Capitalism with a Crippled Price Mechanism in the "Semi-Autarchic Welfare State" of France

The true scope of the recent French monetary and fiscal reform has been little understood in Europe, still less in America. For Poincare, in 1928, all that mattered was to balance the budget, to stop monetization of the public debt, and to return to gold convertibility of the currency. (The budget was actually over-balanced for the four years, 1927-1931.) For De Gaulle, convertibility is a remote goal, genuine budget balancing perhaps even more so. Stabilizing the budget deficit and the external value of the franc are the prime agenda. At the same time they are means to an overriding objective. What is now a chief objective, was scarcely even problematic thirty-odd years ago: the restoration of the price mechanism.

By a myriad of devious techniques, the French price system and income distribution had been effectively distorted, until even the semblance of competitive markets had almost vanished.

The semi-autarchic Welfare State has nowhere been more fully, more "scientifically," and more disastrously, developed than in France before De Gaulle came into power. As a result, French prices had lost contact, more or less, with the world markets and with domestic costs.

--Melchior Palyi, A Lesson in French Inflation (New York: Economists' National Committee on Monetary Policy, 1959), 38.

This Upside-Down Economics Was Made Possible by What Is Euphemistically Called "Managed Money"

At present [1959], the purchasing power of the French franc is less than one-two-hundredth, about 0.4 per cent, of what it was in 1914. . . .

This French monetary-fiscal debacle was brought about by the process of printing paper money in order to pay for the deficit the government was running in 38 out of 44 years--or rather, for the part of the deficits that could not be covered by pushing the bonds down the throats of the public and of the savings institutions. . . .

Only a dictator could force monetary and fiscal discipline upon a public almost every sector of which was determined to milk to Welfare State for its own private benefit.

And there was always a convenient excuse available for not going to the root of the trouble: first the need for reconstruction; then the Indo-China war; the cost of the Algerian rebellion since 1954 which, in reality, accounts for scarcely more than 10 per cent of the total of governmental expenditures. (The Indo-China war was paid for largely by the United States taxpayer.) The truth is, as a French economist, Dr. Jacques Rueff, summed it up, that the French were consuming more than producing, investing more than saving, importing more than exporting, and hiding a good portion of their profits in gold at home or in assets abroad. This upside-down economics was made possible by what is euphemistically called "Managed Money."

--Melchior Palyi, A Lesson in French Inflation (New York: Economists' National Committee on Monetary Policy, 1959), 12-13.