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

Historical Violations of the Legal PrinciplesGoverning the Monetary Irregular-Deposit Contract 105and that it was under the direction of four burgomasterswho changed each year. Each burgomaster visited thevaults, compared their content in cash with deposit entriesin the books and with great solemnity declared under oaththat the two coincided. Adam Smith remarks, tongue-incheek,that “in that sober and religious country oaths are notyet disregarded.” 111 He ends his commentary by adding thatall of these practices were sufficient to guarantee the absolutesafety of deposits in the bank, a fact which was demonstratedin various Dutch political revolutions. No political party wasever able to accuse the prior of disloyalty in the managementof the bank. By way of example, Adam Smith mentions thateven in 1672, when the king of France marched into Utrechtand Holland was in danger of being conquered by a foreignpower, the Bank of Amsterdam satisfied every last request forrepayment of demand deposits. As we stated before, thisacted as an even more impressive reinforcement of the public’sconfidence in the absolute solvency of the bank.As additional evidence that the Bank of Amsterdam maintaineda 100-percent reserve ratio, Adam Smith offers theanecdote that some coins removed from the bank appeared tohave been damaged in the building fire that struck the banksoon after its creation in 1609, which shows those coins hadbeen kept in the bank for over one hundred fifty years. Finally,Adam Smith, in strict keeping with the true legal nature of theirregular-deposit contract, which requires that it be the depositorswho pay the bank, indicates that the bank’s incomestemmed from safekeeping fees:The City of Amsterdam derives a considerable revenue fromthe bank, besides what may be called the warehouse-rentabove mentioned, each person, upon first opening anaccount with the bank, pays a fee of ten guilders, and forevery new account three guilders three stivers; for everytransfer two stivers; and if the transfer is for less than threehundred guilders, six stivers, in order to discourage themultiplicity of small transactions. 112111 Ibid., p. 73.112 Ibid., p. 74.