How was it possible that a rich and self-respecting nation let her finances deteriorate to the point of literal bankruptcy? Why let the hard money reserves go down the drain? Why permit herself to sink to the level of an international beggar? Why risk the breakdown of her most highly valued political institutions for which bloody revolutions and wars had been fought? An inflation-ridden France had lost her international position as a major power.
Unfortunately for France, the Poincare-stabilization of 1928 was barely more than a year old when the global depression came along. It caused less suffering in France than in any other country; the number of unemployed never reached beyond a very moderate 400,000. But prices, working hours, take-home wages, profits, and capital values fell. It was simple to blame it all on the return to gold. With the automatic gold standard abandoned in 1936 — the manipulated variety of monetary standard was subjected to devaluations and restrictions, to be replaced in 1939 by a “closed” paper money system — the belief in saving and economy, in the free market, and in the welfare-creating incentives of the price mechanism fell into disrepute.
A popular front of communists and socialists, followed by Petain’s fascist State, was a natural breeding ground for bureaucratism — and for legalized robbery, as Premier Reynaud branded, in 1939, the inflationary practices. But socialists and fascists were mere pikers in inflation compared with the full-fledged Welfare State that emerged from France’s liberation in 1944.
A decisive influence was the Keynesian philosophy that became dominant in France, under Anglo-American influence, after World War II. Its basic tenet was that due to its inherent propensity for saving (hoarding?), a free enterprise economy is hell-bent for depression — mass unemployment — in perpetuity. The Keynesian answer was: perpetual inflation, with the government planning and directing investments, if not prices, wages, and many other functions as well. Distributing “purchasing power” was to provide stable employment, and let such “antiquated” concepts as monetary stability (and all economic freedoms, for that matter) hang. This crude revival of the crackpot doctrines current in the 17th Century suited the communist and socialist doctrinaires; it was a godsend for the power-minded politician (like Mendes-France, a leading self-styled “liberal”) and the job-conscious bureaucrat. Both groups, and their intellectual fellow-travellers, found a most convenient rationalization, or alibi, in favor of ever-more inflation: compassion for the fellow citizen’s sufferings due to the inflation — that was eagerly promoted by the same humanitarian bureaucrats and politicians.
—Melchior Palyi, A Lesson in French Inflation (New York: Economists’ National Committee on Monetary Policy, 1959), 15-16.
