Seventeenth Century Banking: Amsterdamsche Wisselbank, Stockholms Banco, and Their Consequences for Monetary Evolution

Financial evolution means that monetary arrangements obtain a higher level of complexity, including more sophisticated monetary heuristics. Focusing on the cognitive aspect of money as social institution, the evolution of units of account and media of exchange are studied as adaptive responses by human minds. At various stages during financial evolution, a historically specific monetary heuristic has emerged, based upon some specific social monetary script. Institutions have both a cognitive as well as a behavioral dimension; in the former behavioral beliefs are inferred from a public representation of the state of play and in the latter strategic choices motivated by behavioral beliefs generates a state of play, along the lines of Aoki. Social learning means that humans change their images by communication with other humans through language or money prices. As social institution, money has a cognitive dimension, which represents the way traders think about money as unit of account and medium of exchange, respectively, in the form of monetary heuristics, translating the unit of account to a particular worth, using a social script to which market agents attribute a specific worth. When the value of the underlying commodity bundle changes from the original worth, market agents observe a script deviation of that bundle, attributing that to changes in the commodity space, and adjust the bundle accordingly. As social institution, money also has a behavioral dimension, which is expressed in the purchasing power of money; what commodity bundle could be bought for a certain amount of one currency, a medium of account with its associated media of exchange, for another currency, thus establishing exchange rates. Exchange rates between currencies were established according to relative perceived purchasing power, some kind of classifier system. Along the cognitive dimension, long-distance traders formed beliefs about the relative purchasing power of their currency compared with the foreign one; along the behavioral one they exchanged money at the rates so specified. The emphasis will be on the heuristics of long-distance traders in the Baltic and North Seas region, considering the exchange of commodities and of monies. Going beyond the emergence of money as medium of exchange, this paper studies the emergence of units of account and of media of exchange, that is the emergence of monetary arrangements as co-evolution of units of account and media of exchange. This paper sets out to analyze how the seventeenth century evolution of exchange banks influenced the evolution of the units of account and media of exchange, and of credit. It analyzes Amsterdamsche Wisselbank and Stockholms Banco on the basis of Dutch trade in the Baltic, and the resulting cashless payment system based on bills of exchange.