Rules over Discretion

To explain the fiscal origins of the French Revolution, historians have traditionally emphasized the central government's inability to raise taxes. The underlying reason was the unwillingness of key groups to endorse tax increases in the absence of stated rules of monetary and fiscal policy. Economists have given considerable attention in recent years to the question of economic uncertainty. Uncertainty raises the cost of acquiring capital and discourages investment, which in turn results in a lower level of output than might otherwise be possible. A major cause of uncertainty in Old Regime France was irresponsible government fiscal policy. The threat of late payment of interest, for example, continually hung over the heads of the holders of government securities and offices. Reduction of this uncertainty would have reduced interest rates and increased investment even given a constant but insufficient rate of taxation. French capitalists of the eighteenth century were well aware that uncertainty affects accumulation of capital by increasing interest rates. French industrialists did not invest in projects that their counterparts across the Channel would have pursued, because the higher French interest rates discouraged investment in all but the most profitable of enterprises. Government-guaranteed monopolies satisfied the highest requirements of profitability, whereas productive, unregulated enterprises might not. The government's fiscal irresponsibility thus burdened the nation's economic development.

In the years before the French Revolution, a burgeoning pamphlet literature expressed a clear preference for rules over discretion in government fiscal policy. The authors of the pre-revolutionary pamphlets hypothesized that greater certainty through limits on government fiscal discretion was the primary benefit that parliamentary institutions had brought to England. They enthusiastically endorsed the calling of the Estates General, inasmuch as it might remedy the regime's chronic financial uncertainty. The pamphlet authors affirmed that more public control over fiscal policy would impose restrictions on the previously unfettered fiscal discretion of government ministers.

Did members of the French public value this promise of stability enough to accept the prospect of new taxes? Many pamphleteers expressed the concern that additional taxes without an end to governmental discretion and secrecy would do little to reduce the risks and uncertainty that kept interest rates high. In fact, interest rates stabilized briefly after the reinstatement of Necker in 1787 primarily because of his promise to pay creditors on time and in coin, unlike the previous finance minister, Loménie de Brienne, who proposed payments partly in paper to holders of government securities and offices.^[1] The fiscal ideals of 1789 were monetary stability, the timely payment of interest, rules over discretion, and the reduction of uncertainty.

Although many members of the 1789 Constituent Assembly called for equal taxation across regions and social groups, this did not mean they wanted more taxation. During the Revolution an increase in taxation led to resistance in those regions where taxation had traditionally been low. While calling for a more equal distribution of the tax burden, many in France envisioned eliminating particularly unpopular taxes, including the salt tax, the tithe, and the internal tariffs and tolls. An end to the Ferme générale was also desired, as were cuts in government spending on the court. No consensus existed in 1789 in favor of increasing the government's ability to tax as a means of resolving the fiscal crisis. Both Adam Smith and Jean-Baptiste Say pointed out that the French Crown's ability to wage warfare was limited only by its ability to fund wars. Greater tax revenues might have meant longer wars, not greater fiscal and monetary stability.