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

102 Money, Bank Credit, and Economic CyclesDAVID HUME AND THE BANK OF AMSTERDAMA sign of the enormous prestige of the Bank of Amsterdamamong scholars and intellectuals, as well as merchants, is theexpress mention David Hume makes of it in his essay OfMoney. This essay first appeared, with others, in a book calledPolitical Discourses, published in Edinburgh in 1752. In itDavid Hume voices his opposition to paper currency andargues that the only solvent financial policy is that whichforces banks to maintain a 100-percent reserve ratio, in accordancewith traditional legal principles governing the irregulardeposit of money. David Hume concludes thatto endeavour artificially to encrease such a credit, can neverbe the interest of any trading nation; but must lay themunder disadvantages, by encreasing money beyond its naturalproportion to labour and commodities, and therebyheightening their price to the merchant manufacturer. Andin this view, it must be allowed, that no bank could be moreadvantageous, than such a one as locked up all the money itreceived, and never augmented the circulating coin, as is usual, byreturning part of its treasure into commerce. A public bank, bythis expedient, might cut off much of the dealings of privatebankers and money-jobbers; and though the state bore the chargeof salaries to the directors and tellers of this bank (for, accordingto the preceding supposition, it would have no profit from its dealings),the national advantage, resulting from the low price oflabour and the destruction of paper credit, would be a sufficientcompensation. 107Hume is not completely correct when he claims the bankwould not earn a profit, since its safekeeping fees would besufficient to cover operating costs, and it might even generatemodest profits, as in fact the Bank of Amsterdam did. Howeverhis analysis is categorical and reveals that, in defendingPedro Tedde de Lorca, entitled El banco de San Carlos, 1782–1829(Madrid: Banco de España and Alianza Editorial, 1988).107 We quote from pp. 284–85 of the excellent reissue of David Hume’swork, Essays: Moral, Political and Literary, edited by Eugene F. Miller andpublished by Liberty Fund, Indianapolis 1985; italics added.