FRENCH REVOLUTION 477 models describe accompanying fiscal arrangements through which new issues of paper money cause little or no inflation. Legal restrictions models of the demand for currency.-These models study how a government can tax its citizens by forcing them to hold paper money it is issuing to finance a deficit;they describe circum- stances in which large new issues of paper currency cause less infla- tion than would be expected if people were voluntarily holding the currency. Classical hyperinflation models along lines described by Cagan (1956).-These models describe circumstances in which rapidly issu- ing a paper currency causes prices to rise even faster than the quantity of currency. We use these theories first to shape our descriptions and second to interpret how the revolutionaries explained their actions.We docu- ment how the revolutionaries used elements of these theories in the debates that shaped the Revolution.Our double use of theories re- flects the rational expectations hypothesis that parts of a time-series model are used by the people within the model to guide their fore- casts and decisions.We interpret inflation during the Revolution in terms of a procession of regimes in which the"if"parts of the three types of monetary models are approximately fulfilled. II.Before the Revolution Even Absolute Monarchies Have Budget Constraints The immediate cause of the French Revolution was the fiscal crisis of 1788.For 70 years,France had confronted a sequence of similar crises,all stemming from its incomplete efforts to adopt fiscal policies that Britain had used since 1688. Figure I displays the ratio of debt service to fiscal revenues for France and Britain during the eighteenth century.The two series display the same pattern,increasing from very low values in 1689 to about 60 percent in 1789.The upward movements correspond to the major episodes of the "Second Hundred Years'War"between Britain and France:the Nine Years'War of 1688-97,the Spanish Succession War of 1701-14,the Austrian Succession War of 1741-48,the Seven Years'War of 1756-63,and the American War for Independence of 1776-83.During these conflicts,alliances changed often,but France and England were never on the same side.The similarities in the movements of this ratio in the two countries conceal differences in policies:while Britain would modify the denominator (fiscal reve- nues),France acted on the numerator(debt service).FRENCH REVOLUTION 477 models describe accompanying fiscal arrangements through which new issues of paper money cause little or no inflation. Legal restrictions models of the demand for currency.-These models study how a government can tax its citizens by forcing them to hold paper money it is issuing to finance a deficit; they describe circum￾stances in which large new issues of paper currency cause less infla￾tion than would be expected if people were voluntarily holding the currency. Classical hyperinflation models along lines described by Cagan (1956).-These models describe circumstances in which rapidly issu￾ing a paper currency causes prices to rise even faster than the quantity of currency. We use these theories first to shape our descriptions and second to interpret how the revolutionaries explained their actions. We docu￾ment how the revolutionaries used elements of these theories in the debates that shaped the Revolution. Our double use of theories re￾flects the rational expectations hypothesis that parts of a time-series model are used by the people within the model to guide their fore￾casts and decisions. We interpret inflation during the Revolution in terms of a procession of regimes in which the "if" parts of the three types of monetary models are approximately fulfilled. II. Before the Revolution Even Absolute Monarchies Have Budget Constraints The immediate cause of the French Revolution was the fiscal crisis of 1788. For 70 years, France had confronted a sequence of similar crises, all stemming from its incomplete efforts to adopt fiscal policies that Britain had used since 1688. Figure 1 displays the ratio of debt service to fiscal revenues for France and Britain during the eighteenth century. The two series display the same pattern, increasing from very low values in 1689 to about 60 percent in 1789. The upward movements correspond to the major episodes of the "Second Hundred Years' War" between Britain and France: the Nine Years' War of 1688-97, the Spanish Succession War of 170 1-14, the Austrian Succession War of 1741-48, the Seven Years' War of 1756-63, and the American War for Independence of 1776-83. During these conflicts, alliances changed often, but France and England were never on the same side. The similarities in the movements of this ratio in the two countries conceal differences in policies: while Britain would modify the denominator (fiscal reve￾nues), France acted on the numerator (debt service)