Deflation Made Simple (Part I)

A falsely vilified phenomenon (Image 029)

In Seville gold and silver arrived from the New World in the form of stolen refined art or unrefined ore that had been extracted from Aztec, Inca, and other mines. Once arrived, it was received by La Casa and sent to the Casa de la Moneda (House of Money or Spanish Mint) where it was transformed into coin with a royal stamp. Having been made uniformly countable it was divided into two parts and delivered to: Charles V in order to fund his military expeditions; and La Casa where everyone was paid for his past effort and a new commercial expedition was planned for future effort.

Amsterdam was a trading center very different from Seville.

In Amsterdam goods arrived from all over the world. Silk cloth from the Far East, spices from South Asia, coffee from the Middle East, ivory and pepper from Africa, cane sugar from the Caribbean, tobacco from North America, wool from England, and grain from the Baltic states. The monies used to pay for these imports were as varied as there were princes, lords, kings, and renowned private minting houses who knew how, and took pride in, creating them.

For the Dutch precious metal was a medium of exchange — not the desired object. The cane sugar and bundled tobacco leaves from the Americas were turned into chocolate and refined smoking tobacco that was packaged and distributed throughout the Baltic region. Bottled wine from Porto, Portugal was traded for fine woolen linen made from the raw wool that was imported from England. And, the confection produced from Baltic grain was consumed by the traders in Amsterdam who made it possible for Japanese silk purchased in Nagasaki to be worn by royalty domiciled in Paris and Vienna.

Now, there was not much one could do about the many languages and customs that converged in Amsterdam. One could only enjoy the variety and tolerate the differences. There was something that could be done about the vast confusion created by the large variety of different counting units that made finding equity in exchange extremely difficult. This is where the wisdom of Amsterdam’s elected administrators came in, and the Amsterdamsche Wisselbank (The Exchange Bank of Amsterdam) was born.

No, the Bank of Amsterdam no more invented money than did the bankers of Seville, Spain, the Fuggers of Vienna, Austria, or Di Medicis in Florence, Italy. Neither did it reinvent banking! What the bank did do is what money changers have been doing since it was gradually discovered that trading something that everyone likes, but no one really needs, for something that everyone wants and can truly use is an absolutely cool way of conducting voluntary, free exchange. More specifically, the bank melted, separated out, weighed, and reformed into standardized countable units what everyone brought to the bank and was deemed suspicious.

In effect, when you went to the Bank of Amsterdam with whatever coin you had and claimed to be of given worth, because someone had taught you how to count and decipher, the bank teller would reply, “Look, we know you mean well, and we do not claim to be able to count and decipher any better than you, but can you prove to us that what we can both feel and see, is really what we see and feel?” Once you figured out that what you could feel and see were commutative faculties of perception in this context, you also came to realize that the bank had a point.

Now, you could hang around and watch as the bankers took your well-formed, countable metal and did what money changers had been doing for millennia before you, or you could return the next day and discover the same. More importantly, you could do something that you could not do in Seville, if that is where you were once active. You could either take your reformed metal and trade with it anywhere in Amsterdam or beyond, or you could receive a receipt, just like in Seville, but with no fear that what you deposited would not be returned on the spot, were you to come back a week, a year, or a decade later to retrieve it.

In the end, there was no needy royal sovereign to take your money, for you were now resident in a republic of federated states, and the city fathers of Amsterdam were elected officials held accountable to the people!

In liberty, or not at all,
Roddy A. Stegemann