Gordon Clark
Shylock: as banker


It is a popular superstition of the most dangerous sort that an American "bank of issue" is a thing honestly resting on a metallic currency. The truth is that the modern banking-system owes its whole existence to the simple fact that no modern nation either has or can possibly get, at any time, enough "specie" — whether gold, or silver, or both — to do an honest cash-business. This was the first reason for bank-paper, and has always been the chief meaning of it. Moreover, the only bank on the globe that ever operated on a vast scale, with perfect consistency, perfect satisfaction, and long-continued success completely ignored that implement of inflation, contraction and suspension commonly known as a "specie basis" with "redemption on demand." This was the Bank of Venice, to which the Bank of France is now, in effect, the nearest approximation.

The Bank of Venice was the one great clearing-house of Europe's commercial metropolis in the middle and early-modern ages. [Its history, here condensed, is elaborately given in Colwell's "Ways and Means of Payment," J.P. Lippincott & Co., Publishers, 1859.] It was instituted in 1171 on loans to the government by wealthy citizens, compelled by the exigencies of war. The government needing supplies, the reigning Doge demanded subscriptions to a fund of two million ducats. The subscribers to the fund were appointed managers of it and the State agreed to pay four per cent. anual interest on it. The capital was made divisible and transferable on the books of the bank and this feature constituted the stock a medium of exchange — money. The government fixed no time to repay the loans; but the bank soon became so strong, popular and necessary that no one desired they should ever be paid. They became simply so much capital of the nation, invested in a great, cheap tool — a currency of sufficient volume to meet the requirements of Venetian trade. New subscriptions were offered and were accepted to the limits of the public debt. As this increased, the capital of the bank slowly accumulated through six hundred years until it finally reached some fourteen million ducats.

The advantages of the bank to the whole Venetian people soon became so apparent that the government abolished the payment of interest on the loans. The divisible stock was merely converted into a legal-tender for debts, public and private, and all bills of exchange, with no specification to the contrary, were made payable at this one great center of circulation, which so facilitated and stimulated every branch of business then existing, that the bank-inscriptions sometimes ranged at thirty per cent, above par in gold and had to be limited finally by law to a premium of twenty per cent.

Coin always flowed into the bank in abundance, with no promise of specie redemption. It was taken by the State, once and for good. But it was immediately paid out for State-expenses, and thus turned directly back into the smaller currents of trade, while the bank-inscriptions floated the wholesale transactions, both of government and people. Occasionally, coin was required in large quantities for export; and in exceptional instances the demand for it rose beyond that of the bank-credits. In such instances the holders gladly pushed it off their hands at whatever small advance they could get, knowing that the vast industries of Venice would soon call it back, as surely as the Venetian sun would draw moisture from the earth and the sea. Then the gold would be a drug in the market again as it usually was and a profit would be certain on the rise of the inscriptions in bank. There was no chance, however, for much speculation in coin, as a margin on it was too rare and insignificant to demand any great attention. The large margins, on the other hand, were always against the coin, and had to be limited at last, as we have seen, by law.

And now, what were the general results of this system of banking? For one thing, there was no commercial crisis — not one money-panic in Venice for six hundred years. History has no hint of such a thing. The State had solved the problem of trade — had furnished a sufficient medium of exchange to transfer the world's commodities with perfect ease and rapidity. Combined with the industry and enterprise of her citizens, her great bank placed her at the head of the material wealth and prosperity of Europe, and held her there for ages. When Buonaparte conquered Italy, the Bank of Venice fell with the State. But the invader gained nothing by it — no gold, no silver, no riches that he could utilize. He simply destroyed the credit of an institution that had stood spotless and perfect for six centuries.

As the capital-stock of the Bank of Venice was at the maximum about sixteen millions of dollars, was divisible, and was the chief medium of exchange for the products of Europe and Asia, it might if necessary have been transferred on the ledgers of the bank dozens of times a day and thus have served as a currency with a volume of several hundred millions. ["It is not improbable that the whole fund of the bank performed payments in the aggregate, annually, to five hundred and perhaps a thousand fold the amount." — Colwell, page 302.] During the bank's long existence, it saved many times its entire capital in the mere wear and tear of metal alone. But all such negative items are too trivial to mention as compared with the magnificent positive gains attending a really "honest" system of money — gold and silver, supplemented with direct government credit. During those six hundred years, that wonderful bank made for the Venetian people thousands of times its investment and cost. In short, the facility of transfer afforded by its legal tenders made Venetian commerce itself the thing it was — made Venice the entrepot and depot of the civilized world. Venetian prosperity was the offspring of Venetian money. The one could never have been without the other.