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Lyman E De Wolf.

Money; its uses and abuses, coinage, national bonds, curency, and banking, illustrated and explained online

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This Bank was virtually and simply a depository. The deposit
was not to be withdrawn, but kept — while the ownership of the
coin, or bullion, was to be circulated in its place.

The transfer of the ownership of the coin was so far a coin
deal, but inasmuch as the order passed the title, but not the coin
itself; it was to that extent purely a credit transaction. The
coin upon which this order was drawn, had been previously
taken to the Bank, scrutinized, tested, valued, and credited to



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the depositor. At this time, these coins and bills of exchange,
coin-payable, were at from eight to ten per cent, discount in the
City of Amsterdam. The government of the city and of its
magistrates was the security given to the public for the integrity
of the Bank. The provision making all bills of exchange over
600 florins payable in bank, gave it its rapid and permanent
establishment, as it had before done in the case of the Banks of
Venice and Genoa. This at once concentrated payments at this
point ; and (jompelled every person who had bills to pay, to
deposit his coin or bullion, and to open an account with the Bank.
The depositor was charged by the bank five per cent, for dis-
count on his coin or bullion ; and was subject to a charge of ten
florins for opening the account. But the bank money soon bore
a pi-emium, which amply compensated for the expense of open-
ing an account, and for the loss or discount.

The depositor having opened his account, was then prepared
to make his payments by a transfer of the part or a whole of his
title to the deposit; but he was permitted to make only one
transfer a day.

To receive, keep, and pay by means of the transfer of the title
constituted the business of the bank, this was effected thus :

Folio 1609.

Messrs. Commissioners of the Bank, please pay to John
Smith, the sum of one thousand florins, four sols, and six deniers.
Amsterdam, 25. June, 1709. Peter Smith.

F. 1000 4s. 6d.

The drawee, or his special agent, on presentation was entitled
to a credit, and the drawer was charged. Deposits in the hands
of all holders were exempt from seizure by attachment, or other
legal process, but the fund itself remained here locked up for-
ever.

In January and July, each year, for fifteen days the bank was
closed, books balanced, and a ne'w account opened. Depositors
books were at the same time compared with the bank entries, to
determine the correctness of the bank accounts. For three days
following the opening of the bank, parties conld transfer at
pleasure the amounts by them received. Banking hours were
from 1 A. M. to 3 P. M. After 1 1 A. M. transfers cost six sols,
before that hour two. The bank-book-folio, in which the account
was kept, was numbered on the order or check. Accounts
numbered from one, upward, and the folio was made to cor-



84

respond. Each clerk had only a specified number of these
accounts, when the check was presented the clerk in charge
readily turned to the page, and made the proper transfer.

This mode of payment, as the deposits, were not allowed to be
taken out of the bank ; the amount thus accumulated would be
equal to the largest sum employed, at one period. This there-
fore made more bank money, at times, than was needed, and
thereby it would cause it to depreciate.

This difficulty was met, very much in the same way that the
Germans are said, in olden times, to have carried their grist to
mill by tying a stone in one end of the bags to balance the
grain in the other end — i. e. when they found the bank credits
were being offered too freely in market, the bank brokers, pur-
chased the surplus credits up at four per cent, premium, and sold
them again at five ; by this contrivance they managed to keep an
even market, except on some extraordinary occasions.

Special deposits of coin were received, counted, weighed and
put into a little sack — if gold it was sealed by the depositor.

The bank then gave him a receipt (recipisse) thus :

Amsterdam, 1. April, 1700.

John Burgher has deposited in Bank, one thousand Louis d'or
upon condition that he may withdraw them within the space of
six months, paying one-quarter per cent., or in default thereof,
that they may be taken by the Bank at the rate above named.
No. 10,700 N. K

For the Bank.

The depositor had the right to withdraw a special deposit, and
that right could be extended indefinitely upon paying every six
months a half of one per cent, for bullion ; and a quarter per
cent, on all coins, except ducatoons, for which were charged
one-eighth. This specie deposit was credited in account to the
depositor and by him transferable with its rights of withdrawal
to others like other credits. Its value depended upon the kind
of coin or bullion it represented.

Upon its withdrawal at any time within the six months speci-
fied, the recipisse was to be surrendered, and the bank credit
transferred. The credits thus obtained might pass from hand to
hand daily in payment of debts, while the recipisse was passing
in like manner among the coin and bullion dealers or brokers.

The bank performed its functions satisfactorily, and the trouble
of the coinage system was avoided.



85

In 1672, when the French array entered the low countries, and
other places, the depositors alarmed for the safety of their
deposits, although not entitled to withdraw them ; yet upon a
demand upon the bank, were permitted to do so. Those living
at a distance, sold theirs at 5 and 6 per cent, discount ; which
with the premium they bore, made the loss 11 or 12 per cent.
The French however, did not disturb the Bank, and its deposits
were soon restored.

There were times when premiums on gold, or bullion deposits
went up to 10 and even 12 per cent. Query, as it was all gold,
was this premium on account of the currency inflation, or was it
the gold inflation ?

At such times the brokers drove a thriving business. Dealing
4n these recipisses required but little capital. A recipisse for
instance of 1000 Louis d'or might sell for ten florins advance, and
the Louis d'or be withdrawn by a transfer of the requisite bank
credit. So in coin or bullion, deposited for payment of debts ;
the rise in value could thus by a special deposit be saved to the
depositor. Fluctuations in the value of coin could thus be dealt
in, without being obliged to hold the coin. The right to the
coin, not the coin, was the subject matter of speculation. A
competition was thus maintained without gold, speculation in
gold, is not confined to this age. Stock gambling and gold
gambling are the natural fruit of unjust and partial laws, if no
such partial laws existed, no such excessive demands for gold
would exist.

The Bank of Amsterdam, maintained its credit for about two
centuries — its treasure has been estimated in amounts ranging
from five to eighty millions pounds sterling. If it is put at ten
millions,moved one hundred times a year, the payments thus
made would amount to one billion pounds sterling, or
$4,880,000,000, the transfers of this enormous sum was made
continually year after year, during the long period of time the
Bank flourished. But. in 1790, it was discovered that the larger
portion of these deposits had been loaned out to the East In. Co.,
fifty years anterior to that time. Neither the provinces of Hol-
land, nor the City of Amsterdam could make immediate restitu-
tion. This gross breach of trust caused tha Bank to fail. But
before this fraud was discovered transfers of these credits had
been made by them for hundreds of millions pounds sterling per
annum. Yet the efficiency and validity of the payments remained



86

unquestioned. No change, no evil, no derangement of com-
merce occurred, in consequence of the fraud in the transaction
of business, made during the fifty years next preceding the
discovery, that the coin had been squandered.

By the transactions of this Bank then, as well as those of
Venice and Genoa, it is shown that any desired amount of
business can be satisfactorily done with the credit of property
through the legalized agency of paper, under gavernraental
management and control.

It is idle, therefore, to claim that a good paper cannot be fur-
nished by the government, and it is equally absurd to claim that
the exercise of the legitimate power by the government, will be
more likely to lead to corrupliion than to loan out the govern-
ment to the use of fifteen hundred soulless corporations for the
purpose of enabling them to plunder the community for their
own private gain.



CHAPTER VIII.



THE BANK OF HAMBURG.



The Bank of Hamburg is another institution of the same class
with those of Amsterdam, Genoa and Venice, more nearly agree-
ing in its mode of institution and operation with the Bank of
Amsterdam. It was founded in 1619, ten years after the Bank
of Amsterdam. The same reasons existed for the formation of
this Bank, that caused the formation of the three other Banks
above named, viz. : a debased and diverse coinage. And what
is singular in this case is, the fact, that while the Statesmen of the
United States are seeking to establish a gold base, and a pre-
tended specie paying system to rectify the adverse exchange ;
an adverse exchange on account of the diverse and debased
coinage — the very reason assigned for the institution of the Bank
of Hamburg, was the desire to get rid of this enormous evil.

One of the causes, and a leading cause for an unfavorable
exchange was the circulation of this debased and diverse coin,
which naturally flowed to the City of Hamburg, it being a free
port. And this evil was so great, as to prove a serious damage
to trade and commerce. The commercial men of Hamburg,
therefore, very naturally followed the lead of Amsterdam, in
shutting, or locking up the coin, as the only tangible mode of
getting rid of such on intolerable evil as they had found this
to be.

This Hamburg Bank at first adopted a rule to secure on
deposit only the rix-dollars of the German Empire — a standard
coin of silver. The officers vainly supposed by adopting this
course, that the bank and the business community would escape
the frauds and the evils caused by the whole army of counter-
feiters, sweaters, pluggers and clippers, which are as much the
product of this coinage system, as are the brokers, and gold
gamblers, and all these classes, should be looked upon as the
natural enemies of mankind, but which cannot be got rid of
until the people shall demand and obtain just and equal laws.



88

But notwithstanding the Hamburghers imagined that by lock-
ing up the coin they should escape the meshes of these various
fraudulent classes, as well as avoid the depredations of burglars,
robbers and pirates. They soon found, however, that they had
made a sad mistake— that the enemy they had feared and hoped
to escape was still pursuing them, though it changed its form, it
had not changed its fraudulent character, but was still in their
midst, in the garb of a new national coin. The mint of the
Empire it appears had caused to be largely issued a new coin of
the same name and apparent value, but of a lower value than
those first deposited in the Bank. Merchants who were in the
secret managed to deposit the new coin, and withdraw the old.
The new coin was worth about five per cent, less than the old.
This disturbance caused the managers to close the bank for a
time. An average of the loss by the discount on the new coin,
was struck at about two and a half per cent., and the loss of all
depositors was adjusted at that rate. There was no coin which
this marc banco represented; but from 1770, it has continued to
be the denominational unit of a money of account of the Bank.

The discovery of this fraud caused the managers to have every
deposit duly assayed, or tested, and they gave credit on the bank
books accordingly. The alloy in the standard adopted was as
one to 47, fine gold. This Bank money has proved to be one of
the most reliable, and subject to the least change of any in
Europe.

It has for a long time bore a premium over coin, from twenty
to twenty-five per cent. This demonstrates very clearly, that
coin, though it may be used for the retail trade among civilized
nations, does not answer the purpose for the large transactions of
commerce. It is indeed very questionable, whether for the pur-
poses of retail business, paper cannot be used at better advantage,
and at less expense. The experiment which is now being tried
in the United States, arising out of war, will it is believed settle
this question decidedly in favor of paper as the best medium ;
even in small transactions of deal among tlie people.

And, so far as the foreign trade is concerned, all coin goes
into the market simply as bullion — a mere commodity, governed
by the same principles, as other commodities.

The oflSicers of the Hamburg bank consisted of five directors,
two counsellors, two treasurers, and two of the principal magis-
trates of the city. These constituted its official board, or



89

government. The term of office, of one officer in each clas^,
expires annually.

The vaults of the Bank have each five locks, and each director
holds one key; so that it takes the whole five directors to open
the bank treasury. No employee, and no broker, is permitted to
open an account with the Bank. The Bank is for merchants and
citizens. It has a loan office connected with it, where a loan may
be made on a pledge of gold, silver and jewels, at three-fourths
their value. The mint and coinage of the city is under the
control of the Bank.

The credit of the Bank has remained almost uniformly good,
though it was somewhat injured by the debased coin above
mentioned. Davoust, one of Napoleon's marshalls, once took
out all its money to pay his soldiers ; but the French Govern-
ment made restitution, and that restored the Bank. And it once
loaned too much on pledges. These are all of the more serious
difficulties, affecting its credit, which have occurred in the manage-
ment of the Bank since its institution.

The rule which it has adopted, permitting only one transfer
of the same sum daily, is the same as that adopted at Amster-
dam. Transfers, or payments, are made from 7 to 10 o'clock
A. M., and by paying for the privilege, from 10 to 1 P. M., and
from 3 to 5 P. M. Enquiries as to whether transfers have been
made, are governed by the same rule. These charges for giving
information are generally compounded with the clerks and the
information furnished during banking hours, at any period
desired.

This bank still exists in full vigor, though its mode of business
is somewhat cramped by its rules, limiting ti'ansfers of the sum
to one day, yet it has proved a very efficient agent in making pay-
ments, and in avoiding many of the great evils resulting from
coinage.

The use made of credits through the agency of the banks of
Venice, Genoa, Amsterdam and Hamburg, are tangible evidence
that the use of specie in making an exchange long since ceased —
• that the only essential use of the precious metals, is that of a
commodity in settling balances. Being commodities they should
be left like other commodities, to be accumulated or not
accumulated, as shall suit the interest of those, who have
occasion to deal in them.

No doubt, but that in settling balances, there is a great con-



90

venience in having so great and so uniform a value in so small a
compass as is contained in these metals. But so long as foreign
nations shall pursue the policy of holding up their value by-
coinage or mint regulations, we shall get the full benefit of those
regulations.

This, therefore, furnishes the very best reason why the practical
lessons taught by the history of the banks here named should be
heeded. The paper money which under these systems has been
so effective in making payments, should be rendered still more
so. By being divorced from registering merely the fluctuations
of gold, it can be made an accurate register of the price, and
change of price of all commodities. Paper made a legal tender
for all commodities, and not any one commodity, would dissolve
this unnatural and monstrous union, between paper and gold.
Neither the price of gold, or silver, can be controlled by legis-
lation for any purpose but an evil one. The law of supply and
demand, not legal requirements govern the market. But the
excessive demand for these metals, which individuals or govern-
ments create by overtrading, or by partial laws, should be
provided for by those who do the overtrading, and the wicked
laws should not exist. Certainly, these evils should not through
the medium of the currency be saddled upon those who want
the money only to make an exchange of articles of their own
production, and not those they do not have — then those who do
the excessive deaUng, or who buy the foreign goods, will make
their own provision for these excesses, and nobody else will
will suffer for their wrong.



CHAPTER IX.



BANK OF ENGLAND— ENGLISH BANKING.



Banking was introduced into England by the Lombard Jews,
who brought the system with them from Italy. Banks were first
established in Italy, in A. D. 808. These Jews who came from
Lombardy, settled in London in a street which from that circum-
stance is called . Lombard street, where many bankers still
reside. The name is derived from banco, a bench, which was
erected in the market place for the exchange of money, " The
mint in the Tower of London was anciently the depository for
merchants' cash, until Charles L laid his hands upon the money,
and destroyed the credit of the mint in 1640. The traders were
thereby driven to some other place of security for their gold,
which, when kept at home, their apprentices frequently absconded
with to the array. In 1645 therefore, they consented to lodge it
with the goldsmiths in Lombard street, who were provided with
strong chests for their own valuable wares ; and this became the
origin of banking in England." — Haydn. In 1694, the English
Government was, and had been for a longtime, pi-eviously, badly
embarrassed in its financial affiurs, and by the efforts of William
Patterson, an enterprising and scheming Scotchman, a charter
for the Bank of England was obtained — it bears date 27th July,
1694. As this Bank is one of the leading institutions in the
world, and is more frequently pointed to in this country as the
great exemplar which it is necessary to follow, in order to estab-
lish a permanent system. It is important in any examination of
the subject of paper money, that the essential principles upon
which this institution rests should be thoroughly discussed. We
are about to institute an entirely new system, under national
authority. So far as legislation has as yet advanced, it is in line
with the English system. It cannot therefore, be a matter of
trivial importance to understand what that system is.

The Bank of England transacts the whole business of Govern-



92

ment. " She acts not only," says Adam Smith, " as an ordinary
bank, but as a great engine of state. She receives and pays the
greater part of the annuities which are due to the creditors of the
public ; she circulates exchequer bills ; and she advances to the
government the annual amount of the land and malt taxes, which
are frequently not paid till some years thereafter."

The Bank then being " an engine of state " — the first question
which naturally arises, is its constitution and powers. The
Charter among other things declares that " they shall be capable
in law, to purchase, enjoy, and retain to them and their succes-
sors, any monies, lands, rents, tenements, and possessions what-
soever; and to purchase t-nd acquire all sorts of goods and
chattels whatever, wherein they are not restrained by the Act of
Parliament ; and also to grant, demise, and dispose of the
same."

That the officers shall be, a governor and twenty-four directors,
to be elected between the 25th of March, and the 25th day of
April, in each year, from members duly qualified.

Stockholders must be natural born subjects of England, or
naturalized subjects; must own in their own name for their own
use severally, viz. : the governor at least £4,000, the deputy
governor £3,000, and each director £2,000.

Every elector must have, in his own name, and for his own
use, £500, or more, capital stock, and can only give one vote.

That thirteen or more of the said governors and directors, (of
which the governor, or deputy-governor must always be one,)
shall constitute a court of directors for the management of the
affairs of the company, and for the appointment of all agents and
servants, which may be necessary; paying them such salaries as
they may consider reasonable.

Four general courts are to be held every year in the months of
September, December, April and July. A general court may be
summoned at any time, upon the requisition of nine proprietors
duly qualified as electors.

" The corporation is prohibited from engaging in any sort of
commercial undertaking, other, than dealing in bills of exchange,
and in gold and silver. It is authorized to advance money upon
the security of goods, wares, and merchandize, pledged to it;
and to sell by public auction such goods as are not redeemed
within a specified time."

By statute 6 Wiliam and Mary, it is also enacted, that the bank



93

shall not deal in any goods, wares, merchaiiilize (except bullion),
or purchase any lands or revenues belonging to the crown, or
advance or lend to their majesties, their heirs or successors any
suras of money by way of loan or anticipation, or any part or
parts, branch or branches, fund or funds of the revenue, now
granted or belonging, or hereafter to be granted to their majes-
ties, their heirs and successors, other than such fund or funds,
part or parts, branch or branches of the said revenue only, on
which a credit of loan is, or shall be granted by Parliament.
And in 1697, it was enacted, that the common capital, or prin-
cipal stock, and also the real fund of the govez-nor and company,
or any profit or produce to be made thereof, or arising thereby,
shall he exempted from any rates, taxeSy assessm6)its, or imposi-
tions whatsoever during the continuance of the hank ; that all
the profit, benefit, and advantage from time to time arising out
of the management of the said corporation, shall be applied to
the use of all the members of the said association of the governor
and company of the Bank of England, rateably and in propor-
tion to each raerabei-'s part, share, and interest in the common
capital and principal stock of the said governor and company
hereby established.''

The foregoing presents the leading provisions or grants of
power with all its limitations. While these powers are very
broad, the Bank is nowhere directly authorized to issue bank
bills — and a writer who has given a history of its origin, says :
" That the Bank of England crept into the world, not being in
any votes (proposed laws) by that name, but an act ; granting to
their Majesties several duties upon tonnage of ships, beer, ale,
etc., for securing certain recompenses to such as should subscribe
£1,200,000 on a fund of eight per cent.

Patterson knowing that the government being then engaged in
war, was in great straits, and was frequently obliged to pay from
ten to forty per cent, interest for money, made it a permanent
portion of his scheme to ofier the government a loan of £1,200,000,
at eight per cent, interest.

It was this, that secured a hearing for this project. It is
probable that while Patterson was the active man engaged in
pushing forward the scheme, that there were others less
prominent who were no less active and efiective in carrying this
measure through Parliament. It appears that Michael Godfrey,
one of the active pi-omoters of the enterprise had obtained



94

£500,000 subscription to the stock before the passage of the
Act. The remaining £700,000 was, upon due notice given, under
the charter subscribed in ten days after opening the books.

The bank went into operation, January 1st, 1695. Its whole
capital was lent to the government as a special loan — the interest
was secured by certain specified taxes mentioned in the charter*
The sura of £4,000, was added to the £96,000 interest paid the
bank, as a compensation for managing the loan.

Thus the power of England culminated in its Bank, and the
annual industry of the people was pledged to support it. Although
the bank charter was passed by Parliament under a false title —
containing as it did an enormous grant of power, and an entire


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Online LibraryLyman E De WolfMoney; its uses and abuses, coinage, national bonds, curency, and banking, illustrated and explained → online text (page 9 of 19)