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

104 Money, Bank Credit, and Economic Cyclesdiminutions, according to the greater or less demand for bankmoney. 109At any rate, Steuart indicates that the bank’s activities “areconducted with the greatest secrecy,” in keeping with the traditionallack of openness in banking and especially significantin the case of the Bank of Amsterdam, whose statutes andoperation demanded the maintenance of a continuous 100-percent reserve ratio. If Steuart is correct and this ratio was attimes violated, it is logical that at the time the Bank of Amsterdamtried to hide the fact at all costs.Although there are signs that at the end of the 1770s theBank of Amsterdam began to violate the principles uponwhich it had been founded, in 1776 Adam Smith still affirmedin his book, An Inquiry into the Nature and Causes of the Wealthof Nations, thatThe Bank of Amsterdam professes to lend out no part ofwhat is deposited with it, but, for every guilder for whichit gives credit in its books, to keep in its repositories thevalue of a guilder either in money or bullion. That it keepsin its repositories all the money or bullion for which thereare receipts in force, for which it is at all times liable to becalled upon, and which, in reality, is continually going fromit and returning to it again, cannot well be doubted. . . . AtAmsterdam no point of faith is better established than thatfor every guilder, circulated as bank money, there is a correspondantguilder in gold or silver to be found in the treasureof the bank. 110Adam Smith goes on to say that the city itself guaranteedthe operation of the Bank of Amsterdam as described above109 We quote from the original edition, published by A. Miller and T.Cadell in the Strand (London, 1767), vol. 2, p. 301; italics added. Prior toSteuart’s analysis, we find a more superficial study of the Bank of Amsterdam’soperation in the Abbot Ferdinando Galiani’s famous book,Della moneta. The original edition was published by Giuseppe Raimondi(Naples, 1750), pp. 326–28.110 We quote directly from the original edition of Adam Smith, AnInquiry into the Nature and Causes of the Wealth of Nations (London: W.Strahan and T. Cadell in the Strand, 1776), vol. 2, pp. 72–73.