Thursday, June 9, 2011

Financial Crisis...1789

I was listening to a history audio book the other day which was discussing the conditions in France which preceded the French Revolution. Some of the major points included political conflicts, antagonism between the aristocracy and the rising bourgeoisie, and the spread of enlightenment philosophies. But the one I found most interesting was the economic situation. Due to the lavish spending habits of the monarchy and a series of wars ending with the seven years war and the American revolution, the french economy was in terrible shape. To fund it's wasteful spending, the French accumulated massive amounts of debt, most of it borrowed from noblemen at high interest rates. By 1785, France teetered on the verge of bankruptcy as they found neither noblemen nor other nations would lend them any further amounts. To make matters worse, the government was already taxing its people to the max. (When I say people, I should point out that I am referring to the peasants, middle class and upper middle class. The wealthiest part of French society, the nobility and clergy, were legally exempt from paying tax.) By 1789 the country was effectively bankrupt, leading to the meeting of the Estates General and then, revolution.

I think there are some interesting parallels between the situation preceding the French Revolution and the United States today. Record high levels of debt and a series of wars have left us in a fragile economic situation. If history has taught us anything it is that economic chaos can lead to radical responses by the populace. And these radical responses often turn out quite badly.

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