Jacques Rueff’s quest for monetary order

After examining the economic chaos of the early twentieth century, monetary theorist Jacques Rueff argued that without monetary order, civilisational growth is impossible.

Basement of a bank full of banknotes at the time of the Mark devaluation during the economic crisis in the Weimar Republic.
Basement of a bank full of banknotes at the time of the Mark devaluation during the economic crisis in the Weimar Republic. Credit: CBW/Alamy Stock Photo.

Money, it is often said, makes the world go round. The inverse of that axiom is that monetary disorder brings chaos in its wake. As we learned from the hyperinflation that wreaked havoc in 1920s Germany and the stagflation which hobbled Western economies throughout the 1970s, the effects of such disorder go far beyond the economy. Further complicating the problem is that restoring monetary stability is invariably a painful exercise, often bringing unemployment, recession and lasting social damage in its wake.

As a rule, monetary theory and monetary policy are dry affairs, dominated by highly technical discussions concerning topics such as the nature of capital or the likely impact of interest-rates set by central banks. One thinker who did not conform to this mould was the French monetary theorist Jacques Rueff (1896-1978). Arguably France’s most important twentieth-century economist, Rueff played a major role in shaping the Third Republic’s response to the Great Depression in the 1930s, designed the market liberalisation programme that saved France from economic collapse in 1958, and emerged in the 1960s as the leading critic of the US dollar’s role in the global economy and a prominent advocate of a return to the classic gold standard.

Rueff was, however, much more than an economist. A graduate of the École Polytechnique, he was among that small elite of civil servants trained in administration, engineering, mathematics, the natural sciences, foreign languages, and political economy whose role was to inject stability into the perpetual political pandemonium of the Third Republic. But even among that highly-educated cohort, Rueff stood out for the breadth and depth of his knowledge and his willingness to integrate it into his economic reflections. For Rueff, the significance of monetary order went beyond issues such as economic growth or employment, as important as they were. Ultimately, it was about whether Western civilisation flourished or embraced self-delusion.

The fragility of that civilisation had become apparent to Rueff as a young army officer in the First World War. Barely nineteen years old, he fought on the Western front in battles ranging from the Somme to Verdun. That included a spell as an airborne artillery observer, a highly dangerous activity. In 1918, Rueff was posted to serve as a liaison officer in the US 146th Field Artillery regiment. His positive experience of Americans marked the beginning of his long-standing commitment to a transatlantic view of the West.

Another manifestation for Rueff of the West’s civilisational fragility was what he saw transpire in Weimar Germany in the early-1920s. As a rising civil servant in the elite Inspection générale des finances and then the Finance Ministry, Rueff became involved in shaping French policy towards German reparations. He took a different line to that of John Maynard Keynes insofar as Rueff did not believe that reparations in themselves threatened international monetary stability. His concern was that if Germany decided to monetise its debts, the resulting inflation could be a calamity and risked spreading to other countries.

Rueff was consequently unsurprised but nevertheless horrified at what happened in Germany as hyperinflation took hold between 1921 and 1923. The breakdown in law and order, the daily chaos in shops as money became more worthless by the hour, the catastrophic consequences for the poor, the financially unsophisticated, and those on fixed incomes, the decline in living standards, the collapse of Berlin’s credibility in international capital markets, and, above all, the destruction of the German middle-class’s hard-earned savings all left a deep impression on Rueff. It confirmed for him that no social order could last without a strong commitment to stable money.

The governments of Gustav Stresemann, and then Wilhelm Marx eventually restored the situation by introducing a new currency, the Rentenmark, followed by the Reichsmark in 1924 which was put on the gold standard. The Weimar Republic’s credibility, however, was shattered particularly among the middle-class of German society upon which it most depended. Making matters worse, some of the measures taken to stabilise the currency—such as significant reductions in wages and social security payments as well as abandonment of the eight-hour week—alienated much of the German working-class. In effect, inflation opened the way for the National Socialists to start garnering support from middle-class Germans, while the effort to stabilise the currency hurt working-class Germans. Many of the latter shifted their political allegiance from the Social Democrats to the Communists. The long-term effects of these changes proved disastrous for Germany and Europe as a whole.

All of this reinforced Rueff’s conviction that policies which subordinated monetary stability to the realisation of other objectives had profoundly negative consequences far beyond the economy. These insights explain many of Rueff’s policy stances in the 1930s. Though he did not deny that the franc during these years was probably overvalued, one reason why Rueff fought to maintain its stability from his position in the Finance Ministry was his belief that devaluation in the chaotic economic conditions of that decade would further undermine the international economy and open an already wide-open door to extremists of both left and right. That stance did not make Rueff well-liked with those in Leon Blum’s Popular Front government who wanted to use monetary policy to fund its public works and social welfare programs. At one point, Blum’s finance minister, Vincent Auriol, became so annoyed with Rueff’s attitude that he threatened to have Rueff posted to France’s protectorate in Morocco.

At this point in his life, Rueff’s thinking about the deeper causes of monetary order began moving beyond its more technical aspects. Instead Rueff sought to look beneath what he called ‘economic appearances’ to determine what was really leading governments to embrace monetary policies that were, in the long-term, positively toxic for society. His longstanding interest in other spheres of knowledge gave Rueff many of the tools he needed to pursue this area of inquiry. Like many other market-inclined thinkers in the 1930s such as the German ordo-liberal economists Walter Eucken and Wilhelm Röpke, Rueff became convinced that monetary disorder had social, political and cultural roots. Mistaken ideas and praxis in other realms, he concluded, drove mistaken approaches to monetary policy and produced the negative effects that made it harder to resist those pushing authoritarian alternatives to liberal constitutionalism.

From the 1940s onwards, these developments in Rueff’s thought increasingly shaped his contributions to monetary theory and his recommendations for fiscal and monetary policy. We find this in the many articles and opinion pieces which he penned after 1945, his private correspondence with figures such as the Nobel economist F. A. Hayek, and formal notes that he drafted for French government ministers. Nowhere is this more evident in Rueff’s magnum opus, L’Ordre Social.

Published in 1945, this 200,000 word tome was divided into seven parts and thirty-seven chapters. The early sections of L’Ordre Social were written in the early 1930s. The rest was drafted between 1941 and 1944, when Rueff lived in relative obscurity on account of his Jewish ancestry. Though Rueff had converted to Catholicism sometime during or just after The First World War, Vichy France’s anti-Semitic laws used the same racial criteria adopted by Nazi Germany. Rueff found himself keeping a low profile and with time on his hands.

As the book’s title suggests, Rueff’s focus was upon how to maintain the type of social order that promotes staples of Western civilisation such as rule of law, property rights, and constitutionalism. In this regard, one of the most innovative dimensions of L’Ordre Social is Rueff’s theory of false rights (faux droits) and true rights (vrais droits).

Real rights, Rueff holds, are what help people make their way out of the state of nature. A good example of real rights are property rights insofar as they link specific people, as affirmed by minds such as Thomas Aquinas and John Locke, to specific things. Legal recognition of these rights, Rueff adds, amounts to creating a ‘club in which the members can leave their guns at the door.’ That is the first step in establishing a civilisation based on true rights. The responsibility of economists, according to Rueff, is to devise policies that give effect to these rights. There is no point declaring a right to property if you embrace monetary policies that effectively devalue such rights through letting the inflation genie out of the bottle. The effect is to facilitate disillusionment with and disrespect for law—a sure path to anti-civilisation.

False rights, by contrast, involve the state declaring something such as unemployment benefits to be a right and then trying to realise it through means that destroy real rights. For example, rather than risking unpopularity by raising taxes to pay for such programmes, the state runs deficits and starts pressuring the central bank to monetise the debt. This generates inflation, which in turn dilutes the real rights associated with property. The more the state engages in such actions, the more false rights permeate the economic system and undermine the legal structures protecting real rights. The way is thus open to the emergence of political arrangements with little respect for freedom, property, or rule of law.

The example provided by Rueff to illustrate his point is the economic policies adopted by Germany after the Nazi seizure of power in January 1933. Germany’s economic recovery was fuelled by massive government spending programmes paid for by deficit-spending. Inflation followed, but the Nazi state repressed it through the use of wage and price-controls and, eventually, rationing. That, however, meant the steady diminishment of the free price system and economic liberty more generally. Their gradual replacement by a form of top-down planning whose legitimacy was ultimately derived from a totalitarian theory of the state followed.

The character of the Nazi dictatorship arose, Rueff acknowledged, from more than its economic policies. Rueff’s point is that a monetary order insulated against the advance of false rights helps prevent anti-civilisational movements such as fascism and communism from getting their way.

Rueff did not, however, limit the association between civilisational regression and monetary disorder to authoritarian regimes. In the 1960s, Rueff became preoccupied with how the US dollar’s hegemony was affecting the international monetary system. As a consequence of the 1944 Bretton Woods agreement, the US dollar effectively became the world’s reserve currency. Alas, Rueff argued, Washington had increasingly abused this unique status to flood the world with credit. This enabled the US government to spend big on domestic programmes such as the New Deal while also maintaining high levels of military spending to counter the communist menace and fight a war in South-East Asia.

Rueff was less concerned by the goals of these spending programmes (he was fervently anti-communist and strongly pro-American) than the fact that America’s ability to redeem dollars with gold (as required by the Bretton Woods system) would diminish as more and more dollars were pumped into the international economy. Should enough countries ask to redeem their dollars for gold, Rueff worried, the effect would be a global financial crisis which would disproportionately affect Western European countries. This, he reasoned, would create deep transatlantic tensions at a time when Western democracies needed to stand as one against an aggressive Soviet Union intent on subverting them.

This was Rueff’s ultimate reason for persistently lobbying US Treasury and Federal Reserve officials throughout the 1960s to consider a return to the classic gold standard. His objective was not to diminish American power. Instead, Rueff wanted to uphold the West’s economic strength in its geopolitical struggle against what he called the ‘slavish’ system of the communist superpower. To the same end, Rueff became an after-hours visitor to the Élysée between 1961 and 1966. Through private meetings with President Charles de Gaulle and numerous notes penned to him, Rueff stressed the dangers associated with the US dollar’s hegemony and encouraged de Gaulle to urge a return to the classic gold standard. In fact, de Gaulle needed little pushing. Like most upper-middle class French Catholics, de Gaulle associated gold with maintaining the value of capital and hard-won savings. But he also thought that the Bretton Woods system undermined French independence.

De Gaulle consequently used press conferences in the mid-1960s to demand an end to Bretton Woods and a return to the classic gold standard. He also ordered the French government to begin exchanging its dollar holdings for gold, insisted that France’s official debts be hitherto redeemed in gold, and urged other countries to do likewise. Rueff didn’t share de Gaulle’s geopolitical ambition to establish Europe as a counterweight to America and the Soviets. He did, however, believe that Bretton Woods allowed America to inject false rights into the international monetary system, thereby endangering the West’s stability at a time when another totalitarian power was bent on its subversion.

Monetary order wasn’t everything for Rueff. His writings reflect deep awareness of the ways in which culture, religion, philosophy, music and literature influenced civilisational development. Nonetheless Rueff insisted the threats posed by monetary disorder were more than economic. For him, civilisational growth was impossible without monetary order. In our age of quantitative easing and negative interest rates, that is an insight worth pondering today.


Samuel Gregg