The Wisselbank and Amsterdam Price Volatility: A fractal test of the Austrian fractional-reserve banking hypothesis
DOI:
https://doi.org/10.52195/pm.v12i2.135Abstract
Using 1708-1788 historical data, we test the Austrian hypothesis that fractional-reserve banking destabilizes commodity prices, complicating eco nomic calculation and entrepreneurial planning, and contributes to boom-bust cycles. The Bank of Amsterdam («Wisselbank», 1609-1819) maintained high reserve requirements until the Fourth Anglo-Dutch War (1780-1784), when its reserve ratio plummeted from nearly 100% in 1778 to around 20% by 1788. We compare price volatilities for 1722-1779 and 1780-1788 using fractal Hurst exponents. For all commodity prices tested, fractal volatility was higher during the lower fractional reserve period, except for rye, wheat, and Hamburg Bills of Exchange. Bill of Exchange stability was likely attributable to Hamburg transport ships’ ability to evade British incursion and to the Wisselbank’s legal monopsony in the secondary commercial paper market. However, rye and wheat prices — directly indicative of bread prices — generally (and contrary to Austrian theory) stabilized even though British blockades significantly re duced Dutch bread grain imports. We attribute this unexpected result primarily to emergency wartime provision by the Amsterdam municipal granary. The Wisselbank experience may confirm, or at least does not clearly falsify, the economic relevance of the Austrian Fractional-Reserve Banking Hypothesis.
Keywords: Fractional reserve banking, monetary expansion, price stability, equilibrium.
JEL Codes: E42, E44, N13, N23, N83.
Resumen: Analizando los datos históricos correspondientes al Banco de Áms terdam de 1708 a 1788 concluimos que la evidencia empírica confirma (o al menos no refuta) la hipótesis austriaca sobre los negativos efectos de la banca con reserve fraccionaria.
Palabras clave: Banca con reserva fraccionaria, expansión monetaria, estabili dad de precios, equilibrio.
Clasificación JEL: E42, E44, N13, N23, N83.
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