An Inquiry into the Nature and Causes of the Wealth of Nations by Adam Smith (ebook reader with highlighter txt) 📖

or negotiated at Amsterdam, of the value of

600 guilders and upwards, should be paid in bank money, which at

once took away all uncertainty in the value of those bills. Every

merchant, in consequence of this regulation, was obliged to keep

an account with the bank, in order to pay his foreign bills of

exchange, which necessarily occasioned a certain demand for bank

money.

 

Bank money, over and above both its in trinsic superiority to

currency, and the additional value which this demand necessarily

gives it, has likewise some other advantages, It is secure from

fire, robbery, and other accidents; the city of Amsterdam is

bound for it; it can be paid away by a simple transfer, without

the trouble of counting, or the risk of transporting it from one

place to another. In consequence of those different advantages,

it seems from the beginning to have borne an agio; and it is

generally believed that all the money originally deposited in the

bank, was allowed to remain there, nobody caring to demand

payment of a debt which he could sell for a premium in the

market. By demanding payment of the bank, the owner of a bank

credit would lose this premium. As a shilling fresh from the mint

will buy no more goods in the market than one of our common worn

shillings, so the good and true money which might be brought from

the coffers of the bank into those of a private person, being

mixed and confounded with the common currency of the country,

would be of no more value than that currency, from which it could

no longer be readily distinguished. While it remained in the

coffers of the bank, its superiority was known and ascertained.

When it had come into those of a private person, its superiority

could not well be ascertained without more trouble than perhaps

the difference was worth. By being brought from the coffers of

the bank, besides, it lost all the other advantages of bank

money; its security, its easy and safe transferability, its use

in paying foreign bills of exchange. Over and above all this, it

could not be brought from those coffers, as will appear by and

by, without previously paying for the keeping.

 

Those deposits of coin, or those deposits which the bank was

bound to restore in coin, constituted the original capital of the

bank, or the whole value of what was represented by what is

called bank money. At present they are supposed to constitute but

a very small part of it. In order to facilitate the trade in

bullion, the bank has been for these many years in the practice

of giving credit in its books, upon deposits of gold and silver

bullion. This credit is generally about five per cent. below the

mint price of such bullion. The bank grants at the same time what

is called a recipice or receipt, entitling the person who makes

the deposit, or the bearer, to take out the bullion again at any

time within six months, upon transferring to the bank a quantity

of bank money equal to that for which credit had been given in

its books when the deposit was made, and upon paying one-fourth

per cent. for the keeping, if the deposit was in silver ; and

one-half per cent. if it was in gold; but at the same time

declaring, that in default of such payment, and upon the

expiration of this term, the deposit should belong to the bank,

at the price at which it had been received, or for which credit

had been given in the transfer books. What is thus paid for the

keeping of the deposit may be considered as a sort of warehouse

rent; and why this warehouse rent should be so much dearer for

gold than for silver, several different reasons have been

assigned. The fineness of gold, it has been said, is more

difficult to be ascertained than that of silver. Frauds are more

easily practised, and occasion a greater loss in the most

precious metal. Silver, besides, being the standard metal, the

state, it has been said, wishes to encourage more the making of

deposits of silver than those of gold.

 

Deposits of bullion are most commonly made when the price is

somewhat lower than ordinary, and they are taken out again when

it happens to rise. In Holland the market price of bullion is

generally above the mint price, for the same reason that it was

so in England before the late reformation of the gold coin. The

difference is said to be commonly from about six to sixteen

stivers upon the mark, or eight ounces of silver, of eleven parts

of fine and one part alloy. The bank price, or the credit which

the bank gives for the deposits of such silver (when made in

foreign coin, of which the fineness is well known and

ascertained, such as Mexico dollars), is twenty-two guilders the

mark : the mint price is about twenty-three guilders, and the

market price is from twenty-three guilders six, to twenty-three

guilders sixteen stivers, or from two to three per cent. above

the mint price.

 

The following are the prices at which the bank of Amsterdam at

present {September 1775} receives bullion and coin of different

kinds:

SILVER

Mexico dollars …………….. 22 Guilders / mark

French crowns ……………… 22

English silver coin …………. 22

Mexico dollars, new coin …….. 21 10

Ducatoons ………………….. 3 0

Rix-dollars ………………… 2 8

 

Bar silver, containing 11-12ths fine silver, 21 Guilders / mark,

and in this proportion down to 1-4th fine, on which 5 guilders

are given. Fine bars, …………….. 28 Guilders / mark.

 

GOLD

Portugal coin …………….. 310 Guilders / mark

Guineas ………………….. 310

Louis d’ors, new ………….. 310

Ditto old ………….. 300

New ducats ……………….. 4 19 8 per ducat

 

Bar or ingot gold is received in proportion to its fineness,

compared with the above foreign gold coin. Upon fine bars the

bank gives 340 per mark. In general, however, something more is

given upon coin of a known fineness, than upon gold and silver

bars, of which the fineness cannot be ascertained but by a

process of melting and assaying.

 

The proportions between the bank price, the mint price, and the

market price of gold bullion, are nearly the same. A person can

generally sell his receipt for the difference between the mint

price of bullion and the market price. A receipt for bullion is

almost always worth something, and it very seldom happens,

therefore, that anybody suffers his receipts to expire, or allows

his bullion to fall to the bank at the price at which it had been

received, either by not taking it out before the end of the six

months, or by neglecting to pay one fourth or one half per cent.

in order to obtain a new receipt for another six months. This,

however, though it happens seldom, is said to happen sometimes,

and more frequently with regard to gold than with regard to

silver, on account of the higher warehouse rent which is paid for

the keeping of the more precious metal.

 

The person who, by making a deposit of bullion, obtains both a

bank credit and a receipt, pays his bills of exchange as they

become due, with his bank credit; and either sells or keeps his

receipt, according as he judges that the price of bullion is

likely to rise or to fall. The receipt and the bank credit seldom

keep long together, and there is no occasion that they should.

The person who has a receipt, and who wants to take out bullion,

finds always plenty of bank credits, or bank money, to buy at the

ordinary price, and the person who has bank money, and wants to

take out bullion, finds receipts always in equal abundance.

 

The owners of bank credits, and the holders of receipts,

constitute two different sorts of creditors against the bank. The

holder of a receipt cannot draw out the bullion for which it is

granted, without re-assigning to the bank a sum of bank money

equal to the price at which the bullion had been received. If he

has no bank money of his own, he must purchase it of those who

have it. The owner of bank money cannot draw out bullion, without

producing to the bank receipts for the quantity which he wants.

If he has none of his own, he must buy them of those who have

them. The holder of a receipt, when he purchases bank money,

purchases the power of taking out a quantity of bullion, of which

the mint price is five per cent. above the bank price. The agio

of five per cent. therefore, which he commonly pays for it, is

paid, not for an imaginary, but for a real value. The owner of

bank money, when he purchases a receipt, purchases the power of

taking out a quantity of bullion, of which the market price is

commonly from two to three per cent. above the mint price. The

price which he pays for it, therefore, is paid likewise for a

real value. The price of the receipt, and the price of the bank

money, compound or make up between them the full value or price

of the bullion.

 

Upon deposits of the coin current in the country, the bank grant

receipts likewise, as well as bank credits; but those receipts

are frequently of no value and will bring no price in the market.

Upon ducatoons, for example, which in the currency pass for three

guilders three stivers each, the bank gives a credit of three

guilders only, or five per cent. below their current value. It

grants a receipt likewise, entitling the bearer to take out the

number of ducatoons deposited at any time within six months, upon

paying one fourth per cent. for the keeping. This receipt will

frequently bring no price in the market. Three guilders, bank

money, generally sell in the market for three guilders three

stivers, the full value of the ducatoons, if they were taken out

of the bank ; and before they can be taken out, one-fourth per

cent. must be paid for the keeping, which would be mere loss to

the holder of the receipt. If the agio of the bank, however,

should at any time fall to three per cent. such receipts might

bring some price in the market, and might sell for one and

three-fourths per cent. But the agio of the bank being now

generally about five per cent. such receipts are frequently

allowed to expire, or, as they express it, to fall to the bank.

The receipts which are given for deposits of gold ducats fall to

it yet more frequently, because a higher warehouse rent, or one

half per cent. must be paid for the keeping of them, before they

can be taken out again. The five per cent. which the bank gains,

when deposits either of coin or bullion are allowed to fall to

it, maybe considered as the warehouse rent for the perpetual

keeping of such deposits.

 

The sum of bank money, for which the receipts are expired, must

be very considerable. It must comprehend the whole original

capital of the bank, which, it is generally supposed, has been

allowed to remain there from the time it was first deposited,

nobody caring either to renew his receipt, or to take out his

deposit, as, for the reasons already assigned, neither the one

nor the other could be done without loss. But whatever may be the

amount of this sum, the proportion which it bears to the whole

mass of bank money is supposed to be very small. The bank of

Amsterdam has, for these many years past, been the great

warehouse of Europe for bullion, for which the receipts are very

seldom