The Napoleonic wars offer an experiment unique in the history of war-time finance. While Britain was forced off the gold standard and endured a relatively high inflation, France remained on a bimetallic standard for the war's duration. For wars of comparable length and intensity in the nineteenth and twentieth centuries, Napoleonic war finance stands out. As Milton Friedman recently pointed out, the French experience is a puzzle. Under the ancien régime and the revolutionary governments, France's credit was far inferior to Great Britain's; yet in the years of bitter struggle after 1796, it was the British who used inflationary finance, not the French.

This apparent paradox may be explained by drawing upon the new literature on tax smoothing, time consistency, and credibility in macroeconomics. Before the Revolution, French fiscal policy strongly resembled the British practice in which large temporary increases for wartime expenditures were paid for by increased borrowing, leaving taxes relatively unchanged. This was a relatively efficient strategy for war finance, but its success hinged critically on the credibility of the government to repay its accumulated and enlarged debt after the war.