What happens when a town runs out of money? During the Franco-Prussian War of 1870, the French town of Sedan faced an economic crisis as gold and silver coins disappeared from circulation. Yet, as Émile Zola recounts in his novel The Debacle, an ingenious solution helped keep commerce alive: locally issued emergency paper money. Show host Gene Tunny explores this remarkable story and what it reveals about the nature of money, the importance of trust, and the ability of communities to improvise when conventional financial systems break down.
What happens when a town runs out of money? During the Franco-Prussian War of 1870, the French town of Sedan faced an economic crisis as gold and silver coins disappeared from circulation. Yet, as Émile Zola recounts in his novel The Debacle, an ingenious solution helped keep commerce alive: locally issued emergency paper money. Show host Gene Tunny explores this remarkable story and what it reveals about the nature of money, the importance of trust, and the ability of communities to improvise when conventional financial systems break down.
Gene would love to hear your thoughts on this episode. You can email him via contact@economicsexplored.com.
1. Money has three essential functions. It serves as a medium of exchange, a unit of account, and a store of value. Different objects have performed these roles throughout history, from cattle and shells to gold, silver and paper currency.
2. War can disrupt the circulation of money. During the Franco-Prussian War, hoarding, disrupted banking operations and the movement of precious metals contributed to severe shortages of coinage in towns such as Sedan.
3. Emergency money can keep local economies functioning. Locally issued paper notes can provide a temporary means of payment when conventional currency becomes scarce, provided people have confidence in the issuer.
4. The money supply is not entirely under central bank control. Nicholas Kaldor's critique of monetarism highlights how banks, businesses and households can develop alternative payment and credit arrangements when cash is restricted.
5. Trust is fundamental to any monetary system. Whether money consists of gold coins, emergency paper notes or modern fiat currency, its usefulness ultimately depends on people believing it will be accepted in exchange.
00:06 - Introduction: Émile Zola, The Debacle, and the nature of money
01:45 - The Battle of Sedan and the collapse of Napoleon III's empire
06:48 - Zola's account of emergency paper money in Sedan
09:30 - What does the story tell us about money?
10:00 - Sponsor message: Lumo Coffee
12:46 - What is money? From cattle and shells to cigarettes and stone discs
15:30 - Money's three functions: exchange, accounting and saving
20:30 - Why gold and silver coins disappear during crises
24:12 - How war disrupted Sedan's monetary system
27:30 - Necessity money: how local paper notes could keep trade going
29:59 - Trust and the acceptance of emergency currency
31:00 - Nicholas Kaldor's critique of monetarism
33:30 - How people find substitutes when cash becomes scarce
35:18 - Historical examples of necessity money
38:00 - Local currencies, including the Bristol Pound and Swiss WIR
39:00 - What emergency money teaches us about trust
40:26 - Could emergency money work in a future crisis?
42:30 - The future of fiat money and concluding reflections
Émile Zola, The Debacle:
https://www.amazon.com.au/Debacle-1870-71-Classics-%C3%89mile-Zola-ebook/dp/B00358VHSI
BNP Paribas, history of necessity money:
https://histoire.bnpparibas/en/a-necessity-note-of-1871-from-comptoir-descompte-de-paris/
Les Echos, historical account of the Bank of France's wartime evacuation. The episode discusses an account of gold, banknotes and valuables being transported to safety in 1870:
Nicholas Kaldor’ “The New Monetarism”:
https://www.scribd.com/document/516900044/Kaldor
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