Cyclopædia of Political Science, Political Economy, and the Political History of the United States

Edited by: Lalor, John J.
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New York: Maynard, Merrill, and Co.
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Includes articles by Frédéric Bastiat, Gustave de Molinari, Henry George, J. B. Say, Francis A. Walker, and more.
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AGIO. Agio is the corruption of an Italian word which signifies additional value. It meant at first a price exceeding the ordinary or natural value of a thing. Later, it was used more especially to designate the difference in value between metallic money and paper money, or between one metallic money and another. And it is with this latter signification that it has come down to us. In the old banks of deposit, such as those of Amsterdam and Hamburg, bank money (banco) had generally a value a little different from that of the same denomination which circulated in the country. Thus, at Amsterdam the ducatoon (banco) had almost always a little greater value than the current ducatoon. At Hamburg the crown (banco) was sometimes more and sometimes less in value than the crown of the empire which circulated in the country. This difference was called and is still called by the name of agio. Several economists have thought it worth while to seek the cause of this agio, and the question was really not without interest. But they had not at hand all the data necessary to solve it. Some have adopted without examination the explanation given by Adam Smith. Unfortunately this explanation is more ingenious than correct. It is not astonishing that the author of the "Wealth of Nations" should have been deceived as to certain details relative to a foreign institution little known at that time, and concerning which he had only imperfect information. Adam Smith supposes that the money deposited in the bank of Amsterdam was always received there at its intrinsic value, and that it acquired there a superior value from the fact, that, being put in a secure place, it was sheltered from changes to which current money was constantly exposed. "The money of such banks," he says, "being better than the common currency of the country, necessarily bore an agio, which was greater or smaller according as the currency was supposed to be more or less degraded below the standard of the state. The agio of the bank of Hamburg, for example, which is said to be commonly about 14 per cent., is the supposed difference between the good standard money of the state and the clipped, worn and diminished currency poured into it from all the neighboring states." Speaking, afterward, of the credit which the bank opens for every depositor on its books, "this credit." he says, "was called bank money, which, as it represented money exactly according to the standard of the mint, was always of the same real value, and intrinsically worth more than current money."


—And further on he adds: "Bank money, over and above both its intrinsic superiority to currency, and the additional value which this demand necessarily gives it, has likewise some other advantages. It is secure from fire, robbery and other accidents; the city of Amsterdam is bound for it; it can be paid away by a simple transfer, without the trouble of counting, or the risk of transporting it from one place to another. In consequence of those different advantages, it seems from the beginning to have borne an agio."


—All the advantages which Adam Smith here enumerates are real; but, as every one could make these advantages his own to the extent that he desired, it does not appear why this would have sufficed to secure to the bank money a value always superior to that of current money, if there had not been some other cause for it. When he adds, further on, that depositors avoided drawing their money from the bank, through fear of having to pay for its safe keeping, and finds therein a new reason for the superiority in value of the bank money, he errs; for the deposits were never made for more than six months, and when they were renewed at the end of that time, it was necessary to pay again for their safe keeping. The fact is, that there were exceptional dues to pay when a new account was opened.


—The exact facts are as follows: From the beginning the bank of Amsterdam laid it down as a rule not to receive money deposited with it at its full value, and to attribute to it a value always 5 per cent, less than its real value. Thus, the ducatoon of Holland, which had a current value of 63 stubers (3 florius and 3 stubers) was received at the bank for only 60 stubers, or 3 florins, and the individual who deposited it was credited for every ducatoon according to this scale. Every depositor had, therefore, 5 per cent. more than he was credited with by the books. This did not prevent the bank from restoring to him the full amount when he withdrew his deposit, with the exception of a small charge which the bank claimed. This was a method of counting, and nothing more. But it suffices to explain why the money of the bank was always worth something more than current money. It was not, as Adam Smith thought, on account of the preference given to the money of the bank; it was only because the bank, while adopting the denominations of the current money, applied them to values really greater.


—The bank money, far from being held in very high favor, was, we are inclined to think, looked upon with some slight discredit, either on account of the difficulty of withdrawal or of some other cause. In fact, as we have just seen, the bank money had always a real advantage of about 5 per cent. over the current money. The agio, therefore, should have risen to 5 to represent par. Now, it was almost always under that figure, generally between 3 and 4, although the variations were sometimes greater. In certain extraordinary cases, it disappeared altogether, and the value of the bank money fell below that of the current money. This happened, for example, in 1672. It is true that it was on the occasion of the approach of the armies of Louis XIV. But this situation did not last long, the bank having immediately resolved to restore all deposits.


—At Hamburg the circumstances were different. At first the bank of this city did not wish to establish, as at Amsterdam, a difference between its own and the current money. It had adopted as a type the crown of the empire, which was worth 540 ases of Holland, and had accepted it at this rate; but later it was constrained to depart from this rule, in consequence of alterations of the coinage undertaken by certain sovereigns. In the 17th century, the emperor Leopold I., and in the 18th century Maria Theresa, of Austria, over-turned the plan of the Hamburg people by coining, as Busch says, crowns of the empire, which were really worth only 516 ases.


—A certain number of these new crowns having slipped into the bank, unknown to its administrators, a great embarrassment in making payments was the result. As it was not known who should bear the loss, they wished to distribute it among all the depositors, by paying them partly in crowns of standard quality and partly in adulterated crowns. To straighten the accounts an average was sought between the old and the new crown; it was found that this mean was 528 ases to each crown. This is how the crown banco of Hamburg was fixed at this time at 528 ases, an ideal value inferior to that of the ancient crown of the empire, but greater than that of the new crown, and which has remained unchanged in the midst of the variations upward and downward, which the current money underwent.


—Thus, at Amsterdam on account of a premeditated design of the founders of the bank, at Hamburg through circumstances more potent than the will of the administration, an actual difference in value was established between the money of the bank and the current money. This naturally explains the agio. It should be added, however, that the agio fell or rose according as the money of the bank was more or less in demand. If there was a great number of payments to make in bank money, certificates of deposit delivered by the bank were more sought for, and the agio rose. In the opposite case it fell. But these are natural fluctuations which we need not stop to analyze. It is exactly like the varying relations established between the respective values of gold and silver.


—At Amsterdam the course of the agio was quoted every day, and known by all interested parties. It is probably the variations to which it was subject, and the speculations of which these variations became the object, that gave birth to the word Agiotage.


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