Michael Perelman wrote:
> I thought that the Bank of England was modeled on the Bank of Amsterdam.
Wasn't the Bank of Amsterdam a sort of sluice-gate regulating the flow into Europe of bullion from the Americas so as to sustain monetary values? But this evolution towards a 'gold standard', if that is what you mean, was untheorised and did not conflict with Dutch mercabtilism only because bullion was seen as a commodity alongside others and therefore capable of trading + exporting freely. The monetary reforms of 1694-1696 which established the B of E and then tghe Gold Standard werev surely quite a big step forward/away from existing Dutch practice.
The Glorious Revolution of 1688 united the Dutch and English monarchies and resulted in war with France. financing which required bankinbg reforms. The BofE was set up for 12 years only as a way of financing the war. From the start its primary prupose was therefore the create and sustain the 'national' debt, ie the Crown's indebtedness as a result of its war expenses. It did so by issuing its shareholders with bank notes equal to their capital investment. The BofE representetd a huge step forward from the more chaotic and unsystematic practices of the Bank of Amsterdam. The war resulted in immediate inflation and a monetary crisis, ie crisis of confidence, but it was clear that the problem lay not in the new papaer money but in the existing mass of debased and clipped coinage already in circulation. In effect, a price inflation devalued English currency by around 25%. The question was whether to accept this as a fait accoimpli, officially debase the coinage and allow reminted coins to circulate at a reduced value (ie, reduce the silver content of coins). Or to ensure that reissued coin would have a face value equivalent to its metal content. This would result in the same mass of silver beiong thrown into circulation but a smaller number of (new, non-debased) coins; the effect would inevitabnly be deflationary (and would entrail redistribution towards creditors and thgose on fixed incomes). What way the govt would take out of this invidious situation of a Hobson's choice, would determine the fate of the new bank and much more. In 1691 (soon after publn of Essay on Huyman Understanmding) Locke had already published a treatise on money. In 1695 he publ. "Further Considerations Concerning the Raising of the Value of Money'. The official Treasury line (plus ca change) was to go for devaluation. What the french called 'affaiblissement' of money. Locke won the argument and the existing stock of silver coins was withdrawn, reminted and reissued. The probably unanticipated effect of the reform (altho Marx, probabyl wrongly seemed to think this was the whole intent) was to raise the value of gold in relation to silver, thus overturning the working of Gresham's Law which says that bad money always drives out good. Gold flowed into England because it suddenly became more profitable to cease hoarding gold but exchange it for state-issued silver coin. As Pierre Vilar put it, 'this surprising change made England unwittingly and unintentionally, the home of the gold standard' because of the 'small technical detail' of a slight overvaluation of gold in terms of silver vis a vis continetal countries. But of course, the real reason why the BofE's conjuring trick or alchemy worked was because of the booming english economy and the consolidation of the british empire.
Mark Jones http://www.egroups.com/group/CrashList