The Duc de Saint-Simon, in his famous Memoirs, wrote of his opposition to Louis’ embrace of John Law’s “System” of a French state bank issuing paper money, back when Law proposed the scheme in 1715. The estimable Saint-Simon noted, with extraordinary shrewdness, that such a “System,” a state bank with the ability to issue fiat money and float bonds, could only work
in a republic or in a monarchy like England, whose finances are controlled by those alone who furnish them, and who only furnish as much as they please. But in a State which is weak, changeable, and absolute, like France, stability must necessarily be wanting to it; since the King, or in his name a mistress, a minister or favorites … may overthrow the Bank — the temptation to which would be too great, and at the same time too easy.
The comparison (emphasis added) is arresting – the republic of merchants, self-controlling from self-interest alone the issuance of debt and paper money by the sovereign, as against absolutist France, “absolute” and therefore “weak.” And later the Duc goes on to remark that absolutist France must lose wars to parliamentary England, because the absolute Louis must borrow for his wars at interest rates far exceeding those of England, whose war bonds are sufficiently largely purchased voluntarily by its own population as to be trusted by foreign investors as well. The English can conduct many more campaigns over many more years than the French.
I draw this from the marvelous book by James Macdonald, A Free Nation Deep in Debt: The Financial Roots of Democracy (FSG 2003), which is even better on these topics of financial-political history than Niall Ferguson’s early, then-still academic work on the bond markets and war.
But the lesson is not precisely [...]