An economic explanation of the early Bank of Amsterdam, debasement, bills of exchange and the emergence of the first central bank

doi:10.1017/CBO9780511757419.003

2 - An economic explanation of the early Bank of Amsterdam, debasement, bills of exchange and the emergence of the first central bank

Published online by Cambridge University Press: 04 August 2010

Stephen Quinn and

William Roberds

Edited by

Jeremy Atack and

Larry Neal

Show author details

Jeremy Atack: Affiliation:
Vanderbilt University, Tennessee
Larry Neal: Affiliation:
University of Illinois, Urbana-Champaign

Book contents

Get access

Summary

The early Dutch Republic experienced a monetary problem called incremental debasement, for mints repeatedly reduced the precious metal content of coins by small amounts. Adam Smith termed this the “small-state” problem because small, open economies often made substantial use of foreign coins, so debased foreign mints flowed into ports like Amsterdam. Around 1600, The Dutch Republic was awash in foreign coins and these were widely used as media of exchange. The fragmented nature of minting authority within the Dutch Republic meant that debasement had a domestic component as well. Whether foreign or domestic, a debasement led to uncertainty in the value of payments, creating transaction costs that hampered commerce.

The Dutch authorities attempted to deal with this debasement problem through laws and regulations, but these were often slow and ineffective. It took decades, for example, for the Republic to establish full control over its numerous independent mints. By contrast, laws assigning coin values were enacted early and often, but these did not solve the problem of debasement. While these were intended to simplify the use of coins by giving them a known value (tale) in terms of a unit of account, we argue that these laws, called mint ordinances, had the unintended consequence of making the situation worse. The disconnect between legal and intrinsic value encouraged people to bring old coins with high intrinsic, but low legal value to the mint in order to repay their debts with newly debased coins.

Type: Chapter
Information: The Origins and Development of Financial Markets and Institutions
From the Seventeenth Century to the Present
, pp. 32 - 70

DOI: https://doi.org/10.1017/CBO9780511757419.003 [Opens in a new window]

Publisher: Cambridge University Press

Print publication year: 2009

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

Book purchase

Temporarily unavailable

References

Braudel, F. 1894. The Perspective of the World, Civilization and Capitalism 15th-18th Century. New York: Harper & Row.Google Scholar

,Committee on Payment and Settlement Systems. 2006. Statistics on Payment and Settlement Systems in Selected Countries – Figures for 2004. Basel: Bank for International Settlements.Google Scholar

Dehing, P. and Hart, M. 't. 1997. “Linking the Fortunes, Currency and Banking, 1550–1800,” in Hart, M. 't, Jonker, J. and Zanden, J. L., eds., A Financial History of the Netherlands. Cambridge, Cambridge University Press: 37–63.Google Scholar

Vries, J. and Woude, A.. 1997. The First Modern Economy, Success, Failure and Perseverance of the Dutch Economy, 1500–1815. Cambridge: Cambridge University Press.CrossRef Google Scholar

Fratianni, M. and Spinelli, F.. 2005. “Did Genoa and Venice Kick a Financial Revolution in the Quattrocento?” Oesterreichische Nationalbank Working Paper 112.

Fritschy, W. 2003. “A ‘Financial Revolution’ Reconsidered: Public Finance in Holland during the Dutch Revolt, 1568–1648,” Economic History Review 56: 57–89.CrossRef Google Scholar

Gelderblom, O. 2003. “The Governance of Early Modern Trade: The Case of Hans Thijs, 1556–1611,” Enterprise and Society 4: 606–39.Google Scholar

Gillard, Lucien. 2004. La banque d'Amsterdam et le florin européen au temps de la République neerlandaise, 1610–1820. Paris: EHESS.Google Scholar

Hart, M. 't. 1997. “The Merits of a Financial Revolution: Public Finance, 1550–1700,” in Hart, M. 't, Jonker, J. and Zanden, J. L., eds., A Financial History of the Netherlands. Cambridge: Cambridge University Press: 11–36.CrossRef Google Scholar

Korthals Altes, W. L. 2001. “De Geschiedenis van de Gulden, Van Pond Hollands tot Euro” [History of the Guilder, from the Holland Pound to the Euro]. Amsterdam: Boom.Google Scholar

McCusker, J. 1978. Money and Exchange in Europe and America, 1600–1775. Chapel Hill: University of North Carolina Press.CrossRef Google Scholar

Metz, R. 1990. “Geld, Währung und Preisentwicklung, der Niederrheinraum im europäischen Vergleich, 1350–1800 (Frankfurt am Main)”, in Bell, Rudolph M. and Howell, Martha, eds., The Medieval and Early Modern Data Bank, 1998. Accessed online at: www.scc.rutgers.edu/memdb.Google Scholar

Mueller, R. 1997. The Venetian Money Market, Banks, Panics and the Public Debt, 1200–1500. Baltimore: Johns Hopkins University Press.Google Scholar

Neal, Larry. 1990. The Rise of Financial Capitalism, International Capital Markets in the Age of Reason. Cambridge: Cambridge University Press.Google Scholar

Neal, Larry. 2000. “How it all Began, the Monetary and Financial Architecture of Europe during the First Global Capital Markets, 1648–1815,” Financial History Review 7: 117–40.CrossRef Google Scholar

Polak, M. S. 1998a. Historiografie en Economie van de “Muntchaos”, De Muntproductie van de Republiek 1606–1795, Deel I [Historiography and Economics of the Coinage Chaos, Coin Production in the Dutch Republic 1606–1795, Part I]. Amsterdam: NEHA.Google Scholar

Polak, M. S.. 1998b. Historiografie en Economie van de “Muntchaos”, De Muntproductie van de Republiek 1606–1795, Deel II [Historiography and Economics of the Coinage Chaos, Coin Production in the Dutch Republic 1606–1795, Part II]. Amsterdam: NEHA.Google Scholar

Quinn, S. 1996. “Gold, Silver and the Glorious Revolution, Arbitrage between Bills of Exchange and Bullion,” Economic History Review 49: 473–90.CrossRef Google Scholar

Quinn, S. and Roberds, W.. 2005. “The Big Problem of Large Bills, The Bank of Amsterdam and the Origins of Central Banking.” Federal Reserve Bank of Atlanta Working Paper 2005: 16.Google Scholar

Quinn, S. and Roberds, W.. 2007. “The Bank of Amsterdam and the Leap to Central Bank Money,” American Economic Review 97: 262–5.CrossRef Google Scholar

Redish, A. 1990. “Evolution of the Gold Standard in England,” Journal of Economic History 30: 789–805.CrossRef Google Scholar

Rolnick, A. J., Velde, F. R. and Weber, W. E.. 1996. “The Debasement Puzzle, an Essay on Medieval Monetary History,” Journal of Economic History 56: 789–808.CrossRef Google Scholar

Sargent, T. J. and Smith, B. D.. 1997. “Coinage, Debasement, and Gresham's Laws,” Economic Theory 10: 197–226.CrossRef Google Scholar

Sargent, T. J. and Velde, F. R.. 2002. The Big Problem of Small Change. Princeton: Princeton University Press.CrossRef Google Scholar

Sussman, N. and Zeira, J.. 2003. “Commodity Money Inflation: Theory and Evidence from France 1350–1436,” Journal of Monetary Economics 50: 1769–93.CrossRef Google Scholar

Usher, A. P. 1943 [1967]. The Early History of Deposit Banking in Mediterranean Europe. New York: Russell and Russell.Google Scholar

Dillen, J. G. 1925. Bronnen tot de Geschiedenis der Wisselbanken [Sources for the History of the Exchange Banks]. The Hague: Rijksgeschiedkundige Publicatieën.Google Scholar

Dillen, J. G.. 1934. “The Bank of Amsterdam,” in, Dillen, J. G., ed., History of the Principal Public Banks. The Hague: Martinus Nijhoff: 79–124.Google Scholar

Dillen, J. G. 1964a. “Oprichting en Functie der Amsterdamse Wisselbank in de zeventiende Eeuw 1609–1686,” [Establishment and Functioning of the Amsterdam Exchange Bank in the 17th Century] in Dillen, J. G., ed., Mensen en Achtergronden, Studies uitgegeven ter gelegenheid van de tachtigste jaardag van de schrijver. Groningen: J. B. Wolters.Google Scholar

Dillen, J. G.. 1964b. “Bloeitijd der Amsterdamse Wisselbank 1687–1781” [High Tide of the Amsterdam Exchange Bank 1687–1781] in Dillen, J. G., ed., Mensen en Achtergronden, Studies uitgegeven ter gelegenheid van de tachtigste jaardag van de schrijver. Groningen: J. B. Wolters.Google Scholar

Zanden, J. L. 2004. “The Prices of the Most Important Consumer Goods, and Indices of Wages and the Cost of Living in the Western Part of the Netherlands, 1450–1800.” Accessed online at: www.iisg.nl/hpw/data.html #netherlands.