Explain why the French monarchy faced financial crisis in the 1770s

In the 1770s, France was in a dire financial situation and faced a severe financial crisis, which ultimately led to become a short-term cause of the French Revolution itself. France’s poor economy, dismal political condition and the subsequent period of failure of reform gave way to a disastrous period for the French monarchy. The financial crisis that the monarchy faced was largely due to the cost of war and the issue of taxation.

In the 18th century, France would have appeared prosperous due the vast amount of land it possessed. France however, was not a much-industrialised country (due to the fact those with the potential to create wealth did not provide for the welfare of the nation) with the vast majority of the population living outside of the cities. Being a highly rural economy meant that a bad harvest could send prices through the roof and detrimentally impact industry and trade. This meant that France was unable to rely on industrial wares for money but on the produce of agricultural goods. The land was also not utilised as well as possible and with a string of bad harvests, France was also no longer able to rely on its agricultural goods either. This would become and even worse problem after the signing of the Eden Treaty in 1786.

France’s foreign policy was also a major contributing factor to the financial crisis. Between 1701 and 1763, France had fought four expensive wars: War of Spanish Succession (1701-13), War of Polish Succession (1733-35), War of Austrian Succession (1740-48) and the Seven Year War (1756-63). To finance these wars the finance ministers were required to take out large loans at high levels of interest. One can see the repercussions of such extensive borrowing with the country’s expenditure for financing war debt being 318 million lives (51% of total expenditure) in 1788. The King needed to raise a lot of money to ...

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Taxation was also a major issue with the taxation system being very inefficient. Direct taxation was difficult to levy because it required taxpayers to hand over the sums required in cash and because accurate assessment of income was impossible. The Crown dictated the amount of tax required from each area and so the nobles collecting the tax could raise the tax in their area, skim money off the top and give the Crown how much it asked for and so therefore, the Crown did not receive all of the tax. Indirect taxes were introduced to compensate the revenue from keeping the taille steady. The Crown leased the right to collect indirect taxes to private entrepreneurs in return for cash payments and so again money could be skimmed off the top, reducing the efficiency of tax collection.

The Crown had been relatively successful on exacting direct taxes on the privileged when they had previously been exempt. The two taxes capitation (1695) and the dixième (1710) achieved little as the government found it difficult to get the social élite to pay. The clergy also managed to substitute the capitation, dixième and the vingtième for special payments raised by them. The way in which the Crown exacted the taxes on the nobles was to assess them separately from the commoners and make their payments far less in proportion to their income. France normally yielded around half of total tax revenue in times of peace and up to 60% in times of war (2 or 3 times that of the British). As a result of the inefficient taxation system, France was not able to gain enough income through taxes to meet the crippling war debts they were repaying.

The French monarchy faced a dire financial crisis in the 1770s due to the country not being very industrialised, the crippling debts from four expensive wars and because of the inefficiency of the taxation system. Although France was relatively well off, its resources were locked up by the system of government, organisation of society and the attitudes of the ancien régime. Most of the 1st and 2nd Estate was exempt from taxation and so France was not able to match their expenditure and were plunged into a financial crisis with a large deficit to pay.