The Unreasonableness of those extraordinary Restraints on other Principles

¹⁹ Bar or ingot gold is received in proportion to its fineness relative to the foreign gold coins listed in the previous table.

The bank gives 340 per mark for fine bars.

• In general, something more is given for coin than bars. This is because the fineness of bars can only be ascertained through melting and assaying.

²⁰ The person who makes a bullion deposit obtains bank credit and receipt.

He pays his bills of exchange as they become due with his bank credit.

• He sells or keeps his receipt as the price of bullion is rises or falls.

The receipt and the bank credit seldom keep long together.

• The person who has a receipt, and who wants to take out bullion, always finds many bank credits or bank money to buy at the ordinary price.
• The person who has bank money and wants to take out bullion, always finds receipts in equal abundance.

²¹ The bank has 2 kinds of creditors:

1. The holders of receipts

The receipt holder cannot draw out the bullion without giving bank money equal to the price the bullion had been received.

• If he has no bank money, he must buy it from those who have it.
• The receipt holder buys the power of withdrawing bullion when he buys bank money.

The bullion’s mint price is 5% above the bank price.

• The 5% agio which the receipt holder pays for it, is paid for a real value.

2. The owners of bank credits

The owner of bank money cannot withdraw bullion without the bank receipts.

• If he has none, he must buy them.

The owner of bank money buys the power of withdrawing bullion when he buys a receipt.

• The market price of such bullion is commonly from 2-3% above the mint price.
• The price which he pays for bullion, is paid likewise for a real value.

The price of the receipt and the price of the bank money, make between them the full value of the bullion.

²² The bank grants receipts and bank credits on current coin deposits.

But those receipts are frequently of no value.

For example, a ducatoon is equal to 3 guilders 3 stivers.

The bank gives a credit of 3 guilders only, or 5% below the current value of a ducatoon.

• It grants a receipt entitling the bearer to withdraw ducatoons deposited at any time within six months after paying 0.25% for keeping.
  • This receipt will frequently bring no price in the market.

3 guilders bank money generally sell in the market for 3 guilders 3 stivers, or the full value of the ducatoons if they were withdrawn from the bank.

• However, 0.25% must be paid for the keeping.
  • It would be a loss to the receipt holder.

If the bank’s agio falls to 3%, such receipts might bring some price in the market.

• It might sell for 1.75%.

But the bank’s agio is now around 5%.

• Such receipts are frequently allowed to expire or fall to the bank.

The receipts given for deposits of gold ducats fall to it more frequently because a higher warehouse-rent, or 0.5% must be paid for keeping.

The 5% which the bank gains, when coin or bullion deposits are allowed to fall to it, may be considered as the warehouse-rent for the perpetual keeping of such deposits.

²³ The sum of bank money for which the receipts are expired must be very big.

• It must comprehend the whole original capital of the bank which has been allowed to remain there from the time it was first deposited.

Nobody cares to:

• renew his receipt or
• take out his deposit

This is because neither could be done without loss.

• But whatever the loss, its proportion to the total bank money is very small.

The bank of Amsterdam has been the great bullion warehouse of Europe for many years.

• Its receipts are very seldom allowed to expire or to fall to the bank.

Most of the bank money, or the credits on the books of the bank, is supposed to have been created by such deposits.

• The dealers in bullion are continually making and withdrawing those deposits.

²⁴ No demand can be made on the bank without a recipe or receipt.

The smaller mass of bank money is mixed with the bigger mass which are still in force, when the receipts are expired.

There may be a considerable bank money which have no receipts.

• But there is no specific sum or portion of it which may not at any time be demanded by one.

The bank cannot be debtor to two persons for the same thing.

The owner of bank money who has no receipt cannot demand payment of the bank until he buys a receipt.

Ordinarily, he can find no difficulty buying a receipt at the market price.

• The market price generally corresponds with the price he can sell the coin or bullion he can take out of the bank.

²⁵ It might be otherwise during a public calamity, such as the French invasion in 1672.

The owners of bank money were all eager to draw it out of the bank for their own keeping.

• The demand for receipts might raise their price to an exorbitant height.
• Their holders might form expectations.
• Instead of 2% or 3%, they might demand half the bank money which was credited on the deposits of the receipts.

The enemy, informed of the bank’s situation, might even buy them up to prevent the treasure from being carried away.

• In such emergencies, the bank would break its ordinary rule of making payments only to the holders of receipts.

The receipt holders who had no bank money, must have received within 2% or 3% of their deposit value.

In this case, the bank would:

• pay with money or bullion the full value credited in its books to the owners of bank money who could get no receipts
• pay at the same time 2% or 3% to holders of receipts who had no bank money
  • That being the total value which in this state could justly be supposed due to them.

²⁶ Even in ordinary times, it is the interest of the receipt holders to depress the agio to buy bank money, then bullion so much cheaper.

Their interest is to sell their receipts to those who:

• have bank money
• want to take out bullion much dearer

The receipt price is generally equal to the difference between the market price of:

• bank money, and
• the coin or bullion it gets

On the contrary, the interest of the owners of bank money is to raise the agio to:

• sell their bank money dearer, or
• buy a receipt cheaper

To prevent the stock-jobbing tricks of those opposing interests, the bank has recently created a resolution to:

• sell bank money at all times for currency at 5% agio
• buy it in again at 4% agio

Because of this resolution, the agio can never rise above 5% or sink below 4%.

• The proportion between the market price of bank and the market price of current money is always kept very near to the proportion between their intrinsic values.

Before this resolution, the market price of bank money sometimes:

• rose so high as 9% agio
• sank so low as par, according as opposite interests happened to influence the market.

²⁷ The bank of Amsterdam professes to lend out none of what is deposited with it.

For every guilder credited in its books, it keeps in its repositories the value of a guilder in money or bullion.

It cannot be doubted that it keeps in its repositories all the money or bullion equal to the receipts.

• But it is uncertain whether it still keeps money or bullion for long expired receipts.

At Amsterdam, the best faith is established in the promise that for every guilder of bank money, there is a guilder in metals in the bank.

The city guarantees this.

The bank is directed by four reigning burgomasters who are changed every year. Each new set of burgomasters:

• visits the treasure
• compares it with the books
• receives it on oath
• delivers it with the same solemnity to the set which succeeds

Oaths are not yet disregarded in that sober and religious country.

A rotation of this kind is alone sufficient security against any practices which cannot be avowed.

Faction has created many revolutions in the government of Amsterdam.

Despite this, the prevailing party has never accused their predecessors of infidelity in the bank’s administration.

• Such an accusation would have most deeply affected the reputation and fortune of the disgraced party.
• If such an accusation could have happened, then it would have happened.

In 1672, when the French king was at Utrecht, the bank of Amsterdam paid so readily.

• It left no doubt of its fidelity.

Some of the pieces brought from its repositories were scorched with the fire after the bank was established.

• It meant that those pieces must have lain there from that time.

²⁸ Many have speculated how much treasure is in the bank.

• We can only guess it.

Around 2,000 people keep accounts with the bank.

• If each one had £1,500 in their respective accounts (a very large allowance), the total amount of bank money and treasure in the bank will amount to about £3 million or 33 million guilders at 11 guilders the pound sterling.
  • This is a great sum, sufficient to carry on a very extensive circulation.
  • It is vastly below the extravagant estimates of some people.

²⁹ The city of Amsterdam gets a big revenue from the bank.

Besides the warehouse-rent, each person pays a fee of:

• 10 guilders when opening the first account,
• 3 guilders 3 stivers for every new account,
• 2 stivers for every transfer.

If the transfer is less than 300 guilders, the fee is 6 stivers. This is to discourage the multiplicity of small transactions.

25 guilders is forfeited by the person who neglects to balance his account twice in the year.

The person who transfers more than the amount in his account, must pay 3% for the sum overdrawn.

• His transfer is set aside into the bargain.

The bank also profits by selling the foreign coin or bullion that it gets.

• It keeps them until they can be sold with profit.
• It also profits by selling bank money at 5% agio and buying it at 4%.

These emoluments are more than necessary to pay salaries and defray management expences.

• The revenue for keeping the bullion on receipts is alone supposed to amount to a net annual revenue of 150,000-200,000 guilders.

This bank’s original object was public utility, not revenue.

• It aimed to relieve the merchants from the inconvenience of a disadvantageous exchange.
• The revenue which arose was unforeseen and accidental.

I made this long digression to explain why the exchange between the countries which pay bank money and those which pay in common currency appears in favour of country which pays in bank money.

• The country that pays in bank money has its intrinsic value always the same and exactly agreeable to their mint’s standard.
• The country that pays in currency has its intrinsic value continually varying and frequently below that standard.