This section is from the "The Science Of Wealth" book, by Amasa Walker.
In the early part of the fourteenth century, the Bank of Genoa, or House of St. George, was established, especially for the management of the public debt. But, in addition, the bank performed all such services as were required by the existing wants of trade, at a period when Genoa was commercially the centre of Europe. Of course, its operations were on a gigantic scale. Its affairs were conducted with the greatest skill and fidelity, and were continued from its foundation up to the time Genoa was united to the French Empire, " when the bank was abolished, and the rentes, 3,400,000 Genoese lire, which they owed their creditors, were transferred to the account-books of France."
This bank, like the Bank of England, had its stock invested in the public debt; but it received deposits of gold and silver, for which it gave credit to the depositor. These deposits, being easily transferable, were employed largely in commercial transactions.
The bank also issued bills extensively; but "these bills and deposits represented coins of full weight and value, and were payable on demand in such coins." The common currency of Genoa, for retail business and minor transactions, was coin.
Thus the Genoese were furnished with a currency perfectly adapted to their wants. It had all the reliability of specie, with the convenience of a paper circulation, and conferred immense advantages upon the trade of the city for more than five hundred years.*
The Bank of Amsterdam was established in 1609 as a bank of deposit, receiving gold and silver coins of all denominations and all nationalities, ascertaining their exact value, and passing the amount to the credit of the depositor, or
* For an interesting account of this bank, see " The Ways and Means of Payment" (p. 311 et seq.), by Stephen Colwell, of Philadelphia giving him a receipt (recipisse) for the same. These receipts passed from hand to hand, and formed a circulating medium for large monetary transactions.
The Bank of Hamburg was established in 1619. Like that of Amsterdam, it is a bank of deposit; and all payments are made by checks in the transfer of receipts. It exists at the present day. It never promises more coin than it has in its vaults. It is under the guardianship and guaranty of the city. It has never deranged trade by contraction or expansion. It has always been found reliable. It has contributed greatly to the prosperity of the city, and the convenience of all connected with Hamburg in trade. At the same time, it has paid a considerable and constant revenue to the city, a small agio or premium being charged on all deposits.
We have referred to these individual banks, not to give a history of their operations, but to show that the essential principle of a substitute currency has been long recognized, and thoroughly tried in practice. The Bank of Genoa seems to have developed this most fully. Yet none of them would afford a perfect model for the present age.
To keep gold and silver coin in bank, while they are performing all their functions outside, with the perfect accuracy and vastly augmented force, — this is what a mercantile currency seeks to realize. It is beyond doubt that this can be more effectually done in the present, than in any preceding age, since confidence and intelligence are more general and controlling.
England affords the best illustration of the necessity for such a currency at the present day, when the commerce of the world is perhaps one hundred times greater than when Genoa was its chief mart. The monetary condition of England is peculiarly appropriate in this connection, because its present currency is probably the best in quality of all the mixed currencies, and one with which the public generally are well acquainted. Yet, notwithstanding this superiority, we find the currency, on which depend the trade and commerce of the British Empire, in a state of continual fluctuation, a matter of unceasing solicitude: the bank reserve, by which its discounts must be governed, varying from ten millions in 1846, to one and a half millions in 1847 ; twelve and a half millions in 1849, to four millions in 1854; one and a half millions in 1857, to thirteen and a half millions in 1858; with corresponding variations in the rates of interest, as seen in our Diagram No. 10.
Why all this fluctuation and anxiety? Why this constant watching of the amount of bullion in bank? Why this nervous solicitude about the reserve?
There is only one reason; and that is, that the Bank of England has issued from ten to fourteen millions sterling of notes, for which it holds no specie! That is all the difficulty. It has disturbed the laws of value, by issuing that as money which had only the promise of value; and, consequently, has expelled the actual value from the country in which it was needed.
And what does the Bank of England gain by all this? Why, the interest upon all the excess of its notes over the bullion in bank; that is, if its notes are twenty millions, and it holds eight millions of specie, then on twelve millions it obtains interest, which, at say four per cent, as an average, is equal to four hundred and eighty thousand pounds per annum. So, then, it is for this paltry consideration that the currency of Great Britain is kept in constant fluctuation, and the business community in continual anxiety. This gain is equivalent to about fourpence per head for the population of the nation. Yet for this the public must, on an average, suffer to the amount of many millions per annum.