Economic History of the Netherlands (1500 - 1815)
Encyclopedia
Netherlands
The Netherlands is a constituent country of the Kingdom of the Netherlands, located mainly in North-West Europe and with several islands in the Caribbean. Mainland Netherlands borders the North Sea to the north and west, Belgium to the south, and Germany to the east, and shares maritime borders...
first came together as a political entity (the Habsburg Netherlands
Habsburg Netherlands
The Habsburg Netherlands was a geo-political entity covering the whole of the Low Countries from 1482 to 1556/1581 and solely the Southern Netherlands from 1581 to 1794...
), through the era of the Dutch Republic
Dutch Republic
The Dutch Republic — officially known as the Republic of the Seven United Netherlands , the Republic of the United Netherlands, or the Republic of the Seven United Provinces — was a republic in Europe existing from 1581 to 1795, preceding the Batavian Republic and ultimately...
, and its immediate successors
Succession of states
Succession of states is a theory and practice in international relations regarding the recognition and acceptance of a newly created sovereign state by other states, based on a perceived historical relationship the new state has with a prior state...
, the Batavian Republic
Batavian Republic
The Batavian Republic was the successor of the Republic of the United Netherlands. It was proclaimed on January 19, 1795, and ended on June 5, 1806, with the accession of Louis Bonaparte to the throne of the Kingdom of Holland....
and the Kingdom of Holland
Kingdom of Holland
The Kingdom of Holland 1806–1810 was set up by Napoleon Bonaparte as a puppet kingdom for his third brother, Louis Bonaparte, in order to better control the Netherlands. The name of the leading province, Holland, was now taken for the whole country...
, to the temporary demise of that political entity, when the Netherlands were annexed by the First French Empire
First French Empire
The First French Empire , also known as the Greater French Empire or Napoleonic Empire, was the empire of Napoleon I of France...
. It is intended as a companion to the political
History of the Netherlands
The history of the Netherlands is the history of a maritime people thriving on a watery lowland river delta at the edge of northwestern Europe. When the Romans and written history arrived in 57 BC, the country was sparsely populated by various tribal groups at the periphery of the empire...
and military
Military history of the Netherlands
The Dutch-speaking people have a long history; the Netherlands as a nation-state dates from 1568. Belgium became an independent state in 1830 when it seceded from the Netherlands....
(including naval
Naval history of the Netherlands
The history of the Navy of the Netherlands dates back to the 15th century. As overseas trade was a traditional cornerstone of the Dutch economy, naval defence was indispensable for the protection of commercial interests..-Origins:...
) histories of the Netherlands, that cover the same period, and will provide the economic background to put these in the proper perspective.
After becoming de facto independent from the empire of Philip II of Spain
Philip II of Spain
Philip II was King of Spain, Portugal, Naples, Sicily, and, while married to Mary I, King of England and Ireland. He was lord of the Seventeen Provinces from 1556 until 1581, holding various titles for the individual territories such as duke or count....
around 1585 the country experienced almost a century of explosive economic growth. A technological revolution in shipbuilding led to a competitive advantage in shipping that helped the young Republic become the dominant trade power by the mid-17th century. Pillars of this position were the dominance of the Amsterdam Entrepôt
Amsterdam Entrepôt
The Amsterdam Entrepôt is the short-hand term that English-language economic historiographers use to refer to the trade system that helped the Dutch Republic achieve primacy in world trade during the 17th century.-The entrepôt system:...
in European trade, and that of the Dutch East and West India Companies (VOC and WIC) in intercontinental trade. Beside trade, an early "industrial revolution" (powered by wind and peat) and agricultural revolution, helped the Dutch economy achieve the highest standard of living in Europe (and probably the world) by the middle of the 17th century. Affluence also brought about a Golden Age in culture.
However, around 1670 a combination of politico-military upheavals (wars with France and England) and adverse economic developments (a break in the upward "secular trend" of price levels) brought this boom to and abrupt end. This caused a retrenchment of the Dutch economy in the period up to 1713, in which the industrial sector was partly dismantled, and growth in trade leveled off. The economy struck out in new directions (plantations in Suriname, whaling, new types of trade with Asia), but these riskier ventures often failed to bring commensurate gains. The VOC embarked on a period of "profitless growth." The financial strength of the Republic enabled it, however, to play the role of a major power in the European conflicts around the turn of the 18th century, by hiring mercenary armies "off the shelf" and subsidizing its allies.
These conflicts put an enormous strain on the resources of the Republic, however, and for that reason the Republic (like its opponent, the France of Louis XIV) was deeply in debt at the end of the War of the Spanish Succession. The regents of the Republic more or less abandoned its Great-Power pretensions after 1713, cutting down on its military preparedness in a vain attempt to pay down this overhang of public debt. That debt brought a significant rentier class into being that helped change the nature of the economy from one invested primarily in trade and industry, into one in which a significant financial sector played a dominant role. By the end of the 18th century the Republic was the major market for sovereign debt, and a major source of foreign direct investment.
Wars with Great Britain and France at the end of the 18th century, and attendant political upheavals, caused a financial and economic crisis from which the economy was unable to recover. After the successors of the Republic (the Batavian Republic and the Kingdom of Holland) were forced to enforce the policies of economic warfare of the French Empire, which were disastrous for Dutch trade and industry, most of the gains of the previous two centuries were rapidly lost. The newly independent Kingdom of the Netherlands was faced in 1815 with an economy that was largely deindustialized and deurbanized, but still saddled with a crippling public debt, which it was forced to repudiate (the first time that the Dutch state defaulted since the dark pre-independence days of the Revolt).
First modern economy
An argument can be made that the economy of the Dutch Republic, at least from about 1600, qualifies as the first "modern" economy, two centuries before the United Kingdom reached the same economic stage during the Industrial RevolutionIndustrial Revolution
The Industrial Revolution was a period from the 18th to the 19th century where major changes in agriculture, manufacturing, mining, transportation, and technology had a profound effect on the social, economic and cultural conditions of the times...
. (However, this statement should immediately be qualified by pointing out that this actually only concerns the maritime provinces Holland, Zeeland
Zeeland
Zeeland , also called Zealand in English, is the westernmost province of the Netherlands. The province, located in the south-west of the country, consists of a number of islands and a strip bordering Belgium. Its capital is Middelburg. With a population of about 380,000, its area is about...
, Friesland
Friesland
Friesland is a province in the north of the Netherlands and part of the ancient region of Frisia.Until the end of 1996, the province bore Friesland as its official name. In 1997 this Dutch name lost its official status to the Frisian Fryslân...
, Groningen
Groningen (province)
Groningen [] is the northeasternmost province of the Netherlands. In the east it borders the German state of Niedersachsen , in the south Drenthe, in the west Friesland and in the north the Wadden Sea...
, and a part of Utrecht
Utrecht (province)
Utrecht is the smallest province of the Netherlands in terms of area, and is located in the centre of the country. It is bordered by the Eemmeer in the north, Gelderland in the east, the river Rhine in the south, South Holland in the west, and North Holland in the northwest...
. The inland provinces retained their premodern character for a longer time).
It possessed
- Reasonably pervasive and free marketFree marketA free market is a competitive market where prices are determined by supply and demand. However, the term is also commonly used for markets in which economic intervention and regulation by the state is limited to tax collection, and enforcement of private ownership and contracts...
s for both commoditiesCommodityIn economics, a commodity is the generic term for any marketable item produced to satisfy wants or needs. Economic commodities comprise goods and services....
and factors of productionFactors of productionIn economics, factors of production means inputs and finished goods means output. Input determines the quantity of output i.e. output depends upon input. Input is the starting point and output is the end point of production process and such input-output relationship is called a production function... - An agricultural productivityAgricultural productivityAgricultural productivity is measured as the ratio of agricultural outputs to agricultural inputs. While individual products are usually measured by weight, their varying densities make measuring overall agricultural output difficult...
sufficient to sustain a far-reaching division of labor - A political structure (stateState (polity)A state is an organized political community, living under a government. States may be sovereign and may enjoy a monopoly on the legal initiation of force and are not dependent on, or subject to any other power or state. Many states are federated states which participate in a federal union...
) which guaranteed property rightsPropertyProperty is any physical or intangible entity that is owned by a person or jointly by a group of people or a legal entity like a corporation...
, enforcement of contractContractA contract is an agreement entered into by two parties or more with the intention of creating a legal obligation, which may have elements in writing. Contracts can be made orally. The remedy for breach of contract can be "damages" or compensation of money. In equity, the remedy can be specific...
s, and freedom of movementFreedom of movementFreedom of movement, mobility rights or the right to travel is a human right concept that the constitutions of numerous states respect... - A level of technologyTechnologyTechnology is the making, usage, and knowledge of tools, machines, techniques, crafts, systems or methods of organization in order to solve a problem or perform a specific function. It can also refer to the collection of such tools, machinery, and procedures. The word technology comes ;...
and organization capable of sustained economic developmentEconomic developmentEconomic development generally refers to the sustained, concerted actions of policymakers and communities that promote the standard of living and economic health of a specific area...
and of supporting a material culture that could sustain market-oriented consumer behaviorMarket economyA market economy is an economy in which the prices of goods and services are determined in a free price system. This is often contrasted with a state-directed or planned economy. Market economies can range from hypothetically pure laissez-faire variants to an assortment of real-world mixed...
These features make it feasible to analyze this historical economy with modern economic concepts in a comparative way. Though a few other contemporary economies may have shared some or all of these features, the Dutch economy managed to retain them continuously, and it played a leading role in establishing these conditions for economic modernity
Modernity
Modernity typically refers to a post-traditional, post-medieval historical period, one marked by the move from feudalism toward capitalism, industrialization, secularization, rationalization, the nation-state and its constituent institutions and forms of surveillance...
in other parts of Europe (acting as technological leader, operating near the frontier of technological possibilities for its time, till that role was taken over by Great Britain toward the end of the 18th century).
Through productivity-enhancing investments in fixed capital
Fixed capital
Fixed capital is a concept in economics and accounting, first theoretically analysed in some depth by the economist David Ricardo. It refers to any kind of real or physical capital that is not used up in the production of a product and is contrasted with circulating capital such as raw materials,...
, the use of a large amount of energy (heat energy from peat
Peat
Peat is an accumulation of partially decayed vegetation matter or histosol. Peat forms in wetland bogs, moors, muskegs, pocosins, mires, and peat swamp forests. Peat is harvested as an important source of fuel in certain parts of the world...
as an industrial fuel
Fuel
Fuel is any material that stores energy that can later be extracted to perform mechanical work in a controlled manner. Most fuels used by humans undergo combustion, a redox reaction in which a combustible substance releases energy after it ignites and reacts with the oxygen in the air...
, wind power
Wind power
Wind power is the conversion of wind energy into a useful form of energy, such as using wind turbines to make electricity, windmills for mechanical power, windpumps for water pumping or drainage, or sails to propel ships....
) per worker, and a substantial investment in human capital
Human capital
Human capitalis the stock of competencies, knowledge and personality attributes embodied in the ability to perform labor so as to produce economic value. It is the attributes gained by a worker through education and experience...
(as witnessed by the high literacy
Literacy
Literacy has traditionally been described as the ability to read for knowledge, write coherently and think critically about printed material.Literacy represents the lifelong, intellectual process of gaining meaning from print...
rate), the Dutch managed to raise labor productivity
Labor productivity
Workforce productivity is the amount of goods and services that a worker produces in a given amount of time. It is one of several types of productivity that economists measure. Workforce productivity can be measured for a firm, a process, an industry, or a country...
above the levels prevailing in other European countries. This is illustrated by the fact that in the mid-17th century the agricultural sector, employing less than 40 percent of the labor force, could already almost be a net food exporter (which it became by 1800), and the fact that nominal wages between 1600 and 1800 were the highest in Europe. In the open economy
Open economy
An open economy is an economy in which there are economic activities between domestic community and outside, e.g. people, including businesses, can trade in goods and services with other people and businesses in the international community, and flow of funds as investment across the border...
of the Republic such a wage gap could only be sustained by enduring productivity differences.
Investment
Investment has different meanings in finance and economics. Finance investment is putting money into something with the expectation of gain, that upon thorough analysis, has a high degree of security for the principal amount, as well as security of return, within an expected period of time...
options, mediated by the Beurs
Amsterdam Stock Exchange
The Amsterdam Stock Exchange is the former name for the stock exchange based in Amsterdam. It merged on 22 September 2000 with the Brussels Stock Exchange and the Paris Stock Exchange to form Euronext, and is now known as Euronext Amsterdam.-History:...
, and later the merchant bank
Merchant bank
A merchant bank is a financial institution which provides capital to companies in the form of share ownership instead of loans. A merchant bank also provides advisory on corporate matters to the firms they lend to....
s. Eventually, these financial structures proved unable to withstand the crises of the Revolutionary
French Revolution
The French Revolution , sometimes distinguished as the 'Great French Revolution' , was a period of radical social and political upheaval in France and Europe. The absolute monarchy that had ruled France for centuries collapsed in three years...
and Napoleonic era
Napoleonic Era
The Napoleonic Era is a period in the history of France and Europe. It is generally classified as including the fourth and final stage of the French Revolution, the first being the National Assembly, the second being the Legislative Assembly, and the third being the Directory...
, but the determining criterion here is that they were at least present during the period in question.
A defining characteristic of a modern economy is diversification
Diversification (finance)
In finance, diversification means reducing risk by investing in a variety of assets. If the asset values do not move up and down in perfect synchrony, a diversified portfolio will have less risk than the weighted average risk of its constituent assets, and often less risk than the least risky of...
and an advanced division of labor. By the mid-17th century under 40 percent of the labor force was employed in agriculture, whereas 30 percent was engaged in a highly diversified industrial sector, the balance of the labor force being engaged in commerce and other "service" industries. The numerous cities formed a complex web of interdependencies, with the lesser ports performing specialized functions to the major ones; the industrial towns specializing in specific types of production; the countryside becoming highly differentiated by agricultural specialization, with the villages evolving into service centers (or later sometimes centers of "out-sourced
Outsourcing
Outsourcing is the process of contracting a business function to someone else.-Overview:The term outsourcing is used inconsistently but usually involves the contracting out of a business function - commonly one previously performed in-house - to an external provider...
" industrial production). However, the integration of specialized agriculture and industry with the growing entrepôt
Entrepôt
An entrepôt is a trading post where merchandise can be imported and exported without paying import duties, often at a profit. This profit is possible because of trade conditions, for example, the reluctance of ships to travel the entire length of a long trading route, and selling to the entrepôt...
functions of the ports (at least before these functions became disaggregated again in the 18th century) imparted a special dynamism to the Dutch economy during the Golden-Age economy.
A counterargument against the "modernity" of the Dutch economy may seem to be the undeniable fact of the decline in per capita income growth at the end of the 18th century. However, at closer inspection it will become clear that this actually was a "modern" process of restructuring in the face of adverse circumstances, as may be seen in current modern economies, like the U.S.A. and European countries, that also undergo major structural upheavals. The 18th-century deindustrialization
Deindustrialization
Deindustrialization is a process of social and economic change caused by the removal or reduction of industrial capacity or activity in a country or region, especially heavy industry or manufacturing industry. It is an opposite of industrialization.- Multiple interpretations :There are multiple...
was in large part a consequence of a too-high real wage
Real wage
The term real wages refers to wages that have been adjusted for inflation. This term is used in contrast to nominal wages or unadjusted wages. Real wages provide a clearer representation of an individual's wages....
level, combined with protectionist policies of foreign governments, closing access to major markets. The agricultural depression was a general European phenomenon. The crisis in foreign trade was answered, and partly parried, with commercial innovations. The financial and fiscal crisis, that proved the Republic's undoing was altogether modern in nature (unlike the comparable crises that regularly brought the Spanish Crown
Philip II of Spain
Philip II was King of Spain, Portugal, Naples, Sicily, and, while married to Mary I, King of England and Ireland. He was lord of the Seventeen Provinces from 1556 until 1581, holding various titles for the individual territories such as duke or count....
to its knees), but simply happened before the modern means of dealing with it (expansion of the tax base
Tax
To tax is to impose a financial charge or other levy upon a taxpayer by a state or the functional equivalent of a state such that failure to pay is punishable by law. Taxes are also imposed by many subnational entities...
and/or monetary inflation
Monetary inflation
Monetary inflation is a sustained increase in the money supply of a country. It usually results in price inflation, which is a rise in the general level of prices of goods and services . Originally the term "inflation" was used to refer only to monetary inflation, whereas in present usage it...
) were at hand.
Stages of development
The economic historyEconomic history
Economic history is the study of economies or economic phenomena in the past. Analysis in economic history is undertaken using a combination of historical methods, statistical methods and by applying economic theory to historical situations and institutions...
of this country can be written from different perspectives. Here we will first describe it as a developing economy
Economic development
Economic development generally refers to the sustained, concerted actions of policymakers and communities that promote the standard of living and economic health of a specific area...
, going through several stages, in what may look like a life-cycle. A sectoral approach will be found in other articles, like Maritime history of the Netherlands and Dutch East India Company
Dutch East India Company
The Dutch East India Company was a chartered company established in 1602, when the States-General of the Netherlands granted it a 21-year monopoly to carry out colonial activities in Asia...
and Dutch West India Company
Dutch West India Company
Dutch West India Company was a chartered company of Dutch merchants. Among its founding fathers was Willem Usselincx...
for trade; the Greenland and Spitsbergen Fishery for whaling; and Financial history of the Dutch Republic
Financial history of the Dutch Republic
Financial history of the Dutch Republic describes the history of the interrelated development of financial institutions in the Dutch Republic. The rapid economic development of the country after the Dutch Revolt in the years 1585 - 1620, described in Economic History of the Netherlands ,...
for banking and finance, plus sundry articles on the history of industries.
Pre-Revolt economy
Of necessity, the start of the period covered is chosen somewhat arbitrarily (unlike the end, that is indeed chosen for specific economic and political reasons). Of course, the economy did not come into being at the same time when the separate provinces (previously disparate fiefFiefdom
A fee was the central element of feudalism and consisted of heritable lands granted under one of several varieties of feudal tenure by an overlord to a vassal who held it in fealty in return for a form of feudal allegiance and service, usually given by the...
s of the Holy Roman Empire
Holy Roman Empire
The Holy Roman Empire was a realm that existed from 962 to 1806 in Central Europe.It was ruled by the Holy Roman Emperor. Its character changed during the Middle Ages and the Early Modern period, when the power of the emperor gradually weakened in favour of the princes...
) were gathered together under the suzerainty
Suzerainty
Suzerainty occurs where a region or people is a tributary to a more powerful entity which controls its foreign affairs while allowing the tributary vassal state some limited domestic autonomy. The dominant entity in the suzerainty relationship, or the more powerful entity itself, is called a...
of the Duchy of Burgundy
Duchy of Burgundy
The Duchy of Burgundy , was heir to an ancient and prestigious reputation and a large division of the lands of the Second Kingdom of Burgundy and in its own right was one of the geographically larger ducal territories in the emergence of Early Modern Europe from Medieval Europe.Even in that...
in the late 15th century. In the late Middle Ages
Middle Ages
The Middle Ages is a periodization of European history from the 5th century to the 15th century. The Middle Ages follows the fall of the Western Roman Empire in 476 and precedes the Early Modern Era. It is the middle period of a three-period division of Western history: Classic, Medieval and Modern...
these territories already formed part of a premodern economic system with its own measure of integration, brought about by intensive trade relations. That economic system formed the matrix in which the later economic development, that is the topic of this discussion, took place.
What were to become the Southern Netherlands
Southern Netherlands
Southern Netherlands were a part of the Low Countries controlled by Spain , Austria and annexed by France...
(not part of this history) held at the time a central position in this trade network, while the provinces that would later constitute the Dutch Republic formed a "perifery". At the time Flanders
Flanders
Flanders is the community of the Flemings but also one of the institutions in Belgium, and a geographical region located in parts of present-day Belgium, France and the Netherlands. "Flanders" can also refer to the northern part of Belgium that contains Brussels, Bruges, Ghent and Antwerp...
and the Duchy of Brabant
Duchy of Brabant
The Duchy of Brabant was a historical region in the Low Countries. Its territory consisted essentially of the three modern-day Belgian provinces of Flemish Brabant, Walloon Brabant and Antwerp, the Brussels-Capital Region and most of the present-day Dutch province of North Brabant.The Flag of...
were industrially further advanced than Holland and Zeeland, and the metropolitan port city of Antwerp held the position of main entrepôt in northwestern Europe, as the hub in a far-flung trade web, that spanned the whole known world. The ports in the northern provinces had only a regional importance, though Amsterdam
Amsterdam
Amsterdam is the largest city and the capital of the Netherlands. The current position of Amsterdam as capital city of the Kingdom of the Netherlands is governed by the constitution of August 24, 1815 and its successors. Amsterdam has a population of 783,364 within city limits, an urban population...
had already built up a preponderant position in the Baltic
Baltic region
The terms Baltic region, Baltic Rim countries, and Baltic Rim refer to slightly different combinations of countries in the general area surrounding the Baltic Sea.- Etymology :...
trade, after making inroads on the monopoly of the Hanseatic League
Hanseatic League
The Hanseatic League was an economic alliance of trading cities and their merchant guilds that dominated trade along the coast of Northern Europe...
in the late-15th century.
Though the northern provinces had an as yet subordinate position in the aggregate economy of the Habsburg Netherlands, let alone in the entire Habsburg empire
Charles V, Holy Roman Emperor
Charles V was ruler of the Holy Roman Empire from 1519 and, as Charles I, of the Spanish Empire from 1516 until his voluntary retirement and abdication in favor of his younger brother Ferdinand I and his son Philip II in 1556.As...
, they possessed economic features that set them apart from the rest of Europe, and presented them with opportunities that did not exist elsewhere. Though unlike other parts of Europe these lands had not been ravaged severely by the plague
Black Death
The Black Death was one of the most devastating pandemics in human history, peaking in Europe between 1348 and 1350. Of several competing theories, the dominant explanation for the Black Death is the plague theory, which attributes the outbreak to the bacterium Yersinia pestis. Thought to have...
pandemic
Pandemic
A pandemic is an epidemic of infectious disease that is spreading through human populations across a large region; for instance multiple continents, or even worldwide. A widespread endemic disease that is stable in terms of how many people are getting sick from it is not a pandemic...
of the 14th century, like elsewhere that catastrophe contributed to scarcity of labor in the 15th century. However, then a different catastrophe of an ecological nature hit the maritime provinces: this low-lying area, as yet insufficiently protected against the sea, was repeatedly subjected to major flooding, of which the St. Elizabeth's flood (1421)
St. Elizabeth's flood (1421)
The St. Elizabeth's flood of 1421 was a flooding of an area in what is now the Netherlands. It takes its name from the feast day of Saint Elisabeth of Hungary which was formerly November 19....
was only an outstanding example. This resulted in a major permanent loss of arable land. But such land was lost for different reasons also. The land in the maritime provinces consisted mostly of peat bogs, which form poor land for agriculture, and were at the time extensively exploited for the fuel peat. This resulted again in extensive permanent loss of arable land. Because of these losses many people were driven from the land and forced to seek employment in urban centers. This caused a degree of urbanization
Urbanization
Urbanization, urbanisation or urban drift is the physical growth of urban areas as a result of global change. The United Nations projected that half of the world's population would live in urban areas at the end of 2008....
that was even larger than that in Flanders on the one hand, but also a labor supply for non-agricultural purposes that was more elastic
Labour economics
Labor economics seeks to understand the functioning and dynamics of the market for labor. Labor markets function through the interaction of workers and employers...
than elsewhere in Europe, on the other hand.
Aggregate demand
In macroeconomics, aggregate demand is the total demand for final goods and services in the economy at a given time and price level. It is the amount of goods and services in the economy that will be purchased at all possible price levels. This is the demand for the gross domestic product of a...
in Europe finally rebounded from the long depression
Recession
In economics, a recession is a business cycle contraction, a general slowdown in economic activity. During recessions, many macroeconomic indicators vary in a similar way...
, caused by the population losses of the pandemic. Besides, there were alternative employment opportunities that did not exist elsewhere. Technological developments in fisheries (new methods of cleaning and preserving herring
Herring
Herring is an oily fish of the genus Clupea, found in the shallow, temperate waters of the North Pacific and the North Atlantic oceans, including the Baltic Sea. Three species of Clupea are recognized. The main taxa, the Atlantic herring and the Pacific herring may each be divided into subspecies...
, developed in the maritime provinces around this time) caused a major change in the economics of fisheries. Similar developments in shipping technology led to an explosion in seagoing trade. Finally, the development of dikes and drainage techniques (windmill
Windmill
A windmill is a machine which converts the energy of wind into rotational energy by means of vanes called sails or blades. Originally windmills were developed for milling grain for food production. In the course of history the windmill was adapted to many other industrial uses. An important...
s, sluice
Sluice
A sluice is a water channel that is controlled at its head by a gate . For example, a millrace is a sluice that channels water toward a water mill...
s) laid the base for new forms of agriculture (dairy
Dairy
A dairy is a business enterprise established for the harvesting of animal milk—mostly from cows or goats, but also from buffalo, sheep, horses or camels —for human consumption. A dairy is typically located on a dedicated dairy farm or section of a multi-purpose farm that is concerned...
farming) in the maritime provinces. These developments did not result directly in a major change in the economic structure of the Habsburg Netherlands. However, they provided a springboard for the developments that would follow the political upheaval that would become known as the Dutch Revolt
Dutch Revolt
The Dutch Revolt or the Revolt of the Netherlands This article adopts 1568 as the starting date of the war, as this was the year of the first battles between armies. However, since there is a long period of Protestant vs...
in the second part of the 16th century.
This political development had a number of important economic consequences. First of all, it led to an economic rupture with the Habsburg Empire, seen as a loose economic entity. By the time the Revolt erupted the disadvantages of being part of this empire (heavy taxation to finance the military adventures of the Habsburg rulers) began to outweigh the advantages of belonging to its trade network. One of these advantages had been enjoying the services of the Antwerp entrepôt.
In the economic and technological circumstances of the time such an entrepôt
Entrepôt
An entrepôt is a trading post where merchandise can be imported and exported without paying import duties, often at a profit. This profit is possible because of trade conditions, for example, the reluctance of ships to travel the entire length of a long trading route, and selling to the entrepôt...
(or to use the Dutch term: stapelmarkt) fulfilled important functions. The word has connotations of a duty-free port, but this is not what is intended here. In an economic sense, a stapelmarkt was a place where commodities were temporarily physically stocked for future reexport. This could be, because of a legal monopoly for stockpiling a single commodity (wool), granted by a political ruler (like the staple ports designated by the kings of England
England
England is a country that is part of the United Kingdom. It shares land borders with Scotland to the north and Wales to the west; the Irish Sea is to the north west, the Celtic Sea to the south west, with the North Sea to the east and the English Channel to the south separating it from continental...
in medieval times), but also more generally because of technical and economic reasons, that still give certain advantages to a spoke-hub distribution paradigm
Spoke-hub distribution paradigm
The hub-and-spoke distribution paradigm is a system of connections arranged like a chariot wheel, in which all traffic moves along spokes connected to the hub at the center...
. An important ancillary function of such a physical stock of commodities is that it makes it easier for merchants to even out supply fluctuations, and hence to control price gyrations in thin and volatile
Volatility (finance)
In finance, volatility is a measure for variation of price of a financial instrument over time. Historic volatility is derived from time series of past market prices...
markets. Finally, where a physical market forms, market information
Efficient market hypothesis
In finance, the efficient-market hypothesis asserts that financial markets are "informationally efficient". That is, one cannot consistently achieve returns in excess of average market returns on a risk-adjusted basis, given the information available at the time the investment is made.There are...
can more easily be gathered. This was actually the most important economic function of a stapelmarkt in the primitive circumstances of the late-16th century.
As a matter of fact, Antwerp-as-entrepôt was already in decline before the Revolt, and before the Fall of Antwerp, that sealed its fate as a major commercial center. But its demise started a scramble of other ports that wanted to take over its essential economic function, and Amsterdam (and to a lesser extent other major Dutch ports like Rotterdam
Rotterdam
Rotterdam is the second-largest city in the Netherlands and one of the largest ports in the world. Starting as a dam on the Rotte river, Rotterdam has grown into a major international commercial centre...
and Enkhuizen
Enkhuizen
Enkhuizen is a municipality and a town in the Netherlands, in the province of North Holland and the region of West-Frisia.Enkhuizen was one of the harbour-towns of the VOC, just like Hoorn and Amsterdam, from where overseas trade with the East Indies was conducted. It received city rights in 1355...
) succeeded in doing this, though it was not a foregone conclusion that this prize would not go to London
London
London is the capital city of :England and the :United Kingdom, the largest metropolitan area in the United Kingdom, and the largest urban zone in the European Union by most measures. Located on the River Thames, London has been a major settlement for two millennia, its history going back to its...
, Bremen
Bremen
The City Municipality of Bremen is a Hanseatic city in northwestern Germany. A commercial and industrial city with a major port on the river Weser, Bremen is part of the Bremen-Oldenburg metropolitan area . Bremen is the second most populous city in North Germany and tenth in Germany.Bremen is...
or Hamburg
Hamburg
-History:The first historic name for the city was, according to Claudius Ptolemy's reports, Treva.But the city takes its modern name, Hamburg, from the first permanent building on the site, a castle whose construction was ordered by the Emperor Charlemagne in AD 808...
. However, the political circumstances of the Revolt probably helped the displaced Antwerp Calvinist
Calvinism
Calvinism is a Protestant theological system and an approach to the Christian life...
merchants settle near their northern coreligionists, and bring their money with them. More important, however, must have been the advantages of Amsterdam, that already gave it a strong position in the Baltic trades: elastic supplies of shipping and labor, low transaction cost
Transaction cost
In economics and related disciplines, a transaction cost is a cost incurred in making an economic exchange . For example, most people, when buying or selling a stock, must pay a commission to their broker; that commission is a transaction cost of doing the stock deal...
s, and efficient markets.
The Golden Age
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Dutch Golden Age
The Golden Age was a period in Dutch history, roughly spanning the 17th century, in which Dutch trade, science, military and art were among the most acclaimed in the world. The first half is characterised by the Eighty Years' War till 1648...
, and that actually formed the material basis for that cultural era. One of the determining traits of this period, in its first stage that roughly spanned the years 1585 through 1622, was the rapid accumulation of trade capital. The seed money
Seed money
Seed money, sometimes known as seed funding, friends and family funding or angel funding , is a securities offering whereby one or more parties that have some connection to a new enterprise invest the funds necessary to start the business so that it has enough funds to sustain itself for a period...
for this was brought over by the displaced Antwerp merchants, and by other European merchants (for instance the New Christian
New Christian
New Christian was a term used to refer to Iberian Jews and Muslims who converted to Roman Catholicism, and their known baptized descendants. The term was introduced by the Old Christians of Iberia who wanted to distinguish themselves from the conversos...
s that were displaced from the Iberian lands
Iberian Peninsula
The Iberian Peninsula , sometimes called Iberia, is located in the extreme southwest of Europe and includes the modern-day sovereign states of Spain, Portugal and Andorra, as well as the British Overseas Territory of Gibraltar...
by religious persecution) that were quickly attracted by the new Amsterdam stapelmarkt. These often invested in high-risk ventures like pioneering expeditions to the East Indies
East Indies
East Indies is a term used by Europeans from the 16th century onwards to identify what is now known as Indian subcontinent or South Asia, Southeastern Asia, and the islands of Oceania, including the Malay Archipelago and the Philippines...
to engage in the spice trade
Spice trade
Civilizations of Asia were involved in spice trade from the ancient times, and the Greco-Roman world soon followed by trading along the Incense route and the Roman-India routes...
. These ventures were soon consolidated in the Dutch East India Company
Dutch East India Company
The Dutch East India Company was a chartered company established in 1602, when the States-General of the Netherlands granted it a 21-year monopoly to carry out colonial activities in Asia...
(VOC). There were similar ventures in different fields however, like the trade on Russia and the Levant
Levant
The Levant or ) is the geographic region and culture zone of the "eastern Mediterranean littoral between Anatolia and Egypt" . The Levant includes most of modern Lebanon, Syria, Jordan, Israel, the Palestinian territories, and sometimes parts of Turkey and Iraq, and corresponds roughly to the...
. The profits of these ventures were ploughed back in the financing of new trade, which led to an exponential growth thereof.
One may see this era as a typical example of "merchant capitalism".
However, unlike earlier manifestations of merchant capitalism, this development actually marked the transition of the Dutch economy to a truly modern stage. This, because the accumulation of capital in the enormous amounts generated in this period caused a demand for productive investment opportunities beside the immediate reinvestment in the own business. It also necessitated innovative institutional arrangements to bring demand and supply of investment funds together. From this period date the Amsterdam Stock Exchange
Amsterdam Stock Exchange
The Amsterdam Stock Exchange is the former name for the stock exchange based in Amsterdam. It merged on 22 September 2000 with the Brussels Stock Exchange and the Paris Stock Exchange to form Euronext, and is now known as Euronext Amsterdam.-History:...
and the Amsterdamsche Wisselbank
Amsterdamsche Wisselbank
The Bank of Amsterdam was an early bank, vouched for by the city of Amsterdam, established in 1609, the precursor to, if not the first true central bank.-Bank money:...
. There were also innovations in marine insurance
Marine insurance
Marine insurance covers the loss or damage of ships, cargo, terminals, and any transport or cargo by which property is transferred, acquired, or held between the points of origin and final destination....
and legal structuring of firms like the joint stock company
Joint stock company
A joint-stock company is a type of corporation or partnership involving two or more individuals that own shares of stock in the company...
. These innovations helped manage risk
Risk
Risk is the potential that a chosen action or activity will lead to a loss . The notion implies that a choice having an influence on the outcome exists . Potential losses themselves may also be called "risks"...
.
Even more important in this respect was the stapelmarkt itself that helped to manage the risk of price fluctuations. Related instruments were the provision of trade credit
Trade credit
Trade credit is an arrangement between businesses to buy goods or services on account, that is, without making immediate cash payment. The supplier typically provides the customer with an agreement to bill them later, stipulating a fixed number of days or other date by which the customer should pay...
to suppliers in order to secure favored access to raw materials (Dutch merchants routinely bought up grain harvests in the Baltic area and grape harvests in France, important in the wine trade, before they were harvested) and the financing of commodity trade with bills of exchange, which helped bind customers to the stapelmarkt.
The stapelmarkt, in its Dutch manifestation, was not just geared to reexport of commodities, but it also serviced a large domestic market, either as a final consumer, or as an intermediate user of raw material
Raw material
A raw material or feedstock is the basic material from which a product is manufactured or made, frequently used with an extended meaning. For example, the term is used to denote material that came from nature and is in an unprocessed or minimally processed state. Latex, iron ore, logs, and crude...
s and intermediate products for processing to finished products. The Republic was small, to be sure, but its urban population around 1650 was larger than that of the British Isles and Scandinavia combined. It was also larger than that of all German lands (admittedly devastated by the Thirty Years War at the time. This closeness to a sizable domestic market helped the stapelmarkt to perform its price-stabilizing function.
The explosive growth in capital accumulation
Capital accumulation
The accumulation of capital refers to the gathering or amassing of objects of value; the increase in wealth through concentration; or the creation of wealth. Capital is money or a financial asset invested for the purpose of making more money...
directly led to an equally explosive growth in investment in fixed capital for industries related to trade. Technological innovations like the Fluyt
Fluyt
A fluyt, fluit, or flute is a Dutch type of sailing vessel originally designed as a dedicated cargo vessel. Originating from the Netherlands in the 16th century, the vessel was designed to facilitate transoceanic delivery with the maximum of space and crew efficiency...
ship (which significantly lowered manning requirements in shipping, giving the Dutch a significant competitive advantage), and the wind-driven sawmill
Sawmill
A sawmill is a facility where logs are cut into boards.-Sawmill process:A sawmill's basic operation is much like those of hundreds of years ago; a log enters on one end and dimensional lumber exits on the other end....
(invented by Cornelis Corneliszoon
Cornelis Corneliszoon
Cornelis Corneliszoon van Uitgeest, or Krelis Lootjes was a Dutch windmill owner from Uitgeest who invented the wind-powered sawmill, which made the conversion of log timber into planks 30 times faster than before.-Biography:...
), which significantly increased productivity in ship building, offered opportunities for profitable investment, as did the textile industries (mechanized fulling
Fulling
Fulling or tucking or walking is a step in woolen clothmaking which involves the cleansing of cloth to eliminate oils, dirt, and other impurities, and making it thicker. The worker who does the job is a fuller, tucker, or walker...
, new draperies
Drapery
Drapery is a general word referring to cloths or textiles . It may refer to cloth used for decorative purposes – such as around windows – or to the trade of retailing cloth, originally mostly for clothing, formerly conducted by drapers.In art history, drapery refers to any cloth or...
) and other industries that made use of mechanization on the basis of wind power. This mechanization was based on yet another (re-)invention of Corneliszoon, for which he received a patent in 1597: a type of crankshaft
Crankshaft
The crankshaft, sometimes casually abbreviated to crank, is the part of an engine which translates reciprocating linear piston motion into rotation...
that converted the continuous rotation
Rotation
A rotation is a circular movement of an object around a center of rotation. A three-dimensional object rotates always around an imaginary line called a rotation axis. If the axis is within the body, and passes through its center of mass the body is said to rotate upon itself, or spin. A rotation...
al movement of the wind or water mill into a reciprocating one. (Ironically, this is exactly the reverse of the conversion that was necessitated by the later invention of the steam engine
Steam engine
A steam engine is a heat engine that performs mechanical work using steam as its working fluid.Steam engines are external combustion engines, where the working fluid is separate from the combustion products. Non-combustion heat sources such as solar power, nuclear power or geothermal energy may be...
that would make future "industrial revolutions" possible).
The ship building district of the Zaan
Zaan
The Zaan is a small river in the province of North-Holland in The Netherlands and the name of the district through which it runs. The river was originally a side arm of the IJ bay and travels 10 kilometers through the municipality of Zaanstad north of Amsterdam, from West-Knollendam in the north...
streek became the first industrialized area in the world, with around 900 industrial windmills at the end of the 17th century, but there were industrialized towns and cities on a smaller scale also. Other industries that saw significant growth were papermaking
Papermaking
Papermaking is the process of making paper, a substance which is used universally today for writing and packaging.In papermaking a dilute suspension of fibres in water is drained through a screen, so that a mat of randomly interwoven fibres is laid down. Water is removed from this mat of fibres by...
, sugar refining
Sugarcane
Sugarcane refers to any of six to 37 species of tall perennial grasses of the genus Saccharum . Native to the warm temperate to tropical regions of South Asia, they have stout, jointed, fibrous stalks that are rich in sugar, and measure two to six metres tall...
, printing
Printing
Printing is a process for reproducing text and image, typically with ink on paper using a printing press. It is often carried out as a large-scale industrial process, and is an essential part of publishing and transaction printing....
, the linen
Linen
Linen is a textile made from the fibers of the flax plant, Linum usitatissimum. Linen is labor-intensive to manufacture, but when it is made into garments, it is valued for its exceptional coolness and freshness in hot weather....
industry (with spin-offs in vegetable oils, like flax
Flax
Flax is a member of the genus Linum in the family Linaceae. It is native to the region extending from the eastern Mediterranean to India and was probably first domesticated in the Fertile Crescent...
and rape oil
Rapeseed
Rapeseed , also known as rape, oilseed rape, rapa, rappi, rapaseed is a bright yellow flowering member of the family Brassicaceae...
), and industries that used the cheap peat fuel, like brewing
Brewing
Brewing is the production of beer through steeping a starch source in water and then fermenting with yeast. Brewing has taken place since around the 6th millennium BCE, and archeological evidence suggests that this technique was used in ancient Egypt...
and ceramic
Ceramic
A ceramic is an inorganic, nonmetallic solid prepared by the action of heat and subsequent cooling. Ceramic materials may have a crystalline or partly crystalline structure, or may be amorphous...
s (brickworks
Brickworks
A brickworks also known as a brick factory, is a factory for the manufacturing of bricks, from clay or shale. Usually a brickworks is located on a clay bedrock often with a quarry for clay on site....
, pottery
Pottery
Pottery is the material from which the potteryware is made, of which major types include earthenware, stoneware and porcelain. The place where such wares are made is also called a pottery . Pottery also refers to the art or craft of the potter or the manufacture of pottery...
and clay-pipe making).
The explosive growth of the textiles industries in several specialized Dutch cities, like Leiden (woollen cloth), Haarlem
Haarlem
Haarlem is a municipality and a city in the Netherlands. It is the capital of the province of North Holland, the northern half of Holland, which at one time was the most powerful of the seven provinces of the Dutch Republic...
(linen
Linen
Linen is a textile made from the fibers of the flax plant, Linum usitatissimum. Linen is labor-intensive to manufacture, but when it is made into garments, it is valued for its exceptional coolness and freshness in hot weather....
), and Amsterdam (silk
Silk
Silk is a natural protein fiber, some forms of which can be woven into textiles. The best-known type of silk is obtained from the cocoons of the larvae of the mulberry silkworm Bombyx mori reared in captivity...
) was mainly caused by the influx of skilled workers and capital from the Southern Netherlands in the final decades of the 16th century, when Calvinist entrepreneurs and workers were forced to leave the Spanish-dominated areas. It was therefore not due to a specific technological development, but more to the fact that a whole industry migrated, lock, stock, and barrel, to the Northern Netherlands, thus reinvigorating the northern textile industry, that had been moribund before the Revolt.
This rapid industrialization may be indirectly illustrated by the rapid growth of the nonagricultural labor force and the increase in real wages during the same time (which usually would have a negative correlation, instead of a positive one). In the half-century between 1570 and 1620 this labor supply increased 3 percent per annum, a truly phenomenal growth. Despite this, nominal wages were repeatedly increased, outstripping price increases. In consequence, real wages for unskilled laborers were 62 percent higher in 1615–1619 than in 1575–1579.
Another important growth sector were the fisheries, especially the herring fishery (also known as the "Great Fishery"), already important in pre-Revolt days, because of the Flemish invention of gibbing
Gibbing
Gibbing is the process of preparing salt herring , in which the gills and part of the gullet are removed from the fish, eliminating any bitter taste. The liver and pancreas are left in the fish during the salt-curing process because they release enzymes essential for flavor. The fish is then cured...
, which made better preservation possible, experienced a tremendous growth due to the development of a specialized ship type, the Herring Buss
Herring Buss
A herring buss was a type of sea-going fishing vessel, used by Dutch herring fishermen in the 15th through early 19th centuries.The buss ship type has a long history...
by the late 16th century. This was a veritable "factory ship" that enabled Dutch herring fishermen to follow the herring to the shoals of the Dogger Bank
Dogger Bank
Dogger Bank is a large sandbank in a shallow area of the North Sea about off the east coast of England. It extends over approximately , with its dimensions being about long and up to broad. The water depth ranges from 15 to 36 metres , about shallower than the surrounding sea. It is a...
and other places far from the Dutch shores, and stay away for months at a time. Actually, linked to the fishery itself was an important onshore processing industry
Food processing
Food processing is the set of methods and techniques used to transform raw ingredients into food or to transform food into other forms for consumption by humans or animals either in the home or by the food processing industry...
that prepared the salted herring for export across Europe. It also attracted its own supporting industries, like salt refining and the salt trade; fishing net
Fishing net
A fishing net or fishnet is a net that is used for fishing. Fishing nets are meshes usually formed by knotting a relatively thin thread. Modern nets are usually made of artificial polyamides like nylon, although nets of organic polyamides such as wool or silk thread were common until recently and...
manufacture; and specialized shipbuilding. The fisheries were not particularly profitable in themselves (they were already a mature industry
Product life cycle management
Product life-cycle management is the succession of strategies used by business management as a product goes through its life-cycle. The conditions in which a product is sold changes over time and must be managed as it moves through its succession of stages.Product life-cycle Like human beings,...
by 1600), but organizational innovations (vertical integration
Vertical integration
In microeconomics and management, the term vertical integration describes a style of management control. Vertically integrated companies in a supply chain are united through a common owner. Usually each member of the supply chain produces a different product or service, and the products combine to...
of production, processing, and trade) enabled an efficient business model
Business model
A business model describes the rationale of how an organization creates, delivers, and captures value...
, in which the traders used the revenues of fishing to buy up grain in Baltic ports during the winter months (when otherwise the fishing boats would have been idle), which they transported to Western Europe when the ice floes
Sea ice
Sea ice is largely formed from seawater that freezes. Because the oceans consist of saltwater, this occurs below the freezing point of pure water, at about -1.8 °C ....
thawed in Spring. The revenues of this incidental trade were invested in unrefined salt or new boats. The industry was also supported by the Dutch government by market regulation
Regulated market
A regulated market or controlled market, is the provision of goods or services that is regulated by a government appointed body. The regulation may cover the terms and conditions of supplying the goods and services and in particular the price allowed to be charged and/or to whom they are distributed...
(under the tutelage of an industry body, the Commissioners of the Great Fishery), and naval protection of the fishing fleet against privateers and the Royal Navy
Royal Navy
The Royal Navy is the naval warfare service branch of the British Armed Forces. Founded in the 16th century, it is the oldest service branch and is known as the Senior Service...
(because the English looked askance at Dutch fishing in waters they claimed). The combination of these factors secured a de facto monopoly for Dutch soused herring
Soused herring
The term soused herring usually means 'soaked in a mild preserving liquid', and can be used to refer to raw herring in a mild vinegar pickle or the famous Dutch brined herring...
in the two centuries between 1500 and 1700.
The phenomenal growth in trade slowed somewhat in the years after the recommencement of the Eighty Years' War with Spain in 1621 (the end of the Twelve Years' Truce
Twelve Years' Truce
The Twelve Years' Truce was the name given to the cessation of hostilities between the Habsburg rulers of Spain and the Southern Netherlands and the Dutch Republic as agreed in Antwerp on 9 April 1609. It was a watershed in the Eighty Years' War, marking the point from which the independence of the...
). That recommencement offered the possibility of extending trade to the Western Hemisphere (indeed, the Dutch West India Company
Dutch West India Company
Dutch West India Company was a chartered company of Dutch merchants. Among its founding fathers was Willem Usselincx...
was founded in 1621), but elsewhere the Dutch were increasingly pushing up against European rivals in a struggle for market share. Because of the competitive advantages of the more efficient Dutch shippers this invited protectionist countermeasures, like the English Navigation Acts
Navigation Acts
The English Navigation Acts were a series of laws that restricted the use of foreign shipping for trade between England and its colonies, a process which had started in 1651. Their goal was to force colonial development into lines favorable to England, and stop direct colonial trade with the...
in the middle of the 17th century, but also the French tariff system
Colbertism
Colbertism is an economic and political doctrine of the seventeenth century, created by Jean-Baptiste Colbert, the French minister of finance under Louis XIV...
, instituted under Jean-Baptiste Colbert
Jean-Baptiste Colbert
Jean-Baptiste Colbert was a French politician who served as the Minister of Finances of France from 1665 to 1683 under the rule of King Louis XIV. His relentless hard work and thrift made him an esteemed minister. He achieved a reputation for his work of improving the state of French manufacturing...
, and similar protectionist measures instituted by Sweden at the same time. These protectionist measures caused a number of mid-century trade war
Trade war
A trade war refers to two or more states raising or creating tariffs or other trade barriers on each other in retaliation for other trade barriers...
s and military conflicts, like the Anglo-Dutch Wars
Anglo-Dutch Wars
The Anglo–Dutch Wars were a series of wars fought between the English and the Dutch in the 17th and 18th centuries for control over the seas and trade routes. The first war took place during the English Interregnum, and was fought between the Commonwealth of England and the Dutch Republic...
of the 17th century and the Dutch-Swedish War, and the Franco-Dutch War
Franco-Dutch War
The Franco-Dutch War, often called simply the Dutch War was a war fought by France, Sweden, the Bishopric of Münster, the Archbishopric of Cologne and England against the United Netherlands, which were later joined by the Austrian Habsburg lands, Brandenburg and Spain to form a quadruple alliance...
(though the latter had a more general politico-military character, like the later conflicts between the Republic and France; these wars had an important economic component too, though).
Canal
Canals are man-made channels for water. There are two types of canal:#Waterways: navigable transportation canals used for carrying ships and boats shipping goods and conveying people, further subdivided into two kinds:...
s which formed the basis of a sophisticated public transportation system, based on trekschuit
Trekschuit
Trekschuit, literal translation 'tugboat', is an old style of horse-drawn boat specific to the Netherlands where it was used for centuries as a means of passenger traffic between cities along trekvaarten, or tow-canals.-History:...
en or horse-drawn boat
Horse-drawn boat
A horse-drawn boat or tow-boat is a historic boat operating on a canal, pulled by a horse walking on a special road along the canal, the towpath.-United Kingdom:...
s (later emulated during the industrial revolution in Britain
History of the British canal system
The British canal system of water transport played a vital role in the United Kingdom's Industrial Revolution at a time when roads were only just emerging from the medieval mud and long trains of pack horses were the only means of "mass" transit by road of raw materials and finished products The...
and the U.S.
Erie Canal
The Erie Canal is a waterway in New York that runs about from Albany, New York, on the Hudson River to Buffalo, New York, at Lake Erie, completing a navigable water route from the Atlantic Ocean to the Great Lakes. The canal contains 36 locks and encompasses a total elevation differential of...
). This was also the period of the major land reclamation
Land reclamation
Land reclamation, usually known as reclamation, is the process to create new land from sea or riverbeds. The land reclaimed is known as reclamation ground or landfill.- Habitation :...
projects, the droogmakerijen of inland lakes like Beemster
Beemster
Beemster is a municipality in the Netherlands, in the province of North Holland. Also, the Beemster is the first so-called polder in the Netherlands that was reclaimed from a lake, the water being extracted out of the lake by windmills. The Beemster Polder was dried during the period 1609 through...
and Schermer
Schermer
Schermer is a municipality in the Netherlands, in the province of North Holland. The name came from "skir mere", which means "bright lake" Schermer (West Frisian: Skirmare) is a municipality in the Netherlands, in the province of North Holland. The name came from "skir mere", which means "bright...
that were drained by windmills and converted to polder
Polder
A polder is a low-lying tract of land enclosed by embankments known as dikes, that forms an artificial hydrological entity, meaning it has no connection with outside water other than through manually-operated devices...
s. In this way appreciable areas of fertile arable land were gained, reversing the trend of the 15th and 16th centuries. Finally, there was a tremendous boom in real-estate investment, ranging from the extensions of cities like Amsterdam (where the famous canal belts
Canals of Amsterdam
Amsterdam, capital of the Netherlands, has been called the "Venice of the North" for its more than one hundred kilometres of canals, about 90 islands and 1,500 bridges. The three main canals, Herengracht, Prinsengracht, and Keizersgracht, dug in the 17th century during the Dutch Golden Age, form...
were built) to harbor improvements and fortifications. The total urban population was nearly doubled in the century after 1580, necessitating a commensurate boom in urban construction, that by 1640 assumed the proportions of a speculative "bubble"
Economic bubble
An economic bubble is "trade in high volumes at prices that are considerably at variance with intrinsic values"...
.
But the industrialization continued apace, as mentioned above. This was also the period that saw the upsurge in Dutch paintings
Culture of the Netherlands
Dutch culture, or the culture of the Netherlands, is diverse, reflecting regional differences as well as the foreign influences thanks to the merchant and exploring spirit of the Dutch and the influx of immigrants...
that became emblematic of the Golden Age in Dutch culture. At the time, this was just an industry like many others, with offshoots like chemical pigment
Pigment
A pigment is a material that changes the color of reflected or transmitted light as the result of wavelength-selective absorption. This physical process differs from fluorescence, phosphorescence, and other forms of luminescence, in which a material emits light.Many materials selectively absorb...
making. Its boom just illustrates the general boom conditions in the country, like the horticultural
Horticulture
Horticulture is the industry and science of plant cultivation including the process of preparing soil for the planting of seeds, tubers, or cuttings. Horticulturists work and conduct research in the disciplines of plant propagation and cultivation, crop production, plant breeding and genetic...
developments that laid the basis for the sophisticated tulip
Tulip
The tulip is a perennial, bulbous plant with showy flowers in the genus Tulipa, which comprises 109 species and belongs to the family Liliaceae. The genus's native range extends from as far west as Southern Europe, North Africa, Anatolia, and Iran to the Northwest of China. The tulip's centre of...
farming sector (which had its own speculative bubble, known as the tulip mania
Tulip mania
Tulip mania or tulipomania was a period in the Dutch Golden Age during which contract prices for bulbs of the recently introduced tulip reached extraordinarily high levels and then suddenly collapsed...
).
During the Thirty Years' War the Republic also played the role of the world's "arsenal." It had an extensive arms trade, using both the products of a sophisticated domestic arms industry (gun assembly and gun foundries), and foreign industries (the iron guns produced in the Wealden iron industry
Wealden iron industry
The Wealden iron industry was located in the Weald of south-eastern England. It was formerly an important industry, producing a large proportion of the bar iron made in England in the 16th century and most British cannon until about 1770. Ironmaking in the Weald used ironstone from various clay...
were extensively traded by the Dutch in the 1620s). But this trade also occasioned an interesting episode in the industrial development of early-modern Sweden, where arms merchants like Louis de Geer
Louis De Geer (1587-1652)
Louis De Geer was a Walloon/Dutch merchant and industrialist. He is considered the father of Swedish industry for introducing Walloon blast furnaces in Sweden...
and the Trip brothers, invested in iron mines and iron works, an early example of foreign direct investment
Foreign direct investment
Foreign direct investment or foreign investment refers to the net inflows of investment to acquire a lasting management interest in an enterprise operating in an economy other than that of the investor.. It is the sum of equity capital,other long-term capital, and short-term capital as shown in...
.
By the 1650s, when this boom period reached its zenith, the economy of the Republic achieved a classic harmony between its trading, industrial, agricultural, and fishing sectors, their interrelations cemented by productivity-enhancing investments. The gains in output had increased tremendously over the course of a century: the carrying capacity of the ocean-going fleet had increased by 1 percent annually; agricultural output per laborer had increased by 80 percent since 1500 (thanks to the pursuit of comparative advantage
Comparative advantage
In economics, the law of comparative advantage says that two countries will both gain from trade if, in the absence of trade, they have different relative costs for producing the same goods...
via agricultural specialization). The overall productivity of labor was reflected in the wage level, which was the highest in Europe at the time.
Though it is difficult to quantify concepts as Gross domestic product
Gross domestic product
Gross domestic product refers to the market value of all final goods and services produced within a country in a given period. GDP per capita is often considered an indicator of a country's standard of living....
and per-capita GDP in an age when reliable economic statistics were not gathered, De Vries and Van der Woude have nevertheless ventured to make a number of informed estimates, justified in their view, by the "modern" character of the Dutch economy in this period. They arrive at a size of the economy around 1660 that was approximately 45 per cent of that of Britain (with two-and-a-half times the Dutch population). This works out at a per capita income that is 30 to 40 percent higher than that of Great Britain (admittedly still a premodern economy at the time).
Retrenchment
This happy economic constellation came to a rather abrupt end around 1670. This was a consequence of two mutually reinforcing breaks in economic trends. The first was the rather abrupt closure of major European markets, especially France, for political reasons, around this time, as already indicated in the previous section. This put an end to the heretofore secular increase in trade volumes for the Dutch economy. But the effect of this stall probably would not have been as serious if not, at approximately the same time the secular trend of the price levelMarket trends
A market trend is a putative tendency of a financial market to move in a particular direction over time. These trends are classified as secular for long time frames, primary for medium time frames, and secondary for short time frames...
had reversed from inflation
Inflation
In economics, inflation is a rise in the general level of prices of goods and services in an economy over a period of time.When the general price level rises, each unit of currency buys fewer goods and services. Consequently, inflation also reflects an erosion in the purchasing power of money – a...
to deflation. The whole of the 16th century, and the first half of the 17th century, had seen a rising price level. This now suddenly came to an end, to be replaced by delationary tendencies that would last to the 1740s. Because of the tendency of nominal wages to be sticky downward, the immediate consequence of this was that the already high level of real wages in the maritime provinces continued to rise, even though the business cycle went downward. This of course reinforced the trade depression in the short run, but in the longer run it caused a structural realignment of the Dutch economy.
The reaction of Dutch industry and agriculture was a defensive realignment in three directions. In the first place there was a shift in the product mix to higher value products (for instance more luxury textile products; livestock fattening instead of dairy farming). This was of necessity a self-limiting solution, as it made exporting even more difficult, so this response led to a further contraction of the sectors in question.
The second possible response was investment in labor-saving means of production. However, this required a level of technological innovation that apparently was no longer attainable. (In this respect it is remarkable that the number of patents granted in the Netherlands was remarkably lower in this period than in the first half of the 17th century). Besides, this type of reorientation in investment was undercut by a third possible response: outsourcing
Outsourcing
Outsourcing is the process of contracting a business function to someone else.-Overview:The term outsourcing is used inconsistently but usually involves the contracting out of a business function - commonly one previously performed in-house - to an external provider...
of industrial production to areas with a lower wage level, like the Generality Lands
Generality Lands
The Generality Lands, Lands of the Generality or Common Lands were about one fifth of the territories of the United Provinces of the Netherlands, that were directly governed by the States-General...
, which solved the high-wage problem in a different way, but also contributed to deindustralization in the maritime provinces.
The consequences of foreign protectionism were not all negative, however. Protectionist retaliation on the part of the Dutch government made all kinds of import-substitution industrialization possible, in for instance the production of sail cloth and the paper industry.
It was in the realm of capital investment, however, that the main defensive response of the Dutch economy lay. The enormous capital stock amassed during the Golden Age, was once again redirected, away from investment in commerce, agricultural land (where rents went down appreciably in a short period of time), and real estate (house rents also sharply declined), but in the direction of other, rather high-risk investments. One of these was the whaling industry
History of whaling
The history of whaling is very extensive, stretching back for millennia. This article discusses the history of whaling up to the commencement of the International Whaling Commission moratorium on commercial whaling in 1986....
in which the Noordsche Compagnie
Noordsche Compagnie
The Noordsche or Groenlandse Compagnie was a cartel for whaling, founded by several cities in the Netherlands...
had held a Dutch monopoly in the first half of the century. After its charter expired other companies entered this market which led to an expansion of the Dutch whaling fleet from about 75 ships to 200 ships after 1660. The results were disappointing, however, due to overfishing
Overfishing
Overfishing occurs when fishing activities reduce fish stocks below an acceptable level. This can occur in any body of water from a pond to the oceans....
, a high price elasticity of demand
Price elasticity of demand
Price elasticity of demand is a measure used in economics to show the responsiveness, or elasticity, of the quantity demanded of a good or service to a change in its price. More precisely, it gives the percentage change in quantity demanded in response to a one percent change in price...
due to substitutability of vegetable oils for whale oil, and the competition of foreign whalers.
Triangular trade
Triangular trade, or triangle trade, is a historical term indicating among three ports or regions. Triangular trade usually evolves when a region has export commodities that are not required in the region from which its major imports come...
slave trade and sugar
Sugar
Sugar is a class of edible crystalline carbohydrates, mainly sucrose, lactose, and fructose, characterized by a sweet flavor.Sucrose in its refined form primarily comes from sugar cane and sugar beet...
trade, based on the plantations in recently acquired Suriname
Suriname
Suriname , officially the Republic of Suriname , is a country in northern South America. It borders French Guiana to the east, Guyana to the west, Brazil to the south, and on the north by the Atlantic Ocean. Suriname was a former colony of the British and of the Dutch, and was previously known as...
and Demerara
Demerara
Demerara was a region in South America in what is now Guyana that was colonised by the Dutch in 1611. The British invaded and captured the area in 1796...
(exchanged for New Amsterdam
New Amsterdam
New Amsterdam was a 17th-century Dutch colonial settlement that served as the capital of New Netherland. It later became New York City....
at the Treaty of Breda (1667)). This also gave a new impulse to the sugar refineries, which had been in a slump in 1680. This was one of the few boom sectors of the economy in this era: the slave population in Surinam quadrupled between 1682 and 1713, and the volume of sugar shipments rose from 3 to 15 million pounds per annum. This was in a period when the Dutch planters, unlike their English and French competitors, did not receive mercantilist protection.
Finally, a major target for investment was the Dutch East India Company
Dutch East India Company
The Dutch East India Company was a chartered company established in 1602, when the States-General of the Netherlands granted it a 21-year monopoly to carry out colonial activities in Asia...
(VOC). The VOC encountered a rough patch around 1670, after a very profitable period up to that time. The causes were a price war
Price war
Price war is a term used in economic sector to indicate a state of intense competitive rivalry accompanied by a multi-lateral series of price reduction. One competitor will lower its price, then others will lower their prices to match. If one of them reduces their price again, a new round of...
for market share with the English East India Company after the Third Anglo-Dutch War
Third Anglo-Dutch War
The Third Anglo–Dutch War or Third Dutch War was a military conflict between England and the Dutch Republic lasting from 1672 to 1674. It was part of the larger Franco-Dutch War...
, and at the same time approximately, an embargo
Embargo
An embargo is the partial or complete prohibition of commerce and trade with a particular country, in order to isolate it. Embargoes are considered strong diplomatic measures imposed in an effort, by the imposing country, to elicit a given national-interest result from the country on which it is...
on the export of precious metals (especially silver) by the Japanese Shogunate, which ended the profitable intra-Asiatic trade the company had conducted up to that time (this business of trade within the East-Asian market had financed the spice trade of the company up to that time, and obviated the need to export European silver and gold to pay for Asian commodities it imported in Europe). The VOC now opted for a policy of great expansion of its business, by branching out to Asian bulk products, like textiles, coffee
Coffee
Coffee is a brewed beverage with a dark,init brooo acidic flavor prepared from the roasted seeds of the coffee plant, colloquially called coffee beans. The beans are found in coffee cherries, which grow on trees cultivated in over 70 countries, primarily in equatorial Latin America, Southeast Asia,...
, tea
Tea
Tea is an aromatic beverage prepared by adding cured leaves of the Camellia sinensis plant to hot water. The term also refers to the plant itself. After water, tea is the most widely consumed beverage in the world...
and porcelain
Porcelain
Porcelain is a ceramic material made by heating raw materials, generally including clay in the form of kaolin, in a kiln to temperatures between and...
. Other than the pepper
Black pepper
Black pepper is a flowering vine in the family Piperaceae, cultivated for its fruit, which is usually dried and used as a spice and seasoning. The fruit, known as a peppercorn when dried, is approximately in diameter, dark red when fully mature, and, like all drupes, contains a single seed...
and spices it had a near-monopoly
Monopoly
A monopoly exists when a specific person or enterprise is the only supplier of a particular commodity...
on, these were high-volume low-profit commodities. The size of the company doubled in this period (making it the largest publicly-traded company in the world at the time), but this was "profitless" growth, that did not really solve the company's problems.
This lack of profitability characterised all three investment activities just mentioned.
The final reaction of the Dutch economic elite (which doubled as the political elite in this oligarchical Republic
Oligarchy
Oligarchy is a form of power structure in which power effectively rests with an elite class distinguished by royalty, wealth, family ties, commercial, and/or military legitimacy...
) to these economic challenges lay in the political sphere. After the end of the Franco-Dutch War (which, like the previous wars was mostly financed by floating bonds
Bond (finance)
In finance, a bond is a debt security, in which the authorized issuer owes the holders a debt and, depending on the terms of the bond, is obliged to pay interest to use and/or to repay the principal at a later date, termed maturity...
, instead of higher taxation) the public debt had risen to an alarming size. The Regents
Regenten
In the 16th, 17th and 18th centuries, the regenten were the rulers of the Dutch Republic, the leaders of the Dutch cities or the heads of organisations . Though not formally a hereditary "class", they were de facto "patricians", comparable to that ancient Roman class...
at first tried to retire a significant part of this debt, and were successful in the years leading up to the Dutch invasion of England, known as the Glorious Revolution
Glorious Revolution
The Glorious Revolution, also called the Revolution of 1688, is the overthrow of King James II of England by a union of English Parliamentarians with the Dutch stadtholder William III of Orange-Nassau...
of 1688. Though this episode is usually described as narrowly English, or at most Anglo-Dutch of significance, it was actually part of a strategic defense of the Dutch Republic against the aggressive encroachments of king Louis XIV of France
Louis XIV of France
Louis XIV , known as Louis the Great or the Sun King , was a Bourbon monarch who ruled as King of France and Navarre. His reign, from 1643 to his death in 1715, began at the age of four and lasted seventy-two years, three months, and eighteen days...
. The ensuing Nine Years' War and War of the Spanish Succession
War of the Spanish Succession
The War of the Spanish Succession was fought among several European powers, including a divided Spain, over the possible unification of the Kingdoms of Spain and France under one Bourbon monarch. As France and Spain were among the most powerful states of Europe, such a unification would have...
had for the Dutch also an economic aspect, as they were trying to revert the French protectionist measures, which threatened to close the French and Spanish metropolitan and colonial markets to them (both the Treaty of Ryswick
Treaty of Ryswick
The Treaty of Ryswick or Ryswyck was signed on 20 September 1697 and named after Ryswick in the Dutch Republic. The treaty settled the Nine Years' War, which pitted France against the Grand Alliance of England, Spain, the Holy Roman Empire and the United Provinces.Negotiations started in May...
and the Treaty of Utrecht
Treaty of Utrecht
The Treaty of Utrecht, which established the Peace of Utrecht, comprises a series of individual peace treaties, rather than a single document, signed by the belligerents in the War of Spanish Succession, in the Dutch city of Utrecht in March and April 1713...
contained provisions abrogating the draconian French tariff
Tariff
A tariff may be either tax on imports or exports , or a list or schedule of prices for such things as rail service, bus routes, and electrical usage ....
list of 1667). The main effect of these wars was, however, that the Dutch public debt increased with 200 million guilders between 1688 and 1713. In view of the meagre results of the 1713 peace treaty (most advantages of the war that the Republic had helped to win went to Great Britain, thanks to the separate peace that country had concluded previously with France) the gamble had not paid off
Periwig Era: the eighteenth-century economy
Though after the Peace of 1713 the Anglo-Dutch alliance of 1689 formally remained in place (with the Republic a guarantor of the Protestant Succession in Great Britain, which obliged it to send troops to England during the 1715 and 1745 invasions of the Jacobite PretendersJacobite rising
The Jacobite Risings were a series of uprisings, rebellions, and wars in Great Britain and Ireland occurring between 1688 and 1746. The uprisings were aimed at returning James VII of Scotland and II of England, and later his descendants of the House of Stuart, to the throne after he was deposed by...
), in practice the Republic embarked on a policy of neutrality
Neutral country
A neutral power in a particular war is a sovereign state which declares itself to be neutral towards the belligerents. A non-belligerent state does not need to be neutral. The rights and duties of a neutral power are defined in Sections 5 and 13 of the Hague Convention of 1907...
during most of the 18th century. This placed Dutch shipping in an enviable protected position during the many wars of that century (as long as the British Admiralty court
Admiralty court
Admiralty courts, also known as maritime courts, are courts exercising jurisdiction over all maritime contracts, torts, injuries and offences.- Admiralty Courts in England and Wales :...
was prepared to recognize the Dutch claim of "free ship, free good"), enabling it to provide efficient shipping services with its still very large fleet to all European countries. But it eroded the power of the stapelmarkt, as did the emergence of competitors like London and the German North Sea ports Bremen
Bremen
The City Municipality of Bremen is a Hanseatic city in northwestern Germany. A commercial and industrial city with a major port on the river Weser, Bremen is part of the Bremen-Oldenburg metropolitan area . Bremen is the second most populous city in North Germany and tenth in Germany.Bremen is...
and Hamburg
Hamburg
-History:The first historic name for the city was, according to Claudius Ptolemy's reports, Treva.But the city takes its modern name, Hamburg, from the first permanent building on the site, a castle whose construction was ordered by the Emperor Charlemagne in AD 808...
. This weakening of the province of Holland as a trade hub in its turn contributed to a disarticulation of the Dutch economic sectors trade, industry, banking and insurance, that had been highly integrated in the Golden Age. Each of those sectors embarked on its own growth path in the 18th-century Dutch economy.
Acceptance credit
An acceptance credit is a type of letter of credit that is paid by a time draft authorizing payment on or after a specific date, if the terms of the letter of credit have been complied with. There are two types of acceptance credit, confirmed and unconfirmed...
.
The herring fisheries were severely damaged by French privateers during the War of the Spanish Succession. This caused a collapse of the industry in the first decade of the 18th century, from which the industry did not recover. The size of the Enkhuizen fleet halved compared to the previous century. A second sharp contraction of the herring fleet occurred in the years 1756–61. This was due to an equally sharp reduction in revenue in these years. Meanwhile, foreign competitors profited from easier access to the fishing grounds (Scandinavians), lower wages (Scots), or protection (English). They also were not bound to the Dutch regulations that aimed to guarantee the quality of the Dutch product. This challenge induced the industry to go "up market" by improving quality further, thus being able to charge premium prices.
A distinctive trait of the Dutch economy emerging in the 18th century was the fiscal-financial complex. The historically large public debt, resulting from the Republic's participation in the European wars around the turn of the 19th century, was held by a small percentage of the Dutch population (there was hardly any external debt
External debt
External debt is that part of the total debt in a country that is owed to creditors outside the country. The debtors can be the government, corporations or private households. The debt includes money owed to private commercial banks, other governments, or international financial institutions such...
). This implied that the Dutch fiscal system now became yoked to the service of this debt in a way that served the interests of this small rentier
Rentier capitalism
Rentier capitalism is a term used in Marxism and sociology which refers to a type of capitalism where a large amount of profit-income generated takes the form of property income, received as interest, intellectual property rights, rents, dividends, fees, or capital gains.The beneficiaries of this...
class. No less than 70 percent of the annual revenue of the province of Holland (the main debtor) had to be dedicated to debt service
Debt service coverage ratio
The debt service coverage ratio , also known as "debt coverage ratio," is the ratio of cash available for debt servicing to interest, principal and lease payments. It is a popular benchmark used in the measurement of an entity's ability to produce enough cash to cover its debt payments...
. These revenues consisted mainly of regressive
Regressive tax
A regressive tax is a tax imposed in such a manner that the tax rate decreases as the amount subject to taxation increases. "Regressive" describes a distribution effect on income or expenditure, referring to the way the rate progresses from high to low, where the average tax rate exceeds the...
indirect taxes with the perverse effect that income was transferred from the poorer classes to the richer to the amount of 14 million guilders a year (approximately 7 percent of the Gross National Product at the time). This debt burden rested preponderantly on the tax payers from Holland, as the finances of the provinces were separated in the confederal system of the Republic, and this unequal debt burden militated against other provinces agreeing to fiscal reform. Fiscal reform was also opposed by the rentiers that had a vested interest in retaining their interest income, but not in paying (direct) income taxes to pay for the debt service.
Meanwhile, this rentier-class remained very frugal and saved most of its income, thereby amassing more capital that needed to be reinvested. As productive investments within the Republic were scarce (as explained above), they rationally looked for investment opportunities abroad. Ironically, such opportunities were often found in Great Britain, both in infrastructure developments, and in the British public debt that seemed as safe as the Dutch one (as these investors were very risk-averse
Risk aversion
Risk aversion is a concept in psychology, economics, and finance, based on the behavior of humans while exposed to uncertainty....
). But other foreign governments were also able to tap the Dutch market for savings by floating sovereign debt bonds with the assistance of Amsterdam merchant bank
Merchant bank
A merchant bank is a financial institution which provides capital to companies in the form of share ownership instead of loans. A merchant bank also provides advisory on corporate matters to the firms they lend to....
s that required hefty fees for their services (as the young American Republic discovered after John Adams
John Adams
John Adams was an American lawyer, statesman, diplomat and political theorist. A leading champion of independence in 1776, he was the second President of the United States...
successfully negotiated loans during the American Revolutionary War
American Revolutionary War
The American Revolutionary War , the American War of Independence, or simply the Revolutionary War, began as a war between the Kingdom of Great Britain and thirteen British colonies in North America, and ended in a global war between several European great powers.The war was the result of the...
). Amsterdam in this way became the 18th-century hub of international finance
International finance
International finance is the branch of economics that studies the dynamics of exchange rates, foreign investment, global financial system, and how these affect international trade. It also studies international projects, international investments and capital flows, and trade deficits. It includes...
, in tandem with London. The Amsterdam and London stock exchanges were closely aligned and quoted each others stocks and bonds (Britain often used the Dutch financial institutions to pay subsidies to its allies and to settle its exchange bills in the Russian trade).
Interestingly, the Dutch balance of payments was in surplus most of the time, because a small deficit on the current account
Current account
In economics, the current account is one of the two primary components of the balance of payments, the other being the capital account. The current account is the sum of the balance of trade , net factor income and net transfer payments .The current account balance is one of two major...
(because the propensity to import was high as a consequence of the skewed income distribution), was more than compensated by "invisibles", like the income from shipping services, and the revenues from foreign investment. The latter amounted to 15 million guilders annually by 1770, and twice that by 1790. The consequence was a preview of the "Dutch disease
Dutch disease
In economics, the Dutch disease is a concept that purportedly explains the apparent relationship between the increase in exploitation of natural resources and a decline in the manufacturing sector...
" of the 20th century, where a strong guilder (also caused by a structural balance-of-payments surplus) discouraged exports, as it did in the 18th century.
Though compared to the boom years of the Golden Age the 18th-century Dutch economy looked less attractive (which earned this epoch the disdainful epithet "periwig
Wig
A wig is a head of hair made from horsehair, human hair, wool, feathers, yak hair, buffalo hair, or synthetic materials which is worn on the head for fashion or various other aesthetic and stylistic reasons, including cultural and religious observance. The word wig is short for periwig and first...
era" in the Dutch Orangist
Orangism (Netherlands)
Orangism is a monarchist political support for the House of Orange-Nassau as monarchy of the Netherlands. It played a significant role in the political history of the Netherlands since the Dutch revolt...
historiography of the 19th century), it still had its strengths. The "decline" of the economy as a whole was more relative, compared to its competitors, than absolute. The disappearance of whole industries, though regrettable, was no more than a consequence of secular economic trends, like the comparable industrial realignments of the 20th century (ironically, in both cases the textile industry was involved). One could even say that by the shift from industry to "service" sectors, the structure of the Dutch economy became even more "modern." (Indeed, one may see an analogy with the changes in the mature British economy a century later). However, the degree of foreign direct investment by the Dutch at the end of the 18th century was even greater than that of the British at the beginning of the 20th century: more than twice GNP versus 1.5 times GNP).
Another measure of the performance of the Dutch economy during the 18th century is the estimate that De Vries and Van der Woude have made of the per capita GDP
Gross domestic product
Gross domestic product refers to the market value of all final goods and services produced within a country in a given period. GDP per capita is often considered an indicator of a country's standard of living....
of the Dutch economy in 1742 (for which year tax records provide a basis for estimation and extrapolation). They arrive at an estimated GNP of between 265 and 280 million guilders, or 135–142 guilders per capita. This was at the end of a long period of secular decline after the economic zenith of 1650. The next decades saw some economic resurgence. In the decade 1800–1810 (again a period of economic decline) the national income of the (slightly contracted) population can be estimated at 307 million guilders, or 162 guilders per capita. To put all of this in perspective: in 1740 the GNP of Great Britain was about £80 million , or 120 guilders per capita (and therefore about 20 percent lower than the Dutch per capita income). After this the British per capita income started on a rapid increase, due to the Industrial Revolution. It therefore eventually overtook the Dutch per capita income, but probably only around 1800.
One could even say that in the years before 1780 the prospects of the economy were improving: because of the economic growth in the German hinterland there were possibilities of growth in distibutional trade in colonial commodities, and industrial products (Dutch or other European). Such possibilities were indeed realized in the 20th century, when the Netherlands again became a major distributional hub. The agricultural sector still enjoyed high productivity, whereas the nearby British markets for dairy products and produce offered opportunities for increased exports (which were indeed soon realized). Only, the high-cost structure of the labor market, high taxes, structural overvaluation of the guilder, all militated against most forms of industrial production, let alone export industries. Without the necessary reforms to remedy these problems the Netherlands were unlikely to participate in the industrial renaissance that Great Britain, and later other neighboring countries, started to experience in the latter part of the 18th century.
Final crisis
From 1780 on, however, a new conjunctureConjuncture
In general, a conjuncture is a period marked by some watershed event which separates different epochs.In economics, conjuncture is a critical combination of events....
of internal and external conditions and forces conspired to bring the economy and the political structure of the Republic to a crisis that they could not survive. The Fourth Anglo-Dutch War
Fourth Anglo-Dutch War
The Fourth Anglo–Dutch War was a conflict between the Kingdom of Great Britain and the Dutch Republic. The war, tangentially related to the American Revolutionary War, broke out over British and Dutch disagreements on the legality and conduct of Dutch trade with Britain's enemies in that...
ended the cloak of neutrality which had protected Dutch shipping for most of the century, in that period obviating the need for naval protection that was now lacking due to many years of neglect of the navy. Trade came temporarily to a standstill, because the British blockade could not be broken, despite the relative success of the Dutch navy in the Battle of Dogger Bank (1781)
Battle of Dogger Bank (1781)
The naval Battle of the Dogger Bank took place on 5 August 1781 during the Fourth Anglo-Dutch War, part of the American War of Independence, in the North Sea...
. The trade of the VOC was devastated, even apart from the loss of some of its colonies. It experienced a liquidity crisis
Liquidity crisis
In financial economics, liquidity is a catch-all term that may refer to several different yet closely related concepts. Among other things, it may refer to Asset Market liquidity In financial economics, liquidity is a catch-all term that may refer to several different yet closely related...
which exposed its inherent insolvency
Insolvency
Insolvency means the inability to pay one's debts as they fall due. Usually used to refer to a business, insolvency refers to the inability of a company to pay off its debts.Business insolvency is defined in two different ways:...
. The company was too important to let it fail (also because of the importance of its outstanding debt in the Dutch financial system), so that it was kept afloat for more than a decade by emergency aid from the States of Holland
States of Holland
The States of Holland and West Frisia were the representation of the two Estates to the court of the Count of Holland...
, before it was finally nationalized in 1796.
Frederick William II of Prussia
Frederick William II was the King of Prussia, reigning from 1786 until his death. He was in personal union the Prince-Elector of Brandenburg and the sovereign prince of the Principality of Neuchâtel.-Early life:...
intervention in the quarrel with Stadtholder
Stadtholder
A Stadtholder A Stadtholder A Stadtholder (Dutch: stadhouder [], "steward" or "lieutenant", literally place holder, holding someones place, possibly a calque of German Statthalter, French lieutenant, or Middle Latin locum tenens...
William V
William V, Prince of Orange
William V , Prince of Orange-Nassau was the last Stadtholder of the Dutch Republic, and between 1795 and 1806 he led the Government of the Dutch Republic in Exile in London. He was succeeded by his son William I...
in 1787. This meant that no further attempts at reform were made till the overthrow of the old Republic and its replacement by the Batavian Republic in 1795. That puppet state
Puppet state
A puppet state is a nominal sovereign of a state who is de facto controlled by a foreign power. The term refers to a government controlled by the government of another country like a puppeteer controls the strings of a marionette...
of the French Republic was unable to get the freedom of movement from its "sister republic", that would have been necessary to bring about effective reforms, even though the Patriots now had the chance to force them through. An enormous new tax burden to finance transfer payments to France (a war indemnity of 100 million guilders and annual maintenance costs of 12 million guilders of an army of occupation), amounting to 230 million guilders total, broke the back of the fiscal system. Eventually, the public debt was forced into default
Default (finance)
In finance, default occurs when a debtor has not met his or her legal obligations according to the debt contract, e.g. has not made a scheduled payment, or has violated a loan covenant of the debt contract. A default is the failure to pay back a loan. Default may occur if the debtor is either...
(though only when the Netherlands were annexed to imperial France
First French Empire
The First French Empire , also known as the Greater French Empire or Napoleonic Empire, was the empire of Napoleon I of France...
in 1810).
More importantly, the Dutch trading system was remorselessly ground away between a British blockade and the French enforced boycott of British goods in the Continental System
Continental System
The Continental System or Continental Blockade was the foreign policy of Napoleon I of France in his struggle against the United Kingdom of Great Britain and Ireland during the Napoleonic Wars. It was a large-scale embargo against British trade, which began on November 21, 1806...
. This was not compensated by adequate access to the French market, because even when the Netherlands were incorporated in the French empire the old protectionist barriers remained in place. For a while, the Dutch were therefore unable to trade legally anywhere (which left smuggling as the only alternative). In the period of the annexation, 1810–1813, the ports were bereft of shipping and the remnants of industry collapsed.
These external factors were reinforced by internal ones. The necessary reforms of the Dutch system of public finance (as embodied in the Tax Reform Plan of Isaac Jan Alexander Gogel) were blocked for a long time by federalist opposition, and only enacted in the final year of the Republic, just before its transformation to the Kingdom of Holland in 1806. By then it was too little too late.
It is therefore fitting to see the year 1815, in which the United Kingdom of the Netherlands
United Kingdom of the Netherlands
United Kingdom of the Netherlands is the unofficial name used to refer to Kingdom of the Netherlands during the period after it was first created from part of the First French Empire and before the new kingdom of Belgium split out in 1830...
embodied a newly-independent political incorporation of the original Habsburg Netherlands, as the end of an economic era also. The hoped for economic resurgence of the Netherlands (other than that of the Southern Netherlands with which it was now temporarily reunited) would, however, not really take flight before the structural problems of the old economy were finally laid to rest around 1850 with the final liquidation of the public debt of the old Republic. This explains at least partly why the Dutch economy was so tardy in implementing the steam-power based industrial revolution of the 19th century.
Sources
(1995), The Dutch Republic: Its Rise, Greatness and Fall, 1477-1806, Oxford University Press, ISBN 0-19-873072-1 hardback, ISBN 0-19-820734-4 paperback (1977), Patriots and Liberators. Revolution in the Netherlands 1780-1813, New York, Vintage books, ISBN 0-679-72949-6 (1997), The First Modern Economy. Success, Failure, and Perseverance of the Dutch Economy, 1500-1815, Cambridge University Press, ISBN 978-0-521-57825-7External links
- Baltic Trade
- Dutch entries in the pound-toll registers of Elbing 1585-1700 Dutch Sound registers – Dutch ships passing the Danish Sound tollSound DuesThe Sound Dues were a toll on the use of the Sound which constituted up to two thirds of Denmark's state income in the 16th and 17th centuries...
s, 18th century De Molendatabase – Database of existing and historical windmills in Belgium and The Netherlands - The United Provinces, 1579-1806 – Economic Statistics
- Provincial finances in the days of the Republic of the United Netherlands Sugar refining in 18th century Holland