Literature in discussion: Henry E. Bourne. “Food Control and Price-Fixing in Revolutionary France.” The Journal of Political Economy, Vol. 27, No. 2 (February 1919). Part 1 and Part 2

Food policy of France during the height of revolutionary terror offers an interesting insight into how easily the complex mechanics of food production and distribution could be distorted by improper government intervention. Applying the case study to the modern era, it resonates particularly well with North Korea as the French revolutionary government was then pursuing a defense-oriented policy with the onset of the French Revolutionary War.

This article by Bourne, published in 1919, looks at the food crisis of 1793-94 through the prism of France’s then recent experience with total war in the First World War. It details Revolutionary France’s attempt to ensure food security through a policy of maximum price and how misinterpretation of the fundamental cause behind the food crisis and inadequate institutional mechanisms to implement changes led to ruin.

Food Policy during the Bourbon Monarchy and early Revolutionary France until 1793

Until 1763, the French monarchy had restricted the free traffic of grain and forced all purchases to be made in an open market. This meant that farmers were not allowed to sell their grain to commission merchants, but had to transport and sell the grain at the market in person. This created inefficiencies that weighed down the French economy, which, like all pre-industrial societies, depended heavily on a robust agricultural sector. In 1764, Anne-Robert-Jacques Turgot and other economists pointed out this problem, calling for the end to barriers to grain trade. While they were met with opposition from institutionalized interests (market inspectors and other regulatory bodies), Turgot was able to convince the legislative body to do away with the restrictions.

The free movement of grain was more or less maintained until the revolution (1789) when local communes established customs and barriers, reflecting the society’s deep distrust in the new central administration’s ability to ensure the supply of food. The revolution had heralded a food crisis.

Widespread rumors of grain being exported to enemy countries led to mobs attacking grain carts – as a result, less and less farmers were willing to deliver the grain out of fear of being attacked on the road. At the same time, the farmers were unwilling to sell their grain to government agents who offered them only the assignat, a paper currency that was inconvertible to gold and had been inflating since the revolution. The currency problem could have been resolved by the French state establishing a direct tax, thereby automatically increasing the value of the assignat – however, this was never implemented. Bourne believes that the reason direct taxation was never tried was because the state found it simpler and expedient to print more money than reorganize its convoluted tax collecting body.

In part the food crisis was also exacerbated by competition between the government departments, each dispatching their own agents to acquire grain from farmers. The army needed resources for the ongoing war while deputies from Paris sought to procure resources to lower bread prices in the city and appease the mob that had brought down the ancien regime. In fact, the over zealous effort by the Parisian deputies to supply Paris with cheap grains worsened the food deficit in the city as people in surrounding departments (administrative unit in France) began to purchase the relatively cheaper flour from Paris.

In 1792, of the 83 departments in France, 58 applied to the interior ministry for additional supplies.

In November of 1792, a proposal was forwarded in the National Convention to restore the pre-1763 policy of restricting the movement of grains and limiting the trade of grain to the open market. The implication was that the ongoing food deficit was caused by speculation and the trade of grain had to be regulated.

Several prominent French deputies opposed the restoration of this policy. Louis Antoine Léon de Saint-Just argued that the fundamental cause of high prices was the overissue of the assignat while Charles Jean Marie Barbaroux noted that the conscription of 300,000 men in the army caused the decline in productivity. Creuze-Latouche, an advocate of Turgot’s principles, blamed the crisis on the lack of merchants and the decline in commerce. All three agreed that the imposition of further restrictions to grain trade would yield more problems. Sufficiently convinced, the Convention instead passed a law ensuring the safety of the grain carriages. The French economy, for a brief moment, held back from plunging into a fully fledged crisis. That respite came to an end in 1793 with the execution of Louis XVI.

Revolutionary command economy, 1793-94

The execution of Louis XVI in January of 1793 seriously affected France’s relationship with neighboring countries. By February, France was engaged in a war against Britain and the Dutch Republic.

With the renewal of military engagements, the domestic food crisis became acute. Bourne recognized the severing of the crucial shipment of grains from the Baltic region by the British fleet as the key cause of the rising food prices in the country. This was not to suggest that France did not have the capacity to be self-sufficient – they were, but the main issue was distribution and the British blockade negatively impacted the people’s perception of domestic grain availability, causing volatile prices to skyrocket.

In April, the Jacobins and other radicals from Paris who had supported the execution of Louis XVI accused moderates who had opposed the regicide of conspiring with foreign monarchies and ousted them from power. The newly established Committee of Public Safety, led by the radical demagogue Maximilien de Robespierre, was now in charge of policy-making.

One of the first policies instituted by the radical-controlled Convention was a maximum price on grains. Instead of seeing the crisis as a distributive problem, the Jacobins played up the townspeople’s prejudice against merchants and farmers by blaming the food crisis on hoarding and speculation. On May 4, the Convention authorized each department to set a maximum price for grain and legislated maximum punishment to farmers who hoarded grain or sold their harvest outside of the markets. Each department was to determine the maximum price by taking the average cost of grains between January and May – they were then to steadily lower the maximum price while also forcing farmers to sell their stockpiled grain.

There were several key problems:

The policy failed to guarantee farmers a reasonable profit, thus there was no incentive to increase production, especially as price of inputs such as tools continued to steadily rise.

Due to serious institutional deficiencies, information on the aggregate stock of grain in the country was difficult to ascertain – thus it was nearly impossible to properly assess where surplus grain could be requisitioned for the market.

The Jacobins also failed to notice that on the ground-level, the people expected to enforce the new laws would be farmers themselves who were acting as regional or communal officers.

Maximum prices had an adverse effect on the value of public land which acted as the security behind the assignat, further undermining the public’s confidence in the currency.

The immediate result of maximum prices was that farmers refused to give up their grain.

On top of not having an effective central machinery to enforce the law, the government was beset by delays in the pronouncement and implementation of the maximum prices. Some departments were purposely delaying the enforcement of the law to draw grain from neighboring departments. At the same time, as Saint-Just had pointed out in 1792, the crisis was spurred on, if not caused largely by, the overissue of the assignat. By the summer of 1793, 4 billion Livres had been issued and in 6 months since the start of the food crisis, the assignat had lost half of its value relative to coins denominated in precious metals. Similarly, as Barbaroux had noted, the levee en masse had drawn labor away from the farms – not just through the conscription of able-bodied men but also the appropriation of horses and other draught animals that were pivotal complements to deficient manpower in many rural areas. Despite these gross policy failures, the Jacobins continued to blame the worsening food crisis on farmers.

The demand for food was increasing, especially with the army engaged in campaigns against invading forces. The government finally resorted to requisitioning grain by force. At the same time, the radicals called for more maximum price laws in the Convention, believing that greater state command over the economy would stabilize prices.

In large part, the Jacobins were trying to satisfy Paris which was brewing with dissent over the food deficit which had replaced soaring food prices. The new laws passed in September of 1793 set a uniform maximum price across the country, replacing the law in May which had permitted each department to set their own prices. In addition, a revolutionary army was created to coerce reluctant farmers into giving up their grain. The government now had command over all the stocks in the country – in addition, to ensure the continued milling of flour and baking of bread, millers and bakers were drafted and forced to engage in their trade regardless of profit.

The centralization had taken care of one problem – the various government agencies were no longer competing with one another for food as the deputies of the Convention were exclusively authorized to requisition grains. However, the requisition of grains further decreased the circulation of grains. At the same time, farmers who had always held a small stockpile of grain, as a safeguard against short crops in the following year, were pushed into an extremely vulnerable position.

The quality of goods also fell. Shops that had been forced to stay open by government decree were wiped out, some in mere hours after the implementation of the maximum price law. In place of merchants and markets, petty traders rose, dealing in small amount of goods that could be easily hidden. The attempt by the Jacobins to command the market had broken the foundations of the French economy.

In the end, it was the purge of Robespierre in 1794 that brought an end to the madness.

Lessons for the DPRK

Despite being 200 years apart, the case study of the Jacobin experiment with price controls resonates well with North Korea’s own food insecurity. On top of exhibiting what Bourne calls “a garrison mentality,” – defense-oriented and suspicious of people not serving the “greater good” of the nation – two additional similarities between the two states jump out.

As Saint-Just pointed out to the National Convention in 1792, Revolutionary France had a problem with the overissuance of the assignat. The policy of establishing a maximum price did not minimize the country’s problem with inflation as the policy’s effect on the value of land further weakened the currency. Bourne asked the right question: why was direct taxation not introduced to establish purchasing power for the paper currency? He saw insufficient institutional capacity of the revolutionary government to overhaul the internal revenue services as the key problem – but this is a mere symptom of the Jacobins’ overall weakness: its over-reliance on Parisian support and inability to act autonomously. A direct tax policy would have run counter to populist sentiments on the streets of Paris and the Jacobins were either too deluded to see what needed to be done or were too weak to risk enraging Parisians at a time when the rest of the country was rife with discontent. Many of the measures taken by the Jacobins clearly sought to satisfy Paris at the expense of the rest of the country – these policies further eroded the confidence in the central administration and deepened the food crisis, feeding into a vicious cycle that rendered the government powerless.

North Korea faces a similar crisis in confidence. Since the revaluation of the North Korean Won (KPW) in 2009, massive increases in food prices denominated in KPW revealed that a serious currency crisis had struck the country. With the public unable to trust the government-issued currency as a long-term store of value, people are searching to hedge their economic security in safer foreign currencies. The resulting abandonment of KPW, in favor of US dollars and Chinese renminbi, leads to further loss of purchasing power and inflation.

The DPRK Food Policy team believes that the currency crisis is in large part exacerbated by Pyongyang’s overconsumption of resources. The recent construction boom in Pyongyang suggests that the North Korean state is releasing easy money to the denizens of the capital – in fact, recent reports noted that direct cash wages for workers in Pyongyang exceeded that of workers living outside the capital area. The government’s expansionary monetary policy has two key consequences – first, there is an overissuance of KPW, undermining the currency’s purchasing power; second, the high purchasing power of Pyongyang, a phenomenon created by the Cantillon Effect, draws available resources to the capital, creating deficits in the periphery.

Food insecurity in North Korea, as was the case in Revolutionary France, remains a distributive problem. The available grain is not circulating due to government intervention. Inefficiencies in the rice trade could be resolved by providing farmers with more freedom to sell their output and/or land reforms to provide farmers with greater productive capacities. However, just as the Jacobins were held hostage by their lack of autonomy from the Parisian mob, the North Korean state cannot risk alienating Pyongyang by engaging in reforms. While reforms would increase both output and efficiency, it might also mean to reallocate resources away from affluent urbanites to farmers. It is much more expedient for the state to satiate the denizens of Pyongyang with easy access to money (via inflation) and infrastructural investment than to potentially risk widespread dissent in the capital.

Both states, under severe pressure from abroad and within, suffered from a currency crisis that was exacerbated by the central government’s inability to implement policy that ran the risk of diminishing the legitimacy of the ruling party. The food crisis was the ultimate manifestation of that dysfunction.

The French state eventually resolved the crisis by purging Robespierre. It is curious, if the above assessments of North Korea’s ailments are correct, how the North Korean state will resolve its perennial food insecurity.