code-cell} ipython3 ---- -mystnb: - figure: - caption: "Government Expenditures and Tax Revenues in Britain" - name: fig2 ---- - -# Read the data from Excel file -data2 = pd.read_excel('datasets/dette.xlsx', sheet_name='Militspe', usecols='M:X', skiprows=7, nrows=102, header=None) - -# Plot the data -plt.figure() -plt.plot(range(1689, 1791), data2.iloc[:, 5], linewidth=0.8) -plt.plot(range(1689, 1791), data2.iloc[:, 11], linewidth=0.8, color='red') -plt.plot(range(1689, 1791), data2.iloc[:, 9], linewidth=0.8, color='orange') -plt.plot(range(1689, 1791), data2.iloc[:, 8], 'o-', markerfacecolor='none', linewidth=0.8, color='purple') - -# Customize the plot -plt.gca().spines['top'].set_visible(False) -plt.gca().spines['right'].set_visible(False) -plt.gca().tick_params(labelsize=12) -plt.xlim([1689, 1790]) -plt.ylabel('millions of pounds', fontsize=12) - -# Add text annotations -plt.text(1765, 1.5, 'civil', fontsize=10) -plt.text(1760, 4.2, 'civil plus debt service', fontsize=10) -plt.text(1708, 15.5, 'total govt spending', fontsize=10) -plt.text(1759, 7.3, 'revenues', fontsize=10) - - -plt.tight_layout() -plt.show() - -# Save the figure as a PDF -#plt.savefig('frfinfig2.pdf', dpi=600) -``` - - -TOM ADD MORE: Figure {numref}`fig2` shows blah - -## Figure 3 - - - - -```{code-cell} ipython3 -# Read the data from the Excel file -data1 = pd.read_excel('datasets/fig_3.xlsx', sheet_name='Sheet1', usecols='C:F', skiprows=5, nrows=30, header=None) - -data1.replace(0, np.nan, inplace=True) -``` - -```{code-cell} ipython3 ---- -mystnb: - figure: - caption: "Government Spending and Tax Revenues in France" - name: fr_fig3 ---- -# Plot the data -plt.figure() - -plt.plot(range(1759, 1789, 1), data1.iloc[:, 0], '-x', linewidth=0.8) -plt.plot(range(1759, 1789, 1), data1.iloc[:, 1], '--*', linewidth=0.8) -plt.plot(range(1759, 1789, 1), data1.iloc[:, 2], '-o', linewidth=0.8, markerfacecolor='none') -plt.plot(range(1759, 1789, 1), data1.iloc[:, 3], '-*', linewidth=0.8) - -plt.text(1775, 610, 'total spending', fontsize=10) -plt.text(1773, 325, 'military', fontsize=10) -plt.text(1773, 220, 'civil plus debt service', fontsize=10) -plt.text(1773, 80, 'debt service', fontsize=10) -plt.text(1785, 500, 'revenues', fontsize=10) - - - -plt.gca().spines['top'].set_visible(False) -plt.gca().spines['right'].set_visible(False) -plt.ylim([0, 700]) -plt.ylabel('millions of livres') - -plt.tight_layout() -plt.show() - -#plt.savefig('frfinfig3.jpg', dpi=600) -``` - - -TO TEACH TOM: Figure {numref}`fr_fig3` shows - -```{code-cell} ipython3 ---- -mystnb: - figure: - caption: "Government Spending and Tax Revenues in France" - name: fr_fig3a ---- -# Plot the data -plt.figure() - -plt.plot(np.arange(1759, 1789, 1)[~np.isnan(data1.iloc[:, 0])], data1.iloc[:, 0][~np.isnan(data1.iloc[:, 0])], '-x', linewidth=0.8) -plt.plot(np.arange(1759, 1789, 1)[~np.isnan(data1.iloc[:, 1])], data1.iloc[:, 1][~np.isnan(data1.iloc[:, 1])], '--*', linewidth=0.8) -plt.plot(np.arange(1759, 1789, 1)[~np.isnan(data1.iloc[:, 2])], data1.iloc[:, 2][~np.isnan(data1.iloc[:, 2])], '-o', linewidth=0.8, markerfacecolor='none') -plt.plot(np.arange(1759, 1789, 1)[~np.isnan(data1.iloc[:, 3])], data1.iloc[:, 3][~np.isnan(data1.iloc[:, 3])], '-*', linewidth=0.8) - -plt.text(1775, 610, 'total spending', fontsize=10) -plt.text(1773, 325, 'military', fontsize=10) -plt.text(1773, 220, 'civil plus debt service', fontsize=10) -plt.text(1773, 80, 'debt service', fontsize=10) -plt.text(1785, 500, 'revenues', fontsize=10) - - -plt.gca().spines['top'].set_visible(False) -plt.gca().spines['right'].set_visible(False) -plt.ylim([0, 700]) -plt.ylabel('millions of livres') - -plt.tight_layout() -plt.show() - -#plt.savefig('frfinfig3_ignore_nan.jpg', dpi=600) -``` - -TO TEACH TOM: Figure {numref}`fr_fig3a` shows - -## Figure 4 - - -```{code-cell} ipython3 ---- -mystnb: - figure: - caption: "Military Spending in Britain and France" - name: fig4 ---- -# French military spending, 1685-1789, in 1726 livres -data4 = pd.read_excel('datasets/dette.xlsx', sheet_name='Militspe', usecols='D', skiprows=3, nrows=105, header=None).squeeze() -years = range(1685, 1790) - -plt.figure() -plt.plot(years, data4, '*-', linewidth=0.8) - -plt.plot(range(1689, 1791), data2.iloc[:, 4], linewidth=0.8) - -plt.gca().spines['top'].set_visible(False) -plt.gca().spines['right'].set_visible(False) -plt.gca().tick_params(labelsize=12) -plt.xlim([1689, 1790]) -plt.xlabel('*: France') -plt.ylabel('Millions of livres') -plt.ylim([0, 475]) - -plt.tight_layout() -plt.show() - -#plt.savefig('frfinfig4.pdf', dpi=600) -``` - -TO TEACH TOM: By staring at {numref}`fig4` carefully - -## Figure 5 - - -```{code-cell} ipython3 ---- -mystnb: - figure: - caption: "Index of real per capital revenues, France" - name: fig5 ---- -# Read data from Excel file -data5 = pd.read_excel('datasets/dette.xlsx', sheet_name='Debt', usecols='K', skiprows=41, nrows=120, header=None) - -# Plot the data -plt.figure() -plt.plot(range(1726, 1846), data5.iloc[:, 0], linewidth=0.8) - -plt.gca().spines['top'].set_visible(False) -plt.gca().spines['right'].set_visible(False) -plt.gca().set_facecolor('white') -plt.gca().tick_params(labelsize=12) -plt.xlim([1726, 1845]) -plt.ylabel('1726 = 1', fontsize=12) - -plt.tight_layout() -plt.show() - -# Save the figure as a PDF -#plt.savefig('frfinfig5.pdf', dpi=600) -``` - -TO TEACH TOM: By staring at {numref}`fig5` carefully - -## Rise and Fall of the *Assignat* - - - - We have partitioned Figures~\ref{fig:fig7}, \ref{fig:fig8}, and \ref{fig:fig9} - into three periods, corresponding -to different monetary regimes or episodes. The three clouds of points in -Figure~\ref{fig:fig7} - depict different real balance-inflation relationships. Only the cloud for the -third period has the inverse relationship familiar to us now from twentieth-century -hyperinflations. The first period ends in the late summer of 1793, and is characterized -by growing real balances and moderate inflation. The second period begins and ends -with the Terror. It is marked by high real balances, around 2,500 millions, and -roughly stable prices. The fall of Robespierre in late July 1794 begins the third -of our episodes, in which real balances decline and prices rise rapidly. We interpret -these three episodes in terms of three separate theories about money: a ``backing'' -or ''real bills'' theory (the text is Adam Smith (1776)), -a legal restrictions theory (TOM: HERE PLEASE CITE -Keynes,1940, AS WELL AS Bryant/Wallace:1984 and Villamil:1988) -and a classical hyperinflation theory.% -```{note} -According to the empirical definition of hyperinflation adopted by {cite}`Cagan`, -beginning in the month that inflation exceeds 50 percent -per month and ending in the month before inflation drops below 50 percent per month -for at least a year, the *assignat* experienced a hyperinflation from May to December -1795. -``` -We view these -theories not as competitors but as alternative collections of ``if-then'' -statements about government note issues, each of which finds its conditions more -nearly met in one of these episodes than in the other two. - - - - - -## Figure 7 - - -## To Do for Zejin - -I want to tweak and consolidate the extra lines that Zejin drew on the beautiful **Figure 7**. - -I'd like to experiment in plotting the **six** extra lines all on one graph -- a pair of lines for each of our subsamples - - * one for the $y$ on $x$ regression line - * another for the $x$ on $y$ regression line - -I'd like the $y$ on $x$ and $x$ on $y$ lines to be in separate colors. - -Once we are satisfied with this new graph with its six additional lines, we can dispense with the other graphs that add one line at a time. - -Zejin, I can explain on zoom the lessons I want to convey with this. - - - -Just to recall, to compute the regression lines, Zejin wrote a function that use standard formulas -for a and b in a least squares regression y = a + b x + residual -- i.e., b is ratio of sample covariance of y,x to sample variance of x; while a is then computed from a = sample mean of y - \hat b *sample mean of x - -We could presumably tell students how to do this with a couple of numpy lines -I'd like to create three additional versions of the following figure. - -To remind you, we focused on three subperiods: - - -* subperiod 1: ("real bills period): January 1791 to July 1793 - -* subperiod 2: ("terror:): August 1793 - July 1794 - -* subperiod 3: ("classic Cagan hyperinflation): August 1794 - March 1796 - - -I can explain what this is designed to show. - - - -```{code-cell} ipython3 -def fit(x, y): - - b = np.cov(x, y)[0, 1] / np.var(x) - a = y.mean() - b * x.mean() - - return a, b -``` - -```{code-cell} ipython3 -# load data -caron = np.load('datasets/caron.npy') -nom_balances = np.load('datasets/nom_balances.npy') - -infl = np.concatenate(([np.nan], -np.log(caron[1:63, 1] / caron[0:62, 1]))) -bal = nom_balances[14:77, 1] * caron[:, 1] / 1000 -``` - -```{code-cell} ipython3 -# fit data - -# reg y on x for three periods -a1, b1 = fit(bal[1:31], infl[1:31]) -a2, b2 = fit(bal[31:44], infl[31:44]) -a3, b3 = fit(bal[44:63], infl[44:63]) - -# reg x on y for three periods -a1_rev, b1_rev = fit(infl[1:31], bal[1:31]) -a2_rev, b2_rev = fit(infl[31:44], bal[31:44]) -a3_rev, b3_rev = fit(infl[44:63], bal[44:63]) -``` - -```{code-cell} ipython3 -plt.figure() -plt.gca().spines['top'].set_visible(False) -plt.gca().spines['right'].set_visible(False) - -# first subsample -plt.plot(bal[1:31], infl[1:31], 'o', markerfacecolor='none', color='blue', label='real bills period') - -# second subsample -plt.plot(bal[31:44], infl[31:44], '+', color='red', label='terror') - -# third subsample -plt.plot(bal[44:63], infl[44:63], '*', color='orange', label='classic Cagan hyperinflation') - -plt.xlabel('real balances') -plt.ylabel('inflation') -plt.legend() - -plt.tight_layout() -plt.show() -#plt.savefig('frfinfig7.pdf', dpi=600) -``` - - - -```{code-cell} ipython3 -# fit data - -# reg y on x for three periods -a1, b1 = fit(bal[1:31], infl[1:31]) -a2, b2 = fit(bal[31:44], infl[31:44]) -a3, b3 = fit(bal[44:63], infl[44:63]) - -# reg x on y for three periods -a1_rev, b1_rev = fit(infl[1:31], bal[1:31]) -a2_rev, b2_rev = fit(infl[31:44], bal[31:44]) -a3_rev, b3_rev = fit(infl[44:63], bal[44:63]) -``` - -```{code-cell} ipython3 -plt.figure() -plt.gca().spines['top'].set_visible(False) -plt.gca().spines['right'].set_visible(False) - -# first subsample -plt.plot(bal[1:31], infl[1:31], 'o', markerfacecolor='none', color='blue', label='real bills period') - -# second subsample -plt.plot(bal[34:44], infl[34:44], '+', color='red', label='terror') - -# third subsample # Tom tinkered with subsample period -plt.plot(bal[44:63], infl[44:63], '*', color='orange', label='classic Cagan hyperinflation') - -plt.xlabel('real balances') -plt.ylabel('inflation') -plt.legend() - -plt.tight_layout() -plt.show() -#plt.savefig('frfinfig7.pdf', dpi=600) -``` - - -

The above graph is Tom's experimental lab. We'll delete it eventually.

- -

Zejin: below is the grapth with six lines in one graph. The lines generated by regressing y on x have the same color as the corresponding data points, while the lines generated by regressing x on y are all in green.

- -```{code-cell} ipython3 -plt.figure() -plt.gca().spines['top'].set_visible(False) -plt.gca().spines['right'].set_visible(False) - -# first subsample -plt.plot(bal[1:31], infl[1:31], 'o', markerfacecolor='none', color='blue', label='real bills period') -plt.plot(bal[1:31], a1 + bal[1:31] * b1, color='blue', linewidth=0.8) -plt.plot(a1_rev + b1_rev * infl[1:31], infl[1:31], color='green', linewidth=0.8) - -# second subsample -plt.plot(bal[31:44], infl[31:44], '+', color='red', label='terror') -plt.plot(bal[31:44], a2 + bal[31:44] * b2, color='red', linewidth=0.8) -plt.plot(a2_rev + b2_rev * infl[31:44], infl[31:44], color='green', linewidth=0.8) - -# third subsample -plt.plot(bal[44:63], infl[44:63], '*', color='orange', label='classic Cagan hyperinflation') -plt.plot(bal[44:63], a3 + bal[44:63] * b3, color='orange', linewidth=0.8) -plt.plot(a3_rev + b3_rev * infl[44:63], infl[44:63], color='green', linewidth=0.8) - -plt.xlabel('real balances') -plt.ylabel('inflation') -plt.legend() -#plt.savefig('frfinfig7.pdf', dpi=600) -``` - - - -

The graph below is Tom's version of the six lines in one graph. The lines generated by regressing y on x have the same color as the corresponding data points, while the lines generated by regressing x on y are all in green.

- -```{code-cell} ipython3 -plt.figure() -plt.gca().spines['top'].set_visible(False) -plt.gca().spines['right'].set_visible(False) - -# first subsample -plt.plot(bal[1:31], infl[1:31], 'o', markerfacecolor='none', color='blue', label='real bills period') -plt.plot(bal[1:31], a1 + bal[1:31] * b1, color='blue', linewidth=0.8) -plt.plot(a1_rev + b1_rev * infl[1:31], infl[1:31], color='green', linewidth=0.8) - -# second subsample -plt.plot(bal[31:44], infl[31:44], '+', color='red', label='terror') -plt.plot(bal[34:44], a2 + bal[34:44] * b2, color='red', linewidth=0.8) -plt.plot(a2_rev + b2_rev * infl[34:44], infl[34:44], color='green', linewidth=0.8) - -# third subsample -plt.plot(bal[44:63], infl[44:63], '*', color='orange', label='classic Cagan hyperinflation') -plt.plot(bal[44:63], a3 + bal[44:63] * b3, color='orange', linewidth=0.8) -plt.plot(a3_rev + b3_rev * infl[44:63], infl[44:63], color='green', linewidth=0.8) - -plt.xlabel('real balances') -plt.ylabel('inflation') -plt.legend() - -plt.tight_layout() -plt.show() -#plt.savefig('frfinfig7.pdf', dpi=600) -``` - -```{code-cell} ipython3 -plt.figure() -plt.gca().spines['top'].set_visible(False) -plt.gca().spines['right'].set_visible(False) - -# first subsample -plt.plot(bal[1:31], infl[1:31], 'o', markerfacecolor='none', color='blue', label='real bills period') -plt.plot(bal[1:31], a1 + bal[1:31] * b1, color='blue') - -# second subsample -plt.plot(bal[31:44], infl[31:44], '+', color='red', label='terror') - -# third subsample -plt.plot(bal[44:63], infl[44:63], '*', color='orange', label='classic Cagan hyperinflation') - -plt.xlabel('real balances') -plt.ylabel('inflation') -plt.legend() - -plt.tight_layout() -plt.show() -#plt.savefig('frfinfig7_line1.pdf', dpi=600) -``` - -```{code-cell} ipython3 -plt.figure() -plt.gca().spines['top'].set_visible(False) -plt.gca().spines['right'].set_visible(False) - -# first subsample -plt.plot(bal[1:31], infl[1:31], 'o', markerfacecolor='none', color='blue', label='real bills period') -plt.plot(a1_rev + b1_rev * infl[1:31], infl[1:31], color='blue') - -# second subsample -plt.plot(bal[31:44], infl[31:44], '+', color='red', label='terror') - -# third subsample -plt.plot(bal[44:63], infl[44:63], '*', color='orange', label='classic Cagan hyperinflation') - -plt.xlabel('real balances') -plt.ylabel('inflation') -plt.legend() - -plt.tight_layout() -plt.show() -#plt.savefig('frfinfig7_line1_rev.pdf', dpi=600) -``` - -```{code-cell} ipython3 -plt.figure() -plt.gca().spines['top'].set_visible(False) -plt.gca().spines['right'].set_visible(False) - -# first subsample -plt.plot(bal[1:31], infl[1:31], 'o', markerfacecolor='none', color='blue', label='real bills period') - -# second subsample -plt.plot(bal[31:44], infl[31:44], '+', color='red', label='terror') -plt.plot(bal[31:44], a2 + bal[31:44] * b2, color='red') - -# third subsample -plt.plot(bal[44:63], infl[44:63], '*', color='orange', label='classic Cagan hyperinflation') - -plt.xlabel('real balances') -plt.ylabel('inflation') -plt.legend() - -plt.tight_layout() -plt.show() -#plt.savefig('frfinfig7_line2.pdf', dpi=600) -``` - -```{code-cell} ipython3 -plt.figure() -plt.gca().spines['top'].set_visible(False) -plt.gca().spines['right'].set_visible(False) - -# first subsample -plt.plot(bal[1:31], infl[1:31], 'o', markerfacecolor='none', color='blue', label='real bills period') - -# second subsample -plt.plot(bal[31:44], infl[31:44], '+', color='red', label='terror') -plt.plot(a2_rev + b2_rev * infl[31:44], infl[31:44], color='red') - -# third subsample -plt.plot(bal[44:63], infl[44:63], '*', color='orange', label='classic Cagan hyperinflation') - -plt.xlabel('real balances') -plt.ylabel('inflation') -plt.legend() - -plt.tight_layout() -plt.show() -#plt.savefig('frfinfig7_line2_rev.pdf', dpi=600) -``` - -```{code-cell} ipython3 -plt.figure() -plt.gca().spines['top'].set_visible(False) -plt.gca().spines['right'].set_visible(False) - -# first subsample -plt.plot(bal[1:31], infl[1:31], 'o', markerfacecolor='none', color='blue', label='real bills period') - -# second subsample -plt.plot(bal[31:44], infl[31:44], '+', color='red', label='terror') - -# third subsample -plt.plot(bal[44:63], infl[44:63], '*', color='orange', label='classic Cagan hyperinflation') -plt.plot(bal[44:63], a3 + bal[44:63] * b3, color='orange') - -plt.xlabel('real balances') -plt.ylabel('inflation') -plt.legend() - -plt.tight_layout() -plt.show() -#plt.savefig('frfinfig7_line3.pdf', dpi=600) -``` - -```{code-cell} ipython3 -plt.figure() -plt.gca().spines['top'].set_visible(False) -plt.gca().spines['right'].set_visible(False) - -# first subsample -plt.plot(bal[1:31], infl[1:31], 'o', markerfacecolor='none', color='blue', label='real bills period') - -# second subsample -plt.plot(bal[31:44], infl[31:44], '+', color='red', label='terror') - -# third subsample -plt.plot(bal[44:63], infl[44:63], '*', color='orange', label='classic Cagan hyperinflation') -plt.plot(a3_rev + b3_rev * infl[44:63], infl[44:63], color='orange') - -plt.xlabel('real balances') -plt.ylabel('inflation') -plt.legend() - -plt.tight_layout() -plt.show() -#plt.savefig('frfinfig7_line3_rev.pdf', dpi=600) -``` - - -## Figure 8 - - -```{code-cell} ipython3 ---- -mystnb: - figure: - caption: "Real balances of assignats (in gold and goods)" - name: fig8 ---- -# Read the data from Excel file -data7 = pd.read_excel('datasets/assignat.xlsx', sheet_name='Data', usecols='P:Q', skiprows=4, nrows=80, header=None) -data7a = pd.read_excel('datasets/assignat.xlsx', sheet_name='Data', usecols='L', skiprows=4, nrows=80, header=None) - -# Create the figure and plot -plt.figure() -h = plt.plot(pd.date_range(start='1789-11-01', periods=len(data7), freq='M'), (data7a.values * [1, 1]) * data7.values, linewidth=1.) -plt.setp(h[1], linestyle='--', color='red') - -plt.vlines([pd.Timestamp('1793-07-15'), pd.Timestamp('1793-07-15')], 0, 3000, linewidth=0.8, color='orange') -plt.vlines([pd.Timestamp('1794-07-15'), pd.Timestamp('1794-07-15')], 0, 3000, linewidth=0.8, color='purple') - -plt.ylim([0, 3000]) - -# Set properties of the plot -plt.gca().spines['top'].set_visible(False) -plt.gca().spines['right'].set_visible(False) -plt.gca().set_facecolor('white') -plt.gca().tick_params(labelsize=12) -plt.xlim(pd.Timestamp('1789-11-01'), pd.Timestamp('1796-06-01')) -plt.ylabel('millions of livres', fontsize=12) - -# Add text annotations -plt.text(pd.Timestamp('1793-09-01'), 200, 'Terror', fontsize=12) -plt.text(pd.Timestamp('1791-05-01'), 750, 'gold value', fontsize=12) -plt.text(pd.Timestamp('1794-10-01'), 2500, 'real value', fontsize=12) - - -plt.tight_layout() -plt.show() - -# Save the figure as a PDF -#plt.savefig('frfinfig8.pdf', dpi=600) -``` - -TO TEACH TOM: By staring at {numref}`fig8` carefully - - -## Figure 9 - - -```{code-cell} ipython3 ---- -mystnb: - figure: - caption: "Price Level and Price of Gold (log scale)" - name: fig9 ---- -# Create the figure and plot -plt.figure() -x = np.arange(1789 + 10/12, 1796 + 5/12, 1/12) -h, = plt.plot(x, 1. / data7.iloc[:, 0], linestyle='--') -h, = plt.plot(x, 1. / data7.iloc[:, 1], color='r') - -# Set properties of the plot -plt.gca().tick_params(labelsize=12) -plt.yscale('log') -plt.xlim([1789 + 10/12, 1796 + 5/12]) -plt.gca().spines['top'].set_visible(False) -plt.gca().spines['right'].set_visible(False) - -# Add vertical lines -plt.axvline(x=1793 + 6.5/12, linestyle='-', linewidth=0.8, color='orange') -plt.axvline(x=1794 + 6.5/12, linestyle='-', linewidth=0.8, color='purple') - -# Add text -plt.text(1793.75, 120, 'Terror', fontsize=12) -plt.text(1795, 2.8, 'price level', fontsize=12) -plt.text(1794.9, 40, 'gold', fontsize=12) - - -plt.tight_layout() -plt.show() -#plt.savefig('frfinfig9.pdf', dpi=600) -``` - -TO TEACH TOM: By staring at {numref}`fig9` carefully - - -## Figure 11 - - - - -```{code-cell} ipython3 ---- -mystnb: - figure: - caption: "Spending (blue) and Revenues (orange), (real values)" - name: fig11 ---- -# Read data from Excel file -data11 = pd.read_excel('datasets/assignat.xlsx', sheet_name='Budgets', usecols='J:K', skiprows=22, nrows=52, header=None) - -# Prepare the x-axis data -x_data = np.concatenate([ - np.arange(1791, 1794 + 8/12, 1/12), - np.arange(1794 + 9/12, 1795 + 3/12, 1/12) -]) - -# Remove NaN values from the data -data11_clean = data11.dropna() - -# Plot the data -plt.figure() -h = plt.plot(x_data, data11_clean.values[:, 0], linewidth=0.8) -h = plt.plot(x_data, data11_clean.values[:, 1], '--', linewidth=0.8) - - - -# Set plot properties -plt.gca().spines['top'].set_visible(False) -plt.gca().spines['right'].set_visible(False) -plt.gca().set_facecolor('white') -plt.gca().tick_params(axis='both', which='major', labelsize=12) -plt.xlim([1791, 1795 + 3/12]) -plt.xticks(np.arange(1791, 1796)) -plt.yticks(np.arange(0, 201, 20)) - -# Set the y-axis label -plt.ylabel('millions of livres', fontsize=12) - - - -plt.tight_layout() -plt.show() - -#plt.savefig('frfinfig11.pdf', dpi=600) -``` -TO TEACH TOM: By staring at {numref}`fig11` carefully - - -## Figure 12 - - -```{code-cell} ipython3 -# Read data from Excel file -data12 = pd.read_excel('datasets/assignat.xlsx', sheet_name='seignor', usecols='F', skiprows=6, nrows=75, header=None).squeeze() - - -# Create a figure and plot the data -plt.figure() -plt.plot(pd.date_range(start='1790', periods=len(data12), freq='M'), data12, linewidth=0.8) - -plt.gca().spines['top'].set_visible(False) -plt.gca().spines['right'].set_visible(False) - -plt.axhline(y=472.42/12, color='r', linestyle=':') -plt.xticks(ticks=pd.date_range(start='1790', end='1796', freq='AS'), labels=range(1790, 1797)) -plt.xlim(pd.Timestamp('1791'), pd.Timestamp('1796-02') + pd.DateOffset(months=2)) -plt.ylabel('millions of livres', fontsize=12) -plt.text(pd.Timestamp('1793-11'), 39.5, 'revenues in 1788', verticalalignment='top', fontsize=12) - - -plt.tight_layout() -plt.show() - -#plt.savefig('frfinfig12.pdf', dpi=600) -``` - - -## Figure 13 - - -```{code-cell} ipython3 -# Read data from Excel file -data13 = pd.read_excel('datasets/assignat.xlsx', sheet_name='Exchge', usecols='P:T', skiprows=3, nrows=502, header=None) - -# Plot the last column of the data -plt.figure() -plt.plot(data13.iloc[:, -1], linewidth=0.8) - -# Set properties of the plot -plt.gca().spines['top'].set_visible(False) -plt.gca().spines['right'].set_visible(False) -plt.gca().set_xlim([1, len(data13)]) - -# Set x-ticks and x-tick labels -ttt = np.arange(1, len(data13) + 1) -plt.xticks(ttt[~np.isnan(data13.iloc[:, 0])], - ['Mar', 'Apr', 'May', 'Jun', 'Jul', 'Aug', 'Sep', 'Oct', 'Nov', 'Dec', 'Jan', 'Feb', - 'Mar', 'Apr', 'May', 'Jun', 'Jul', 'Aug', 'Sep']) - -# Add text to the plot -plt.text(1, 120, '1795', fontsize=12, ha='center') -plt.text(262, 120, '1796', fontsize=12, ha='center') - -# Draw a horizontal line and add text -plt.axhline(y=186.7, color='red', linestyle='-', linewidth=0.8) -plt.text(150, 190, 'silver parity', fontsize=12) - -# Add an annotation with an arrow -plt.annotate('end of the assignat', xy=(340, 172), xytext=(380, 160), - arrowprops=dict(facecolor='black', arrowstyle='->'), fontsize=12) - - -plt.tight_layout() -plt.show() -#plt.savefig('frfinfig13.pdf', dpi=600) -``` - - -## Figure 14 - - -```{code-cell} ipython3 -# figure 14 -data14 = pd.read_excel('datasets/assignat.xlsx', sheet_name='Post-95', usecols='I', skiprows=9, nrows=91, header=None).squeeze() -data14a = pd.read_excel('datasets/assignat.xlsx', sheet_name='Post-95', usecols='F', skiprows=100, nrows=151, header=None).squeeze() - -plt.figure() -h = plt.plot(data14, '*-', markersize=2, linewidth=0.8) -plt.plot(np.concatenate([np.full(data14.shape, np.nan), data14a]), linewidth=0.8) -plt.gca().spines['top'].set_visible(False) -plt.gca().spines['right'].set_visible(False) -plt.gca().set_xticks(range(20, 237, 36)) -plt.gca().set_xticklabels(range(1796, 1803)) -plt.xlabel('*: Before the 2/3 bankruptcy') -plt.ylabel('Francs') - -plt.tight_layout() -plt.show() -#plt.savefig('frfinfig14.pdf', dpi=600) -``` - - -## Figure 15 - - -```{code-cell} ipython3 -# figure 15 -data15 = pd.read_excel('datasets/assignat.xlsx', sheet_name='Post-95', usecols='N', skiprows=4, nrows=88, header=None).squeeze() - -plt.figure() -h = plt.plot(range(2, 90), data15, '*-', linewidth=0.8) -plt.setp(h, markersize=2) -plt.gca().spines['top'].set_visible(False) -plt.gca().spines['right'].set_visible(False) -plt.text(47.5, 11.4, '17 brumaire', horizontalalignment='left', fontsize=12) -plt.text(49.5, 14.75, '19 brumaire', horizontalalignment='left', fontsize=12) -plt.text(15, -1, 'Vendémiaire 8', fontsize=12, horizontalalignment='center') -plt.text(45, -1, 'Brumaire', fontsize=12, horizontalalignment='center') -plt.text(75, -1, 'Frimaire', fontsize=12, horizontalalignment='center') -plt.ylim([0, 25]) -plt.xticks([], []) -plt.ylabel('Francs') - -plt.tight_layout() -plt.show() -#plt.savefig('frfinfig15.pdf', dpi=600) -``` - -```{code-cell} ipython3 - -``` - -STUFF FROM SV 1995 - - -## Fiscal Situation and Response of National Assembly - - -In response to a motion by Catholic Bishop Talleyrand, -the National Assembly confiscated and nationalized Church lands. - -But the National Assembly was dominated by free market advocates, not socialists. - -The National Assembly intended to use earnings from Church lands to service its national debt. - -To do this, it began to implement a ''privatization plan'' that would let it service its debt while -not raising taxes. - -Their plan involved issuing paper notes called ''assignats'' that entitled bearers to use them to purchase state lands. - -These paper notes would be ''as good as silver coins'' in the sense that both were acceptable means of payment in exchange for those (formerly) church lands. - -Finance Minister Necker and the Constituants planned -to solve the privatization problem **and** the debt problem simultaneously -by creating a new currency. - -They devised a scheme to raise revenues by auctioning -the confiscated lands, thereby withdrawing paper notes issued on the security of -the lands sold by the government. - - This ''tax-backed money'' scheme propelled the National Assembly into the domain of monetary experimentation. - -Records of their debates show -how members of the Assembly marshaled theory and evidence to assess the likely -effects of their innovation. - -They quoted David Hume and Adam Smith and cited John -Law's System of 1720 and the American experiences with paper money fifteen years -earlier as examples of how paper money schemes can go awry. - - -### Necker's plan and how it was tweaked - -Necker's original plan embodied two components: a national bank and a new -financial instrument, the ''assignat''. - - -Necker's national -bank was patterned after the Bank of England. He proposed to transform the *Caisse d'Escompte* into a national bank by granting it a monopoly on issuing -notes and marketing government debt. The *Caisse* was a -discount bank founded in 1776 whose main function was to discount commercial bills -and issue convertible notes. Although independent of the government in principle, -it had occasionally been used as a source of loans. Its notes had been declared -inconvertible in August 1788, and by the time of Necker's proposal, its reserves -were exhausted. Necker's plan placed the National Estates (as the Church lands -became known after the addition of the royal demesne) at the center of the financial -picture: a ''Bank of France'' would issue a $5\%$ security mortgaged on the prospective -receipts from the modest sale of some 400 millions' worth of National Estates in -the years 1791 to 1793. -```{note} - Only 170 million was to be used initially -to cover the deficits of 1789 and 1790. -``` - - -By mid-1790, members of the National Assembly had agreed to sell the National -Estates and to use the proceeds to service the debt in a ``tax-backed money'' scheme -```{note} -Debt service costs absorbed - over 60\% of French government expenditures. -``` - -The government would issue securities with which it would reimburse debt. - -The securities -were acceptable as payment for National Estates purchased at auctions; once received -in payment, they were to be burned. - -```{note} -The appendix to {cite}`sargent_velde1995` describes the -auction rules in detail. -``` -The Estates available for sale were thought to be worth about 2,400 -million, while the exactable debt (essentially fixed-term loans, unpaid arrears, -and liquidated offices) stood at about 2,000 million. The value of the land was -sufficient to let the Assembly retire all of the exactable debt and thereby eliminate -the interest payments on it. After lengthy debates, in August 1790, the Assembly set the denomination -and interest rate structure of the debt. - - -```{note} Two distinct -aspects of monetary theory help in thinking about the assignat plan. First, a system -beginning with a commodity standard typically has room for a once-and-for-all emission -of (an unbacked) paper currency that can replace the commodity money without generating -inflation. \citet{Sargent/Wallace:1983} describe models with this property. That -commodity money systems are wasteful underlies Milton Friedman's (1960) TOM:ADD REFERENCE preference -for a fiat money regime over a commodity money. Second, in a small country on a -commodity money system that starts with restrictions on intermediation, those restrictions -can be relaxed by letting the government issue bank notes on the security of safe -private indebtedness, while leaving bank notes convertible into gold at par. See -Adam Smith and Sargent and Wallace (1982) for expressions of this idea. TOM: ADD REFERENCES HEREAND IN BIBTEX FILE. -``` - - -```{note} -The -National Assembly debated many now classic questions in monetary economics. Under -what conditions would money creation generate inflation, with what consequences -for business conditions? Distinctions were made between issue of money to pay off -debt, on one hand, and monetization of deficits, on the other. Would *assignats* be akin -to notes emitted under a real bills regime, and cause loss of specie, or would -they circulate alongside specie, thus increasing the money stock? Would inflation -affect real wages? How would it impact foreign trade, competitiveness of French -industry and agriculture, balance of trade, foreign exchange? +--- +jupytext: + text_representation: + extension: .md + format_name: myst + format_version: 0.13 + jupytext_version: 1.16.1 +kernelspec: + display_name: Python 3 (ipykernel) + language: python + name: python3 +--- + + +# Inflation During French Revolution + + +## Overview + +This lecture describes some monetary and fiscal features of the French Revolution (1789-1799) +described by {cite}`sargent_velde1995`. + +To finance public expenditures and service its debts, +the French Revolutionaries performed several policy experiments. + +The Revolutionary legislators who authored these experiments were guided by their having decided to put in place monetary-fiscal policies recommended to them by theories that they believed. + +Some of those theories make contact with modern theories about monetary and fiscal policies that interest us today. + +* a *tax-smoothing* model like Robert Barro's {cite}`Barro1979` + + * this normative (i.e., prescriptive mode) advises a government to finance temporary war-time surges in government expenditures mostly by issuing government debt; after the war to roll over whatever debt accumulated during the war, and to increase taxes permanently by enough to finance interest payments on that post-war debt + +* *unpleasant monetarist arithmetic* like that described in this quanteon lecture {doc}`unpleasant` + + * this arithmetic governed French government debt dynamics in the decades preceding 1789 and according to leading historians set the stage for the French Revolution + +* a *real bills* theory of the effects of government open market operations in which the government *backs* its issues of paper money with valuable real property or financial assets + + * the Revolutionaries learned about this theory from Adam Smith's 1776 book The Wealth of Nations + and other contemporary sources + + * It shaped how the Revolutionaries issued paper money called assignats from 1789 to 1791 + +* a classical **gold** or **silver** standard + + * Napoleon, who became head of government in 1799 used this theory to guide his monetary and fiscal policies + +* a classical inflation-tax theory of inflation in which Philip Cagan's demand for money studied +in this lecture {doc}`cagan_ree` is a key component + + * This theory helps us explain French price level and money supply data from 1794 to 1797 s + +* a *legal restrictions* or *financial repression* theory of the demand for real balances + + * the Twelve Members comprising the Committee of Public Safety who adminstered the Terror from June 1793 to July 1794 used this theory to guide their monetary policy + +We use matplotlib to replicate several of the graphs that {cite}`sargent_velde1995` used to portray outcomes of these experiments + +--- + + + +## Data Sources + +This lecture uses data from three spreadsheets: + + * datasets/fig_3.ods + * datasets/dette.xlsx + * datasets/assignat.xlsx + +```{code-cell} ipython3 +import numpy as np +import pandas as pd +import matplotlib.pyplot as plt +plt.rcParams.update({'font.size': 12}) +``` + +## Government Expenditures and Taxes Collected + + + +We'll start by using matplotlib to construct two graphs that will provide important historical context. + + + +```{code-cell} ipython3 +--- +mystnb: + figure: + caption: "Military Spending in Britain and France" + name: fig4 +--- +# Read the data from Excel file +data2 = pd.read_excel('datasets/dette.xlsx', sheet_name='Militspe', usecols='M:X', skiprows=7, nrows=102, header=None) +# French military spending, 1685-1789, in 1726 livres +data4 = pd.read_excel('datasets/dette.xlsx', sheet_name='Militspe', usecols='D', skiprows=3, nrows=105, header=None).squeeze() +years = range(1685, 1790) + +plt.figure() +plt.plot(years, data4, '*-', linewidth=0.8) + +plt.plot(range(1689, 1791), data2.iloc[:, 4], linewidth=0.8) + +plt.gca().spines['top'].set_visible(False) +plt.gca().spines['right'].set_visible(False) +plt.gca().tick_params(labelsize=12) +plt.xlim([1689, 1790]) +plt.xlabel('*: France') +plt.ylabel('Millions of livres') +plt.ylim([0, 475]) + +plt.tight_layout() +plt.show() + +#plt.savefig('frfinfig4.pdf', dpi=600) +``` + +During the 18th century, Britain and France fought four large wars. + +Britain won the first three wars and lost the fourth. + +Each of those wars produced surges in both countries government expenditures that each country somehow had to finance. + +Figure {numref}`fig4` shows surges in military expenditures in France (in blue) and Great Britain. +during those four wars. + +A remarkable aspect of figure {numref}`fig4` is that despite having a population less than half of France's, Britain was able to finance military expenses of about the same amount as France's. + +This testifies to Britain's success in having created state institutions that could tax, spend, and borrow. + + + + + + +```{code-cell} ipython3 +--- +mystnb: + figure: + caption: "Government Expenditures and Tax Revenues in Britain" + name: fig2 +--- + +# Read the data from Excel file +data2 = pd.read_excel('datasets/dette.xlsx', sheet_name='Militspe', usecols='M:X', skiprows=7, nrows=102, header=None) + +# Plot the data +plt.figure() +plt.plot(range(1689, 1791), data2.iloc[:, 5], linewidth=0.8) +plt.plot(range(1689, 1791), data2.iloc[:, 11], linewidth=0.8, color='red') +plt.plot(range(1689, 1791), data2.iloc[:, 9], linewidth=0.8, color='orange') +plt.plot(range(1689, 1791), data2.iloc[:, 8], 'o-', markerfacecolor='none', linewidth=0.8, color='purple') + +# Customize the plot +plt.gca().spines['top'].set_visible(False) +plt.gca().spines['right'].set_visible(False) +plt.gca().tick_params(labelsize=12) +plt.xlim([1689, 1790]) +plt.ylabel('millions of pounds', fontsize=12) + +# Add text annotations +plt.text(1765, 1.5, 'civil', fontsize=10) +plt.text(1760, 4.2, 'civil plus debt service', fontsize=10) +plt.text(1708, 15.5, 'total govt spending', fontsize=10) +plt.text(1759, 7.3, 'revenues', fontsize=10) + + +plt.tight_layout() +plt.show() + +# Save the figure as a PDF +#plt.savefig('frfinfig2.pdf', dpi=600) +``` + + +Figures {numref}`fig2` and {numref}`fr_fig3` summarize British and French government fiscal policies during the century before the start the French Revolution in 1789. + + +Progressive forces in France before 1789 thought admired how Britain had financed its government expenditures and advocated reforms in French institutions designed to make them more like Britain's. + +Figure {numref}`fig2` shows government expenditures and how it was distributed among expenditures for + + * civil (non military) activities + * debt service, i.e., interest payments + * military expenditures (the yellow line minus the red line) + +Figure {numref}`fig2` also plots total government revenues from tax collections (the purple circled line) + +Notice the surges in total government expenditures associated with surges in military expenditures +in these four wars + + * Wars against France's King Louis XIV early in the 18th century + * The War of the Spanish Succession in the 1740s + * The French and Indian War in the 1750's and 1760s + * The American War for Independence from 1775 to 1783 + +Figure {numref}`fig2` indicates that + + * during times of peace, the expenditures approximately equal taxes and debt service payments neither grow nor decline over time + * during times of wars, government expenditures exceed tax revenues + * the government finances the deficit of revenues relative to expenditures by issuing debt + * after a war is over, the government's tax revenues exceed its non-interest expenditures by just enough to service the debt that the government issued to finance earlier deficits + * thus, after a war, the government does **not** raise taxes by enough to pay off its debt + * instead, it just rolls over whatever debt it inherits, raising taxes by just enough to service the interest payments on that debt + +Eighteenth century British fiscal policy portrayed Figure {numref}`fig2` thus looks very much like a text-book example of a **tax-smoothing** model like Robert Barro's {cite}`Barro1979`. + +A striking feature of the graph is what we'll nick name a **law of gravity** for taxes and expenditures. + + * levels of government expenditures at taxes attract each other + * while they can temporarily differ -- as they do during wars -- they come back together when peace returns + + + +Next we'll plot data on debt service costs as fractions of government revenues in Great Britain and France during the 18th century. + +```{code-cell} ipython3 +--- +mystnb: + figure: + caption: "Ratio of debt service to taxes, Britain and France" + name: fig1 +--- + +# Read the data from the Excel file +data1 = pd.read_excel('datasets/dette.xlsx', sheet_name='Debt', usecols='R:S', skiprows=5, nrows=99, header=None) +data1a = pd.read_excel('datasets/dette.xlsx', sheet_name='Debt', usecols='P', skiprows=89, nrows=15, header=None) + +# Plot the data +plt.figure() +plt.plot(range(1690, 1789), 100 * data1.iloc[:, 1], linewidth=0.8) + +date = np.arange(1690, 1789) +index = (date < 1774) & (data1.iloc[:, 0] > 0) +plt.plot(date[index], 100 * data1[index].iloc[:, 0], '*:', color='r', linewidth=0.8) + +# Plot the additional data +plt.plot(range(1774, 1789), 100 * data1a, '*:', color='orange') + +# Note about the data +# The French data before 1720 don't match up with the published version +# Set the plot properties +plt.gca().spines['top'].set_visible(False) +plt.gca().spines['right'].set_visible(False) +plt.gca().set_facecolor('white') +plt.gca().set_xlim([1688, 1788]) +plt.ylabel('% of Taxes') + +plt.tight_layout() +plt.show() + +#plt.savefig('frfinfig1.pdf', dpi=600) +#plt.savefig('frfinfig1.jpg', dpi=600) +``` + + +Figure {numref}`fig1` shows that interest payments on government debt (i.e., so-called ``debt service'') were high fractions of government tax revenues in both Great Britain and France. + +Figure {numref}`fig2` showed us that Britain managed to balance its budget despite those large +interest costs. + + + + + + +But as we'll see in our next graph, on the eve of the French Revolution in 1788, that fiscal policy **law of gravity** that worked so well in Britain, did not seem to be working in France. + + + + + +```{code-cell} ipython3 +# Read the data from the Excel file +data1 = pd.read_excel('datasets/fig_3.xlsx', sheet_name='Sheet1', usecols='C:F', skiprows=5, nrows=30, header=None) + +data1.replace(0, np.nan, inplace=True) +``` + +```{code-cell} ipython3 +--- +mystnb: + figure: + caption: "Government Spending and Tax Revenues in France" + name: fr_fig3 +--- +# Plot the data +plt.figure() + +plt.plot(range(1759, 1789, 1), data1.iloc[:, 0], '-x', linewidth=0.8) +plt.plot(range(1759, 1789, 1), data1.iloc[:, 1], '--*', linewidth=0.8) +plt.plot(range(1759, 1789, 1), data1.iloc[:, 2], '-o', linewidth=0.8, markerfacecolor='none') +plt.plot(range(1759, 1789, 1), data1.iloc[:, 3], '-*', linewidth=0.8) + +plt.text(1775, 610, 'total spending', fontsize=10) +plt.text(1773, 325, 'military', fontsize=10) +plt.text(1773, 220, 'civil plus debt service', fontsize=10) +plt.text(1773, 80, 'debt service', fontsize=10) +plt.text(1785, 500, 'revenues', fontsize=10) + + + +plt.gca().spines['top'].set_visible(False) +plt.gca().spines['right'].set_visible(False) +plt.ylim([0, 700]) +plt.ylabel('millions of livres') + +plt.tight_layout() +plt.show() + +#plt.savefig('frfinfig3.jpg', dpi=600) +``` + +Figure {numref}`fr_fig3` shows that in 1788 on the eve of the French Revolution government expenditures exceeded tax revenues. + +Especially during and after France's expenditures to help the Americans in their War of Independence from Great Britain, growing government debt service (i.e., interest payments) +contributed to this situation. + +This was partly a consequence of the unfolding of the debt dynamics that underlies the Unpleasant Arithmetic discussed in this quantecon lecture {doc}`unpleasant`. + + +{cite}`sargent_velde1995` describe how the Ancient Regime that until 1788 had governed France had stable institutional features that made it difficult for the government to balance its budget. + +Powerful contending interests had prevented from the government from closing the gap between its +total expenditures and its tax revenues by + + * raising taxes + * lowering government's non debt service (i.e., non-interest) expenditures + * lowering its debt service (i.e., interest) costs by rescheduling its debt, i.e., defaulting on on part of its debt + +The French constitution and prevailing arrangements had empowered three constituencies to block adjustments to components of the government budget constraint that they cared especially about + +* tax payers +* beneficiaries of government expenditures +* government creditors (i.e., owners of government bonds) + +When the French government had confronted a similar situation around 1720 after King Louis XIV's +Wars had left it with a debt crisis, it had ``solved'' the problem at the expense of +government creditors, i.e., by defaulting enough of its debt to bring reduce interest payments down enough to balance the budget. + +Somehow, in 1789, creditors of the French government were more powerful than they had been in 1720. + +Therefore, King Louis XVI convened the Estates General together to ask them to redesign the French constitution in a way that would lower government expenditures or increase taxes, thereby +allowing him to balance the budget while also honoring his promises to creditors of the French government. + + + +The King called the Estates General together in an effort to promote the reforms that would +would bring sustained budget balance. + +{cite}`sargent_velde1995` describe how the French Revolutionaries set out to accomplish that. + + + + +## Remaking the tax code and tax administration + +In 1789 the French Revolutionaries formed a National Assembly and set out to remake French +fiscal policy. + +They wanted to honor government debts -- interests of French government creditors were well represented in the National Assembly. + +But they set out to remake the French tax code and the administrative machinery for collecting taxes. + + * they abolished all sorts of taxes + * they abolished the Ancient Regimes scheme for ``tax farming'' + * tax farming meant that the government had privatized tax collection by hiring private citizes -- so called tax farmers to collect taxes, while retaining a fraction of them as payment for their services + * the great chemist Lavoisier was also a tax farmer, one of the reasons that the Committee for Public Safety sent him to the guillotine in 1794 + +As a consequence of these tax reforms, government tax revenues declined + +The next figure shows this + +```{code-cell} ipython3 +--- +mystnb: + figure: + caption: "Index of real per capital revenues, France" + name: fig5 +--- +# Read data from Excel file +data5 = pd.read_excel('datasets/dette.xlsx', sheet_name='Debt', usecols='K', skiprows=41, nrows=120, header=None) + +# Plot the data +plt.figure() +plt.plot(range(1726, 1846), data5.iloc[:, 0], linewidth=0.8) + +plt.gca().spines['top'].set_visible(False) +plt.gca().spines['right'].set_visible(False) +plt.gca().set_facecolor('white') +plt.gca().tick_params(labelsize=12) +plt.xlim([1726, 1845]) +plt.ylabel('1726 = 1', fontsize=12) + +plt.tight_layout() +plt.show() + +# Save the figure as a PDF +#plt.savefig('frfinfig5.pdf', dpi=600) +``` + +According to Figure {numref}`fig5`, tax revenues per capita did not rise to their pre 1789 levels +until after 1815, when Napoleon Bonaparte was exiled to St Helena and King Louis XVIII was restored to the French Crown. + + + + * from 1799 to 1814, Napoleon Bonaparte had other sources of revenues -- booty and reparations from provinces and nations that he defeated in war + + * from 1789 to 1799, the French Revolutionaries turned to another source to raise resources to pay for government purchases of goods and services and to service French government debt. + +And as the next figure shows, government expenditures exceeded tax revenues by substantial +amounts during the period form 1789 to 1799. + + + +```{code-cell} ipython3 +--- +mystnb: + figure: + caption: "Spending (blue) and Revenues (orange), (real values)" + name: fig11 +--- +# Read data from Excel file +data11 = pd.read_excel('datasets/assignat.xlsx', sheet_name='Budgets', usecols='J:K', skiprows=22, nrows=52, header=None) + +# Prepare the x-axis data +x_data = np.concatenate([ + np.arange(1791, 1794 + 8/12, 1/12), + np.arange(1794 + 9/12, 1795 + 3/12, 1/12) +]) + +# Remove NaN values from the data +data11_clean = data11.dropna() + +# Plot the data +plt.figure() +h = plt.plot(x_data, data11_clean.values[:, 0], linewidth=0.8) +h = plt.plot(x_data, data11_clean.values[:, 1], '--', linewidth=0.8) + + + +# Set plot properties +plt.gca().spines['top'].set_visible(False) +plt.gca().spines['right'].set_visible(False) +plt.gca().set_facecolor('white') +plt.gca().tick_params(axis='both', which='major', labelsize=12) +plt.xlim([1791, 1795 + 3/12]) +plt.xticks(np.arange(1791, 1796)) +plt.yticks(np.arange(0, 201, 20)) + +# Set the y-axis label +plt.ylabel('millions of livres', fontsize=12) + + + +plt.tight_layout() +plt.show() + +#plt.savefig('frfinfig11.pdf', dpi=600) +``` +To cover the disrepancies between government expenditures and tax revenues revealed in Figure {numref}`fig11`, the French revolutionaries printed paper money and spent it. + +The next figure shows that by printing money, they were able to finance substantial purchases +of goods and services, including military goods and soldiers' pay. + + + +```{code-cell} ipython3 +--- +mystnb: + figure: + caption: "Revenues raised by printing paper money notes" + name: fig24 +--- + +# Read data from Excel file +data12 = pd.read_excel('datasets/assignat.xlsx', sheet_name='seignor', usecols='F', skiprows=6, nrows=75, header=None).squeeze() + + +# Create a figure and plot the data +plt.figure() +plt.plot(pd.date_range(start='1790', periods=len(data12), freq='M'), data12, linewidth=0.8) + +plt.gca().spines['top'].set_visible(False) +plt.gca().spines['right'].set_visible(False) + +plt.axhline(y=472.42/12, color='r', linestyle=':') +plt.xticks(ticks=pd.date_range(start='1790', end='1796', freq='AS'), labels=range(1790, 1797)) +plt.xlim(pd.Timestamp('1791'), pd.Timestamp('1796-02') + pd.DateOffset(months=2)) +plt.ylabel('millions of livres', fontsize=12) +plt.text(pd.Timestamp('1793-11'), 39.5, 'revenues in 1788', verticalalignment='top', fontsize=12) + + +plt.tight_layout() +plt.show() + +#plt.savefig('frfinfig12.pdf', dpi=600) +``` + +Figure {numref}`fig24` compares the revenues raised by printing money from 1789 to 1796 with tax revenues that the Ancient Regime had raised in 1788. + +Measured in goods, revenues raised at time $t$ by printing new money equal + +$$ +\frac{M_{t+1} - M_t}{p_t} +$$ + +where + +* $M_t$ is the stock of paper money at time $t$ measured in livres +* $p_t$ is the price level at time $t$ measured in units of goods per livre at time $t$ +* $M_{t+1} - M_t$ is the amount of new money printed at time $t$ + + + +Notice the 1793-1794 surge in revenues raised by printing money. + +* this reflects extraordinary measures that the Committee for Public Safety adopted to force citizens to accept paper money, or else. + +Also note the abrupt fall off in revenues raised by 1797 and the absence of further observations after 1797. + +* this reflects the end using the printing press to raise revenues. + + + + +What French paper money entitled its holders to changed over time in interesting ways. + +These led to outcomes that vary over time and that illustrate the playing out in practice of theories that guided the Revolutionaries' monetary policy decisions. + + +The next figure shows the price level in France during the time that the Revolutionaries used paper money to finance parts of their expenditures. + +Note that we use a log scale because the price level rose so much. + +```{code-cell} ipython3 +--- +mystnb: + figure: + caption: "Price Level and Price of Gold (log scale)" + name: fig9 +--- + +# Read the data from Excel file +data7 = pd.read_excel('datasets/assignat.xlsx', sheet_name='Data', usecols='P:Q', skiprows=4, nrows=80, header=None) +data7a = pd.read_excel('datasets/assignat.xlsx', sheet_name='Data', usecols='L', skiprows=4, nrows=80, header=None) +# Create the figure and plot +plt.figure() +x = np.arange(1789 + 10/12, 1796 + 5/12, 1/12) +h, = plt.plot(x, 1. / data7.iloc[:, 0], linestyle='--') +h, = plt.plot(x, 1. / data7.iloc[:, 1], color='r') + +# Set properties of the plot +plt.gca().tick_params(labelsize=12) +plt.yscale('log') +plt.xlim([1789 + 10/12, 1796 + 5/12]) +plt.gca().spines['top'].set_visible(False) +plt.gca().spines['right'].set_visible(False) + +# Add vertical lines +plt.axvline(x=1793 + 6.5/12, linestyle='-', linewidth=0.8, color='orange') +plt.axvline(x=1794 + 6.5/12, linestyle='-', linewidth=0.8, color='purple') + +# Add text +plt.text(1793.75, 120, 'Terror', fontsize=12) +plt.text(1795, 2.8, 'price level', fontsize=12) +plt.text(1794.9, 40, 'gold', fontsize=12) + + +plt.tight_layout() +plt.show() +#plt.savefig('frfinfig9.pdf', dpi=600) +``` + + +We have partioned {numref}`fig9` that shows the log of the price level and Figure {numref}`fig8` +below that plots real balances $\frac{M_t}{p_t}$ into three periods that correspond to +to different monetary experiments. + +The first period ends in the late summer of 1793, and is characterized +by growing real balances and moderate inflation. + +The second period begins and ends +with the Terror. It is marked by high real balances, around 2,500 millions, and +roughly stable prices. The fall of Robespierre in late July 1794 begins the third +of our episodes, in which real balances decline and prices rise rapidly. + +We interpret +these three episodes in terms of three separate theories about money: a ``backing'' +or ''real bills'' theory (the text is Adam Smith {cite}`smith2010wealth`), +a legal restrictions theory ( {cite}`keynes1940pay`, {cite}`bryant1984price` ) +and a classical hyperinflation theory ({cite}`Cagan`).% +```{note} +According to the empirical definition of hyperinflation adopted by {cite}`Cagan`, +beginning in the month that inflation exceeds 50 percent +per month and ending in the month before inflation drops below 50 percent per month +for at least a year, the *assignat* experienced a hyperinflation from May to December +1795. +``` +We view these +theories not as competitors but as alternative collections of ``if-then'' +statements about government note issues, each of which finds its conditions more +nearly met in one of these episodes than in the other two. + + +```{code-cell} ipython3 +--- +mystnb: + figure: + caption: "Real balances of assignats (in gold and goods)" + name: fig8 +--- +# Read the data from Excel file +data7 = pd.read_excel('datasets/assignat.xlsx', sheet_name='Data', usecols='P:Q', skiprows=4, nrows=80, header=None) +data7a = pd.read_excel('datasets/assignat.xlsx', sheet_name='Data', usecols='L', skiprows=4, nrows=80, header=None) + +# Create the figure and plot +plt.figure() +h = plt.plot(pd.date_range(start='1789-11-01', periods=len(data7), freq='M'), (data7a.values * [1, 1]) * data7.values, linewidth=1.) +plt.setp(h[1], linestyle='--', color='red') + +plt.vlines([pd.Timestamp('1793-07-15'), pd.Timestamp('1793-07-15')], 0, 3000, linewidth=0.8, color='orange') +plt.vlines([pd.Timestamp('1794-07-15'), pd.Timestamp('1794-07-15')], 0, 3000, linewidth=0.8, color='purple') + +plt.ylim([0, 3000]) + +# Set properties of the plot +plt.gca().spines['top'].set_visible(False) +plt.gca().spines['right'].set_visible(False) +plt.gca().set_facecolor('white') +plt.gca().tick_params(labelsize=12) +plt.xlim(pd.Timestamp('1789-11-01'), pd.Timestamp('1796-06-01')) +plt.ylabel('millions of livres', fontsize=12) + +# Add text annotations +plt.text(pd.Timestamp('1793-09-01'), 200, 'Terror', fontsize=12) +plt.text(pd.Timestamp('1791-05-01'), 750, 'gold value', fontsize=12) +plt.text(pd.Timestamp('1794-10-01'), 2500, 'real value', fontsize=12) + + +plt.tight_layout() +plt.show() + +# Save the figure as a PDF +#plt.savefig('frfinfig8.pdf', dpi=600) +``` + + +The three clouds of points in Figure +{numref}`fig104` + depict different real balance-inflation relationships. + +Only the cloud for the +third period has the inverse relationship familiar to us now from twentieth-century +hyperinflations. + + + + +* subperiod 1: ("real bills period): January 1791 to July 1793 + +* subperiod 2: ("terror:): August 1793 - July 1794 + +* subperiod 3: ("classic Cagan hyperinflation): August 1794 - March 1796 + + + + + + + + +```{code-cell} ipython3 +def fit(x, y): + + b = np.cov(x, y)[0, 1] / np.var(x) + a = y.mean() - b * x.mean() + + return a, b +``` + +```{code-cell} ipython3 +# load data +caron = np.load('datasets/caron.npy') +nom_balances = np.load('datasets/nom_balances.npy') + +infl = np.concatenate(([np.nan], -np.log(caron[1:63, 1] / caron[0:62, 1]))) +bal = nom_balances[14:77, 1] * caron[:, 1] / 1000 +``` + +```{code-cell} ipython3 +# fit data + +# reg y on x for three periods +a1, b1 = fit(bal[1:31], infl[1:31]) +a2, b2 = fit(bal[31:44], infl[31:44]) +a3, b3 = fit(bal[44:63], infl[44:63]) + +# reg x on y for three periods +a1_rev, b1_rev = fit(infl[1:31], bal[1:31]) +a2_rev, b2_rev = fit(infl[31:44], bal[31:44]) +a3_rev, b3_rev = fit(infl[44:63], bal[44:63]) +``` + +```{code-cell} ipython3 +--- +mystnb: + figure: + caption: "Inflation and Real Balances" + name: fig104 +--- +plt.figure() +plt.gca().spines['top'].set_visible(False) +plt.gca().spines['right'].set_visible(False) + +# first subsample +plt.plot(bal[1:31], infl[1:31], 'o', markerfacecolor='none', color='blue', label='real bills period') + +# second subsample +plt.plot(bal[31:44], infl[31:44], '+', color='red', label='terror') + +# third subsample +plt.plot(bal[44:63], infl[44:63], '*', color='orange', label='classic Cagan hyperinflation') + +plt.xlabel('real balances') +plt.ylabel('inflation') +plt.legend() + +plt.tight_layout() +plt.show() +#plt.savefig('frfinfig7.pdf', dpi=600) +``` + + +The three clouds of points in Figure +{numref}`fig104` evidently + depict different real balance-inflation relationships. + +Only the cloud for the +third period has the inverse relationship familiar to us now from twentieth-century +hyperinflations. + + + To bring this out, we'll use linear regressions to draw straight lines that compress the + inflation-real balance relationship for our three sub periods. + + Before we do that, we'll drop some of the early observations during the terror period + to obtain the following graph. + + +```{code-cell} ipython3 +# fit data + +# reg y on x for three periods +a1, b1 = fit(bal[1:31], infl[1:31]) +a2, b2 = fit(bal[31:44], infl[31:44]) +a3, b3 = fit(bal[44:63], infl[44:63]) + +# reg x on y for three periods +a1_rev, b1_rev = fit(infl[1:31], bal[1:31]) +a2_rev, b2_rev = fit(infl[31:44], bal[31:44]) +a3_rev, b3_rev = fit(infl[44:63], bal[44:63]) +``` + +```{code-cell} ipython3 +--- +mystnb: + figure: + caption: "Inflation and Real Balances" + name: fig104b +--- +plt.figure() +plt.gca().spines['top'].set_visible(False) +plt.gca().spines['right'].set_visible(False) + +# first subsample +plt.plot(bal[1:31], infl[1:31], 'o', markerfacecolor='none', color='blue', label='real bills period') + +# second subsample +plt.plot(bal[34:44], infl[34:44], '+', color='red', label='terror') + +# third subsample # Tom tinkered with subsample period +plt.plot(bal[44:63], infl[44:63], '*', color='orange', label='classic Cagan hyperinflation') + +plt.xlabel('real balances') +plt.ylabel('inflation') +plt.legend() + +plt.tight_layout() +plt.show() +#plt.savefig('frfinfig7.pdf', dpi=600) +``` + + + +Now let's regress inflation on real balances during the real bills period and plot the regression +line. + + + +```{code-cell} ipython3 +--- +mystnb: + figure: + caption: "Inflation and Real Balances" + name: fig104c +--- +plt.figure() +plt.gca().spines['top'].set_visible(False) +plt.gca().spines['right'].set_visible(False) + +# first subsample +plt.plot(bal[1:31], infl[1:31], 'o', markerfacecolor='none', color='blue', label='real bills period') +plt.plot(bal[1:31], a1 + bal[1:31] * b1, color='blue') + +# second subsample +plt.plot(bal[31:44], infl[31:44], '+', color='red', label='terror') + +# third subsample +plt.plot(bal[44:63], infl[44:63], '*', color='orange', label='classic Cagan hyperinflation') + +plt.xlabel('real balances') +plt.ylabel('inflation') +plt.legend() + +plt.tight_layout() +plt.show() +#plt.savefig('frfinfig7_line1.pdf', dpi=600) +``` + + +Now let's regress real balances on inflation during the terror and plot the regression +line. + + +```{code-cell} ipython3 +--- +mystnb: + figure: + caption: "Inflation and Real Balances" + name: fig104d +--- +plt.figure() +plt.gca().spines['top'].set_visible(False) +plt.gca().spines['right'].set_visible(False) + +# first subsample +plt.plot(bal[1:31], infl[1:31], 'o', markerfacecolor='none', color='blue', label='real bills period') + +# second subsample +plt.plot(bal[31:44], infl[31:44], '+', color='red', label='terror') +plt.plot(a2_rev + b2_rev * infl[31:44], infl[31:44], color='red') + +# third subsample +plt.plot(bal[44:63], infl[44:63], '*', color='orange', label='classic Cagan hyperinflation') + +plt.xlabel('real balances') +plt.ylabel('inflation') +plt.legend() + +plt.tight_layout() +plt.show() +#plt.savefig('frfinfig7_line2_rev.pdf', dpi=600) +``` + +The following two graphs are for the classical hyperinflation period. + +One regresses inflation on real balances, the other regresses real balances on inflation. + +Both show a prounced inverse relationship that is the hallmark of the hyperinflations studied by +Cagan {cite}`Cagan`. + +```{code-cell} ipython3 +--- +mystnb: + figure: + caption: "Inflation and Real Balances" + name: fig104e +--- +plt.figure() +plt.gca().spines['top'].set_visible(False) +plt.gca().spines['right'].set_visible(False) + +# first subsample +plt.plot(bal[1:31], infl[1:31], 'o', markerfacecolor='none', color='blue', label='real bills period') + +# second subsample +plt.plot(bal[31:44], infl[31:44], '+', color='red', label='terror') + +# third subsample +plt.plot(bal[44:63], infl[44:63], '*', color='orange', label='classic Cagan hyperinflation') +plt.plot(bal[44:63], a3 + bal[44:63] * b3, color='orange') + +plt.xlabel('real balances') +plt.ylabel('inflation') +plt.legend() + +plt.tight_layout() +plt.show() +#plt.savefig('frfinfig7_line3.pdf', dpi=600) +``` + + + +```{code-cell} ipython3 +--- +mystnb: + figure: + caption: "Inflation and Real Balances" + name: fig104f +--- +plt.figure() +plt.gca().spines['top'].set_visible(False) +plt.gca().spines['right'].set_visible(False) + +# first subsample +plt.plot(bal[1:31], infl[1:31], 'o', markerfacecolor='none', color='blue', label='real bills period') + +# second subsample +plt.plot(bal[31:44], infl[31:44], '+', color='red', label='terror') + +# third subsample +plt.plot(bal[44:63], infl[44:63], '*', color='orange', label='classic Cagan hyperinflation') +plt.plot(a3_rev + b3_rev * infl[44:63], infl[44:63], color='orange') + +plt.xlabel('real balances') +plt.ylabel('inflation') +plt.legend() + +plt.tight_layout() +plt.show() +#plt.savefig('frfinfig7_line3_rev.pdf', dpi=600) +``` + + +STUFF FROM SV 1995 + + +## Fiscal Situation and Response of National Assembly + + +In response to a motion by Catholic Bishop Talleyrand, +the National Assembly confiscated and nationalized Church lands. + +But the National Assembly was dominated by free market advocates, not socialists. + +The National Assembly intended to use earnings from Church lands to service its national debt. + +To do this, it began to implement a ''privatization plan'' that would let it service its debt while +not raising taxes. + +Their plan involved issuing paper notes called ''assignats'' that entitled bearers to use them to purchase state lands. + +These paper notes would be ''as good as silver coins'' in the sense that both were acceptable means of payment in exchange for those (formerly) church lands. + +Finance Minister Necker and the Constituants planned +to solve the privatization problem **and** the debt problem simultaneously +by creating a new currency. + +They devised a scheme to raise revenues by auctioning +the confiscated lands, thereby withdrawing paper notes issued on the security of +the lands sold by the government. + + This ''tax-backed money'' scheme propelled the National Assembly into the domain of monetary experimentation. + +Records of their debates show +how members of the Assembly marshaled theory and evidence to assess the likely +effects of their innovation. + +They quoted David Hume and Adam Smith and cited John +Law's System of 1720 and the American experiences with paper money fifteen years +earlier as examples of how paper money schemes can go awry. + + +### Necker's plan and how it was tweaked + +Necker's original plan embodied two components: a national bank and a new +financial instrument, the ''assignat''. + + +Necker's national +bank was patterned after the Bank of England. He proposed to transform the *Caisse d'Escompte* into a national bank by granting it a monopoly on issuing +notes and marketing government debt. The *Caisse* was a +discount bank founded in 1776 whose main function was to discount commercial bills +and issue convertible notes. Although independent of the government in principle, +it had occasionally been used as a source of loans. Its notes had been declared +inconvertible in August 1788, and by the time of Necker's proposal, its reserves +were exhausted. Necker's plan placed the National Estates (as the Church lands +became known after the addition of the royal demesne) at the center of the financial +picture: a ''Bank of France'' would issue a $5\%$ security mortgaged on the prospective +receipts from the modest sale of some 400 millions' worth of National Estates in +the years 1791 to 1793. +```{note} + Only 170 million was to be used initially +to cover the deficits of 1789 and 1790. +``` + + +By mid-1790, members of the National Assembly had agreed to sell the National +Estates and to use the proceeds to service the debt in a ``tax-backed money'' scheme +```{note} +Debt service costs absorbed + over 60\% of French government expenditures. +``` + +The government would issue securities with which it would reimburse debt. + +The securities +were acceptable as payment for National Estates purchased at auctions; once received +in payment, they were to be burned. + +```{note} +The appendix to {cite}`sargent_velde1995` describes the +auction rules in detail. +``` +The Estates available for sale were thought to be worth about 2,400 +million, while the exactable debt (essentially fixed-term loans, unpaid arrears, +and liquidated offices) stood at about 2,000 million. The value of the land was +sufficient to let the Assembly retire all of the exactable debt and thereby eliminate +the interest payments on it. After lengthy debates, in August 1790, the Assembly set the denomination +and interest rate structure of the debt. + + +```{note} Two distinct +aspects of monetary theory help in thinking about the assignat plan. First, a system +beginning with a commodity standard typically has room for a once-and-for-all emission +of (an unbacked) paper currency that can replace the commodity money without generating +inflation. \citet{Sargent/Wallace:1983} describe models with this property. That +commodity money systems are wasteful underlies Milton Friedman's (1960) TOM:ADD REFERENCE preference +for a fiat money regime over a commodity money. Second, in a small country on a +commodity money system that starts with restrictions on intermediation, those restrictions +can be relaxed by letting the government issue bank notes on the security of safe +private indebtedness, while leaving bank notes convertible into gold at par. See +Adam Smith and Sargent and Wallace (1982) for expressions of this idea. TOM: ADD REFERENCES HEREAND IN BIBTEX FILE. +``` + + +```{note} +The +National Assembly debated many now classic questions in monetary economics. Under +what conditions would money creation generate inflation, with what consequences +for business conditions? Distinctions were made between issue of money to pay off +debt, on one hand, and monetization of deficits, on the other. Would *assignats* be akin +to notes emitted under a real bills regime, and cause loss of specie, or would +they circulate alongside specie, thus increasing the money stock? Would inflation +affect real wages? How would it impact foreign trade, competitiveness of French +industry and agriculture, balance of trade, foreign exchange? ``` \ No newline at end of file From 9febfabbb413833c154c7c2e73e37fbdeaa18564 Mon Sep 17 00:00:00 2001 From: thomassargent30 Date: Sun, 7 Jul 2024 09:59:29 +0800 Subject: [PATCH 05/15] Tom's edits of french revolution lecture July 7 --- lectures/_toc.yml | 2 +- lectures/french_rev copy.md | 1075 ----------------------------------- lectures/french_rev.md | 211 +++---- 3 files changed, 95 insertions(+), 1193 deletions(-) delete mode 100644 lectures/french_rev copy.md diff --git a/lectures/_toc.yml b/lectures/_toc.yml index b0ee69cb..220ba830 100644 --- a/lectures/_toc.yml +++ b/lectures/_toc.yml @@ -11,6 +11,7 @@ parts: - file: long_run_growth - file: business_cycle - file: inflation_history + - file: french_rev - file: inequality - caption: Foundations numbered: true @@ -55,7 +56,6 @@ parts: - file: unpleasant - file: money_inflation_nonlinear - file: laffer_adaptive - - file: french_rev - file: ak2 - caption: Stochastic Dynamics numbered: true diff --git a/lectures/french_rev copy.md b/lectures/french_rev copy.md deleted file mode 100644 index fef98e78..00000000 --- a/lectures/french_rev copy.md +++ /dev/null @@ -1,1075 +0,0 @@ ---- -jupytext: - text_representation: - extension: .md - format_name: myst - format_version: 0.13 - jupytext_version: 1.16.1 -kernelspec: - display_name: Python 3 (ipykernel) - language: python - name: python3 ---- - - -# Inflation During French Revolution - - -## Overview - -This lecture describes some monetary and fiscal features of the French Revolution -described by {cite}`sargent_velde1995`. - -In order to finance public expenditures and service debts issued by earlier French governments, -successive French governments performed several policy experiments. - -Authors of these experiments were guided by their having decided to put in place monetary-fiscal policies recommended by particular theories. - -As a consequence, data on money growth and inflation from the period 1789 to 1787 at least temorarily illustrated outcomes predicted by these arrangements: - -* some *unpleasant monetarist arithmetic* like that described in this quanteon lecture XXXX -that governed French government debt dynamics in the decades preceding 1789 - -* a *real bills* theory of the effects of government open market operations in which the government *backs* its issues of paper money with valuable real property or financial assets - -* a classical **gold** or **silver** standard - -* a classical inflation-tax theory of inflation in which Philip Cagan's demand for money studied -in this lecture XXXX is a key component - -* a *legal restrictions* or *financial repression* theory of the demand for real balances - -We use matplotlib to replicate several of the graphs that they used to present salient patterns. - -Certainly! Here's a 3-page summary of Thomas Sargent and Francois Velde's paper "Macroeconomic Features of the French Revolution" from the 1995 Journal of Political Economy: - ---- - -### Introduction - -Sargent and Velde's study delves into the macroeconomic implications of the French Revolution, focusing on the tumultuous period between 1789 and 1796. This era is marked by significant political upheaval, monetary instability, and economic transformation. The paper seeks to analyze the macroeconomic policies, particularly those related to the issuance of paper money (assignats), and their impact on the economy, including inflation, public finance, and economic activity. - -### Historical Context and Monetary Policies - -**Pre-Revolutionary Fiscal Crisis:** -France entered the revolutionary period with a significant fiscal deficit, primarily due to extensive war expenditures and a cumbersome taxation system. The monarchy's inability to reform taxes and control expenditures led to escalating debts and the eventual fiscal crisis. - -**Introduction of Assignats:** -In response to the financial crisis, the revolutionary government introduced assignats in 1789. Initially, these were land-backed paper money intended to be a temporary solution for fiscal shortages. Assignats were first issued as interest-bearing notes but soon became non-interest-bearing and were used as legal tender. - -### Macroeconomic Consequences of Assignat Issuance - -**Inflation Dynamics:** -The uncontrolled issuance of assignats led to severe inflation. Sargent and Velde highlight how the overproduction of these notes eroded their value, causing hyperinflation. The price level skyrocketed, creating widespread economic disarray and reducing the real value of debts and savings. - -**Impact on Public Finance:** -The revolutionary government's reliance on assignats to finance its expenditures without corresponding fiscal reforms exacerbated the fiscal imbalance. While initially providing temporary relief, the overissuance undermined confidence in the currency, leading to a vicious cycle of devaluation and increasing monetary emissions. - -**Price Controls and Economic Distortions:** -In an attempt to control inflation, the government imposed price controls, notably the "Law of the Maximum." These measures, however, led to market distortions, shortages, and black markets. The disruption of traditional economic activities further aggravated the economic crisis. - -### The Role of War and Political Instability - -**War Financing:** -The Revolutionary Wars significantly influenced economic policy. The need to finance military expenditures drove the government to print more assignats, exacerbating inflationary pressures. The war effort also disrupted trade and agricultural production, further straining the economy. - -**Political Instability:** -The period was marked by rapid political changes, with various factions vying for control. This instability affected economic policy consistency and enforcement, contributing to the chaotic economic environment. The lack of a stable government made it challenging to implement long-term economic reforms. - -### Consequences and Reforms - -**Economic Collapse and Recovery Attempts:** -By 1796, the assignats had become nearly worthless, leading to a collapse of the monetary system. In response, the government introduced the mandats territoriaux, another form of land-backed currency, which also failed due to similar overissuance and loss of confidence. - -**Fiscal and Monetary Reforms:** -The eventual stabilization of the French economy required substantial reforms. The Directory government initiated measures to restore fiscal discipline, including tax reforms and reducing the reliance on paper money. The establishment of the Banque de France in 1800 under Napoleon provided a more stable monetary system, which helped in the recovery. - -### Conclusion - -Sargent and Velde's analysis illustrates the complex interplay between monetary policy, political stability, and economic performance during the French Revolution. The experience of the assignats serves as a cautionary tale about the dangers of excessive reliance on fiat money without adequate fiscal backing. The authors emphasize the importance of credible and consistent economic policies in maintaining monetary stability and fostering economic growth. - ---- - -This summary encapsulates the main points and findings of Sargent and Velde's paper, providing an overview of the macroeconomic challenges and policies during the French Revolution. - - -## Data Sources - -This notebook uses data from three spreadsheets: - - * datasets/fig_3.ods - * datasets/dette.xlsx - * datasets/assignat.xlsx - -```{code-cell} ipython3 -import numpy as np -import pandas as pd -import matplotlib.pyplot as plt -plt.rcParams.update({'font.size': 12}) -``` - -## Figure 1 - - -```{code-cell} ipython3 ---- -mystnb: - figure: - caption: "Government Expenditures and Tax Revenues in Britain" - name: fig2 ---- - -# Read the data from Excel file -data2 = pd.read_excel('datasets/dette.xlsx', sheet_name='Militspe', usecols='M:X', skiprows=7, nrows=102, header=None) - -# Plot the data -plt.figure() -plt.plot(range(1689, 1791), data2.iloc[:, 5], linewidth=0.8) -plt.plot(range(1689, 1791), data2.iloc[:, 11], linewidth=0.8, color='red') -plt.plot(range(1689, 1791), data2.iloc[:, 9], linewidth=0.8, color='orange') -plt.plot(range(1689, 1791), data2.iloc[:, 8], 'o-', markerfacecolor='none', linewidth=0.8, color='purple') - -# Customize the plot -plt.gca().spines['top'].set_visible(False) -plt.gca().spines['right'].set_visible(False) -plt.gca().tick_params(labelsize=12) -plt.xlim([1689, 1790]) -plt.ylabel('millions of pounds', fontsize=12) - -# Add text annotations -plt.text(1765, 1.5, 'civil', fontsize=10) -plt.text(1760, 4.2, 'civil plus debt service', fontsize=10) -plt.text(1708, 15.5, 'total govt spending', fontsize=10) -plt.text(1759, 7.3, 'revenues', fontsize=10) - - -plt.tight_layout() -plt.show() - -# Save the figure as a PDF -#plt.savefig('frfinfig2.pdf', dpi=600) -``` - - -TOM ADD MORE: Figure {numref}`fig2` shows blah - -## Figure 2 - - - - -```{code-cell} ipython3 -# Read the data from the Excel file -data1 = pd.read_excel('datasets/fig_3.xlsx', sheet_name='Sheet1', usecols='C:F', skiprows=5, nrows=30, header=None) - -data1.replace(0, np.nan, inplace=True) -``` - -```{code-cell} ipython3 ---- -mystnb: - figure: - caption: "Government Spending and Tax Revenues in France" - name: fr_fig3 ---- -# Plot the data -plt.figure() - -plt.plot(range(1759, 1789, 1), data1.iloc[:, 0], '-x', linewidth=0.8) -plt.plot(range(1759, 1789, 1), data1.iloc[:, 1], '--*', linewidth=0.8) -plt.plot(range(1759, 1789, 1), data1.iloc[:, 2], '-o', linewidth=0.8, markerfacecolor='none') -plt.plot(range(1759, 1789, 1), data1.iloc[:, 3], '-*', linewidth=0.8) - -plt.text(1775, 610, 'total spending', fontsize=10) -plt.text(1773, 325, 'military', fontsize=10) -plt.text(1773, 220, 'civil plus debt service', fontsize=10) -plt.text(1773, 80, 'debt service', fontsize=10) -plt.text(1785, 500, 'revenues', fontsize=10) - - - -plt.gca().spines['top'].set_visible(False) -plt.gca().spines['right'].set_visible(False) -plt.ylim([0, 700]) -plt.ylabel('millions of livres') - -plt.tight_layout() -plt.show() - -#plt.savefig('frfinfig3.jpg', dpi=600) -``` - - -TO TEACH TOM: Figure {numref}`fr_fig3` shows - - - - -## Figure 3 - - -```{code-cell} ipython3 ---- -mystnb: - figure: - caption: "Ratio of debt service to taxes, Britain and France" - name: fig1 ---- - -# Read the data from the Excel file -data1 = pd.read_excel('datasets/dette.xlsx', sheet_name='Debt', usecols='R:S', skiprows=5, nrows=99, header=None) -data1a = pd.read_excel('datasets/dette.xlsx', sheet_name='Debt', usecols='P', skiprows=89, nrows=15, header=None) - -# Plot the data -plt.figure() -plt.plot(range(1690, 1789), 100 * data1.iloc[:, 1], linewidth=0.8) - -date = np.arange(1690, 1789) -index = (date < 1774) & (data1.iloc[:, 0] > 0) -plt.plot(date[index], 100 * data1[index].iloc[:, 0], '*:', color='r', linewidth=0.8) - -# Plot the additional data -plt.plot(range(1774, 1789), 100 * data1a, '*:', color='orange') - -# Note about the data -# The French data before 1720 don't match up with the published version -# Set the plot properties -plt.gca().spines['top'].set_visible(False) -plt.gca().spines['right'].set_visible(False) -plt.gca().set_facecolor('white') -plt.gca().set_xlim([1688, 1788]) -plt.ylabel('% of Taxes') - -plt.tight_layout() -plt.show() - -#plt.savefig('frfinfig1.pdf', dpi=600) -#plt.savefig('frfinfig1.jpg', dpi=600) -``` - - -TOM ADD MORE: By staring at {numref}`fig1` carefully - - - - -## Figure 4 - - -```{code-cell} ipython3 ---- -mystnb: - figure: - caption: "Military Spending in Britain and France" - name: fig4 ---- -# French military spending, 1685-1789, in 1726 livres -data4 = pd.read_excel('datasets/dette.xlsx', sheet_name='Militspe', usecols='D', skiprows=3, nrows=105, header=None).squeeze() -years = range(1685, 1790) - -plt.figure() -plt.plot(years, data4, '*-', linewidth=0.8) - -plt.plot(range(1689, 1791), data2.iloc[:, 4], linewidth=0.8) - -plt.gca().spines['top'].set_visible(False) -plt.gca().spines['right'].set_visible(False) -plt.gca().tick_params(labelsize=12) -plt.xlim([1689, 1790]) -plt.xlabel('*: France') -plt.ylabel('Millions of livres') -plt.ylim([0, 475]) - -plt.tight_layout() -plt.show() - -#plt.savefig('frfinfig4.pdf', dpi=600) -``` - -TO TEACH TOM: By staring at {numref}`fig4` carefully - -## Figure 5 - - -```{code-cell} ipython3 ---- -mystnb: - figure: - caption: "Index of real per capital revenues, France" - name: fig5 ---- -# Read data from Excel file -data5 = pd.read_excel('datasets/dette.xlsx', sheet_name='Debt', usecols='K', skiprows=41, nrows=120, header=None) - -# Plot the data -plt.figure() -plt.plot(range(1726, 1846), data5.iloc[:, 0], linewidth=0.8) - -plt.gca().spines['top'].set_visible(False) -plt.gca().spines['right'].set_visible(False) -plt.gca().set_facecolor('white') -plt.gca().tick_params(labelsize=12) -plt.xlim([1726, 1845]) -plt.ylabel('1726 = 1', fontsize=12) - -plt.tight_layout() -plt.show() - -# Save the figure as a PDF -#plt.savefig('frfinfig5.pdf', dpi=600) -``` - -TO TEACH TOM: By staring at {numref}`fig5` carefully - -## Rise and Fall of the *Assignat* - - - - We have partitioned Figures~\ref{fig:fig7}, \ref{fig:fig8}, and \ref{fig:fig9} - into three periods, corresponding -to different monetary regimes or episodes. The three clouds of points in -Figure~\ref{fig:fig7} - depict different real balance-inflation relationships. Only the cloud for the -third period has the inverse relationship familiar to us now from twentieth-century -hyperinflations. The first period ends in the late summer of 1793, and is characterized -by growing real balances and moderate inflation. The second period begins and ends -with the Terror. It is marked by high real balances, around 2,500 millions, and -roughly stable prices. The fall of Robespierre in late July 1794 begins the third -of our episodes, in which real balances decline and prices rise rapidly. We interpret -these three episodes in terms of three separate theories about money: a ``backing'' -or ''real bills'' theory (the text is Adam Smith (1776)), -a legal restrictions theory (TOM: HERE PLEASE CITE -Keynes,1940, AS WELL AS Bryant/Wallace:1984 and Villamil:1988) -and a classical hyperinflation theory.% -```{note} -According to the empirical definition of hyperinflation adopted by {cite}`Cagan`, -beginning in the month that inflation exceeds 50 percent -per month and ending in the month before inflation drops below 50 percent per month -for at least a year, the *assignat* experienced a hyperinflation from May to December -1795. -``` -We view these -theories not as competitors but as alternative collections of ``if-then'' -statements about government note issues, each of which finds its conditions more -nearly met in one of these episodes than in the other two. - - - - - - - -## Three subperiods - - - - -* subperiod 1: ("real bills period): January 1791 to July 1793 - -* subperiod 2: ("terror:): August 1793 - July 1794 - -* subperiod 3: ("classic Cagan hyperinflation): August 1794 - March 1796 - - - - - - -## Figure 6 - -```{code-cell} ipython3 -def fit(x, y): - - b = np.cov(x, y)[0, 1] / np.var(x) - a = y.mean() - b * x.mean() - - return a, b -``` - -```{code-cell} ipython3 -# load data -caron = np.load('datasets/caron.npy') -nom_balances = np.load('datasets/nom_balances.npy') - -infl = np.concatenate(([np.nan], -np.log(caron[1:63, 1] / caron[0:62, 1]))) -bal = nom_balances[14:77, 1] * caron[:, 1] / 1000 -``` - -```{code-cell} ipython3 -# fit data - -# reg y on x for three periods -a1, b1 = fit(bal[1:31], infl[1:31]) -a2, b2 = fit(bal[31:44], infl[31:44]) -a3, b3 = fit(bal[44:63], infl[44:63]) - -# reg x on y for three periods -a1_rev, b1_rev = fit(infl[1:31], bal[1:31]) -a2_rev, b2_rev = fit(infl[31:44], bal[31:44]) -a3_rev, b3_rev = fit(infl[44:63], bal[44:63]) -``` - -```{code-cell} ipython3 -plt.figure() -plt.gca().spines['top'].set_visible(False) -plt.gca().spines['right'].set_visible(False) - -# first subsample -plt.plot(bal[1:31], infl[1:31], 'o', markerfacecolor='none', color='blue', label='real bills period') - -# second subsample -plt.plot(bal[31:44], infl[31:44], '+', color='red', label='terror') - -# third subsample -plt.plot(bal[44:63], infl[44:63], '*', color='orange', label='classic Cagan hyperinflation') - -plt.xlabel('real balances') -plt.ylabel('inflation') -plt.legend() - -plt.tight_layout() -plt.show() -#plt.savefig('frfinfig7.pdf', dpi=600) -``` - -## Figure 7 - -```{code-cell} ipython3 -# fit data - -# reg y on x for three periods -a1, b1 = fit(bal[1:31], infl[1:31]) -a2, b2 = fit(bal[31:44], infl[31:44]) -a3, b3 = fit(bal[44:63], infl[44:63]) - -# reg x on y for three periods -a1_rev, b1_rev = fit(infl[1:31], bal[1:31]) -a2_rev, b2_rev = fit(infl[31:44], bal[31:44]) -a3_rev, b3_rev = fit(infl[44:63], bal[44:63]) -``` - -```{code-cell} ipython3 -plt.figure() -plt.gca().spines['top'].set_visible(False) -plt.gca().spines['right'].set_visible(False) - -# first subsample -plt.plot(bal[1:31], infl[1:31], 'o', markerfacecolor='none', color='blue', label='real bills period') - -# second subsample -plt.plot(bal[34:44], infl[34:44], '+', color='red', label='terror') - -# third subsample # Tom tinkered with subsample period -plt.plot(bal[44:63], infl[44:63], '*', color='orange', label='classic Cagan hyperinflation') - -plt.xlabel('real balances') -plt.ylabel('inflation') -plt.legend() - -plt.tight_layout() -plt.show() -#plt.savefig('frfinfig7.pdf', dpi=600) -``` - - -

The above graph is Tom's experimental lab. We'll delete it eventually.

- -

Zejin: below is the grapth with six lines in one graph. The lines generated by regressing y on x have the same color as the corresponding data points, while the lines generated by regressing x on y are all in green.

- -## Figure 8 - -```{code-cell} ipython3 -plt.figure() -plt.gca().spines['top'].set_visible(False) -plt.gca().spines['right'].set_visible(False) - -# first subsample -plt.plot(bal[1:31], infl[1:31], 'o', markerfacecolor='none', color='blue', label='real bills period') -plt.plot(bal[1:31], a1 + bal[1:31] * b1, color='blue', linewidth=0.8) -plt.plot(a1_rev + b1_rev * infl[1:31], infl[1:31], color='green', linewidth=0.8) - -# second subsample -plt.plot(bal[31:44], infl[31:44], '+', color='red', label='terror') -plt.plot(bal[31:44], a2 + bal[31:44] * b2, color='red', linewidth=0.8) -plt.plot(a2_rev + b2_rev * infl[31:44], infl[31:44], color='green', linewidth=0.8) - -# third subsample -plt.plot(bal[44:63], infl[44:63], '*', color='orange', label='classic Cagan hyperinflation') -plt.plot(bal[44:63], a3 + bal[44:63] * b3, color='orange', linewidth=0.8) -plt.plot(a3_rev + b3_rev * infl[44:63], infl[44:63], color='green', linewidth=0.8) - -plt.xlabel('real balances') -plt.ylabel('inflation') -plt.legend() -#plt.savefig('frfinfig7.pdf', dpi=600) -``` - -## Figure 9 - -

The graph below is Tom's version of the six lines in one graph. The lines generated by regressing y on x have the same color as the corresponding data points, while the lines generated by regressing x on y are all in green.

- -```{code-cell} ipython3 -plt.figure() -plt.gca().spines['top'].set_visible(False) -plt.gca().spines['right'].set_visible(False) - -# first subsample -plt.plot(bal[1:31], infl[1:31], 'o', markerfacecolor='none', color='blue', label='real bills period') -plt.plot(bal[1:31], a1 + bal[1:31] * b1, color='blue', linewidth=0.8) -plt.plot(a1_rev + b1_rev * infl[1:31], infl[1:31], color='green', linewidth=0.8) - -# second subsample -plt.plot(bal[31:44], infl[31:44], '+', color='red', label='terror') -plt.plot(bal[34:44], a2 + bal[34:44] * b2, color='red', linewidth=0.8) -plt.plot(a2_rev + b2_rev * infl[34:44], infl[34:44], color='green', linewidth=0.8) - -# third subsample -plt.plot(bal[44:63], infl[44:63], '*', color='orange', label='classic Cagan hyperinflation') -plt.plot(bal[44:63], a3 + bal[44:63] * b3, color='orange', linewidth=0.8) -plt.plot(a3_rev + b3_rev * infl[44:63], infl[44:63], color='green', linewidth=0.8) - -plt.xlabel('real balances') -plt.ylabel('inflation') -plt.legend() - -plt.tight_layout() -plt.show() -#plt.savefig('frfinfig7.pdf', dpi=600) -``` - -## Figure 10 - -```{code-cell} ipython3 -plt.figure() -plt.gca().spines['top'].set_visible(False) -plt.gca().spines['right'].set_visible(False) - -# first subsample -plt.plot(bal[1:31], infl[1:31], 'o', markerfacecolor='none', color='blue', label='real bills period') -plt.plot(bal[1:31], a1 + bal[1:31] * b1, color='blue') - -# second subsample -plt.plot(bal[31:44], infl[31:44], '+', color='red', label='terror') - -# third subsample -plt.plot(bal[44:63], infl[44:63], '*', color='orange', label='classic Cagan hyperinflation') - -plt.xlabel('real balances') -plt.ylabel('inflation') -plt.legend() - -plt.tight_layout() -plt.show() -#plt.savefig('frfinfig7_line1.pdf', dpi=600) -``` - -## Figure 11 - -```{code-cell} ipython3 -plt.figure() -plt.gca().spines['top'].set_visible(False) -plt.gca().spines['right'].set_visible(False) - -# first subsample -plt.plot(bal[1:31], infl[1:31], 'o', markerfacecolor='none', color='blue', label='real bills period') -plt.plot(a1_rev + b1_rev * infl[1:31], infl[1:31], color='blue') - -# second subsample -plt.plot(bal[31:44], infl[31:44], '+', color='red', label='terror') - -# third subsample -plt.plot(bal[44:63], infl[44:63], '*', color='orange', label='classic Cagan hyperinflation') - -plt.xlabel('real balances') -plt.ylabel('inflation') -plt.legend() - -plt.tight_layout() -plt.show() -#plt.savefig('frfinfig7_line1_rev.pdf', dpi=600) -``` - -## Figure 12 - -```{code-cell} ipython3 -plt.figure() -plt.gca().spines['top'].set_visible(False) -plt.gca().spines['right'].set_visible(False) - -# first subsample -plt.plot(bal[1:31], infl[1:31], 'o', markerfacecolor='none', color='blue', label='real bills period') - -# second subsample -plt.plot(bal[31:44], infl[31:44], '+', color='red', label='terror') -plt.plot(bal[31:44], a2 + bal[31:44] * b2, color='red') - -# third subsample -plt.plot(bal[44:63], infl[44:63], '*', color='orange', label='classic Cagan hyperinflation') - -plt.xlabel('real balances') -plt.ylabel('inflation') -plt.legend() - -plt.tight_layout() -plt.show() -#plt.savefig('frfinfig7_line2.pdf', dpi=600) -``` - -## Figure 13 - -```{code-cell} ipython3 -plt.figure() -plt.gca().spines['top'].set_visible(False) -plt.gca().spines['right'].set_visible(False) - -# first subsample -plt.plot(bal[1:31], infl[1:31], 'o', markerfacecolor='none', color='blue', label='real bills period') - -# second subsample -plt.plot(bal[31:44], infl[31:44], '+', color='red', label='terror') -plt.plot(a2_rev + b2_rev * infl[31:44], infl[31:44], color='red') - -# third subsample -plt.plot(bal[44:63], infl[44:63], '*', color='orange', label='classic Cagan hyperinflation') - -plt.xlabel('real balances') -plt.ylabel('inflation') -plt.legend() - -plt.tight_layout() -plt.show() -#plt.savefig('frfinfig7_line2_rev.pdf', dpi=600) -``` - -## Figure 14 - -```{code-cell} ipython3 -plt.figure() -plt.gca().spines['top'].set_visible(False) -plt.gca().spines['right'].set_visible(False) - -# first subsample -plt.plot(bal[1:31], infl[1:31], 'o', markerfacecolor='none', color='blue', label='real bills period') - -# second subsample -plt.plot(bal[31:44], infl[31:44], '+', color='red', label='terror') - -# third subsample -plt.plot(bal[44:63], infl[44:63], '*', color='orange', label='classic Cagan hyperinflation') -plt.plot(bal[44:63], a3 + bal[44:63] * b3, color='orange') - -plt.xlabel('real balances') -plt.ylabel('inflation') -plt.legend() - -plt.tight_layout() -plt.show() -#plt.savefig('frfinfig7_line3.pdf', dpi=600) -``` - -## Figure 15 - -```{code-cell} ipython3 -plt.figure() -plt.gca().spines['top'].set_visible(False) -plt.gca().spines['right'].set_visible(False) - -# first subsample -plt.plot(bal[1:31], infl[1:31], 'o', markerfacecolor='none', color='blue', label='real bills period') - -# second subsample -plt.plot(bal[31:44], infl[31:44], '+', color='red', label='terror') - -# third subsample -plt.plot(bal[44:63], infl[44:63], '*', color='orange', label='classic Cagan hyperinflation') -plt.plot(a3_rev + b3_rev * infl[44:63], infl[44:63], color='orange') - -plt.xlabel('real balances') -plt.ylabel('inflation') -plt.legend() - -plt.tight_layout() -plt.show() -#plt.savefig('frfinfig7_line3_rev.pdf', dpi=600) -``` - - -## Figure 21 - - -```{code-cell} ipython3 ---- -mystnb: - figure: - caption: "Real balances of assignats (in gold and goods)" - name: fig8 ---- -# Read the data from Excel file -data7 = pd.read_excel('datasets/assignat.xlsx', sheet_name='Data', usecols='P:Q', skiprows=4, nrows=80, header=None) -data7a = pd.read_excel('datasets/assignat.xlsx', sheet_name='Data', usecols='L', skiprows=4, nrows=80, header=None) - -# Create the figure and plot -plt.figure() -h = plt.plot(pd.date_range(start='1789-11-01', periods=len(data7), freq='M'), (data7a.values * [1, 1]) * data7.values, linewidth=1.) -plt.setp(h[1], linestyle='--', color='red') - -plt.vlines([pd.Timestamp('1793-07-15'), pd.Timestamp('1793-07-15')], 0, 3000, linewidth=0.8, color='orange') -plt.vlines([pd.Timestamp('1794-07-15'), pd.Timestamp('1794-07-15')], 0, 3000, linewidth=0.8, color='purple') - -plt.ylim([0, 3000]) - -# Set properties of the plot -plt.gca().spines['top'].set_visible(False) -plt.gca().spines['right'].set_visible(False) -plt.gca().set_facecolor('white') -plt.gca().tick_params(labelsize=12) -plt.xlim(pd.Timestamp('1789-11-01'), pd.Timestamp('1796-06-01')) -plt.ylabel('millions of livres', fontsize=12) - -# Add text annotations -plt.text(pd.Timestamp('1793-09-01'), 200, 'Terror', fontsize=12) -plt.text(pd.Timestamp('1791-05-01'), 750, 'gold value', fontsize=12) -plt.text(pd.Timestamp('1794-10-01'), 2500, 'real value', fontsize=12) - - -plt.tight_layout() -plt.show() - -# Save the figure as a PDF -#plt.savefig('frfinfig8.pdf', dpi=600) -``` - -TO TEACH TOM: By staring at {numref}`fig8` carefully - - -## Figure 22 - - -```{code-cell} ipython3 ---- -mystnb: - figure: - caption: "Price Level and Price of Gold (log scale)" - name: fig9 ---- -# Create the figure and plot -plt.figure() -x = np.arange(1789 + 10/12, 1796 + 5/12, 1/12) -h, = plt.plot(x, 1. / data7.iloc[:, 0], linestyle='--') -h, = plt.plot(x, 1. / data7.iloc[:, 1], color='r') - -# Set properties of the plot -plt.gca().tick_params(labelsize=12) -plt.yscale('log') -plt.xlim([1789 + 10/12, 1796 + 5/12]) -plt.gca().spines['top'].set_visible(False) -plt.gca().spines['right'].set_visible(False) - -# Add vertical lines -plt.axvline(x=1793 + 6.5/12, linestyle='-', linewidth=0.8, color='orange') -plt.axvline(x=1794 + 6.5/12, linestyle='-', linewidth=0.8, color='purple') - -# Add text -plt.text(1793.75, 120, 'Terror', fontsize=12) -plt.text(1795, 2.8, 'price level', fontsize=12) -plt.text(1794.9, 40, 'gold', fontsize=12) - - -plt.tight_layout() -plt.show() -#plt.savefig('frfinfig9.pdf', dpi=600) -``` - -TO TEACH TOM: By staring at {numref}`fig9` carefully - - -## Figure 23 - - - - -```{code-cell} ipython3 ---- -mystnb: - figure: - caption: "Spending (blue) and Revenues (orange), (real values)" - name: fig11 ---- -# Read data from Excel file -data11 = pd.read_excel('datasets/assignat.xlsx', sheet_name='Budgets', usecols='J:K', skiprows=22, nrows=52, header=None) - -# Prepare the x-axis data -x_data = np.concatenate([ - np.arange(1791, 1794 + 8/12, 1/12), - np.arange(1794 + 9/12, 1795 + 3/12, 1/12) -]) - -# Remove NaN values from the data -data11_clean = data11.dropna() - -# Plot the data -plt.figure() -h = plt.plot(x_data, data11_clean.values[:, 0], linewidth=0.8) -h = plt.plot(x_data, data11_clean.values[:, 1], '--', linewidth=0.8) - - - -# Set plot properties -plt.gca().spines['top'].set_visible(False) -plt.gca().spines['right'].set_visible(False) -plt.gca().set_facecolor('white') -plt.gca().tick_params(axis='both', which='major', labelsize=12) -plt.xlim([1791, 1795 + 3/12]) -plt.xticks(np.arange(1791, 1796)) -plt.yticks(np.arange(0, 201, 20)) - -# Set the y-axis label -plt.ylabel('millions of livres', fontsize=12) - - - -plt.tight_layout() -plt.show() - -#plt.savefig('frfinfig11.pdf', dpi=600) -``` -TO TEACH TOM: By staring at {numref}`fig11` carefully - - -## Figure 24 - - -```{code-cell} ipython3 -# Read data from Excel file -data12 = pd.read_excel('datasets/assignat.xlsx', sheet_name='seignor', usecols='F', skiprows=6, nrows=75, header=None).squeeze() - - -# Create a figure and plot the data -plt.figure() -plt.plot(pd.date_range(start='1790', periods=len(data12), freq='M'), data12, linewidth=0.8) - -plt.gca().spines['top'].set_visible(False) -plt.gca().spines['right'].set_visible(False) - -plt.axhline(y=472.42/12, color='r', linestyle=':') -plt.xticks(ticks=pd.date_range(start='1790', end='1796', freq='AS'), labels=range(1790, 1797)) -plt.xlim(pd.Timestamp('1791'), pd.Timestamp('1796-02') + pd.DateOffset(months=2)) -plt.ylabel('millions of livres', fontsize=12) -plt.text(pd.Timestamp('1793-11'), 39.5, 'revenues in 1788', verticalalignment='top', fontsize=12) - - -plt.tight_layout() -plt.show() - -#plt.savefig('frfinfig12.pdf', dpi=600) -``` - - -## Figure 25 - - -```{code-cell} ipython3 -# Read data from Excel file -data13 = pd.read_excel('datasets/assignat.xlsx', sheet_name='Exchge', usecols='P:T', skiprows=3, nrows=502, header=None) - -# Plot the last column of the data -plt.figure() -plt.plot(data13.iloc[:, -1], linewidth=0.8) - -# Set properties of the plot -plt.gca().spines['top'].set_visible(False) -plt.gca().spines['right'].set_visible(False) -plt.gca().set_xlim([1, len(data13)]) - -# Set x-ticks and x-tick labels -ttt = np.arange(1, len(data13) + 1) -plt.xticks(ttt[~np.isnan(data13.iloc[:, 0])], - ['Mar', 'Apr', 'May', 'Jun', 'Jul', 'Aug', 'Sep', 'Oct', 'Nov', 'Dec', 'Jan', 'Feb', - 'Mar', 'Apr', 'May', 'Jun', 'Jul', 'Aug', 'Sep']) - -# Add text to the plot -plt.text(1, 120, '1795', fontsize=12, ha='center') -plt.text(262, 120, '1796', fontsize=12, ha='center') - -# Draw a horizontal line and add text -plt.axhline(y=186.7, color='red', linestyle='-', linewidth=0.8) -plt.text(150, 190, 'silver parity', fontsize=12) - -# Add an annotation with an arrow -plt.annotate('end of the assignat', xy=(340, 172), xytext=(380, 160), - arrowprops=dict(facecolor='black', arrowstyle='->'), fontsize=12) - - -plt.tight_layout() -plt.show() -#plt.savefig('frfinfig13.pdf', dpi=600) -``` - - -## Figure 14 - - -```{code-cell} ipython3 -# figure 14 -data14 = pd.read_excel('datasets/assignat.xlsx', sheet_name='Post-95', usecols='I', skiprows=9, nrows=91, header=None).squeeze() -data14a = pd.read_excel('datasets/assignat.xlsx', sheet_name='Post-95', usecols='F', skiprows=100, nrows=151, header=None).squeeze() - -plt.figure() -h = plt.plot(data14, '*-', markersize=2, linewidth=0.8) -plt.plot(np.concatenate([np.full(data14.shape, np.nan), data14a]), linewidth=0.8) -plt.gca().spines['top'].set_visible(False) -plt.gca().spines['right'].set_visible(False) -plt.gca().set_xticks(range(20, 237, 36)) -plt.gca().set_xticklabels(range(1796, 1803)) -plt.xlabel('*: Before the 2/3 bankruptcy') -plt.ylabel('Francs') - -plt.tight_layout() -plt.show() -#plt.savefig('frfinfig14.pdf', dpi=600) -``` - - -## Figure 15 - - -```{code-cell} ipython3 -# figure 15 -data15 = pd.read_excel('datasets/assignat.xlsx', sheet_name='Post-95', usecols='N', skiprows=4, nrows=88, header=None).squeeze() - -plt.figure() -h = plt.plot(range(2, 90), data15, '*-', linewidth=0.8) -plt.setp(h, markersize=2) -plt.gca().spines['top'].set_visible(False) -plt.gca().spines['right'].set_visible(False) -plt.text(47.5, 11.4, '17 brumaire', horizontalalignment='left', fontsize=12) -plt.text(49.5, 14.75, '19 brumaire', horizontalalignment='left', fontsize=12) -plt.text(15, -1, 'Vendémiaire 8', fontsize=12, horizontalalignment='center') -plt.text(45, -1, 'Brumaire', fontsize=12, horizontalalignment='center') -plt.text(75, -1, 'Frimaire', fontsize=12, horizontalalignment='center') -plt.ylim([0, 25]) -plt.xticks([], []) -plt.ylabel('Francs') - -plt.tight_layout() -plt.show() -#plt.savefig('frfinfig15.pdf', dpi=600) -``` - -```{code-cell} ipython3 - -``` - -STUFF FROM SV 1995 - - -## Fiscal Situation and Response of National Assembly - - -In response to a motion by Catholic Bishop Talleyrand, -the National Assembly confiscated and nationalized Church lands. - -But the National Assembly was dominated by free market advocates, not socialists. - -The National Assembly intended to use earnings from Church lands to service its national debt. - -To do this, it began to implement a ''privatization plan'' that would let it service its debt while -not raising taxes. - -Their plan involved issuing paper notes called ''assignats'' that entitled bearers to use them to purchase state lands. - -These paper notes would be ''as good as silver coins'' in the sense that both were acceptable means of payment in exchange for those (formerly) church lands. - -Finance Minister Necker and the Constituants planned -to solve the privatization problem **and** the debt problem simultaneously -by creating a new currency. - -They devised a scheme to raise revenues by auctioning -the confiscated lands, thereby withdrawing paper notes issued on the security of -the lands sold by the government. - - This ''tax-backed money'' scheme propelled the National Assembly into the domain of monetary experimentation. - -Records of their debates show -how members of the Assembly marshaled theory and evidence to assess the likely -effects of their innovation. - -They quoted David Hume and Adam Smith and cited John -Law's System of 1720 and the American experiences with paper money fifteen years -earlier as examples of how paper money schemes can go awry. - - -### Necker's plan and how it was tweaked - -Necker's original plan embodied two components: a national bank and a new -financial instrument, the ''assignat''. - - -Necker's national -bank was patterned after the Bank of England. He proposed to transform the *Caisse d'Escompte* into a national bank by granting it a monopoly on issuing -notes and marketing government debt. The *Caisse* was a -discount bank founded in 1776 whose main function was to discount commercial bills -and issue convertible notes. Although independent of the government in principle, -it had occasionally been used as a source of loans. Its notes had been declared -inconvertible in August 1788, and by the time of Necker's proposal, its reserves -were exhausted. Necker's plan placed the National Estates (as the Church lands -became known after the addition of the royal demesne) at the center of the financial -picture: a ''Bank of France'' would issue a $5\%$ security mortgaged on the prospective -receipts from the modest sale of some 400 millions' worth of National Estates in -the years 1791 to 1793. -```{note} - Only 170 million was to be used initially -to cover the deficits of 1789 and 1790. -``` - - -By mid-1790, members of the National Assembly had agreed to sell the National -Estates and to use the proceeds to service the debt in a ``tax-backed money'' scheme -```{note} -Debt service costs absorbed - over 60\% of French government expenditures. -``` - -The government would issue securities with which it would reimburse debt. - -The securities -were acceptable as payment for National Estates purchased at auctions; once received -in payment, they were to be burned. - -```{note} -The appendix to {cite}`sargent_velde1995` describes the -auction rules in detail. -``` -The Estates available for sale were thought to be worth about 2,400 -million, while the exactable debt (essentially fixed-term loans, unpaid arrears, -and liquidated offices) stood at about 2,000 million. The value of the land was -sufficient to let the Assembly retire all of the exactable debt and thereby eliminate -the interest payments on it. After lengthy debates, in August 1790, the Assembly set the denomination -and interest rate structure of the debt. - - -```{note} Two distinct -aspects of monetary theory help in thinking about the assignat plan. First, a system -beginning with a commodity standard typically has room for a once-and-for-all emission -of (an unbacked) paper currency that can replace the commodity money without generating -inflation. \citet{Sargent/Wallace:1983} describe models with this property. That -commodity money systems are wasteful underlies Milton Friedman's (1960) TOM:ADD REFERENCE preference -for a fiat money regime over a commodity money. Second, in a small country on a -commodity money system that starts with restrictions on intermediation, those restrictions -can be relaxed by letting the government issue bank notes on the security of safe -private indebtedness, while leaving bank notes convertible into gold at par. See -Adam Smith and Sargent and Wallace (1982) for expressions of this idea. TOM: ADD REFERENCES HEREAND IN BIBTEX FILE. -``` - - -```{note} -The -National Assembly debated many now classic questions in monetary economics. Under -what conditions would money creation generate inflation, with what consequences -for business conditions? Distinctions were made between issue of money to pay off -debt, on one hand, and monetization of deficits, on the other. Would *assignats* be akin -to notes emitted under a real bills regime, and cause loss of specie, or would -they circulate alongside specie, thus increasing the money stock? Would inflation -affect real wages? How would it impact foreign trade, competitiveness of French -industry and agriculture, balance of trade, foreign exchange? -``` \ No newline at end of file diff --git a/lectures/french_rev.md b/lectures/french_rev.md index d13addb4..ff7aa292 100644 --- a/lectures/french_rev.md +++ b/lectures/french_rev.md @@ -336,7 +336,7 @@ The French constitution and prevailing arrangements had empowered three constitu * government creditors (i.e., owners of government bonds) When the French government had confronted a similar situation around 1720 after King Louis XIV's -Wars had left it with a debt crisis, it had ``solved'' the problem at the expense of +Wars had left it with a debt crisis, it had sacrificed the interests of government creditors, i.e., by defaulting enough of its debt to bring reduce interest payments down enough to balance the budget. Somehow, in 1789, creditors of the French government were more powerful than they had been in 1720. @@ -352,6 +352,78 @@ would bring sustained budget balance. {cite}`sargent_velde1995` describe how the French Revolutionaries set out to accomplish that. +## Nationalization, Privatization, Debt Reduction + +In 1789, the Revolutionaries quickly reorganized the Estates General into a National Assembly. + +A first piece of business was to address the fiscal crisis, the situation that had motivated the King to convence the Estates General. + + +The Revolutionaries were not socialists or communists. + +To the contrary, they respected private property and knew state-of-the-art economics. + +They knew that to honor government debts, they would have to raise new revenues or reduce expenditures. + +A coincidence was that the Catholic Church owned vast income-producing properties. + +Indeed, the capitalized value of those income streams put estimates of the value of church lands at +about the same amount as the entire French government debt. + +This coincidence fostered a three step plan for servicing the French government debt + + * nationalize the church lands -- i.e., sequester or confiscate it without paying for it + * sell the church lands + * use the proceeds from those sales to service or even retire French government debt + +The monetary theory underlying this plan had been set out by Adam Smith in his analysis of what he called **real bills** in his 1776 book +**The Wealth of Nations** {cite}`smith2010wealth`, which many of the revolutionaries had read. + +Adam Smith defined a **real bill** as a paper money note that is backed by a claims on a real asset like productive capital or inventories. + + + +The National Assembly put togethere an ingenious institutional arrangement to implement this plan. + + +In response to a motion by Catholic Bishop Talleyrand (an atheist), +the National Assembly confiscated and nationalized Church lands. + + +The National Assembly intended to use earnings from Church lands to service its national debt. + +To do this, it began to implement a ''privatization plan'' that would let it service its debt while +not raising taxes. + +Their plan involved issuing paper notes called ''assignats'' that entitled bearers to use them to purchase state lands. + +These paper notes would be ''as good as silver coins'' in the sense that both were acceptable means of payment in exchange for those (formerly) church lands. + +Finance Minister Necker and the Constituants of the National Assembly thus planned +to solve the privatization problem **and** the debt problem simultaneously +by creating a new currency. + +They devised a scheme to raise revenues by auctioning +the confiscated lands, thereby withdrawing paper notes issued on the security of +the lands sold by the government. + + This ''tax-backed money'' scheme propelled the National Assembly into the domains of then modern monetary theories. + +Records of debates show +how members of the Assembly marshaled theory and evidence to assess the likely +effects of their innovation. + + * Members of the Natioanl Assembly quoted David Hume and Adam Smith + * They cited John Law's System of 1720 and the American experiences with paper money fifteen years +earlier as examples of how paper money schemes can go awry + * Knowing pitfalls, they set out to avoid them + +They succeeded for two or three years. + +But after that, France entered a big War that disrupted the plan in ways that completely altered the character of France's paper money. {cite}`sargent_velde1995` describe what happened. + + + ## Remaking the tax code and tax administration @@ -829,6 +901,16 @@ plt.show() #plt.savefig('frfinfig7_line1.pdf', dpi=600) ``` +The regression line in Figure {numref}`fig104c` shows that large increases in real balances of +assignats (paper money) were accompanied by only modest rises in the price level, an outcome in line +with the real bills theory. + +During this period, assignats were claims on church lands. + +But towards the end of this period, the price level started to rise and real balances to fall +as the government continued to print money but stopped selling church land. + +To get people to hold that paper money, the government forced people to hold it by using legal restrictions. Now let's regress real balances on inflation during the terror and plot the regression line. @@ -864,6 +946,13 @@ plt.show() #plt.savefig('frfinfig7_line2_rev.pdf', dpi=600) ``` +The regression line in Figure {numref}`fig104d` shows that large increases in real balances of +assignats (paper money) were accompanied by little upward price level pressure, even some declines in prices. + +This reflects how well legal restrictions -- financial repression -- was working during the period of the Terror. + +But the Terror ended in July 1794. That unleashed a big inflation as people tried to find other ways to transact and store values. + The following two graphs are for the classical hyperinflation period. One regresses inflation on real balances, the other regresses real balances on inflation. @@ -901,7 +990,8 @@ plt.show() #plt.savefig('frfinfig7_line3.pdf', dpi=600) ``` - +Figure {numref}`fig104e` shows the results of regressing inflation on real balances during the +period of the hyperinflation. ```{code-cell} ipython3 --- @@ -932,118 +1022,5 @@ plt.tight_layout() plt.show() #plt.savefig('frfinfig7_line3_rev.pdf', dpi=600) ``` - - -STUFF FROM SV 1995 - - -## Fiscal Situation and Response of National Assembly - - -In response to a motion by Catholic Bishop Talleyrand, -the National Assembly confiscated and nationalized Church lands. - -But the National Assembly was dominated by free market advocates, not socialists. - -The National Assembly intended to use earnings from Church lands to service its national debt. - -To do this, it began to implement a ''privatization plan'' that would let it service its debt while -not raising taxes. - -Their plan involved issuing paper notes called ''assignats'' that entitled bearers to use them to purchase state lands. - -These paper notes would be ''as good as silver coins'' in the sense that both were acceptable means of payment in exchange for those (formerly) church lands. - -Finance Minister Necker and the Constituants planned -to solve the privatization problem **and** the debt problem simultaneously -by creating a new currency. - -They devised a scheme to raise revenues by auctioning -the confiscated lands, thereby withdrawing paper notes issued on the security of -the lands sold by the government. - - This ''tax-backed money'' scheme propelled the National Assembly into the domain of monetary experimentation. - -Records of their debates show -how members of the Assembly marshaled theory and evidence to assess the likely -effects of their innovation. - -They quoted David Hume and Adam Smith and cited John -Law's System of 1720 and the American experiences with paper money fifteen years -earlier as examples of how paper money schemes can go awry. - - -### Necker's plan and how it was tweaked - -Necker's original plan embodied two components: a national bank and a new -financial instrument, the ''assignat''. - - -Necker's national -bank was patterned after the Bank of England. He proposed to transform the *Caisse d'Escompte* into a national bank by granting it a monopoly on issuing -notes and marketing government debt. The *Caisse* was a -discount bank founded in 1776 whose main function was to discount commercial bills -and issue convertible notes. Although independent of the government in principle, -it had occasionally been used as a source of loans. Its notes had been declared -inconvertible in August 1788, and by the time of Necker's proposal, its reserves -were exhausted. Necker's plan placed the National Estates (as the Church lands -became known after the addition of the royal demesne) at the center of the financial -picture: a ''Bank of France'' would issue a $5\%$ security mortgaged on the prospective -receipts from the modest sale of some 400 millions' worth of National Estates in -the years 1791 to 1793. -```{note} - Only 170 million was to be used initially -to cover the deficits of 1789 and 1790. -``` - - -By mid-1790, members of the National Assembly had agreed to sell the National -Estates and to use the proceeds to service the debt in a ``tax-backed money'' scheme -```{note} -Debt service costs absorbed - over 60\% of French government expenditures. -``` - -The government would issue securities with which it would reimburse debt. - -The securities -were acceptable as payment for National Estates purchased at auctions; once received -in payment, they were to be burned. - -```{note} -The appendix to {cite}`sargent_velde1995` describes the -auction rules in detail. -``` -The Estates available for sale were thought to be worth about 2,400 -million, while the exactable debt (essentially fixed-term loans, unpaid arrears, -and liquidated offices) stood at about 2,000 million. The value of the land was -sufficient to let the Assembly retire all of the exactable debt and thereby eliminate -the interest payments on it. After lengthy debates, in August 1790, the Assembly set the denomination -and interest rate structure of the debt. - - -```{note} Two distinct -aspects of monetary theory help in thinking about the assignat plan. First, a system -beginning with a commodity standard typically has room for a once-and-for-all emission -of (an unbacked) paper currency that can replace the commodity money without generating -inflation. \citet{Sargent/Wallace:1983} describe models with this property. That -commodity money systems are wasteful underlies Milton Friedman's (1960) TOM:ADD REFERENCE preference -for a fiat money regime over a commodity money. Second, in a small country on a -commodity money system that starts with restrictions on intermediation, those restrictions -can be relaxed by letting the government issue bank notes on the security of safe -private indebtedness, while leaving bank notes convertible into gold at par. See -Adam Smith and Sargent and Wallace (1982) for expressions of this idea. TOM: ADD REFERENCES HEREAND IN BIBTEX FILE. -``` - - -```{note} -The -National Assembly debated many now classic questions in monetary economics. Under -what conditions would money creation generate inflation, with what consequences -for business conditions? Distinctions were made between issue of money to pay off -debt, on one hand, and monetization of deficits, on the other. Would *assignats* be akin -to notes emitted under a real bills regime, and cause loss of specie, or would -they circulate alongside specie, thus increasing the money stock? Would inflation -affect real wages? How would it impact foreign trade, competitiveness of French -industry and agriculture, balance of trade, foreign exchange? -``` \ No newline at end of file +Figure {numref}`fig104e` shows the results of regressing real balances on inflation during the +period of the hyperinflation. From dc9f26a3b5c8922e36cacda72cd0e2e3ba0c91a1 Mon Sep 17 00:00:00 2001 From: thomassargent30 Date: Mon, 22 Jul 2024 19:33:52 -0600 Subject: [PATCH 06/15] Tom's July 22 edits of french revolution lecture --- lectures/_static/quant-econ.bib | 11 ++++ lectures/french_rev.md | 90 ++++++++++++++++++--------------- 2 files changed, 60 insertions(+), 41 deletions(-) diff --git a/lectures/_static/quant-econ.bib b/lectures/_static/quant-econ.bib index 34cad8c4..1bd3ea0c 100644 --- a/lectures/_static/quant-econ.bib +++ b/lectures/_static/quant-econ.bib @@ -3,6 +3,17 @@ Note: Extended Information (like abstracts, doi, url's etc.) can be found in quant-econ-extendedinfo.bib file in _static/ ### +@article{north1989constitutions, + title={Constitutions and commitment: the evolution of institutions governing public choice in seventeenth-century England}, + author={North, Douglass C and Weingast, Barry R}, + journal={The journal of economic history}, + volume={49}, + number={4}, + pages={803--832}, + year={1989}, + publisher={Cambridge University Press} +} + @incollection{keynes1940pay, title={How to Pay for the War}, author={Keynes, John Maynard}, diff --git a/lectures/french_rev.md b/lectures/french_rev.md index ff7aa292..0fb10eb7 100644 --- a/lectures/french_rev.md +++ b/lectures/french_rev.md @@ -21,41 +21,40 @@ This lecture describes some monetary and fiscal features of the French Revoluti described by {cite}`sargent_velde1995`. To finance public expenditures and service its debts, -the French Revolutionaries performed several policy experiments. +the French government embarked on several distinct policy experiments. -The Revolutionary legislators who authored these experiments were guided by their having decided to put in place monetary-fiscal policies recommended to them by theories that they believed. +The authors of these experiments had in mind theories about how government monetary and fiscal policies affected economic outcomes. -Some of those theories make contact with modern theories about monetary and fiscal policies that interest us today. +Some of those theories about monetary and fiscal policies still interest us today. * a *tax-smoothing* model like Robert Barro's {cite}`Barro1979` - * this normative (i.e., prescriptive mode) advises a government to finance temporary war-time surges in government expenditures mostly by issuing government debt; after the war to roll over whatever debt accumulated during the war, and to increase taxes permanently by enough to finance interest payments on that post-war debt + * this normative (i.e., prescriptive model) advises a government to finance temporary war-time surges in expenditures mostly by issuing government debt, raising taxes by just enough to service the additional debt issued during the wary; then, after the war, to roll over whatever debt the government had accumulated during the war; and to increase taxes after the war permanently by just enough to finance interest payments on that post-war government debt * *unpleasant monetarist arithmetic* like that described in this quanteon lecture {doc}`unpleasant` - * this arithmetic governed French government debt dynamics in the decades preceding 1789 and according to leading historians set the stage for the French Revolution + * mathematics involving compound interest governed French government debt dynamics in the decades preceding 1789; according to leading historians, that arithmetic set the stage for the French Revolution -* a *real bills* theory of the effects of government open market operations in which the government *backs* its issues of paper money with valuable real property or financial assets +* a *real bills* theory of the effects of government open market operations in which the government *backs* new issues of paper money with government holdings of valuable real property or financial assets that holders of money can purchase from the government in exchange for their money * the Revolutionaries learned about this theory from Adam Smith's 1776 book The Wealth of Nations - and other contemporary sources + {cite}`smith2010wealth` and other contemporary sources - * It shaped how the Revolutionaries issued paper money called assignats from 1789 to 1791 + * It shaped how the Revolutionaries issued a paper money called **assignats** from 1789 to 1791 * a classical **gold** or **silver** standard - * Napoleon, who became head of government in 1799 used this theory to guide his monetary and fiscal policies + * Napoleon Bonaparte became head of the French government in 1799. He used this theory to guide his monetary and fiscal policies -* a classical inflation-tax theory of inflation in which Philip Cagan's demand for money studied -in this lecture {doc}`cagan_ree` is a key component +* a classical inflation-tax theory of inflation in which Philip Cagan's ({cite}`Cagan`) demand for money studied in this lecture {doc}`cagan_ree` is a key component - * This theory helps us explain French price level and money supply data from 1794 to 1797 s + * This theory helps explain French price level and money supply data from 1794 to 1797 * a *legal restrictions* or *financial repression* theory of the demand for real balances - * the Twelve Members comprising the Committee of Public Safety who adminstered the Terror from June 1793 to July 1794 used this theory to guide their monetary policy + * the Twelve Members comprising the Committee of Public Safety who adminstered the Terror from June 1793 to July 1794 used this theory to shape their monetary policy -We use matplotlib to replicate several of the graphs that {cite}`sargent_velde1995` used to portray outcomes of these experiments +We use matplotlib to replicate several of the graphs with which {cite}`sargent_velde1995` portrayed outcomes of these experiments --- @@ -63,7 +62,7 @@ We use matplotlib to replicate several of the graphs that {cite}`sargent_velde19 ## Data Sources -This lecture uses data from three spreadsheets: +This lecture uses data from three spreadsheets assembled by {cite}`sargent_velde1995`: * datasets/fig_3.ods * datasets/dette.xlsx @@ -80,7 +79,16 @@ plt.rcParams.update({'font.size': 12}) -We'll start by using matplotlib to construct two graphs that will provide important historical context. +We'll start by using matplotlib to construct several graphs that will provide important historical context. + +These graphs are versions of ones that appear in {cite}`sargent_velde1995`. + +These graphs show that during the 18th century + + * government expenditures in France and Great Britain both surged during four big wars, and by comparable amounts + * In Britain, tax revenues were approximately equal to government expenditures during peace times, + but were substantially less than government expenditures during wars + * In France, even in peace time, tax revenues were substantially less than government expenditures @@ -125,9 +133,9 @@ Each of those wars produced surges in both countries government expenditures t Figure {numref}`fig4` shows surges in military expenditures in France (in blue) and Great Britain. during those four wars. -A remarkable aspect of figure {numref}`fig4` is that despite having a population less than half of France's, Britain was able to finance military expenses of about the same amount as France's. +A remarkable aspect of figure {numref}`fig4` is that despite having a population less than half of France's, Britain was able to finance military expenses of about the same amounts as France's. -This testifies to Britain's success in having created state institutions that could tax, spend, and borrow. +This testifies to Britain's having created state institutions that could sustain high tax collections, government spending , and government borrowing. See {cite}`north1989constitutions`. @@ -177,7 +185,7 @@ plt.show() Figures {numref}`fig2` and {numref}`fr_fig3` summarize British and French government fiscal policies during the century before the start the French Revolution in 1789. -Progressive forces in France before 1789 thought admired how Britain had financed its government expenditures and advocated reforms in French institutions designed to make them more like Britain's. +Before 1789, progressive forces in France admired how Britain had financed its government expenditures and wanted to redesign French fiscal arrangements to make them more like Britain's. Figure {numref}`fig2` shows government expenditures and how it was distributed among expenditures for @@ -191,13 +199,13 @@ Notice the surges in total government expenditures associated with surges in mil in these four wars * Wars against France's King Louis XIV early in the 18th century - * The War of the Spanish Succession in the 1740s + * The War of the Austrian Succession in the 1740s * The French and Indian War in the 1750's and 1760s * The American War for Independence from 1775 to 1783 Figure {numref}`fig2` indicates that - * during times of peace, the expenditures approximately equal taxes and debt service payments neither grow nor decline over time + * during times of peace, government expenditures approximately equal taxes and debt service payments neither grow nor decline over time * during times of wars, government expenditures exceed tax revenues * the government finances the deficit of revenues relative to expenditures by issuing debt * after a war is over, the government's tax revenues exceed its non-interest expenditures by just enough to service the debt that the government issued to finance earlier deficits @@ -206,7 +214,7 @@ Figure {numref}`fig2` indicates that Eighteenth century British fiscal policy portrayed Figure {numref}`fig2` thus looks very much like a text-book example of a **tax-smoothing** model like Robert Barro's {cite}`Barro1979`. -A striking feature of the graph is what we'll nick name a **law of gravity** for taxes and expenditures. +A striking feature of the graph is what we'll lagel a **law of gravity** between tax collections and government expenditures. * levels of government expenditures at taxes attract each other * while they can temporarily differ -- as they do during wars -- they come back together when peace returns @@ -257,15 +265,14 @@ plt.show() Figure {numref}`fig1` shows that interest payments on government debt (i.e., so-called ``debt service'') were high fractions of government tax revenues in both Great Britain and France. -Figure {numref}`fig2` showed us that Britain managed to balance its budget despite those large -interest costs. +Figure {numref}`fig2` showed us that in peace times Britain managed to balance its budget despite those large interest costs. -But as we'll see in our next graph, on the eve of the French Revolution in 1788, that fiscal policy **law of gravity** that worked so well in Britain, did not seem to be working in France. +But as we'll see in our next graph, on the eve of the French Revolution in 1788, the fiscal **law of gravity** that worked so well in Britain did not working very well in France. @@ -312,7 +319,7 @@ plt.show() #plt.savefig('frfinfig3.jpg', dpi=600) ``` -Figure {numref}`fr_fig3` shows that in 1788 on the eve of the French Revolution government expenditures exceeded tax revenues. +Figure {numref}`fr_fig3` shows that on the eve of the French Revolution in 1788, government expenditures exceeded tax revenues. Especially during and after France's expenditures to help the Americans in their War of Independence from Great Britain, growing government debt service (i.e., interest payments) contributed to this situation. @@ -323,13 +330,13 @@ This was partly a consequence of the unfolding of the debt dynamics that underli {cite}`sargent_velde1995` describe how the Ancient Regime that until 1788 had governed France had stable institutional features that made it difficult for the government to balance its budget. Powerful contending interests had prevented from the government from closing the gap between its -total expenditures and its tax revenues by +total expenditures and its tax revenues by either - * raising taxes - * lowering government's non debt service (i.e., non-interest) expenditures - * lowering its debt service (i.e., interest) costs by rescheduling its debt, i.e., defaulting on on part of its debt + * raising taxes, or + * lowering government's non debt service (i.e., non-interest) expenditures, or + * lowering debt service (i.e., interest) costs by rescheduling, i.e., defaulting on some debts -The French constitution and prevailing arrangements had empowered three constituencies to block adjustments to components of the government budget constraint that they cared especially about +Precedents and prevailing French arrangements had empowered three constituencies to block adjustments to components of the government budget constraint that they cared especially about * tax payers * beneficiaries of government expenditures @@ -647,8 +654,7 @@ plt.show() We have partioned {numref}`fig9` that shows the log of the price level and Figure {numref}`fig8` -below that plots real balances $\frac{M_t}{p_t}$ into three periods that correspond to -to different monetary experiments. +below that plots real balances $\frac{M_t}{p_t}$ into three periods that correspond to different monetary experiments or ``regimes``. The first period ends in the late summer of 1793, and is characterized by growing real balances and moderate inflation. @@ -659,10 +665,12 @@ roughly stable prices. The fall of Robespierre in late July 1794 begins the thir of our episodes, in which real balances decline and prices rise rapidly. We interpret -these three episodes in terms of three separate theories about money: a ``backing'' -or ''real bills'' theory (the text is Adam Smith {cite}`smith2010wealth`), -a legal restrictions theory ( {cite}`keynes1940pay`, {cite}`bryant1984price` ) -and a classical hyperinflation theory ({cite}`Cagan`).% +these three episodes in terms of distinct theories + +* a ``backing``or ``real bills`` theory (the classic text for this theory is Adam Smith {cite}`smith2010wealth`) +* a legal restrictions theory ( {cite}`keynes1940pay`, {cite}`bryant1984price` ) +* a classical hyperinflation theory ({cite}`Cagan`) +* ```{note} According to the empirical definition of hyperinflation adopted by {cite}`Cagan`, beginning in the month that inflation exceeds 50 percent @@ -671,7 +679,7 @@ for at least a year, the *assignat* experienced a hyperinflation from May to De 1795. ``` We view these -theories not as competitors but as alternative collections of ``if-then'' +theories not as competitors but as alternative collections of ``if-then`` statements about government note issues, each of which finds its conditions more nearly met in one of these episodes than in the other two. @@ -730,11 +738,11 @@ hyperinflations. -* subperiod 1: ("real bills period): January 1791 to July 1793 +* subperiod 1: (``real bills`` period): January 1791 to July 1793 -* subperiod 2: ("terror:): August 1793 - July 1794 +* subperiod 2: (``terror``): August 1793 - July 1794 -* subperiod 3: ("classic Cagan hyperinflation): August 1794 - March 1796 +* subperiod 3: (``classic Cagan hyperinflation``): August 1794 - March 1796 From 549c1d64c8da426ed536d996827293374532037d Mon Sep 17 00:00:00 2001 From: Humphrey Yang Date: Tue, 23 Jul 2024 21:10:50 +1000 Subject: [PATCH 07/15] revert one change in the text --- lectures/french_rev.md | 3 ++- 1 file changed, 2 insertions(+), 1 deletion(-) diff --git a/lectures/french_rev.md b/lectures/french_rev.md index 2c35c131..43648ea8 100644 --- a/lectures/french_rev.md +++ b/lectures/french_rev.md @@ -311,7 +311,8 @@ plt.tight_layout() plt.show() ``` -{numref}`fr_fig3` shows that in 1788 on the eve of the French Revolution government expenditures exceeded tax revenues. +{numref}`fr_fig3` shows that on the eve of the French Revolution in 1788, government expenditures exceeded tax revenues. + Especially during and after France's expenditures to help the Americans in their War of Independence from Great Britain, growing government debt service (i.e., interest payments) contributed to this situation. From ec6af6511d24337feb5f16b6612630196e8857ab Mon Sep 17 00:00:00 2001 From: Humphrey Yang Date: Tue, 23 Jul 2024 21:21:39 +1000 Subject: [PATCH 08/15] rebuild with cite --- lectures/_static/quant-econ.bib | 2 +- lectures/french_rev.md | 7 +------ 2 files changed, 2 insertions(+), 7 deletions(-) diff --git a/lectures/_static/quant-econ.bib b/lectures/_static/quant-econ.bib index 1bd3ea0c..a8ec7d93 100644 --- a/lectures/_static/quant-econ.bib +++ b/lectures/_static/quant-econ.bib @@ -3,7 +3,7 @@ Note: Extended Information (like abstracts, doi, url's etc.) can be found in quant-econ-extendedinfo.bib file in _static/ ### -@article{north1989constitutions, +@article{north1989, title={Constitutions and commitment: the evolution of institutions governing public choice in seventeenth-century England}, author={North, Douglass C and Weingast, Barry R}, journal={The journal of economic history}, diff --git a/lectures/french_rev.md b/lectures/french_rev.md index 43648ea8..3ac6163e 100644 --- a/lectures/french_rev.md +++ b/lectures/french_rev.md @@ -140,12 +140,7 @@ during those four wars. A remarkable aspect of figure {numref}`fr_fig4` is that despite having a population less than half of France's, Britain was able to finance military expenses of about the same amounts as France's. -This testifies to Britain's having created state institutions that could sustain high tax collections, government spending , and government borrowing. See {cite}`north1989constitutions`. - - - - - +This testifies to Britain's having created state institutions that could sustain high tax collections, government spending , and government borrowing. See {cite}`north1989`. ```{code-cell} ipython3 --- From ece16a61cabda83fe5a3fcc946507a40323320e1 Mon Sep 17 00:00:00 2001 From: Humphrey Yang Date: Tue, 23 Jul 2024 21:32:24 +1000 Subject: [PATCH 09/15] update fig labels --- lectures/french_rev.md | 6 +++--- 1 file changed, 3 insertions(+), 3 deletions(-) diff --git a/lectures/french_rev.md b/lectures/french_rev.md index 3ac6163e..5c029561 100644 --- a/lectures/french_rev.md +++ b/lectures/french_rev.md @@ -98,7 +98,7 @@ These graphs show that during the 18th century mystnb: figure: caption: "Military Spending in Britain and France" - name: fig4 + name: fr_fig4 --- # Read the data from Excel file data2 = pd.read_excel(dette_url, @@ -147,7 +147,7 @@ This testifies to Britain's having created state institutions that could sustai mystnb: figure: caption: "Government Expenditures and Tax Revenues in Britain" - name: fig2 + name: fr_fig2 --- # Read the data from Excel file @@ -226,7 +226,7 @@ Next we'll plot data on debt service costs as fractions of government revenues i mystnb: figure: caption: "Ratio of debt service to taxes, Britain and France" - name: fig1 + name: fr_fig1 --- # Read the data from the Excel file From 8d020da743c7ab1cb2daa8294a95732c0267c838 Mon Sep 17 00:00:00 2001 From: thomassargent30 Date: Tue, 23 Jul 2024 13:39:02 -0600 Subject: [PATCH 10/15] Tom's July 23 edits of some lectures and bib file --- lectures/_static/quant-econ.bib | 8 +++++++ lectures/french_rev.md | 38 ++++++++++++++++++++++++--------- lectures/greek_square.md | 36 ++++++++++++++++++++++++++++++- lectures/inflation_history.md | 6 +++++- 4 files changed, 76 insertions(+), 12 deletions(-) diff --git a/lectures/_static/quant-econ.bib b/lectures/_static/quant-econ.bib index a8ec7d93..61f867e2 100644 --- a/lectures/_static/quant-econ.bib +++ b/lectures/_static/quant-econ.bib @@ -3,6 +3,14 @@ Note: Extended Information (like abstracts, doi, url's etc.) can be found in quant-econ-extendedinfo.bib file in _static/ ### + +@book{russell2004history, + title={History of western philosophy}, + author={Russell, Bertrand}, + year={2004}, + publisher={Routledge} +} + @article{north1989, title={Constitutions and commitment: the evolution of institutions governing public choice in seventeenth-century England}, author={North, Douglass C and Weingast, Barry R}, diff --git a/lectures/french_rev.md b/lectures/french_rev.md index 5c029561..2980271a 100644 --- a/lectures/french_rev.md +++ b/lectures/french_rev.md @@ -16,21 +16,20 @@ kernelspec: ## Overview -This lecture describes some monetary and fiscal features of the French Revolution (1789-1799) -described by {cite}`sargent_velde1995`. +This lecture describes some of the monetary and fiscal features of the French Revolution (1789-1799) described by {cite}`sargent_velde1995`. To finance public expenditures and service its debts, -the French government embarked on several distinct policy experiments. +the French government embarked on policy experiments. The authors of these experiments had in mind theories about how government monetary and fiscal policies affected economic outcomes. Some of those theories about monetary and fiscal policies still interest us today. -* a *tax-smoothing* model like Robert Barro's {cite}`Barro1979` +* a **tax-smoothing** model like Robert Barro's {cite}`Barro1979` * this normative (i.e., prescriptive model) advises a government to finance temporary war-time surges in expenditures mostly by issuing government debt, raising taxes by just enough to service the additional debt issued during the wary; then, after the war, to roll over whatever debt the government had accumulated during the war; and to increase taxes after the war permanently by just enough to finance interest payments on that post-war government debt -* *unpleasant monetarist arithmetic* like that described in this quanteon lecture {doc}`unpleasant` +* **unpleasant monetarist arithmetic** like that described in this quanteon lecture {doc}`unpleasant` * mathematics involving compound interest governed French government debt dynamics in the decades preceding 1789; according to leading historians, that arithmetic set the stage for the French Revolution @@ -45,11 +44,11 @@ Some of those theories about monetary and fiscal policies still interest us toda * Napoleon Bonaparte became head of the French government in 1799. He used this theory to guide his monetary and fiscal policies -* a classical inflation-tax theory of inflation in which Philip Cagan's ({cite}`Cagan`) demand for money studied in this lecture {doc}`cagan_ree` is a key component +* a classical **inflation-tax** theory of inflation in which Philip Cagan's ({cite}`Cagan`) demand for money studied in this lecture {doc}`cagan_ree` is a key component * This theory helps explain French price level and money supply data from 1794 to 1797 -* a *legal restrictions* or *financial repression* theory of the demand for real balances +* a **legal restrictions** or **financial repression** theory of the demand for real balances * the Twelve Members comprising the Committee of Public Safety who adminstered the Terror from June 1793 to July 1794 used this theory to shape their monetary policy @@ -418,8 +417,8 @@ They wanted to honor government debts -- interests of French government creditor But they set out to remake the French tax code and the administrative machinery for collecting taxes. - * they abolished all sorts of taxes - * they abolished the Ancient Regimes scheme for ''tax farming'' + * they abolished many taxes + * they abolished the Ancient Regimes scheme for ``tax farming`` * tax farming meant that the government had privatized tax collection by hiring private citizes -- so called tax farmers to collect taxes, while retaining a fraction of them as payment for their services * the great chemist Lavoisier was also a tax farmer, one of the reasons that the Committee for Public Safety sent him to the guillotine in 1794 @@ -974,5 +973,24 @@ plt.tight_layout() plt.show() ``` -{numref}`fr_fig104e` shows the results of regressing real balances on inflation during the +{numref}`fr_fig104e` shows the results of regressing real money balances on inflation during the period of the hyperinflation. + +## Hyperinflation Ends + +{cite}`sargent_velde1995` tell how in 1797 the Revolutionary government abruptly ended the inflation by + + * repudiating 2/3 of the national debt, and thereby + * eliminating the net-of-interest government defict + * no longer printing money, but instead + * using gold and silver coins as money + +In 1799, Napoleon Bonaparte became first consul and for the next 15 years used resources confiscated from conquered territories to help pay for French government expenditures. + +## Underlying Theories + +This lecture sets the stage for studying theories of inflation and the government monetary and fiscal policies that bring it about. + +A ``monetarist theory of the price level`` is described in this quantecon lecture {doc}`cagan_ree`. + +That lecture sets the stage for these quantecon lectures {doc}`money_inflation` and {doc}`unpleasant`. diff --git a/lectures/greek_square.md b/lectures/greek_square.md index 3ae37d38..cae69b82 100644 --- a/lectures/greek_square.md +++ b/lectures/greek_square.md @@ -17,7 +17,17 @@ kernelspec: ## Introduction -This lecture can be viewed as a sequel to {doc}`eigen_I`. + +Chapter 24 of {cite}`russell2004history` about early Greek mathematics and astronomy contains this +fascinating passage: + + ```{note} + The square root of 2, which was the first irrational to be discovered, was known to the early Pythagoreans, and ingenious methods of approximating to its value were discovered. The best was as follows: Form two columns of numbers, which we will call the $a$'s and the $b$'s; each starts with a $1$. The next $a$, at each stage, is formed by adding the last $a$ and the $b$ already obtained; the next $b$ is formed by adding twice the previous $a$ to the previous $b$. The first 6 pairs so obtained are $(1,1), (2,3), (5,7), (12,17), (29,41), (70,99)$. In each pair, $2 a - b$ is $1$ or $-1$. Thus $b/a$ is nearly the square root of two, and at each fresh step it gets nearer. For instance, the reader may satisy himself that the square of $99/70$ is very nearly equal to $2$. + ``` + +This lecture drills down and studies this ancient method for computing square roots by using some of the matrix algebra that we've learned in earlier quantecon lectures. + +In particular, this lecture can be viewed as a sequel to {doc}`eigen_I`. It provides an example of how eigenvectors isolate *invariant subspaces* that help construct and analyze solutions of linear difference equations. @@ -715,3 +725,27 @@ All of these exploit very similar equations based on eigen decompositions. We shall encounter equations very similar to {eq}`eq:deactivate1` and {eq}`eq:deactivate2` in {doc}`money_inflation` and in many other places in dynamic economic theory. + + + +```{exercise-start} +:label: greek_square_ex_a +``` +Please use matrix algebra to formulate the method described by Bertrand Russell at the beginning of this lecture. + +1. Define a state vector $x_t = \begin{bmatrix} a_t \cr b_t \end{bmatrix}$. +2. Formulate a first-order vector difference equation for $x_t$ of the form $x_{t+1} = A x_t$ and +compute the matrix $A$. +3. Use the system $x_{t+1} = A x_t$ to replicate the sequence of $a_t$'s and $b_t$'s described by Bertrand Russell. +4. Compute the eigenvectors and eigenvalues of $A$ and compare them to corresponding objects computed in the text of this lecture. + +```{exercise-end} +``` + +```{solution-start} greek_square_ex_a +:class: dropdown +``` +Here is the answer + +```{solution-end} +``` \ No newline at end of file diff --git a/lectures/inflation_history.md b/lectures/inflation_history.md index 013954d4..a211b2b7 100644 --- a/lectures/inflation_history.md +++ b/lectures/inflation_history.md @@ -131,6 +131,10 @@ By staring at {numref}`lrpl` carefully, you might be able to guess when these te During these episodes, the gold/silver standard was temporarily abandoned when a government printed paper money to pay for war expenditures. +```{note} +This quantecon lecture {doc}`french_rev` describes circumstances leading up to and during the big inflation that occurred during the French Revolution. +``` + Despite these temporary lapses, a striking thing about the figure is that price levels were roughly constant over three centuries. In the early century, two other features of this data attracted the attention of [Irving Fisher](https://en.wikipedia.org/wiki/Irving_Fisher) of Yale University and [John Maynard Keynes](https://en.wikipedia.org/wiki/John_Maynard_Keynes) of Cambridge University. @@ -665,6 +669,6 @@ Chapter 3 of {cite}`sargent2002big` described deliberate changes in policy that Each government stopped printing money to pay for goods and services once again and made its currency convertible to the US dollar or the UK pound. -The story told in {cite}`sargent2002big` is grounded in a "monetarist theory of the price level" described in {doc}`cagan_ree` and {doc}`cagan_adaptive`. +The story told in {cite}`sargent2002big` is grounded in a ``monetarist theory of the price level`` described in {doc}`cagan_ree` and {doc}`cagan_adaptive`. Those lectures discuss theories about what owners of those rapidly depreciating currencies were thinking and how their beliefs shaped responses of inflation to government monetary and fiscal policies. From 0b2b4c4ee14630f74d526871dcd2b5b8eabda457 Mon Sep 17 00:00:00 2001 From: Humphrey Yang Date: Wed, 24 Jul 2024 10:56:22 +1000 Subject: [PATCH 11/15] update solution and quote directives --- lectures/greek_square.md | 60 ++++++++++++++++++++++++++++++++++++---- 1 file changed, 54 insertions(+), 6 deletions(-) diff --git a/lectures/greek_square.md b/lectures/greek_square.md index cae69b82..9ac200e6 100644 --- a/lectures/greek_square.md +++ b/lectures/greek_square.md @@ -4,7 +4,7 @@ jupytext: extension: .md format_name: myst format_version: 0.13 - jupytext_version: 1.16.2 + jupytext_version: 1.16.1 kernelspec: display_name: Python 3 (ipykernel) language: python @@ -16,12 +16,10 @@ kernelspec: ## Introduction - - Chapter 24 of {cite}`russell2004history` about early Greek mathematics and astronomy contains this fascinating passage: - ```{note} + ```{epigraph} The square root of 2, which was the first irrational to be discovered, was known to the early Pythagoreans, and ingenious methods of approximating to its value were discovered. The best was as follows: Form two columns of numbers, which we will call the $a$'s and the $b$'s; each starts with a $1$. The next $a$, at each stage, is formed by adding the last $a$ and the $b$ already obtained; the next $b$ is formed by adding twice the previous $a$ to the previous $b$. The first 6 pairs so obtained are $(1,1), (2,3), (5,7), (12,17), (29,41), (70,99)$. In each pair, $2 a - b$ is $1$ or $-1$. Thus $b/a$ is nearly the square root of two, and at each fresh step it gets nearer. For instance, the reader may satisy himself that the square of $99/70$ is very nearly equal to $2$. ``` @@ -727,6 +725,7 @@ We shall encounter equations very similar to {eq}`eq:deactivate1` and {eq}`eq:de in {doc}`money_inflation` and in many other places in dynamic economic theory. +## Exercise ```{exercise-start} :label: greek_square_ex_a @@ -745,7 +744,56 @@ compute the matrix $A$. ```{solution-start} greek_square_ex_a :class: dropdown ``` -Here is the answer +Here is one soluition. + +According to the quote, we can formulate + +$$ +\begin{aligned} +a_{t+1} &= a_t + b_t \\ +b_{t+1} &= 2a_t + b_t +\end{aligned} +$$ (eq:gs_ex1system) + +with $x_0 = \begin{bmatrix} a_0 \cr b_0 \end{bmatrix} = \begin{bmatrix} 1 \cr 1 \end{bmatrix}$ + +By {eq}`eq:gs_ex1system`, we can write matix $A$ as + +$$ +A = \begin{bmatrix} 1 & 1 \cr + 2 & 1 \end{bmatrix} +$$ + +Then $x_{t+1} = A x_t$ with $t \in \{0, \dots, 5\}$ + +```{code-cell} ipython3 +# Define the matrix A +A = np.array([[1, 1], + [2, 1]]) + +# Initial vector x_0 +x_0 = np.array([1, 1]) + +# Number of iterations +n = 6 + +# Generate the sequence +xs = np.array([x_0]) +x_t = x_0 +for _ in range(1, n): + x_t = A @ x_t + xs = np.vstack([xs, x_t]) + +# Print the sequence +for i, (a_t, b_t) in enumerate(xs): + print(f"Iter {i}: a_t = {a_t}, b_t = {b_t}") + +# Compute eigenvalues and eigenvectors of A +eigenvalues, eigenvectors = np.linalg.eig(A) + +print(f'\nEigenvalues:\n{eigenvalues}') +print(f'\nEigenvectors:\n{eigenvectors}') +``` ```{solution-end} -``` \ No newline at end of file +``` From 110041df7b7b8575721905a31287bbb4f0cc77ea Mon Sep 17 00:00:00 2001 From: Humphrey Yang Date: Wed, 24 Jul 2024 11:36:23 +1000 Subject: [PATCH 12/15] fix a small typo --- lectures/greek_square.md | 5 +++-- 1 file changed, 3 insertions(+), 2 deletions(-) diff --git a/lectures/greek_square.md b/lectures/greek_square.md index 9ac200e6..b43c4e03 100644 --- a/lectures/greek_square.md +++ b/lectures/greek_square.md @@ -744,6 +744,7 @@ compute the matrix $A$. ```{solution-start} greek_square_ex_a :class: dropdown ``` + Here is one soluition. According to the quote, we can formulate @@ -757,14 +758,14 @@ $$ (eq:gs_ex1system) with $x_0 = \begin{bmatrix} a_0 \cr b_0 \end{bmatrix} = \begin{bmatrix} 1 \cr 1 \end{bmatrix}$ -By {eq}`eq:gs_ex1system`, we can write matix $A$ as +By {eq}`eq:gs_ex1system`, we can write matrix $A$ as $$ A = \begin{bmatrix} 1 & 1 \cr 2 & 1 \end{bmatrix} $$ -Then $x_{t+1} = A x_t$ with $t \in \{0, \dots, 5\}$ +Then $x_{t+1} = A x_t$ for $t \in \{0, \dots, 5\}$ ```{code-cell} ipython3 # Define the matrix A From 7f59799a0beb65d613d5ad7ae717df2c77248127 Mon Sep 17 00:00:00 2001 From: Humphrey Yang Date: Wed, 24 Jul 2024 11:44:19 +1000 Subject: [PATCH 13/15] make the last graph clearer --- lectures/greek_square.md | 2 +- 1 file changed, 1 insertion(+), 1 deletion(-) diff --git a/lectures/greek_square.md b/lectures/greek_square.md index b43c4e03..8bf4a982 100644 --- a/lectures/greek_square.md +++ b/lectures/greek_square.md @@ -687,7 +687,7 @@ We find that the ratios converge to $\lambda_2$ in the first case and $\lambda_1 :tags: [hide-input] # Plot the ratios for y_t / y_{t-1} -fig, axs = plt.subplots(1, 2, figsize=(14, 6)) +fig, axs = plt.subplots(1, 2, figsize=(12, 6), dpi=500) # First subplot axs[0].plot(np.round(ratios_λ1, 6), From a79c79300acb55456eb6beb78c3521dc8c293ad5 Mon Sep 17 00:00:00 2001 From: Humphrey Yang Date: Thu, 25 Jul 2024 18:24:26 +1000 Subject: [PATCH 14/15] update style in line with style guide --- lectures/french_rev.md | 42 +++++++++++++++++------------------ lectures/inflation_history.md | 4 ++-- 2 files changed, 23 insertions(+), 23 deletions(-) diff --git a/lectures/french_rev.md b/lectures/french_rev.md index 2980271a..5d012891 100644 --- a/lectures/french_rev.md +++ b/lectures/french_rev.md @@ -35,7 +35,7 @@ Some of those theories about monetary and fiscal policies still interest us toda * a **real bills** theory of the effects of government open market operations in which the government *backs* new issues of paper money with government holdings of valuable real property or financial assets that holders of money can purchase from the government in exchange for their money. - * the Revolutionaries learned about this theory from Adam Smith's 1776 book The Wealth of Nations + * The Revolutionaries learned about this theory from Adam Smith's 1776 book The Wealth of Nations {cite}`smith2010wealth` and other contemporary sources * It shaped how the Revolutionaries issued a paper money called **assignats** from 1789 to 1791 @@ -50,7 +50,7 @@ Some of those theories about monetary and fiscal policies still interest us toda * a **legal restrictions** or **financial repression** theory of the demand for real balances - * the Twelve Members comprising the Committee of Public Safety who adminstered the Terror from June 1793 to July 1794 used this theory to shape their monetary policy + * The Twelve Members comprising the Committee of Public Safety who adminstered the Terror from June 1793 to July 1794 used this theory to shape their monetary policy We use matplotlib to replicate several of the graphs with which {cite}`sargent_velde1995` portrayed outcomes of these experiments @@ -79,7 +79,7 @@ assignat_url = f'{base_url}assignat.xlsx' -We'll start by using matplotlib to construct several graphs that will provide important historical context. +We'll start by using `matplotlib` to construct several graphs that will provide important historical context. These graphs are versions of ones that appear in {cite}`sargent_velde1995`. @@ -132,7 +132,7 @@ During the 18th century, Britain and France fought four large wars. Britain won the first three wars and lost the fourth. -Each of those wars produced surges in both countries government expenditures that each country somehow had to finance. +Each of those wars produced surges in both countries' government expenditures that each country somehow had to finance. Figure {numref}`fr_fig4` shows surges in military expenditures in France (in blue) and Great Britain. during those four wars. @@ -179,14 +179,14 @@ plt.show() ``` -Figures {numref}`fr_fig2` and {numref}`fr_fig3` summarize British and French government fiscal policies during the century before the start the French Revolution in 1789. +Figures {numref}`fr_fig2` and {numref}`fr_fig3` summarize British and French government fiscal policies during the century before the start of the French Revolution in 1789. Before 1789, progressive forces in France admired how Britain had financed its government expenditures and wanted to redesign French fiscal arrangements to make them more like Britain's. Figure {numref}`fr_fig2` shows government expenditures and how it was distributed among expenditures for - * civil (non military) activities + * civil (non-military) activities * debt service, i.e., interest payments * military expenditures (the yellow line minus the red line) @@ -209,7 +209,7 @@ Figure {numref}`fr_fig2` indicates that * thus, after a war, the government does *not* raise taxes by enough to pay off its debt * instead, it just rolls over whatever debt it inherits, raising taxes by just enough to service the interest payments on that debt -Eighteenth century British fiscal policy portrayed Figure {numref}`fr_fig2` thus looks very much like a text-book example of a *tax-smoothing* model like Robert Barro's {cite}`Barro1979`. +Eighteenth-century British fiscal policy portrayed Figure {numref}`fr_fig2` thus looks very much like a text-book example of a *tax-smoothing* model like Robert Barro's {cite}`Barro1979`. A striking feature of the graph is what we'll lagel a *law of gravity* between tax collections and government expenditures. @@ -320,7 +320,7 @@ Powerful contending interests had prevented from the government from closing the total expenditures and its tax revenues by either * raising taxes, or - * lowering government's non debt service (i.e., non-interest) expenditures, or + * lowering government's non-debt service (i.e., non-interest) expenditures, or * lowering debt service (i.e., interest) costs by rescheduling, i.e., defaulting on some debts Precedents and prevailing French arrangements had empowered three constituencies to block adjustments to components of the government budget constraint that they cared especially about @@ -347,7 +347,7 @@ would bring sustained budget balance. In 1789, the Revolutionaries quickly reorganized the Estates General into a National Assembly. -A first piece of business was to address the fiscal crisis, the situation that had motivated the King to convence the Estates General. +A first piece of business was to address the fiscal crisis, the situation that had motivated the King to convene the Estates General. The Revolutionaries were not socialists or communists. @@ -371,7 +371,7 @@ The monetary theory underlying this plan had been set out by Adam Smith in his a Adam Smith defined a **real bill** as a paper money note that is backed by a claims on a real asset like productive capital or inventories. -The National Assembly put togethere an ingenious institutional arrangement to implement this plan. +The National Assembly put together an ingenious institutional arrangement to implement this plan. In response to a motion by Catholic Bishop Talleyrand (an atheist), the National Assembly confiscated and nationalized Church lands. @@ -385,7 +385,7 @@ Their plan involved issuing paper notes called ''assignats'' that entitled beare These paper notes would be ''as good as silver coins'' in the sense that both were acceptable means of payment in exchange for those (formerly) church lands. -Finance Minister Necker and the Constituants of the National Assembly thus planned +Finance Minister Necker and the Constituents of the National Assembly thus planned to solve the privatization problem *and* the debt problem simultaneously by creating a new currency. @@ -399,7 +399,7 @@ Records of debates show how members of the Assembly marshaled theory and evidence to assess the likely effects of their innovation. - * Members of the Natioanl Assembly quoted David Hume and Adam Smith + * Members of the National Assembly quoted David Hume and Adam Smith * They cited John Law's System of 1720 and the American experiences with paper money fifteen years earlier as examples of how paper money schemes can go awry * Knowing pitfalls, they set out to avoid them @@ -418,8 +418,8 @@ They wanted to honor government debts -- interests of French government creditor But they set out to remake the French tax code and the administrative machinery for collecting taxes. * they abolished many taxes - * they abolished the Ancient Regimes scheme for ``tax farming`` - * tax farming meant that the government had privatized tax collection by hiring private citizes -- so called tax farmers to collect taxes, while retaining a fraction of them as payment for their services + * they abolished the Ancient Regimes scheme for *tax farming* + * tax farming meant that the government had privatized tax collection by hiring private citizens -- so-called tax farmers to collect taxes, while retaining a fraction of them as payment for their services * the great chemist Lavoisier was also a tax farmer, one of the reasons that the Committee for Public Safety sent him to the guillotine in 1794 As a consequence of these tax reforms, government tax revenues declined @@ -503,7 +503,7 @@ plt.tight_layout() plt.show() ``` -To cover the disrepancies between government expenditures and tax revenues revealed in {numref}`fr_fig11`, the French revolutionaries printed paper money and spent it. +To cover the discrepancies between government expenditures and tax revenues revealed in {numref}`fr_fig11`, the French revolutionaries printed paper money and spent it. The next figure shows that by printing money, they were able to finance substantial purchases of goods and services, including military goods and soldiers' pay. @@ -556,11 +556,11 @@ where Notice the 1793-1794 surge in revenues raised by printing money. -* this reflects extraordinary measures that the Committee for Public Safety adopted to force citizens to accept paper money, or else. +* This reflects extraordinary measures that the Committee for Public Safety adopted to force citizens to accept paper money, or else. Also note the abrupt fall off in revenues raised by 1797 and the absence of further observations after 1797. -* this reflects the end using the printing press to raise revenues. +* This reflects the end of using the printing press to raise revenues. What French paper money entitled its holders to changed over time in interesting ways. @@ -611,13 +611,13 @@ plt.show() ``` We have partioned {numref}`fr_fig9` that shows the log of the price level and {numref}`fr_fig8` -below that plots real balances $\frac{M_t}{p_t}$ into three periods that correspond to different monetary experiments or ``regimes``. +below that plots real balances $\frac{M_t}{p_t}$ into three periods that correspond to different monetary experiments or *regimes*. The first period ends in the late summer of 1793, and is characterized by growing real balances and moderate inflation. The second period begins and ends -with the Terror. It is marked by high real balances, around 2,500 millions, and +with the Terror. It is marked by high real balances, around 2,500 million, and roughly stable prices. The fall of Robespierre in late July 1794 begins the third of our episodes, in which real balances decline and prices rise rapidly. @@ -770,7 +770,7 @@ third period has the inverse relationship familiar to us now from twentieth-cent hyperinflations. To bring this out, we'll use linear regressions to draw straight lines that compress the - inflation-real balance relationship for our three sub periods. + inflation-real balance relationship for our three sub-periods. Before we do that, we'll drop some of the early observations during the terror period to obtain the following graph. @@ -991,6 +991,6 @@ In 1799, Napoleon Bonaparte became first consul and for the next 15 years used r This lecture sets the stage for studying theories of inflation and the government monetary and fiscal policies that bring it about. -A ``monetarist theory of the price level`` is described in this quantecon lecture {doc}`cagan_ree`. +A *monetarist theory of the price level* is described in this quantecon lecture {doc}`cagan_ree`. That lecture sets the stage for these quantecon lectures {doc}`money_inflation` and {doc}`unpleasant`. diff --git a/lectures/inflation_history.md b/lectures/inflation_history.md index a211b2b7..5c5d0740 100644 --- a/lectures/inflation_history.md +++ b/lectures/inflation_history.md @@ -653,7 +653,7 @@ The US government stood ready to convert a dollar into a specified amount of gol Immediately after World War I, Hungary, Austria, Poland, and Germany were not on the gold standard. -Their currencies were “fiat” or "unbacked", meaning that they were not backed by credible government promises to convert them into gold or silver coins on demand. +Their currencies were "fiat" or "unbacked", meaning that they were not backed by credible government promises to convert them into gold or silver coins on demand. The governments printed new paper notes to pay for goods and services. @@ -669,6 +669,6 @@ Chapter 3 of {cite}`sargent2002big` described deliberate changes in policy that Each government stopped printing money to pay for goods and services once again and made its currency convertible to the US dollar or the UK pound. -The story told in {cite}`sargent2002big` is grounded in a ``monetarist theory of the price level`` described in {doc}`cagan_ree` and {doc}`cagan_adaptive`. +The story told in {cite}`sargent2002big` is grounded in a *monetarist theory of the price level* described in {doc}`cagan_ree` and {doc}`cagan_adaptive`. Those lectures discuss theories about what owners of those rapidly depreciating currencies were thinking and how their beliefs shaped responses of inflation to government monetary and fiscal policies. From 72d345a41a2fe1ecc76a60084bb21dc8412e431f Mon Sep 17 00:00:00 2001 From: Humphrey Yang Date: Thu, 15 Aug 2024 10:23:33 +1000 Subject: [PATCH 15/15] update based on feedback --- lectures/french_rev.md | 16 ++++++++-------- 1 file changed, 8 insertions(+), 8 deletions(-) diff --git a/lectures/french_rev.md b/lectures/french_rev.md index 5d012891..1f5aec0d 100644 --- a/lectures/french_rev.md +++ b/lectures/french_rev.md @@ -33,7 +33,7 @@ Some of those theories about monetary and fiscal policies still interest us toda * mathematics involving compound interest governed French government debt dynamics in the decades preceding 1789; according to leading historians, that arithmetic set the stage for the French Revolution -* a **real bills** theory of the effects of government open market operations in which the government *backs* new issues of paper money with government holdings of valuable real property or financial assets that holders of money can purchase from the government in exchange for their money. +* a *real bills* theory of the effects of government open market operations in which the government *backs* new issues of paper money with government holdings of valuable real property or financial assets that holders of money can purchase from the government in exchange for their money. * The Revolutionaries learned about this theory from Adam Smith's 1776 book The Wealth of Nations {cite}`smith2010wealth` and other contemporary sources @@ -211,7 +211,7 @@ Figure {numref}`fr_fig2` indicates that Eighteenth-century British fiscal policy portrayed Figure {numref}`fr_fig2` thus looks very much like a text-book example of a *tax-smoothing* model like Robert Barro's {cite}`Barro1979`. -A striking feature of the graph is what we'll lagel a *law of gravity* between tax collections and government expenditures. +A striking feature of the graph is what we'll label a *law of gravity* between tax collections and government expenditures. * levels of government expenditures at taxes attract each other * while they can temporarily differ -- as they do during wars -- they come back together when peace returns @@ -366,10 +366,10 @@ This coincidence fostered a three step plan for servicing the French government * sell the church lands * use the proceeds from those sales to service or even retire French government debt -The monetary theory underlying this plan had been set out by Adam Smith in his analysis of what he called **real bills** in his 1776 book +The monetary theory underlying this plan had been set out by Adam Smith in his analysis of what he called *real bills* in his 1776 book **The Wealth of Nations** {cite}`smith2010wealth`, which many of the revolutionaries had read. -Adam Smith defined a **real bill** as a paper money note that is backed by a claims on a real asset like productive capital or inventories. +Adam Smith defined a *real bill* as a paper money note that is backed by a claims on a real asset like productive capital or inventories. The National Assembly put together an ingenious institutional arrangement to implement this plan. @@ -624,7 +624,7 @@ of our episodes, in which real balances decline and prices rise rapidly. We interpret these three episodes in terms of distinct theories -* a **backing** or **real bills** theory (the classic text for this theory is Adam Smith {cite}`smith2010wealth`) +* a *backing* or *real bills* theory (the classic text for this theory is Adam Smith {cite}`smith2010wealth`) * a legal restrictions theory ( {cite}`keynes1940pay`, {cite}`bryant1984price` ) * a classical hyperinflation theory ({cite}`Cagan`) * @@ -695,7 +695,7 @@ hyperinflations. -* subperiod 1: ("**real bills** period): January 1791 to July 1793 +* subperiod 1: ("*real bills* period): January 1791 to July 1793 * subperiod 2: ("terror"): August 1793 - July 1794 @@ -815,7 +815,7 @@ plt.tight_layout() plt.show() ``` -Now let's regress inflation on real balances during the **real bills** period and plot the regression +Now let's regress inflation on real balances during the *real bills* period and plot the regression line. ```{code-cell} ipython3 @@ -851,7 +851,7 @@ plt.show() The regression line in {numref}`fr_fig104c` shows that large increases in real balances of assignats (paper money) were accompanied by only modest rises in the price level, an outcome in line -with the **real bills** theory. +with the *real bills* theory. During this period, assignats were claims on church lands.