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

Historical Violations of the Legal PrinciplesGoverning the Monetary Irregular-Deposit Contract 103the creation of a public bank with these characteristics, he hadin mind the success of the Bank of Amsterdam and the exampleit had already set for over one hundred years. Furthermorethe third edition of his Essays and Treatises on Several Subjects,published in four volumes in London and Edinburgh,1753–1754, includes a note by Hume in reference to thephrase, “no bank could be more advantageous, than such aone as locked up all the money it received.” Footnote numberfour contains the following words: “This is the case with theBank of Amsterdam.” It appears that Hume wrote this footnotewith the intention of more clearly emphasizing his viewthat the Bank of Amsterdam was the ideal model for a bank.Hume was not the very first to propose a 100-percent reserverequirement in banking. He was preceded by Jacob Vanderlint(1734) and especially by the director of the Royal mint, JosephHarris, for whom banks were useful as long as they “issued nobills without an equivalent in real treasure.” 108SIR JAMES STEUART, ADAM SMITH,AND THE BANK OF AMSTERDAMSir James Steuart offers us an important contemporarystudy of the Bank of Amsterdam’s operation in his treatisepublished in 1767 entitled, An Enquiry into the Principles ofPolitical Oeconomy: Being an Essay on the Science of DomesticPolicy in Free Nations. In chapter 39 of volume 2, Steuart presentsan analysis of the “circulation of coin through the Bank ofAmsterdam.” He maintains that “every shilling written in thebooks of the bank is actually locked up, in coin, in the bankrepositories.” Still, he states,Although, by the regulations of the bank, no coin can beissued to any person who demands it in consequence of hiscredit in bank; yet I have not the least doubt, but that both thecredit written in the books of the bank, and the cash in the repositorieswhich balances it, may suffer alternate augmentations and108 Quoted by Rothbard, Economic Thought Before Adam Smith, pp. 332–35and 462.