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

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

bank. The far greater part of the bank money, or of the credits

upon the books of the bank, is supposed to have been created, for

these many years past, by such deposits, which the dealers in

bullion are continually both making and withdrawing.

 

No demand can be made upon the bank, but by means of a recipice

or receipt. The smaller mass of bank money, for which the

receipts are expired, is mixed and confounded with the much

greater mass for which they are still in force; so that, though

there may be a considerable sum of bank money, for which there

are no receipts, there is no specific sum or portion of it which

may not at any time be demanded by one. The bank cannot be debtor

to two persons for the same thing; and the owner of bank money

who has no receipt, cannot demand payment of the bank till he

buys one. In ordinary and quiet times, he can find no difficulty

in getting one to buy at the market price, which generally

corresponds with the price at which he can sell the coin or

bullion it entitles him to take out of the bank.

 

It might be otherwise during a public calamity ; an invasion, for

example, such as that of the French in 1672. The owners of bank

money being then all eager to draw it out of the bank, in order

to have it in their own keeping, the demand for receipts might

raise their price to an exorbitant height. The holders of them

might form extravagant expectations, and, instead of two or three

per cent. demand half the bank money for which credit had been

given upon the deposits that the receipts had respectively been

granted for. The enemy, informed of the constitution of the bank,

might even buy them up, in order to prevent the carrying away of

the treasure. In such emergencies, the bank, it is supposed,

would break through its ordinary rule of making payment only to

the holders of receipts. The holders of receipts, who had no bank

money, must have received within two or three per cent. of the

value of the deposit for which their respective receipts had been

granted. The bank, therefore, it is said, would in this case make

no scruple of paying, either with money or bullion, the full

value of what the owners of bank money, who could get no

receipts, were credited for in its books; paying, at the same

time, two or three per cent. to such holders of receipts as had

no bank money, that being the whole value which, in this state of

things, could justly be supposed due to them.

 

Even in ordinary and quiet times, it is the interest of the

holders of receipts to depress the agio, in order either to buy

bank money (and consequently the bullion which their receipts

would then enable them to take out of the bank ) so much cheaper,

or to sell their receipts to those who have bank money, and who

want to take out bullion, so much dearer ; the price of a receipt

being generally equal to the difference between the market price

of bank money and that of the coin or bullion for which the

receipt had been granted. It is the interest of the owners of

bank money, on the contrary, to raise the agio, in order either

to sell their bank money so much dearer, or to buy a receipt so

much cheaper. To prevent the stock-jobbing tricks which those

opposite interests might sometimes occasion, the bank has of late

years come to the resolution, to sell at all times bank money for

currency at five per cent. agio, and to buy it in again at four

per cent. agio. In consequence of this resolution, the agio can

never either rise above five, or sink below four per cent. ; and

the proportion between the market price of bank and that of

current money is kept at all times very near the proportion

between their intrinsic values. Before this resolution was taken,

the market price of bank money used sometimes to rise so high as

nine per cent. agio, and sometimes to sink so low as par,

according as opposite interests happened to influence the market.

 

The bank of Amsterdam professes to lend out no part of what is

deposited with it, but for every guilder for which it gives

credit in its books, to keep in its repositories the value of a

guilder either in money or bullion. That it keeps in its

repositories all the money or bullion for which there are

receipts in force for which it is at all times liable to be

called upon, and which in reality is continually going from it,

and returning to it again, cannot well be doubted. But whether it

does so likewise with regard to that part of its capital for

which the receipts are long ago expired, for which, in ordinary

and quiet times, it cannot be called upon, and which, in reality,

is very likely to remain with it for ever, or as long as the

states of the United Provinces subsist, may perhaps appear more

uncertain. At Amsterdam, however, no point of faith is better

established than that, for every guilder circulated as bank

money, there is a correspondent guilder in gold or silver to be

found in the treasures of the bank. The city is guarantee that it

should be so. The bank is under the direction of the four

reigning burgomasters who are changed every year. Each new set of

burgomasters visits the treasure, compares it with the books,

receives it upon oath, and delivers it over, with the same awful

solemnity to the set which succeeds ; and in that sober and

religious country, oaths are not yet disregarded. A rotation of

this kind seems alone a sufficient security against any practices

which cannot be avowed. Amidst all the revolutions which faction

has ever occasioned in the government of Amsterdam, the

prevailing party has at no time accused their predecessors of

infidelity in the administration of the bank. No accusation could

have affected more deeply the reputation and fortune of the

disgraced party ; and if such an accusation could have been

supported, we may be assured that it would have been brought. In

1672, when the French king was at Utrecht, the bank of Amsterdam

paid so readily, as left no doubt of the fidelity with which it

had observed its engagements. Some of the pieces which were then

brought from its repositories, appeared to have been scorched

with the fire which happened in the town-house soon after the

bank was established. Those pieces, therefore, must have lain

there from that time.

 

What may be the amount of the treasure in the bank, is a question

which has long employed the speculations of the curious. Nothing

but conjecture can be offered concerning it. It is generally

reckoned, that there are about 2000 people who keep accounts with

the bank; and allowing them to have, one with another, the value

of �1500 sterling lying upon their respective accounts (a very

large allowance), the whole quantity of bank money, and

consequently of treasure in the bank, will amount to about

�3,000,000 sterling, or, at eleven guilders the pound sterling,

33,000,000 of guilders ; a great sum, and sufficient to carry on

a very extensive circulation, but vastly below the extravagant

ideas which some people have formed of this treasure.

 

The city of Amsterdam derives a considerable revenue from the

bank. Besides what may be called the warehouse rent above

mentioned, each person, upon first opening an account with the

bank, pays a fee of ten guilders ; and for every new account,

three guilder’s three stivers; for every transfer, two stivers;

and if the transfer is for less than 300 guilders, six stivers,

in order to discourage the multiplicity of small transactions.

The person who neglects to balance his account twice in the year,

forfeits twentyfive guilders. The person who orders a transfer

for more than is upon his account, is obliged to pay three per

cent. for the sum overdrawn, and his order is set aside into the

bargain. The bank is supposed, too, to make a considerable profit

by the sale of the foreign coin or bullion which sometimes falls

to it by the expiring of receipts, and which is always kept till

it can be sold with advantage. It makes a profit, likewise, by

selling bank money at five per cent. agio, and buying it in at

four. These different emoluments amount to a good deal more than

what is necessary for paying the salaries of officers, and

defraying the expense of management. What is paid for the keeping

of bullion upon receipts, is alone supposed to amount to a neat

annual revenue of between 150,000 and 200,000 guilders. Public

utility, however, and not revenue, was the original object of

this institution. Its object was to relieve the merchants from

the inconvenience of a disadvantageous exchange. The revenue

which has arisen from it was unforeseen, and may be considered as

accidental. But it is now time to return from this long

digression, into which I have been insensibly led, in

endeavouring to explain the reasons why the exchange between the

countries which pay in what is called bank money, and those which

pay in common currency, should generally appear to be in favour

of the former, and against the latter. The former pay in a

species of money, of which the intrinsic value is always the

same, and exactly agreeable to the standard of their respective

mints ; the latter is a species of money, of which the intrinsic

value is continually varying, and is almost always more or less

below that standard.

 

PART II. - Of the Unreasonableness of those extraordinary

Restraints, upon other Principles.

 

In the foregoing part of this chapter, I have endeavoured to

show, even upon the principles of the commercial system, how

unnecessary it is to lay extraordinary restraints upon the

importation of goods from those countries with which the balance

of trade is supposed to be disadvantageous.

 

Nothing, however, can be more absurd than this whole doctrine of

the balance of trade, upon which, not only these restraints, but

almost all the other regulations of commerce, are founded. When

two places trade with one another, this doctrine supposes that,

if the balance be even, neither of them either loses or gains;

but if it leans in any degree to one side, that one of them

loses, and the other gains, in proportion to its declension from

the exact equilibrium. Both suppositions are false. A trade,

which is forced by means of bounties and monopolies, may be, and

commonly is, disadvantageous to the country in whose favour it is

meant to be established, as I shall endeavour to show hereafter.

But that trade which, without force or constraint, is naturally

and regularly carried on between any two places, is always

advantageous, though not always equally so, to both.

 

By advantage or gain, I understand, not the increase of the

quantity of gold and silver, but that of the exchangeable value

of the annual produce of the land and labour of the country, or

the increase of the annual revenue of its inhabitants.

 

If the balance be even, and if the trade between the two places

consist altogether in the exchange of their native commodities,

they will, upon most occasions, not only both gain, but they will

gain equally, or very nearly equally ; each will, in this case,

afford a market for a part of the surplus produce of the other;

each will replace a capital which had been employed in raising

and preparing for