The Origins and Development of Financial Markets and Institutions From the Seventeenth Century to the Present
Book contents
- Frontmatter
- Contents
- List of figures
- List of tables
- List of contributors
- Preface and acknowledgments
- 1 Financial innovations and crises: The view backwards from Northern Rock
- 2 An economic explanation of the early Bank of Amsterdam, debasement, bills of exchange and the emergence of the first central bank
- 3 With a view to hold: The emergence of institutional investors on the Amsterdam securities market during the seventeenth and eighteenth centuries
- 4 Was John Law's System a bubble? The Mississippi Bubble revisited
- 5 Sir George Caswall vs. the Duke of Portland: Financial contracts and litigation in the wake of the South Sea Bubble
- 6 The bell jar: Commercial interest rates between two revolutions, 1688–1789
- 7 Comparing the UK and US financial systems, 1790–1830
- 8 Natural experiments in financial reform in the nineteenth century: The Davis and Gallman analysis
- 9 Regulatory changes and the development of the US banking market, 1870–1914: A study of profit rates and risk in national banks
- 10 Anticipating the stock market crash of 1929: The view from the floor of the stock exchange
- 11 The development of “non-traditional” open market operations: Lessons from FDR's silver purchase program
- 12 The interwar shocks to US–Cuban trade relations: A view through sugar company stock price data
- 13 Central bank reaction functions during the inter-war gold standard: A view from the periphery
- 14 When do stock market booms occur? The macroeconomic and policy environments of twentieth century booms
- 15 Lessons from history for the twenty-first century
- Index
- References
2 - An economic explanation of the early Bank of Amsterdam, debasement, bills of exchange and the emergence of the first central bank
Published online by Cambridge University Press: 04 August 2010
Book contents
- Frontmatter
- Contents
- List of figures
- List of tables
- List of contributors
- Preface and acknowledgments
- 1 Financial innovations and crises: The view backwards from Northern Rock
- 2 An economic explanation of the early Bank of Amsterdam, debasement, bills of exchange and the emergence of the first central bank
- 3 With a view to hold: The emergence of institutional investors on the Amsterdam securities market during the seventeenth and eighteenth centuries
- 4 Was John Law's System a bubble? The Mississippi Bubble revisited
- 5 Sir George Caswall vs. the Duke of Portland: Financial contracts and litigation in the wake of the South Sea Bubble
- 6 The bell jar: Commercial interest rates between two revolutions, 1688–1789
- 7 Comparing the UK and US financial systems, 1790–1830
- 8 Natural experiments in financial reform in the nineteenth century: The Davis and Gallman analysis
- 9 Regulatory changes and the development of the US banking market, 1870–1914: A study of profit rates and risk in national banks
- 10 Anticipating the stock market crash of 1929: The view from the floor of the stock exchange
- 11 The development of “non-traditional” open market operations: Lessons from FDR's silver purchase program
- 12 The interwar shocks to US–Cuban trade relations: A view through sugar company stock price data
- 13 Central bank reaction functions during the inter-war gold standard: A view from the periphery
- 14 When do stock market booms occur? The macroeconomic and policy environments of twentieth century booms
- 15 Lessons from history for the twenty-first century
- Index
- References
Summary
The early Dutch Republic experienced a monetary problem called incremental debasement, for mints repeatedly reduced the precious metal content of coins by small amounts. Adam Smith termed this the “small-state” problem because small, open economies often made substantial use of foreign coins, so debased foreign mints flowed into ports like Amsterdam. Around 1600, The Dutch Republic was awash in foreign coins and these were widely used as media of exchange. The fragmented nature of minting authority within the Dutch Republic meant that debasement had a domestic component as well. Whether foreign or domestic, a debasement led to uncertainty in the value of payments, creating transaction costs that hampered commerce.
The Dutch authorities attempted to deal with this debasement problem through laws and regulations, but these were often slow and ineffective. It took decades, for example, for the Republic to establish full control over its numerous independent mints. By contrast, laws assigning coin values were enacted early and often, but these did not solve the problem of debasement. While these were intended to simplify the use of coins by giving them a known value (tale) in terms of a unit of account, we argue that these laws, called mint ordinances, had the unintended consequence of making the situation worse. The disconnect between legal and intrinsic value encouraged people to bring old coins with high intrinsic, but low legal value to the mint in order to repay their debts with newly debased coins.
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- The Origins and Development of Financial Markets and InstitutionsFrom the Seventeenth Century to the Present, pp. 32 - 70Publisher: Cambridge University PressPrint publication year: 2009
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