Deflation Made Simple (Part I)

A falsely vilified phenomenon (Image 030)

The Wisselbank (Exchange Bank of Amsterdam) was not a privately-owned family enterprise like the Banco di Medici in Florence, Italy. Neither was it a government-owned trading company like that of La Casa in Seville, Spain.

The Wisselbank was a civic enterprise organized and managed by those elected to administer the public affairs of the city of Amsterdam. Some have even called it the world’s first central bank, but this would be a grave snub to the bank’s integrity, as we shall learn when we travel to the other side of the English Channel.

For the moment let us leave the debris of the naval war between Spain and England in the Channel and focus on Amsterdam and the newly formed Dutch Republic out of which the Wisselbank arose.

Firstly, a declaration of independence is hardly enough to secure independence. Accordingly, the Dutch had every reason to want to take advantage of the Spanish defeat with which the British Navy and bad weather had blessed them. Spain remained a formidable enemy, and despite the disaffection of many German states from the Holy Roman Empire, neither the empire nor the Catholic Church were on a precipice of dissolution.

Unlike a corporation or a political party that can dissolve over night, if its leadership takes its eye off the ball, and its owners or members disaffect for want of a clear mission and the benefits derived from that mission’s realization, the Catholic Church is a religious philosophy with a very long and refined tradition that brings all of life’s crises under a single roof in the mind of each of its members. Poor leadership in Rome was obviously not helpful, but it hardly meant the end of the Church.

Similarly, the fate of the Hapsburg Dynasty did not depend on the fate of a single king at the head of the Holy Roman Empire. It was a vast network of interconnected families each with a unique set of local political allegiances and its own economic base. No, neither the Church, nor the dynasty, nor the empire that depended on the success of both the Church and the dynasty were about to crumble because of temporary bad weather and poor leadership at the top.

Within two decades after Martin Luther’s excommunication the Society of Jesus (Jesuit Brotherhood) formed in Rome under the leadership of Saint Ignatius Loyola. And, between 1545 and 1563 the Council of Trent met regularly in an effort to recover from the damage occasioned by the Protestant reformation. Reconciliation and reform within the Catholic Church were achieved, and the Counter-Reformation became a formidable movement against further Protestant disaffection.

No, the fledgling Dutch Republic was hardly secure and needed to act quickly.

Fortunately, it had all the wherewithal necessary. Not only did the seven provinces of the Republic share a common language and culture, but they also shared a common, very solid economic foundation — the cooperative effort needed to stem the ocean from flooding the lowlands. Maintaining the dikes to keep the sea at bay was a constant struggle against a common natural nemesis. There was no closure with the sea; there was only relentless, cooperative maintenance by those on the land. This cooperative economic tradition, the intellectual stimulation inspired by the Reformation, and the need to act quickly in a narrow window of opportunity against the political inertia of the Holy Roman Empire resulted in a variety of new financial arrangements that would one day form the basis for capital formation the world over.

The Wisselbank was the necessary monetary foundation that would make it all happen.

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