Deflation Made Simple II

The Story of Real Money (Entry 120)

The Wisselbank opened its doors in 1609 with the task of simplifying the currency confusion (Image 29) that resulted from the city of Amsterdam’s vast trade network. The data suggests that the bank remained true to its warehouse function for at least the lifetime of its founders.

Sometime during the 1650s, however, the City of Amsterdam borrowed with interest some 2 million Guilders from the bank — an amount that it never repaid. In fact, by 1666 it had even stopped paying interest on the loan! Apparently, the money had been spent to build Amsterdam’s new city hall.

Surely the new hall added to the prestige of Amsterdam and the hall’s inhabitants. And yes, the Wisselbank remained housed within the new building. In the end, however, the money used to build this monument of prestige and distinction did not belong to the bank, and its depositors had not been consulted!

In 1669, while Louis XIV and Charles II were plotting their invasion of the Dutch Republic, the management of the Wisselbank was busily engaged in creating still another major loan agreement that would further betray the trust of the Wisselbank’s depositors, but this time with the VOC whose shareholders were often account holders at the Wisselbank. These were tragic moments in the history of the Western world, not just Amsterdam. Sadly, they were only the beginning of a long series of similarly tragic moments that would follow.

It is difficult to know the motivation for this illicit financial activity, but one rationalization for its occurrence may have been the Christian notion that money should not be wasted (Mathew 25: 14-28). Alas, precious metal was scarce, and commerce (money-in-exchange) and investment (money-in-use) contributed to the well-being of everyone.

Surely, the personal savings of the one was just as reasonable and justified (Images 7-8) then as it is today — indeed, even more so then, because unlike the counterfeit currency that we use today, the value of real money preserves its value over time. Then too, the personal saving of the many when gathered together in a single room might appear to some more like a heap of idle money than a tightly guarded vault of goodwill filled with trust and reasonable precaution. In 1669 the Bank of Amsterdam presided over some 7.9 million Guilders of other people’s liquid savings — more than twice the capital raised by the VOC when it opened its doors in 1602! Over a hundred tons of heavy metal!

In the end, human being are always looking for a way to improve their well-being; moreover, they are a bit lazy in thought that does not serve their immediate interests. Combine these human traits with the little thief that is in all of us, as well as the propensity to think after the fact rather than before, and the soil for mischief becomes fertile for the arrogant mover-and-shaker eager to implicate others in his own short-comings.

In 1669, the VOC had overshot its budget to the tune of 1.8 million Guilders and was badly in need of liquidity. Rather than appear with humility before a local investment bank, request a loan, and pay the same interest that everyone else had to pay in a similar situation, someone in the VOC decided to apply his political clout with the City of Amsterdam and exact a loan from the Wisselbank. Unfortunately, the bank’s management complied, the bank’s staff remained silent, and matters grew worse.

It should be noted that four years later in 1673 while the Third Anglo-Dutch War was still waging and Louis XIV was ravaging the countryside of the Dutch and Spanish Netherlands, still another incident occurred. Rutger Vieck, an accountant at the Wisselbank, admitted that he had embezzled some 300,000 Guilders worth of member-account savings over a 20-year period. He was beheaded in Dam Square for his infraction!

Maybe Rutger had helped to arrange the deal between the management teams of the VOC and the Wisselbank and threatened to make the illicit arrangement public. Maybe he had participated in the building of the new city hall with other people’s savings. Perhaps, he merely reflected the corrupted arrogance of the bank’s management team — an arrogance that had seeped into the bank’s culture after several decades of extraordinary success. No matter. What occurred in Dam Square reflected what the City of Amsterdam wanted the citizens of Amsterdam to believe about the their city fathers — that they were scrupulous in their affairs.

Was Rutger Vieck’s punishment genuine, or was it merely a convenient cover for what was really going on behind the closed doors of the Wisselbank and the administration of the city of Amsterdam? We will likely never know.

By 1698 the 1.7 million Guilders lent to the VOC had increased to 3.2 million, and by 1743 the VOC’s outstanding debt to the bank had reached a whopping 7 million Guilders! The once rock solid Amsterdamsche Wisselbank was crumbling beneath a veneer of global reputation — a neglected apple left to rot and spoil the other apples.

In liberty, or not at all,
Roddy A. Stegemann, First Hill, Seattle 98104