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.

 

 Compte rendu par Pierre-Cyrille Hautcoeur, EHESS et PSE, à paraître dans European Journal of the History of Economic Thought.


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.