War Finance and the French Fiscal Crisis

France ran on a tax system built around three estates, and the deal was rotten from the start. The clergy, or First Estate, and the nobility, or Second Estate, were largely exempt from the main direct tax, the taille. That left the Third Estate, mostly peasants and the urban poor, carrying most of the burden, while the wealthiest landowners in the country paid comparatively little. Tax collection itself leaked money through tax farmers who kept a cut, and regional variations meant the system never ran efficiently even when everyone paid.

This structure might have limped along except France kept fighting expensive wars. Backing the American Revolution against Britain from 1778 to 1783 meant ships, soldiers, and above all loans, piled on top of debt already left from the Seven Years' War. Debt service, the money just to pay interest and principal on old loans, had eaten roughly a fifth of royal revenue in 1774. By 1788 it had climbed to roughly half. Every attempt to fix this by taxing nobles more fairly ran into the parlements, courts dominated by nobles who refused to register new taxes that touched their exemptions.

By 1788 a bad harvest collided with this fiscal wreck. Grain prices spiked, bread riots spread, and the crown had no cushion left, no new loans available, no new taxes it could impose alone. Louis XVI ran out of road and summoned the Estates-General, a body that had not convened since 1614, to get the political backing needed to tax the privileged orders. That meeting opened the door to the Revolution covered next.