Noel Johnson: evaluation

Transcript context

…Why? I get in trouble for this because . . . On the one hand, what happened during the French Revolution is that the revolutionaries decided that they needed money to issue. So they issued these things called assignats, and they wanted to back it with a real asset. The real asset that they decided to back this paper money with was land confiscated from the Church. They also took a bunch from émigrés, but that’s a slightly different story that we can talk about, if you want, later. But the Church land, they take. And there’s a tremendous amount of land owned by the Church in France. I think it approaches up to 70 percent or so of the land that’s there. Then they issued this paper money initially backed on this. Then — this is the initial thing they do, and then they have an auction to distribute this land. So I get in trouble because sometimes people hear me say that the auctions of this land was good. And they say, “Well, he’s just a GMU economist. And markets are always good, and that’s good. But you have to remember, they also confiscated all the land.” So those are two things going on here. So they distribute this land by auction. Auctions are pretty good mechanisms to put an asset into the hands of somebody who values it most. And there’s an active secondary market that goes on for this land. The way that my coauthors on this paper, who are Theresa Finley and Raphael Franck — the way we think about this process is that you have a set of feudal institutions and property that exists up to about 1790 or something like this — the French Revolution, early phases. And in that feudal system, you have lots of overlapping property rights. For example, if I wanted to build an irrigation canal or make some improvement to my land, I might have to negotiate with multiple parties to do this because they all have some stake in what I’m doing to my land. So everybody is having these institutions wiped out, in effect, when the revolution comes. However, it’s only a subset of the properties that are immediately put on the market and then auctioned off to individuals and falling into the hands of the people who value them most. What we find is that those people ultimately started to consolidate the land, and they also started making investments in things like irrigation and drainage and having better crop rotation systems and so forth. So what that really is — it’s a story about what economists are familiar with, the Coase theorem. The Coase theorem, stated simply, says that if there are low enough transaction cost, low enough costs of trading, then it doesn’t actually matter who owns an asset initially. People will trade it, and you’ll end up with the best possible arrangement. We could grab a church on Fifth Avenue in Manhattan, sell it off, and GDP would go up, right?…

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