Money, Bank Credit, and Economic Cycles - The Ludwig von Mises ...

98 Money, Bank Credit, and Economic Cycles5A NEW ATTEMPT AT LEGITIMATE BANKING:THE BANK OF AMSTERDAM. BANKING IN THESEVENTEENTH AND EIGHTEENTH CENTURIESTHE BANK OF AMSTERDAMThe last serious attempt to establish a bank based on thegeneral legal principles governing the monetary irregulardeposit and to set up an efficient system of government controlto adequately define and defend depositors’ propertyrights took place with the creation of the Municipal Bank ofAmsterdam in 1609. It was founded after a period of greatmonetary chaos and fraudulent (fractional-reserve) privatebanking. Intended to put an end to this state of affairs andrestore order to financial relations, the Bank of Amsterdambegan operating on January 31, 1609 and was called the Bankof Exchange. 103 The hallmark of the Bank of Amsterdam wasits commitment, from the time of its creation, to the universallegal principles governing the monetary irregular deposit.More specifically, it was founded upon the principle that theobligation of the depository bank in the monetary irregulardepositcontract consists of maintaining the constant availabilityof the tantundem in favor of the depositor; that is,maintaining at all times a 100-percent reserve ratio withrespect to “demand” deposits. This measure was intended toensure legitimate banking and prevent the abuses and bankfailures which had historically occurred in all countrieswhere the state had not only not bothered to prohibit anddeclare illegal the misappropriation of money on demanddeposit in banks, but on the contrary, had usually ended upgranting bankers all sorts of privileges and licenses to allowtheir fraudulent operations, in exchange for the opportunityto take fiscal advantage of them.103 As for the curious reference to the public banks of Seville (andVenice) as models (!) for the Bank of Amsterdam, included in a petitionfrom leading Dutch merchants to the Council of Amsterdam, see JoséAntonio Rubio Sacristán, “La fundación del Banco de Amsterdam (1609)y la banca de Sevilla.”