Why was there a financial crisis in France in 1788/9

Topic: EconomicsEconomic Concepts
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Last updated: April 12, 2019

In the run up to the French revolution in 1789 France faced much financial problems. This was not helped in the years before by Louis 15th and his love for wars, like the Austrian succession and seven years war and his lavish lifestyle including the building of the palace in Versailles and his many mistresses.

This set France up for many future problems, such involved the Ancien Regime, the tax and estate system, there being no central bank, poor investment into transport and agriculture and the reforms not passed for tax.One of the main problems in France at that time was the Ancien Regime which involved the three estates, of which the upper estates, 1st and 2nd, of whom were nobility and clergy, were exempt from taxes as a privilege although they were the wealthiest. Instead the direct taxes were paid by the 3rd estate through a system called tax-farming, which was a very corrupt system and meant that of the taxes being paid little reached back to the monarch and went into the tax-farmers pocket.This was so much of a problem because the country was not getting enough money in order to maintain the monarchs lavish spending and the rest of country, not to forget putting money back into the country through investment. As his father, Louis 16th had a very expensive lifestyle and taste, as did his young Austrian wife Marie Antoinette.

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They would spend excessive amounts on clothing, parties and luxuries.It wouldn’t be unknown for the young queen of France to change clothes 2-3 times a day, and the dresses she would be clothed in often costed far more than the state could afford. She was given the nickname, ‘Madame Deficit’ by the people due to her spending because this caused much hatred amongst the people.

Also the monarch took a beating with Louis 16th’s father who had dragged the monarch name ‘through the mud’ due to his spending and many mistresses including Madame Du Barry and Madame Du Pompadour.Of which he spent much money on and many came from the bourgeois, which was frowned upon as the hierarchy of the estates were seen to be there for a reason. The French people could see that the monarch was overspending money that they simply didn’t have, which obviously hindered the financial crisis within France at that time. In France at the time of the Ancien Regime, there was no central bank, no paper currency and no ways of getting more money due to there being little investment, and little industrialisation.This meant the country was very reliant on loans from the other countries, but the more they borrowed the more interest was built up, and they simply couldn’t afford to pay them off.

In the later years of the many Controller-Generals that were employed borrowed more and more money, thinking this was the way they could get back on track, but unfortuantly the debt grew and grew.The coutries became less willing to loan money, until one Contorller-General, named Calonne, borrowed money and spent it on building and such within the counrty in order to attract more investment. This helped cause the financial crisi because France had run out of money, they had no resources that they could tap into, and certainly nothing to repay the hefty intrest. However these were only the long-term causes to the financial crisis, they did not cause the revolution on their own, the short-term problems sparked the rebellion and ultimatly the revolution.Firstly, in 1776 Louis 16th decided he wanted to hire a Controller-general to try and sort out the financial problems within the country, so he employed a man called Jaques Necker. Necker appeared to work wonders at the end of his days he wrote a report on the kings finances, ‘Compte Rendu au Roi’ which said that the King was not in debt, in fact he was making money in the region of 10 million livres a years, due to his work of borrowing 520 million livres and yet not needing to raise tax.However Necker just lied! The king was actually loosing money each year, and a lot of it, because Necker had not included the amount of tax the monarch had to pay back each year.

Due to the incompetence of Necker the monarch had no clue how much trouble they were in, and therefore didn’t do much about it, so continued to spend, spend, spend, without changing the tax system. Necker resigned promptly after the ‘Compte Rendu au Roi’ due to still being popular amongst the people.After Necker, and another Controller-General who didn’t last long, came Calonne in 1783. Calonne in the beginning had everything going for him, he had strong connections to the courts and many of the public liked him. Calonne soon realised that complete reform of the tax system was needed, and called for the loss of tax exemption to the 1st and 2nd estates. This in turn attacked the power of the Parlements because they were mainly the nobility and clergy.The only other options were the Assembly of Notables and Estates General, the Assembly of Notables ended up meeting on the 22nd February of 1787. At the assembly there was a revolt amongst the nobility because Calonne had become unpopular by that point, and the nobility did not want to have to pay tax.

Unfortunately the reforms could not be passed and the king had no power regarding the taxation laws of the country. He could have tried a lit de justice but because of his weak nature he did not want the nobility to revolt against him, so sat back and watched.This did not help the financial problems in the country because those who had all the money did not want to give it back to the country they wanted the 3rd estate consisting of peasants to pay the tax, but the peasants couldn’t sustain the country on their tax alone. By the few years preceding the revolution France was in a lot of trouble its monarch was declared bankrupt and there was no money being put back into the country.Not much had been done as regards reforming the system, simply because the wealthy who had the privilege of not paying tax also controlled the country, this meant they had the power to stop reform from being passed. However after the enlightenment the 3rd estate realised they didn’t neccessaily have to let the higher estates rule their lives, they also realised that the 1st and 2nd estates only made up 5% of the population, and that they could overthrow them in the revolution that was waiting to happen.

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