Shortly after the Revolution of 1789 France experienced a period of major hyper- inflation, which lasted until 1796, when the French government abolished the paper money and returned to the specie. In 1798 the French government ordered the local authorities in all departments to construct the aggregate price index. Even though similar in trend, these price series display striking di¤erences both in level and short run dynamics. Some of these differences are undoubtedly caused by the absence of a uniform rule for constructing the price indices, and possibly are magnified by such distortionary factors as the laws of maximum, the heavy concentration of military con- tracts in particular locations, and the different taxation schemes. However, level of economic integration in 18th century France had a major impact on the price evo- lution during the Revolution. In this paper, using different proxies for a measure of economic distance, we show that price formation among "close" departments displayed significantly higher correlation than the one among "distant" departments.
