The Connections between Monetary Policy and Political Freedom

Jacques Rueff: Statesman of Finance and “l’anti-Keynes”

by SAMUEL GREGG


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.

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