The prospects for a repeat of the post-World War II experience of falling debt/GDP ratios are poor.
2018 marks the fortieth anniversary of the death of a Frenchman who genuinely merits the title “statesman of finance.” Jacques Rueff isn’t a household name today. Yet he was the first economist elected to the Académie Française and has good claim to being France’s most distinguished twentieth-century economist. Known during his lifetime as “l’anti-Keynes,” Rueff was not only one of the gold standard’s most articulate exponents. He is widely credited for saving France sixty years ago from serious economic problems which had reduced his country to being Europe’s sick man.
Like several twentieth-century free market economists who achieved prominence in that century’s first half, Rueff’s intellectual interests went far beyond economics. In his case, they ranged from physics to theology. Rueff stands out, however, by virtue of the fact that he was consistently involved in the formation of government economic policy to an extent unrivalled by any of his fellow pro-market advocates.
To understand Rueff, it’s important to know he was a graduate of the École Polytechnique. Founded in 1794, it remains one of France’s most prestigious higher-education institutions. In Rueff’s time, Polytechnique was focused on producing men well-versed in administration, engineering, mathematics, and the natural sciences. It sought to equip its graduates to become members of a highly-educated civil service capable of injecting stability into the political chaos of the Third and Fourth Republics. Rueff would more than fulfill that expectation.
Discovering the Rules of Stable Currencies
Rueff’s background was unusual for a polytechnicien. Born in 1896, he was the son of a Jewish doctor from Alsace-Lorraine. Before entering Polytechnique, Rueff spent four years in the French Army fighting on the Western Front. In 1918, the young lieutenant was assigned as an attaché to an American artillery regiment. The experience left him with a pro-American outlook and an abiding interest in transatlantic affairs.
At Polytechnique, Rueff became fascinated by the relationship between the natural and social sciences. He was attracted to identifying general economic laws so they could be used to shape better government policy. After graduating from Polytechnique, Rueff continued to straddle the worlds of theory and practice. While teaching as an economist at the Sorbonne, Rueff passed the examination for entry into the Inspection générale des finances. Then, as now, this was considered the elite of France’s civil service. More importantly, Rueff’s appointment gave him access to France’s most important political circles.
By 1926, Rueff was working as an advisor to the center-right Prime Minister Raymond Poincaré, especially on how to stabilize the franc. The experience left him convinced that stable currencies relied heavily upon what we call today fiscally conservative policies. It also engendered a distaste for deficit-spending and any program likely to let the inflation-genie out of the bottle. Such positions soon led Rueff into conflict with John Maynard Keynes and his followers.
In 1930, Rueff became the financial attaché at France’s embassy in London. This placed him at the heart of what was then the world’s financial center. The appointment also allowed Rueff to observe at first-hand Britain’s internal debate about how to address the Great Depression.
Rueff particularly disputed the claim that free market policies were responsible for the Depression. In 1932, Rueff started making his case in academic journals and speeches delivered at conferences at British and European universities. The Depression’s causes, he argued, owed much to departures from market-orientated policies, most notably the discipline which the classic gold standard had imposed upon governments from the 1870s until 1914.
Nor was Rueff afraid to criticize the man he believed most responsible for such policy-changes. It wasn’t just that Rueff considered Keynes’s ideas to be counterproductive in the long-term. He also viewed such advice as irresponsible because it gave governments excuses to avoid making hard decisions.
Rueff didn’t stop advocating his decidedly pro-market views when he assumed senior positions in the French finance ministry from 1934 onwards. To anyone who would listen, Rueff argued for balanced budgets, trade-liberalization, and ending price supports. Rueff also set himself against the public works programs, unemployment insurance, and forty-hour work-week implemented by Leon Blum’s Popular Front government.
What’s remarkable about all this is that Rueff gradually persuaded some Popular Front ministers to change their minds. He then played a significant role in reversing some of Blum’s policies when a more conservative government was elected in 1938. Productivity subsequently increased, capital began returning to France, and, after initially rising, unemployment started falling.
Rueff’s ascent to high influence was terminated following France’s humiliating defeat in 1940. Indeed, it resulted in his swift removal from government.
Sometime during or immediately following World War I, Rueff had become a Catholic. Indeed, many of his writings contain religious allusions. But Rueff’s Catholicism didn’t protect him from the first wave of Vichy France’s anti-Semitic laws. His Jewish background resulted in his dismissal from his deputy-governorship of the Banque de France in 1941. Rueff semi-retired into rural obscurity, somewhat protected by his ex-combatant status and possibly by the fact that he and his wife’s family were friendly with Marshal Pétain.
The Connections between Monetary Policy and Political Freedom
Rueff wasn’t one to remain idle. The next three years were spent writing his two-volume magnum opus, L’Ordre Social (1945). In this often-technical book, Rueff refined much of his thinking about political economy, particularly the relationship between money, property, and institutions.
One of L’Ordre Social’s emphases is that, absent sound monetary policy, markets can’t function, and, without markets, the political order will move in highly authoritarian directions. But Rueff also used L’Ordre Social to develop a theme which distinguished him from some other free marketers. According to Rueff, you couldn’t assume that functioning markets would, given the liberty to do so, simply evolve themselves into existence. At some point, the market’s institutional prerequisites such as strong property rights, rule of law, and monetary stability needed to be chosen, established, and protected by the state.
Although he had no contact with German ordo liberals such as Wilhelm Röpke and Walter Eucken during the war, such arguments put Rueff in close proximity to their views. In private correspondence during the 1960s, Rueff and Friedrich von Hayek debated the nuances of this question, specifically the precise relationship between institutions and the spontaneous dimension of markets which Hayek often emphasized.
Intramural free market discussions didn’t, however, distract Rueff from the main game, intellectually or politically. After World War II, Rueff served in a number of government positions, ranging from one year as Monaco’s Minister of State to ten years as a judge on a European court. But through numerous books, academic articles, opinion-pieces and speeches, Rueff continued his relentless intellectual engagement. Much of this was directed against the Keynesian emphasis on top-down macroeconomic planning, deficit-spending, easy money policies, and selective nationalizations of industries. Given his interest in monetary questions, Rueff was quite perturbed by Keynesianism’s inflationary implications.
In 1958, Rueff was suddenly presented with an opportunity to put his ideas into practice. That year General Charles de Gaulle returned to power as the Fourth Republic faltered under the weight of the Algerian War but also deteriorating economic conditions. By the 1950s, the French economy had become Europe’s “sick man.” It was burdened by currency problems, high inflation, uncompetitive industries, feeble capital markets, and low productivity.
De Gaulle was focused upon giving France a new constitution and ending the Algerian war. But the General had always been interested in economic policy and was far more conversant in economic thought than most realize. Like many of his generation of upper middle-class French Catholics, de Gaulle associated monetary stability with France’s national strength and prestige. Any substantive economic reform, de Gaulle believed, had to begin by fixing France’s monetary problems. To that extent, he and Rueff were on the same page.
In late-1958, frustrated with the slow progress made by his finance minister Antoine Pinay, de Gaulle ordered Pinay to establish a committee of experts charged with providing a blueprint for far-reaching economic changes. Rueff was made the committee’s rapporteur and quickly established intellectual ascendency over its other members. It was Rueff’s draft which formed the basis of what became known as the Pinay-Rueff plan submitted to the French Cabinet in late November 1958.
To say that Rueff’s plan sparked controversy is an understatement. Proposals to cut spending, liberalize trade, reform taxes and social security, end subsidies to many industries, and devalue the currency generated resistance from across the political spectrum. The socialist members of de Gaulle’s Cabinet opposed any social security cuts. Some French industrialists were furious that their businesses would lose state subventions. In the end, de Gaulle had to force through acceptance of the reform and publically committed himself to its implementation in a nationally-televised address in which he insisted that the pain was worth it.
And so it was. Rueff’s program led to the French budget being balanced, significant public debt reductions, and greatly-improved competitiveness. Most importantly, the stage had been set for the implementation of a new currency—“le nouveau franc.” This took effect in 1960 and ended decades of currency instability.
Rueff, however, pressed for further reforms. He co-chaired another government committee which recommended measures designed to remove structural obstacles to growth. Throughout the 1960s, Rueff penned a steady stream of letters to de Gaulle outlining more proposals for change. Sometimes the General followed his advice. Sometimes he didn’t.
In the same period, Rueff became deeply involved in debates about international monetary stability as Keynesianism’s inflationary effects upon the global economy became harder to ignore. Rueff consequently emerged as the world’s leading advocate of the gold standard. He wasn’t attached to gold per se. But Rueff firmly believed that the gold standard was indispensable for restraining the short-term impulses of governments that fed inflation.
The Morality of Economic Freedom
As always, Rueff’s arguments extended beyond the technical dimension. Economic decisions were, in his view, always premised upon moral and political choices. He maintained that governments’ inability to balance budgets often reflected deep social divisions about what mattered. Too many politicians, Rueff insisted, responded by spending in ways that sought to please as many groups as possible while hiding the real cost by allowing inflation to take hold. Ergo, the monetary system was steadily corrupted.
From the mid-1960s onwards, Rueff returned to many of the philosophical questions explored in L’Ordre Social. His 1967 book Les dieux et les rois, for instance, tried to explicate the difference between the orders created by humans and those which proceeded from God.
Most of the world and the laws of nature which gave it order, Rueff argued, was a matter of divine design. One sphere, Rueff believed, to which humans could bring order was the economy. Markets and property gave people freedom while simultaneously creating order in economic affairs. But, Rueff argued, they still had to be chosen.
Rueff’s point was that humans were responsible for economic arrangements in which they lived. Persuading politicians and intellectuals to acknowledge this truth was, in a way, the motif of Rueff’s life.
This came at some personal cost to Rueff. He had many opponents and not all of them were as gentlemanly as him. It wasn’t for idle reasons that his close friend and fellow academician, Father Ambroise-Marie Carré OP remarked in a speech to the Académie Française marking the occasion of Rueff’s death in 1978, “to have a taste for reform, it’s necessary to have a taste for martyrdom.”
For Rueff, however, there was nothing inevitable about liberty. Creating the economic and monetary foundations required by a free civilization was thus worth any individual burden. It’s a message that couldn’t be more relevant to our times.