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to whom the republic was indebted for goods and for bills of
exchange, who had received assignments upon the mint and other
public offices, the collections upon which were slow and embarrassed
by official forms. To make a prompt settlement with Vendramin
and with the other creditors, the new bank was created, and placed
in charge of an officer called the Depositario del Banco del Giro ;
and the creditors were paid by being credited with deposits on its

1 The act is given in full by Lattes, p. 183. As for repetitions of the lef^end re-
ferred to in the text, it is enough to cite among the latest, " Encyclopedia Britannica "
(9th ed.), iii. 316; Appleton's "American Cyclopxdia," ii. 273; " Dictionnaire des
Finances" (1889), i. 291.

2 Rezasco, who made a diligent search in the Venetian archives for matter relating
to the two public banks, cites the order abolishing the Bank of the Rialto as dated
January 2, 1637. " Dizionario di Linguaggio Italiano Storico ed Amministrativo," p. 85.

^ The Banco del Giro was so named, as has often been explained, because of the
continual movement of credit Ijy transfer from one depositor to another. The name
distinguished th^' bank from the Banco della Piazza, but the practice referred to by it
was in no way peculiar to the new bank, as has been shown already.


books. To enable the bank to meet the demand for payment to
which it was thus exposed, a large sum in reals received from
Vendramin was exchanged at the Banco di Rialto for current
money ; and this, with coin struck from silver in bulk supplied
under Vendramin's contract, was placed in the Banco del Giro, to
the extent of 150,000 ducats, as a reserve. It was also provided
that payments of 10,000 ducats per month (increased soon after-
wards to 30,000 ducats) should be transferred from the mint to the
bank, until the sum of 500,000 ducats, the amount of the payments
to be made to public creditors, should be covered.^

The greater part of the act of 16 19 relates to the organization
of the bank and the duties of the officers to be appointed ; and
there is little pains taken to explain the functions of the institution
so carefully officered and guarded. There is enough on the face
of the act to make it clear, however, that the Banco del Giro was
to be a deposit bank of the familiar type, holding, transferring,
and paying deposits at the call of the depositor, like the existing
Banco di Rialto, but performing no other of the functions of
banking : —

That in this new Bank it shall not be allowable to exact any charge (jion si
possi sawder) from merchants, but only to pay in cash, except to those who
have overdrawn.

That no one shall refuse payment, in said Bank, of his credits, from one
hundred ducats upwards.

That transfers of any amount may be made, although of one hundred ducats
or less, at the convenience of merchants, provided the parties are agreed.

And, as the reason for establishing the large reserve described
above, the law premises, —

Since one of the chief and most necessary considerations as to this Bank for
the public and for the private interest is, that such a sum be assigned to it that not
only private individuals may receive promptly whatever sum of money they may
need to draw for the day, but that always, in case it should seem good to this

1 These transactions can be made out with reasonable clearness from the preamble
and the last four sections of the act of 1619 establishing the bank. An account is given
of them by Rezasco, p. 82, with some details as to Vendramin's contract obtained by
examination of the original. There is also a brief account given in a short memoir on
the public banlcs, written near the end of the seventeenth century by the senator Ber-
nardo Trevisan, and published under the title of " Informazione per il Banco del Giro"
in Vigano's translation from Sonnleithner, " La Scienza del Commercio," p. 293.


Council to proceed to close the said Bank, the Capital may be ready in sufficiency
to pay to every one his just due,
Therefore, be it ordered, etc.^

These provisions undoubtedly contemplated the establishment
of a cash-paying deposit bank, of which the reserve was supposed
to be sufficient at the start for all probable demands, and was to
be increased to the point of equality with the total Uability. The
credit of the bank was to be sustained, therefore, not only by the
good faith and policy of the repubhc, but ultimately by the actual
presence of all the money which the credit might represent. This
system contained the least possible mystery, either as regards
theory or practical operation ; and the Bancogiro would have been
simply a second Bank of the Rialto but for the fact that the debts
of the republic to Vendramin and the other public creditors were
the occasion for its creation. As it was, instead of opening for
business with neither liabilities nor cash on hand, as a simple bank
of deposit might have opened, the Bancogiro began with a large
liability upon its books to certain creditors of the state, and with a
considerable resource in cash, which the state agreed to fill up to
the full amount of the liability. If we imagine the case of a
government taking advantage of a demand for paper circulation
by paying its creditors in notes convertible on demand, with the
purpose of gradually accumulating in its treasury cash equal to the
amount of notes in use, we should have a case strongly resembling
the operation undertaken by the Venetian Senate in establishing
the Bancogiro as one of its public offices.

These circumstances afford some explanation for the tradition
that the Bank of Venice was originally a pubUc debt;^ and, taking
into account further the fact that the Banco del Giro superseded
the Banco di Rialto so effectually that the date of its own creation
was, as it were, submerged, and that the transfer of deposits, the

1 This statement is so important as showing the object of the reserve that it is worth
while to present its text : —

" Et perchS una delle principali et piu necessarie considerationi di questo Banco
per il publico, e per il private interesse, e che li sia fatto assignamento tale, che non solo
possano li particolari haver prontamente qualche summa de denaro, che e loro bisognassc
cavarc alia giornata, ma che sempre, parcsse h questo Consiglio id vcnir alia estinzione di
detto I'anco, vi siano pronti li Capitali sufficienti per dar ad ogn' uno il suo giusto credito.

" I'ero s' intendi fermamente preso, ecc. " Lattes, p. 189.

2 This explanation is suggested by Ruta, " Storia delle Banche," p. 114.


giro practised by both, was their best known characteristic, and
had also been the practice of private bankers for an unknown period,
we can see the possible growth of the legend which finally assigned
to the Bank of Venice a life of about six centuries.

The history of the Banco del Giro from its establishment in
1619 has never been written.^ Materials for it exist in abundance
in jhe Venetian archives ; but, although they have been drawn
from by Ferrara and Rezasco, nobody has thought it worth while
to follow the bank carefully through its vicissitudes, and it is not
certain that the gain from doing so would be great. For the
present purpose, at any rate, it is enough to say that the republic
did not find it easy to carry on the business of the bank in the
regular course contemplated by the law. The engagement to fill
up the reserve of the bank by monthly payments was, in effect, an
engagement to pay off a public debt at that rate from revenue ; and,
this being found difficult, fresh creations of liability put off the
time for completing the payments. In 1630 the closing of the bank
was determined upon,^ and the raising of the money needed for this
purpose was provided for ; but some changes in affairs — the
effect probably of the breaking out of the war in Candia in 163 1
— caused this plan to be abandoned. The bank kept on with
varying success and credit ; and in 1650 money was again raised to
cover in part the public debt and thus to place the establishment
on a firmer basis. During all this earlier part of its history, how-
ever, the bank probably suffered as much from disorderly manage-
ment as from the inability of the government to clear off its debt.
Notwithstanding the elaborate regulations prescribed by law to
insure against official malfeasance, frequent irregularities and
frauds appear to have occurred ; and several revisions of the regu-
lations had to be made to check the negligence of responsible
officers. In 1662 a great fraud committed by a bookkeeper was
discovered ; ^ and it is to this culmination of evil in the mana'ge-
ment of the bank that the revision of its regulations in 1663 was
due.* The new code then published is filled with such minute

^ See f '66, below.

^ See Trevisan's " Informazione," as cited above, p. 297.

^ Trevisan says "un enorme intacco." "Informazione," cited above, p. 208.
* The Ordini e Regole of 1663 begin with this recital : " Vedendosi da gl' Infedeli
Ministri neglette, e contravenuto a lante sapientissime Regole dalla prudenza dell'


provisions against neglect and misconduct, and contains such fre-
quent references to abuses and fraud, as to give the impression of
a constant struggle with unfaithful or dishonest servants.

The eighteenth century saw the cash office of the bank closed
and specie payments suspended, from 171 7 to 1739, as a consequence
of the wars in which the decUning republic was engaged for many
years. The credit of the bank fell during this period, but recovered
when the cash office was reopened by order of the Senate in 1739 ; ^
and thenceforward the commercial writers treat the bank as a solid
and important establishment until the breaking out of the wars of
the French Revolution. The embarrassment of the republic by
the year 1797 had led to such drafts on the cash of the bank that,
with a deposit of nearly 1,500,000 ducats, the reserve was reduced
to a trifle over 522,000 ducats.^ The bank, however, survived the
occupation of Venice by the French ; and when, under the treaty
of Campo Formio in October, 1797, the Venetian republic was ex-
tinguished and the city was given to Austria, an effort was made
to restore the credit of the estabUshment by creating a redemption
fund, fondo di Aiuortizasio7ie, supported by a stamp duty on bills
of exchange, bills of lading, and policies of marine insurance,^ and
later by other revenues. The deficit was for a time reduced ; but
the Austrian administration found its own wants pressing and the
coffers of the bank tempting, and in 1804 the deficit had again
risen, according to Rezasco, to nearly 1,280,000 ducats. The Fiscal
depiitato al Bancogiro reported at some length in January, 1805,
upon some reforms for the benefit of the redemption fund. But
the defeat of the Austrians at Austerlitz and the treaty of Presburg
in December, 1805, brought Venice under the French domination;
and in July, 1806, Napoleon issued his decree for the liquidation
of the debts of the Bancogiro, allowing for one-fourth of the amount
of scrip receivable for purchases of public property, and registering
the other three-fourths in the public debt called the Monte Napo-

Eccellentiss. Senato fondate per la huona direttione del Banco del Giro, anzi con fraude
dannabile dilapidati i Capitali del Banco stesso con tanto universale gravissimo pre-
giudicio." In Marperger, " Beschreihung der Banquen," p. 190.

^ For the decree, see Kota, " Storia dclle Banchc," p. 116.

"^ Rezasco, p. 83.

3 Proclamation by Count de Walis, imperial commandant, October, 1 798, in the
archives of the Frari : AfS. copy, received from Mr. F. R. Grist, late United States vice-
consul at Venice.


leone.^ This stroke, by a heavy hand, closed a remarkable chapter
in economic history.

Without seeking to trace more minutely the changes in the
varying credit of the bank and their causes, it is important to ob-
serve the effect produced by the suspensions of payment, which,
as has been seen, occurred several times, beginning with perhaps
more than one such period during the war of Candia^ between
163 1 and 1669. In order to do this, however, we must briefly
consider the nature of the currency used by the bank. The uni-
form statement of the writers who at any period had occasion to
notice its currency is, that the ducat in which the bank kept its
accounts was twenty per cent higher in value than the actual
ducats in circulation, or, in other words, that the bank used a money
of account which bore this premium when rated in current money.
This, for example, is the statement made by Turbolo so early as
1629;^ by Malynes in 1656; by the author of the " Discorso,"
who wrote near 1760; and by Ricard and other commercial writers
near the close of the last century. The ducat banco represented
no coin, and as little did it represent, as some have supposed, a
superior value caused by the high credit of the bank. Whatever
the reason for the particular ratio selected, the establishment of a
nominal bank ducat superior to the real ducat was an adminis-
trative provision probably made when the bank was opened or
shortly after.* It was, in fact, simply the estabUshment of an im-
aginary denomination, for use in accounting. The language of the
" Discorso " as to what really took place when the bank was still in

1 For copies of the report of the Fiscal Deputy in 1805 and of Napoleon's decree
of liquidation in 1806, the writer is also indebted to Mr. F. R. Grist.

2 It is probably to a suspension during this war that Matthew Lewis refers, in his
pamphlet "A Large Model of a Bank" (London, 1678), when he says that in the late
Turkish wars the Senate was forced to expend all the specie : " now there is no money
at all, neither is any money in specie ever paid out ; but . . . the Fund is a meer im-
aginary thing."

^ Turbolo, " Discorsi e Relazione suUe Monete del Regno di Napoli," in Custodi's
Collection, vol. i., p. 200.

* Turbolo's statement, made in 1629, is that the difference of twenty per cent ex-
isted da molto tempo. Trevisan, writing near the close of the same century and after
examination of the documents, says expressly, after describing the foundation of the
bank, " In questo momento si stabili anche una moneta propria per il medesimo banco,"
etc. " Informazione," p. 296. Malynes, "Lex Mercatoria" (edition of 1656), describes
(p. 257) many cases of what he calls imaginary money. Among them is the Venetiaa
ducat banco., but he does not remark upon it as in any way unusual.


full operation leaves no doubt on the point. If, says the writer, a
person carries 1200 real ducats, ducati cffetivi, to the bank, he re-
ceives credit for 1000 ducats banco ; and if, having credit for 1000
ducats banco, he draws it out, 1200 real ducats are paid to him.^
The so-called constant agio of twenty per cent was then simply the
result of using two denominations to express the same real value,
— as if the Bank of England were to keep its accounts in guineas,
which are worth five per cent more than sovereigns, but are repre-
sented by no actual coin, sovereigns being used the while as current
money. The agio presupposed freedom of deposit and freedom
of withdrawal; and, such freedom being maintained, the agio
would hardly rise and could not fall. It would not rise so long
as credit in bank could be obtained by depositing coin, and it could
not fall so long as 1200 real ducats could be drawn for every 1000
ducats banco. If there were a scarcity of bankable coin, the ducat
banco, being required for certain payments, might conceivably be
" cornered " ; but this could not affect its relation to coin, and it
could not depreciate except in the case of suspension.

The 1200 real ducats with which the depositor procured his
credit for 1000 ducats banco were, however, ducats of lawful
weight : whereas the coin in actual use in Venice, as in the other
commercial cities of that age, consisted, to a great extent, of pieces
below the standard, either from wear or from illegal practices,
constituting a currency often much depreciated. The coin of full
weight then bore a variable premium when exchanged for that in
ordinary circulation ; and thus we have what was called the S7ir-
agio, which had to be taken into account in reducing bank money
to everyday cash.^ The agio represented the difference between
the denominations used by the bank and by the public in dealing
with standard money, and the sur-agio measured the depreciation of
circulating coin below the legal standard.

These were the conditions under which the Bancogiro carried
on its operations when receiving, transferring, and paying out, ac-
cording to the scheme of its charter. The execution of this scheme

* Quarterly Journal of Economics, April, 1892, Appendix, p. xviii.

* Thus Kruse, " AUgemeiner Contorist" (Hamburg, 1753), p. 174, says , "Die Valuts
at entweder Banco, oder Corrente, oder Piccoli," and tiien goes on to explain that Banco
bears an agio of twenty per cent in Corrente, and Corrente an agio of twenty-nine per
cent in Piccoli, defining the three valute substantially as above.


was several times interrupted, however, as we have seen, by suspen-
sion of payment. Besides one or two earlier suspensions of un-
certain date, 1 the bank stopped its payments in 1691 and again in
171 7, both times under the stress of war. In these cases, the
Senate, closing the cashier's office, appears to have used for the
public service the cash on deposit, and on the second occasion, if
not on the first, according to the writer of the " Discorso," the
supplies for the fleet were paid for by credits in bank, which, he
adds, " is the same thing in substance as giving out notes instead
of money." The statements made as to the effect of these suspen-
sions on the credit of the bank are contradictory ; but they may
be reconciled upon a little reflection as to the connection between
depreciation and over-issue.

It is plain that a currency which for important purposes is a
legal tender would not lose its ease of circulation by becoming in-
convertible, and might even be kept at par with specie, if its supply
were strictly limited to the demand for the special purposes referred
to, as, for example, in this case, the settlements for exchange. In
short, the good credit sometimes enjoyed by the bank after suspend-
ing payment, which excited the wonder of foreign observers, like
the English pamphleteer. Dr. Matthew Lewis, is the same phe-
nomenon which has been observed in other cases, where incon-
vertibility has not been made the excuse for over-issue. The notes
of the Bank of England did not seriously depreciate for ten years
after the suspension of 1797; the notes of the suspended banks of
New York and New England did not fall muc!\ below specie after
the suspension of 1857 ; and the Bank of France from 1870 to 1878
generally kept its inconvertible notes close to par. Considering
the difficulty found even by the present generation in comprehend-
ing such cases, it is not surprising that in the seventeenth century
the Bank of Venice should have seemed to have in use an "imagi-
nary money," independent of any cash basis, and, nevertheless, of
higher credit than even coin itself. But the Venetian Senate was
not always cautious as to the use of credits in bank, but, as in the
case referred to above, yielded to the temptation or necessity of
over-issue. The inevitable result then followed, — the ducat banco

^ In Matthew Lewis's "Proposals to King and Parliament" (London, 1677) there
is some account of a suspension, apparently not very recent, given by him on the au-
thority of Venetian merchants, as evidence that credit is better than cash.


depreciated, notwithstanding its use in settlements for exchange
and the supposed credit of the repubUc ^ The evil was of the
simplest nature possible ; and the remedy was as simple. After
the long suspension from 1717^ to 1739 the Senate finally, as an
expedient, " a togliere ogni alterazione alia partida del Banco," to
cite the words of the act,^ reopened the cash ofifice, and, to insure
its abiUty to continue its payments, devoted to this purpose 250,000
ducats then at the command of the government. In other words,
depreciation was ended by resuming payment and restoring the
convertibiUty of the ducat banco. No fiat of the Senate had given
the ducat banco an invariable value when the bank was not paying
its debts, and no such fiat was needed when these debts, to use an
emphatic phrase from our own legislation, were again "payable
and paid on demand."

Such a case falls strictly into line then with what happened to
the Venetian private bankers when they suspended and again re-
sumed, and with what happens in the nineteenth century when
any bank of issue or of deposit goes through the same changes.
That any mystery should have grown up as to the amenability of
the Bancogiro to the recognized laws of value, is perhaps due in
part to the belief that no depreciation took place when the bank
suspended, which was industriously and ignorantly spread by some
foreign writers, as has been noticed above. In part, also, the
mystery is due to the failure to comprehend the meaning of the
agio, in which, however, the merchant of the last century found
nothing wonderful, as is clear from the matter-of-fact treatment of
the subject by the commercial writers. The meaning of the agio
is confused no doubt by the occasional efforts of the law to limit it
to the regular rate, and to prevent speculation at times when either
the scarcity of standard coin or the suspension of business at the

1 As to the fact of depreciation, Savary may be cited, " Parfait Negociant," i.
464, where he remarks rather contemptuously that little harm was done, for those who
lost confidence could easily find persons who would relieve them by purchasing their
credits in bank at ten or fifteen per cent discount. Cantillon, " Essai," p. 412, appar-
ently referring to the suspension of 1690 and using intelligence obtained from Venice,
speaks of a depreciation of twenty per cent. Daru, " Histoire de Venise, iii. 135,
says, " Les valcurs de banque continuerent de circuler sans defaveur." But Daru,
although he catalogued the " Discorso," seems to have overlooked among other things
its express affirmation that the bank credit fell twenty per cent in the Ottoman War,
and that the condition of credit was critical.

2 See p. 167, below. ' See Rota, " Storia dellc Banche, " p. Il6.


cash office made it possible to " corner " the medium in which
large commercial payments had to be made. Still, with the mind
freed from the notion that credit can be worth more than cash
otherwise than accidentally, — or, in other words, that a promise
is worth more than the thing promised, — the agio falls into its
natural place as the mark of a currency which is below the stand-
ard fixed by law or usage, and the transactions of the Bancogiro
are seen to exemplify and confirm principles now recognized as of
everyday application.

The proper limits of this paper do not permit a review of the
daily operations of the Bancogiro, as described by the writer of the
" Discorso." His account of the Depositary taking his place in
full view of the Piazzetta, ringing his bell when the concourse of
merchants on 'change shows that the time for banking has come,
and setting his hour-glass to mark the beginning of the two stated
hours, the viva voce dictation of transfers by depositors so that the
clerks may make the entries in duplicate, the peremptory close of
transactions at the sound of the bell and the drawing of the marella,
the removal of the books to the grated chambers, the careful sepa-
ration of the two sets of books and of clerks, so that no collusion
may invalidate the comparison of the balances when finally drawn
off in duplicate, the use of Roman numerals in some of the accounts
rather than Arabic, — all this gives us the picture of a leisurely,
punctilious, and traditional movement, well adapted perhaps for a
city with decUning commerce, but not for one in the hurry and
bustle of full prosperity. The private bankers, more ready to
adapt themselves to the needs of the community, had served their
purpose, but had paid the penalty of inexperience in dealing with
credit. The public bank had replaced them, had discarded a part
of their functions, and had reduced the remainder for safety to an

Online LibraryCharles Franklin DunbarEconomic essays → online text (page 18 of 40)