Abstract: The Banque de France's Privilege as a Balancing Tool between Private Vices and Public Virtues, and Vice Versa

Patrice Baubeau

Abstract

The French Revolution did not revolutionize everything, but it did reverse the hierarchy of legal norms. While customs (common law) tended to be the most eminent source of law before 1789, once codification was completed, around 1810, written law became the the fundamental basis upon which a judge's decision had to rest. Nevertheless, the market's failure to provide the economy with an adequate amount of currency at a reasonable cost led to the same solution before and after 1789—a privileged body, even thoug privileges had been ruled out by the Revolution. The role of the privilege was to allow for a balance between private vices—lust, speculation and monopolization—and public virtues—wider access to cheap credit, currency, and state funding. The negotiations over the different aspects of the privilege, between 1776 and 1897, show that this delicate balance was never permanent, even though it retained overwhelming elements of continuity. It had to be adjusted from time to time—most notably when the Banque's charter was renewed—in order to adapt to the changing conditions within the banking sector, state finances and monetary practices. One of the most striking features of the negotiations concerned the distribution of the Banque's profits. On the one hand, the Banque's general aim was to lower the rate of discount and promote cheap credit, which had a depressing impact on its profits. On the other hand, currency management by the Banque led it to raise its discount rate when a crisis occurred. This raised profits to a maximum when the economy was in distress, a contradiction that fueled public outcry and menaced the Banque's position and its monopoly. The way out of the contradiction was designed within the framework of the privilege, and led to ever more complex fiscal rules related to the Banque's profit. These rules aimed at two main objectives: to limit the incentive to raise rates, and to channel ''excessive'' profits toward the state or toward ''socially useful'' investments. The Banque de France's prestige on the eve of the First World War bears witness that, through privilege, a healthy compromise between private vices and publics virtues could be achieved.