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

Historical Violations of the Legal PrinciplesGoverning the Monetary Irregular-Deposit Contract 99For a very long time, over one hundred fifty years, theBank of Amsterdam scrupulously fulfilled the commitmentupon which it was founded. Evidence reflects that during thefirst years of its existence, between 1610 and 1616, both thebank’s deposits and its cash reserves came very close to onemillion florins. From 1619 to 1635, deposits amounted tonearly four million florins and cash reserves exceeded threemillion, five hundred thousand. After this slight imbalance,equilibrium was restored in 1645, when deposits equaledeleven million, two hundred eighty-eight thousand florins andcash reserves added up to eleven million, eight hundred thousandflorins. Equilibrium and growth were more or less stable,and in the eighteenth century, between 1721 and 1722, thebank’s deposits totaled twenty-eight million florins and itsstock of cash reached nearly that amount, twenty-seven million.This great increase in the deposits of the Bank of Amsterdamstemmed, among other causes, from its role as a refuge forcapital fleeing the crazy inflationist speculation that the systemof John Law produced in France in the 1720s. We will deal withthis more in depth later. This continued until 1772, in whichboth deposits and cash reserves totaled twenty-eight to twentyninemillion florins. As is evident, during this entire period, toall intents and purposes the Bank of Amsterdam maintained a 100-percent cash reserve. This allowed it, in all crises, to satisfy eachand every request for cash withdrawal of deposited florins.Such was true in 1672, when panic caused by the French threatgave rise to a massive withdrawal of money from Dutchbanks, most of which were forced to suspend payments (asoccurred with the Rotterdam and Middelburg banks). TheBank of Amsterdam was the exception, and it logically had notrouble returning deposits. Increasing and lasting confidencein its soundness resulted, and the Bank of Amsterdam becamean object of admiration for the civilized economic world of thetime. Pierre Vilar indicates that in 1699 the French ambassadorwrote in a report to his king:Of all the towns of the United Provinces, Amsterdam iswithout any doubt the foremost in greatness, wealth and theextent of her trade. There are few cities even in Europe toequal her in the two latter respects; her commerce stretches