The Dutch Republic

It is not so difficult to explain the “Dutch miracle” of 1550-1650 because the northern Low Countries were developed long before the “miracle”. Between the 12th and 16th centuries, the economic development of the northern Low Countries had been substantial, although overshadowed by the more brilliant successes of the southern Low Countries.

Until the middle of the sixteenth century, the development in the southern provinces confined the activities of the Northern provinces to the North Sea and the Baltic. In the second half of the 16th century came the revolt against Spain and with the revolt came the war and the ruin of the southern provinces. The ruin of the southern provinces gave them a free hand for the commercial penetration of the southern seas and the oceans.

By 1650 Holland had become the chief carrying, trading, and financial nation of Europe, ranked first in some industries, dominated the oriental trade, conducted much of the slave traffic, and was a thorn in the side of every other western power. The steps to that position involved the exploitation of water rather than of land. Rivers and canals made inland transportation easy and cheap.

The first noteworthy step was the extension of herring fishing far out into the North Sea. For this the Dutch developed large boats of twenty to thirty tons, known as busses. They were thus able to use more and larger nets and to salt the fish on board instead of having to hurry ashore for treatment. The herring fisheries were often called “the Dutch gold mine”, a mine that never petered out. The second step was the extension of coastal trade to Scandinavia and the Baltic lands.

Dutch Shipbuilding: The third step was the development of a shipbuilding industry superior to that of any other country. The superiority was due to three factors. (1) Raw materials were brought in bulk for cash at low prices; Dutchmen paid less for Norwegian masts and boards landed in Holland than did builders in Norway. (2) In constructing the vessels there was some standardization of design, parts, and building methods. The use of such labour-saving machines as wind-driven sawmills and the organization of the shipyards made it possible to produce ships quickly at low labour cost. (3) The builder was able to borrow money at a much lower rate than his foreign rival. Shipbuilding and owning attracting plenty of loan or share capital; even peasants and artisans were part-owners of vessels. Shipbuilding became an export industry; by 1600 Venetians were buying Dutch vessels of more than 700 tons.

The Carrying Trade: Cheap building and cheap operation went hand in hand. Since the fluitschips were easily handled, they needed only half as many sailors as were used on French or English vessels. The wide range of Dutch trade allowed ships’ supplies to be purchased where they were cheapest. Consequently Dutch freight rates were usually said to be a third or a half less than those of other shippers. Rivals tried to destroy this advantage by charging higher ports dues or shutting Dutch vessels out of certain routes, especially coastal trade or to the colonies.

The fourth step was therefore the development of a sea-carrying traffic which ranged from the most remote Baltic ports all the way around to Smyrna in the eastern Mediterranean. In this far-flung freight service Holland’s position on the continent supplemented her central location on the sea routes. With sugar, cloth, diamonds, tobacco, cocoa, and other commodities, Holland was the “staple” through which they passed, and something happened to them on the way.

The Dutch Empire: The fifth step was taken when the revolt against Spain embarked the seven Northern provinces on a colonial career. In 1602 the Dutch East India Company was set up, uniting the groups which had nursed the infant colonial trade. its charter gave it a monopoly of Dutch oriental trade, with sovereign power to make war and peace, found colonies, build forts, maintain an arm and navy, and do whatever seemed necessary for the extension of its power and profit. That extension was affected by a combination of trading, fighting, and establishing control over native peoples.

The commerce with the three distant continents, interwoven with the larger traffic nearer home, made the Dutch the owners of nearly half of Europe’s shipping tonnage. To complete their equipment for this work they became important industrialists and great bankers.

Industries: some industries made the goods that Dutch consumers required, such as cloth, and exported any surplus. Others sprang from the country’s entrepot trade; they processed and finished the products which flowed into Holland in bulk and which were then re-exported in smaller parcels to buyers in scattered markets. They reveal three common characteristics—dependence on special skill, on imported materials, and on the use of labour-saving techniques.

The native supply of skill was supplemented by that of voluntary immigrants and of refugees who were attracted by the religious tolerance of their new rulers. Belgian or French experts entered the bleaching industry of Haarlem and made Amsterdam famous as a producer of silks. Sugar refining expanded in Rotterdam and Amsterdam when the Antwerp refineries were ruined. Diamond cutting, which had emigrated from Venice to Antwerp, moved on to Amsterdam and has stayed there.

Virtually every industry worked on or with materials brought from abroad, for Dutch farms supplied only a small amount of tobacco, flax, wool, and madder. Imported raw tobacco, sugar, cotton, silk, metals, hides, and lumbers were turned into finished products. Imported cloths were carried through the final processes of bleaching, dyeing or printing, and the chemicals required for this work were drawn from India, America or the Baltic islands.

The use of labour-saving devices and the harnessing of power were widespread. The paper mills which fed the largest printing industry in Europe were located in northern Holland, where water power was available for driving the machines. Wind supplied power for many kinds of work. The textile industry used a loom which wove several strands of ribbon and a machine which printed patterns on linens or cottons. A country with a population of only about 2,500,000 used labour-saving techniques so that its labour could count as much as possible in shipyard and workshop.

Agriculture: In agriculture economy of land was more important that economy of labour. 40% of Holland is below sea level, and in the 17th century some of this was actually under water. The three main tasks were to prevent further flooding, reclaim some submerged areas, and extract the greatest quantity of goof from every acre by methods which were often horticultural rather than agricultural. There was little sense in growing grains, for these could be obtained cheaply from the Baltic ports. There was no room for fallow and no profit in poor livestock. To the cultivation of useful foods was added that of ornamental shrubs or flowers, of which the tulip was the most valued.

Amsterdam: Virtually all the industrial activities described above were carried on in or around the city of Amsterdam. The Bourse also became Europe’s chief money and stock market. The formation of the East India Company stimulated the sale of stocks. Gradually, the shares of other companies, including the English East India Company or the Bank of England, came into the market, as did the bonds of Dutch political units and eventually of some foreign governments.

Since the prices of stocks and bonds were far from stable, speculation in securities became almost as common as in commodities. Prices rose gently at first, chiefly in dealings between professionals, but as the upswing became apparent outsiders entered the market. As a loan and capital market, Amsterdam served its own citizens and government and also those of other countries.

The Bank of Amsterdam: Founded in 1609, the Bank of Amsterdam was the first institution of its kind north of the Alps. Its sole business was to receive deposits and transfer money from one person’s account to that of another. The currency might be domestic or foreign, heavy or light, of various mintages with different precious-metal contents.

The bank was not supposed to lend money; hence it could make no profit, and must charge a fee for its deposit, transfer or exchange of services. However, it did make loans to the city government or the East India Company and financed a municipal pawnshop.

From her far-flung, diversified and closely interwoven enterprises Holland drew a substantial income.

(If asked why Holland was not the first to emerge as industrialized)

[[The Passing of Dutch Supremacy: During the eighteenth century Holland lost her economic preeminence, primarily because others overtook her, copied her technique, and dispensed with her goods, services, ships, or funds. Lack of raw material prevented her from establishing a position as the permanent source of supply of any commodity. Her dependence on importing, processing, and exporting made her vulnerable if countries which supplied her or bought from her became industrially mature or politically unfriendly.

The combination of advantages which the Dutch had enjoyed was broken up at one point after another, and Holland contributed to the disintegration by making one or two blunders or by being rigid of outlook in a changing world.

Dutch processing and manufacturing industries were hit hard the loss of trade and traffic. They were hurt still more by the growth of protected and subsidized foreign manufactures; by the fact that rising taxes had pushed the cost of materials, of living, and of labour much higher than it was in other countries; and by the refusal of the Dutch government to impose protective tariffs on imported manufactured goods for fear of hurting the country’s import-export economy. Dutch industrialists not merely lost their foreign markets; they also saw cheap foreign wares come in, paying low duties, to compete with their own products in their own market.

As opportunities for selling, making, and carrying declined in a century of expanding world commerce, Dutchmen turned increasingly to serving clients as commission merchants and to financial operations. Since they had more capital than could be employed profitably at home, they sent much of it abroad.

Much Dutch capital was used to lubricate trade which no longer went hear Holland. Much was also put into mortgages to landlords or short-term loans to farmers in Europe, some went to finance West Indian plantations, and a lot was used for investment or speculation in company stocks and government bonds.

Investment in the British national debt seemed good politics and better business. After 1713 Holland, weakened and debt-laden by the Anglo-Dutch commercial wars, abandoned all thought of being a big power, let her army and navy deteriorate, and became a neutral in the Anglo-French struggle. Her financiers were, however, ready to back the British. When France intervened in the American Revolution however, the Dutch changed their minds. Dutchmen therefore made loans to France and America, but not to England. Holland’s inaccurate forecasting cost her dearly. In those turbulent decades of the wars with England and control under the French, the East India Company and the Bank of Amsterdam broke and fell.

The Rise of England

At the end of the 15th century, England was an underdeveloped country—underdeveloped not only by comparison with modern industrialized countries, but also in relation to the standards of the “developed countries” of that time, such as Italy, the Low Countries, France and Southern Germany.

The small size of the English population was not offset by a greater wealth. On the contrary, from both the technological and economic points of view, England was backward compared with most of the Continent. England, however, produced some of the best wool in Europe, and from the fourteenth century onward she moved more and more into the production of woolen cloth. Wool and woolen cloth represented the bulk of English exports in the last centuries of the Middle Ages. The transition from a stage characterized by massive exports of indigenous raw materials to a stage increasingly characterized by manufactures made from such raw materials is a typical sequence on the road to economic development.

English products were traditionally exported to markets in the southern Low Countries—first Bruges, then Antwerp—whence they were distributed to various parts of the continent. Traditionally, the merchants of southern Germany obtained their supplies of woolen cloth on the markets of northern Italy and then redistributed them throughout central and Eastern Europe. However, Italian production collapsed because of the war and the ensuing disasters. As the Italian suppliers were no longer in a position to satisfy the demand of the Germans, the latter availed themselves of cloth made in England and available in Antwerp. The textile manufacturing sector in England was the first to show the effects of the boom in exports.

By 1550 England was a prosperous, dynamic country. The recovery of the Italian textile industry, the stagnation of southern Germany, the war in the southern Low Countries, the ruin of Antwerp, the reevaluation of sterling, all contributed to the difficulties of the English exporters.

On the basis of these facts, it has been suggested that “the great expansion” of trade was over. However, to over-generalize from the figures on the export of short-cloths would be a serious mistake. First of all, export does not mean production. If the internal market absorbed progressively greater quantities of textiles, production may not have contracted in proportion to exports. One must note that the period 1550-1650 was characterized by England’s entry precisely at that time into a new stage in her economic development—a major stage in which manufactures besides woolens began to play a major role in the economy.

The transition from one type of production to another was gradual, and the involvement of English society in this transition is important. One feature of English society of that time strikes even the most casual observer: an extraordinary cultural receptiveness and an equally extraordinary ability to react decisively to the difficulties of the moment.

In the war-armaments sector, England found herself at a disadvantage when, with the royal finances in ruin, it became increasingly difficult for her to buy the artillery she needed from the continental cannon merchants. The artillery of the time was mostly made of bronze, and England lacked copper. A similar story is that of energy. England was never a heavily wooded country. English timber reserves had rapidly depleted by 1548-49.

The consequences of the crisis can clearly be observed in the armament industry. By 1630, the production of cast-iron ordnance was severely hit by the shortage of fuel, and England was then unable to produce enough guns for her own needs.

Reacting to serious shortages, England ingeniously developed new techniques which allowed her to utilize those natural resources locally available in relatively ample quantities. Concentrating on iron and coal, England set herself on the road that led directly to the Industrial Revolution. Another process was the increase in the size of plans and the concurrent concentration of labour and capital in technical units of production.

The resources which allowed the English to develop their foreign trade were mainly (a) a relatively abundant stock of good sailors and able merchants; (b) a relatively abundant supply of both physical capital and financial capital; (c) a well-developed organization structure of credit, commercial and insurance organizations; (d) a government deeply aware of and intelligently favourable to the aspirations of the merchant class; and (e) the extension of diplomatic offices and the strength of the Royal Navy.