Lucien
Gillard, La Banque d’Amsterdam et le florin européen. Au
temps de la république néerlandaise (1610-1820),
éditions de l’EHESS, 2004,
420 pages, bibliography, 24 tables, 24 graphs, glossary, no index.
Lucien Gillard,
researcher at Centre national de la recherche scientifique in Paris,
has
written an important book. Important by his subject first, which must
be read
as : the international role of the Dutch gulden and its management by
the Bank
of Amsterdam in the 17th and 18th centuries. By his ambition also :
providing a
global synthesis of the literature as well as a new interpretation of
the
monetary macroeconomics of Europe in that period. By his methodology
finally,
which mixes monetary theory and macroeconomics with institutional
economics and
political economy. The book is well written, even elegantly, although
this is
sometimes at the price of less clarity. Some previous knowledge of the
monetary
economics of the early modern period is an advantage, if not a
requisite, for a
good understanding. Some familiarity with the numerous authors involved
(starting
with Malynes, 1622) is certainly also an help.
Gillard follows the
tradition of Braudel in trying to understand the role of the Dutch
economy as
the center of the international economy during that period. He
considers that
the interactions between Britain, France and the Netherlands constitute
the
heart of the economics of that period and then tries to formulate a
model of
these relationships, based on the detailed study of the role of the
gulden and
the Bank of Amsterdam. He also wonders how the Netherlands almost
became a pure
financial center, abandonning many direct production activities, as has
been
highlighted by part of the litterature on the subject.
The book provides a
number of useful information and data which, alone, could make it a
standard
reference. Some are only helpful, even if not easy to find,such as the
tables
giving units of account (p.120), metallic content of minted coins (p.123, 128) or weight
units (p. 195) for Britain, France, and
the Netherlands; the most important are
the author's estimates of monetary and macroeconomic aggregates based
on a
careful reading of the literature and a search for consistency. Lacking
annual
evaluations, he provides for each half-century beginning and end of
period
values for such aggregates as national income, government income,
government
debt, monetary stock, imports, exports, assets held abroad, metallic
flows in
Europe (e.g. p.38, p.197). Last, and not least, are the market data on
exchanges rates (p.267ss), metals prices (p.218ss) and the agio (see
below
(p.339ss), and the detailed data on the Bank of Amsterdam itself :
mostly
annual balance sheets (p.82, 86, 102, etc), number of accounts (p.75),
profits
(p.374) and detailed institutional description and analysis. Sources
are
presented in a statistical appendix which could have been more detailed.
Much of the original
data synthetized by the author results from a detailed reading and
discussion
of contemporary writers, whose works represent half the references in
the 12
pages bibliography. Actually, the detailed knowledge of the opinions
and
interpretations formulated by these contemporaries is a clear advantage
of this
book in comparison with most others on this period. It is not presented
as
interesting per se as in most history of economic thought, but used
throughout
the book in order to understand the institutions, actions, and economic
behaviour of the period. It is in some chapters (2, 4, 5) delicately
mixed with
the historical account, so much that it sometimes makes it difficult
for the
profane reader to understand the precise interpretation of the author.
The introduction
presents the research project in more detail : to understand the
institutions
and accounting rules that created a money that was only partly based on
metal;
how the central institution, the Bank of Amsterdam, finally acted
almost like a
central bank although it had none of the characteristics of a modern
central
bank; how it was helped in that purpose by the development of a money
market,
and especially an exchange market and a market for precious metals that
dominated all over Europe; how that domination was possible given the
lack of
both a strong political power and a substantial national productive
basis, in a
nation that mostly intermediated Europe's trade and, later, savings
(when
foreign mercantilists policies excluded Dutch merchants from their
original
positions).
Chapter one first
summarizes the political history of the Low Countries, insisting on the
commercial and monetary dominance of Amsterdam and its contestation by
the
other provinces through the Orange dynasty and its military objectives.
It
provides a chronology of public debt and finances, just to remember
that the
Dutch public debt consolidation predated the English one by 50 years,
almost as
much as the anteriority of the Bank of Amsterdam on the Bank of England
and the
extracting capacity of the Dutch tax system on all others. The author
insists
that the Bank's foundation was an act of public authority by the City
of
Amsterdam, which purpose was not to make profits but to give
institutional
guarantees to the quality of the money used. But contrary to what some
authors
argue, this did not lead the Bank to behave in a purely passive manner.
This is
exemplified in that chapter by the cooperative relationships between
the Bank
of Amsterdam and the Dutch East India Company (the VOC), and leads to a
first
presentation of the thesis of the author, that the Bank served as an
instrument
to isolate the internal Dutch economy from the shocks that might result
from
its enormous foreign economic relationships (both commercial and
financial). On
all these subjects, the chapter also presents the opinions of
contemporary or
later economists who were interested on the success and decline of the
Low
Countries economic domination, from Cantillon to Ricardo through
Spinoza, Mun,
Malynes, etc.
Chapter two describes
in detail the operations of the Bank and their evolution. The Bank
originated
as a deposit and transfer bank which provided lower transaction costs,
de facto
exchange rate stability and a guarantee to the quality of the money
used for international
payments, payments for which it had a legal monopoly for all
transactions above
600 gulden (and gained a de facto monopoly since the average amount of
the
bills it intermediated was no more than 100 gulden).
In 1683, the
government refused to turn the Bank into a discounting bank probably by
fear of
seeing potential autocratic rulers using it as a resource provider.
Instead, the
Bank introduced an innovation, the certificate of deposit
("récépissé de
dépôt"), a note which value fluctuated with the difference
between the
market and the legal price of the gold in deposit. Being issued on the
initiative of the public, they did not allow any actual monetary
policy, but
authorized speculation on the exchange rate and, most importantly,
provided a
high velocity monetary instrument. They led to a further separation
between the
convertibility of the current (internal) gulden (in coins) and that of
the banco
(for external use only, in metal).
The legal 100%
reserve situation of the Bank could be seen as a radical "currency
school" position. It indeed proved safeguarding during the 1672 French
invasion, when the Bank was able to reimburse all its clients. But
actually,
the cover ratio (if we may use such an anachronistic concept) was
frequently
well below 100%, usually around 80%, since, although the Bank was
prohibited to
provide credit, it made some substantial - if hidden - exceptions,
mostly in
favour of the City of Amsterdam or the VOC. Nevertheless, since these
credits
were never made as a reaction to market demand, but imposed by
political
choices, they did not give the Bank a mean to develop a monetary
policy, even
when its monetary creation was significant.
Chapter three
describes the main specificity of the Bank. The Bank was allowed to
define
rules (mint price, choice of coins accepted and the prices at which
they were
accepted) concerning a unit of account, the banco gulden that
differed
from the one imposed by the government in The Hague. That double
minting gave
birth to an exchange rate (the agio) between the two gulden in
1621,
when the conversion between banco and metallic gulden was
mostly
abandoned by the Bank to private cashiers, a practice that was
officialised in
1659. The agio was measured as the difference between the two
gulden, in
percentage : usually some 5% in favour of the banco gulden.
The author suggests
that this model expressed the autonomy of the mercantile community of
Amsterdam
toward the rule of the Orange family and that the differences between
the
currency (the normal gulden) used for internal and the one (the banco)
used
for international transactions protected the Dutch economy from
external
shocks. Nevertheless, this model was not created purposefully: at the
start,
the Bank was supposed to clarify a monetary situation confused by the
war with
Spain, during which currency depreciation was used by both parties in
order to
attract minting or create disorder among the enemy's traders. The
currency was
stabilized only in 1659, but most importantly for international
payments, the
unit of account was assimilated to the silver main coin, originating a
long
period of stability until the end of the Republic. Attempts, especially
in
1749, to fix permanently the gold-silver ratio, were less successful.
Chapter 4 examines
the functioning of the European market of precious metals, a market
much
affected by government interventions all over Europe except in the
United
Provinces during the 17th century. The author shows that not only the
absence
of government restrictions on metallic exports but also the Bank of
Amsterdam contributed
greatly to develop and centralize that market in Amsterdam since "it is
only when the reference changed from minted metal to row metal that
some
centralisation of the exchange market could happen"(p. 381), something
the
1683 reform allowed for. He also argues that the impact on the market
of the
VOC, which bought and sent to Asia huge quantities of gold, was
attenuated by
the existence of such a deep market. He evaluates the share of
Amsterdam in European
metal imports from the Americas to 60% in the 17th century and 50% in
the 18th
(a decline resulting from the development of the English market in
relation
with the increasing proportion of gold in total imports). Even if the
Holland
kept an important fraction (21%, suggests the author) of the European
metallic
stock as a protection for the risks involved in being the reserve
centre for European
finance, much of its imports were re-exported towards Asia or other
European
countries via the permanent arbitrage operations resulting from the
variations
in the gold/silver relative price (from 12 around 1600 to 15 in the
late 18th
century) and the different and changing valuations of both metals in
the main
countries (which are given in detail on p.189).
Chapter 5 studies the
exchange market and the exchange rates of the English and French
currencies
with the banco gulden, which the author calls "euro-gulden"
because
of its international use. It details the organization of the official
market, where
brokers had a pure intermediation role, and that of the parallel
unofficial,
more speculative and less protected market. It shows that in the 18th
century,
the officials of the first one started behaving as market makers,
increasing
both the liquidity and the default risks in the globalized exchange and
money
market.
It
explains the role of the various actors of
that market: cashiers of the Bank, official brokers and merchant
bankers
initiating the bills. Amsterdam became the centre of multilateral
compensations
thanks to the size and heterogeneity (in terms of geographic and
religious
origins) of this community, which guaranteed the access to information
and
benefited from the payment mechanism of the Bank.
The author shows that
the exchange rates of the gulden could vary widely because of the
substantial
differences between the various metallic parities which resulted from
the many
coins used for payments and the restrictions in the ability to choose
among
them. It studies the integration of the exchange market, showing first
that
their volatility decreased through time, second that some asymmetries
existed
in favour of Amsterdam (as the market which benefited from the most
integrated
prices, since in its case, and only in its case, payments in another
country
never benefited from a triangular relation with another one) and the
gulden,
and third that the potential gains resulting from these asymmetries
remained
very limited during all the period. He shows that many theories of
exchange
rate determination were invented during that period in order to explain
these
level and variations.
Chapter 6 brings
together all elements in the book in order to demonstrate that the Bank
of
Amsterdam regulated the agio and récépissés
markets in order to
isolate the Dutch economy from external shocks, even if it did it
without the
monetary policy tools we are nowadays used to. It insists on the
similarity
with compulsory reserves of the deposits held with the Bank by external
cashiers as a result first of the compulsory use of banco
gulden for
external payments and second of the development of discount credit by
the
cashiers. The author shows that the Bank could influence both the agio
(by choosing which money it provided to the cashiers), and the récépissés
price and then the exchange rate (by employing its reserves in order to
intervene in the market). Thanks to this
"dam", "inflation or deflation within the country did not
mechanically result from a disequilibrium in the foreign payments"
(p.324). The chapter provides both narrative and statistical evidence
in favour
of this interpretation.
Does the book
convince us ? Its main thesis, the separation between the internal and
the
external gulden, and the quasi central bank function of the Bank of
Amsterdam
using its resources in order to protect the Dutch economy from external
shocks,
is not sufficiently clearly demonstrated for this reader to be entirely
convinced, although he shares the conviction that this question is the
most
important and that the author clearly shows that both the agio
and the
certificate of deposits markets were important. The most important and
clearest
explanations are provided in chapter 6, which could maybe be read
first. But,
partly because of lack of data, the authors don't use any econometrics
but
relies on correlation between pairs of variables, not a sufficiently
reliable
method. The contribution to the answer to the "big questions"
provided in the introduction could also have been presented more
precisely in
the conclusion. As it is, the book is important and worth the
(substantial)
reading effort.