Economic history of the Netherlands (1500–1815)
The economic history of the Netherlands (1500–1815) covers the Netherlands as the Habsburg Netherlands, through the era of the Dutch Republic, the Batavian Republic and the Kingdom of Holland.
After becoming de facto independent from the empire of Philip II of Spain 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. In 1670, the Dutch merchant marine totalled 568,000 tons of shipping—about half the European total. Pillars of this position were the dominance of the Amsterdam Entrepôt 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, water and peat), land reclamation from the sea, and agricultural revolution helped the Dutch economy achieve the highest standard of living in Europe (and probably in the world) by the middle of the 17th century. Affluence facilitated a Golden Age in culture typified by the great artist Rembrandt van Rijn (1606–1669).
However, around 1670 a combination of politico-military upheavals (wars with France and England) and adverse economic developments (a break in the upward
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
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 engage in policies of economic warfare against the French Empire, which proved 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 deindustrialized 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).
Development
The
Pre-Revolt economy
The territory of the northern maritime provinces that would later constitute the Dutch Republic (previously disparate
Although the northern provinces had an as yet subordinate position in the aggregate economy of the Habsburg Netherlands, let alone in the entire
Although the immediate result of this
This political development had a number of important economic consequences. First of all, it led to an economic rupture with the
In the economic and technological circumstances of the time such an
Antwerp-as-entrepôt was already in decline before the Revolt, and before the
The Golden Age
These developments set the stage for the era of explosive economic growth that is roughly coterminous with the period of social and cultural bloom that has been called the Dutch Golden Age, and formed the material basis for that cultural era. During the numerous years of Dutch economic growth the average GDP per capita increased by 0.18 percent per annum; at about 1810 the growth rate was about 1 percent annually.[12] Amsterdam became the hub of world trade,[13] the center into which staples such as rye and luxuries flowed for sorting, processing, and distribution, and then were reexported around Europe and the world.[14]
In 1670, the Dutch merchant marine totalled 568,000 tons of shipping—about half the European total.[15]
First stage: 1585–1622
A determining trait of the 1585 through 1622 period was the rapid accumulation of trade capital. The seed money for this expansion was brought in by displaced Antwerp merchants and by other European merchants (for instance the New Christians who were displaced from the Iberian lands by religious persecution) that were quickly attracted by the new opportunities in Amsterdam. These merchants often invested in high-risk ventures like pioneering expeditions to the East Indies to engage in the spice trade. These ventures were soon consolidated in the Dutch East India Company (VOC). There were similar ventures in different fields, however, like the trade in Russia and the Levant. The profits of these ventures were ploughed back into financing new trade, which led to an exponential growth thereof.
Merchant capitalism
Dutch "
Staple market
Even more important in this respect was the staple market (stapelmarkt) itself that helped to manage the risk of price fluctuations. Related instruments were the provision of
The system 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 materials 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).[17] This closeness to a sizable domestic market helped the Amsterdam market perform its price-stabilizing function.
Technological innovations
The explosive growth in
Shipbuilding
The Dutch built one of largest merchant fleet in the world. In the North Sea and Baltic there was little risk of piracy and trips shuttled between markets. In dangerous zones (where the risk of piracy or shipwreck was high) they traveled in convoys with a light guard.
A major technological advance was the design of the Dutch merchant ship known as the fluyt. Unlike rivals, it was not built for possible conversion in wartime to a warship, so it was cheaper to build and carried twice the cargo, and could be handled by a smaller crew. Construction by specialized shipyards using new tools made it half the cost of rival ships. The factors combined to sharply lower the cost of transportation for Dutch merchants, giving them a major competitive advantage.[18]
The ship building district of
Textiles
The explosive growth of the textiles industries in several specialized Dutch cities, like Enschede (woollen cloth), Haarlem (linen), and Amsterdam (silk) 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.[19]
Labor force
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.[20]
Fisheries
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
Art and tulips
During this period the flourishing of Dutch painters 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 making.[22] Its rise illustrates the general boom conditions in the country, like the horticultural developments that laid the basis for the sophisticated tulip farming sector (which had its own speculative bubble, known as the tulip mania). By 1636, the tulip bulb became the fourth leading export product of the Netherlands – after gin, herring and cheese. The price of tulips skyrocketed because of speculation in tulip futures among people who never saw the bulbs. Many men made and lost fortunes overnight, to the consternation of Calvinists who abhorred this artificial frenzy that denied the virtues of moderation, discretion and genuine work.[23]
Wars with Spain and England
The phenomenal growth in trade slowed somewhat in the years after the recommencement of the
The result of worsening trade prospects between 1621 and 1663 was declining profitability, leading to reorientation of investment flows during this period. There was now much more investment in infrastructure, like the trekvaarten, an extensive system of
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 were extensively traded by the Dutch in the 1620s).[25] This trade also occasioned an episode in the industrial development of early-modern Sweden, where arms merchants like Louis de Geer and the Trip brothers invested in iron mines and iron works, an early example of foreign direct investment.[26]
Zenith in 1650s
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 via agricultural specialization). The overall productivity of labor was reflected in the wage level, which was the highest in Europe at the time.[27]
Although it is difficult to quantify concepts such as Gross domestic product 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 percent of that of Britain (with two-and-a-half times the Dutch population).[28] 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).[29]
Retrenchment
This favorable economic constellation came to a rather abrupt end around 1670 as a consequence of two mutually reinforcing
. 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 deflationary tendencies that would last into the 1740s. Because of the tendency of nominal wages to be sticky downward, 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. First, 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 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.)[30] Besides, this type of reorientation in investment was undercut by a third response: outsourcing of industrial production to areas with a lower wage level, like the Generality Lands, which solved the high-wage problem in a different way, but also contributed to deindustrialization 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
The main defensive response of the Dutch economy was in capital investment. The enormous capital stock amassed during the Golden Age was 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), and instead in the direction of other, rather high-risk investments. One of these was the whaling industry in which the Noordsche Compagnie had held a Dutch monopoly in the first half of the century. After its charter expired other companies entered this market, leading 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, a high price elasticity of demand due to substitutability of vegetable oils for whale oil, and the competition of foreign whalers.
Another important venue for investment after 1674 (when the second West India Company was launched, after the bankruptcy of its predecessor) was the
Finally, a major target for investment was the
This lack of profitability characterised all three investment activities just mentioned.
In seeking to escape the limited returns offered by the old economic sectors, investors moved out the
entrepreneurialism was not rewarded with the expected higher long-term rate of return, because the expansion of each sector entailed increased exposure to international competitive forces uncompensated by the market power of the entrepot or the sources of the domestic economy.[32]
The final reaction of the Dutch economic elite (which doubled as the political elite in this
Periwig era: the eighteenth-century economy
Although 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, it was obliged to send troops to England during the
As far as industry and agriculture were concerned, the trends that were set in motion in the transitional period after 1670 continued unabated. The Dutch economy remained a high-real-wage and high-tax economy, which discouraged investment in labor-intensive pursuits. This caused a decline of labor-intensive industries, like the textile industry, and of capital-goods industries like shipbuilding (both suffering from a lack of innovation also, which made it even more difficult to conquer foreign markets). That decline was only partially compensated by the growth of industries requiring proximity to ports, or large inputs of skilled labor (which was still in abundant supply) and fixed capital. The agricultural sector, faced with the same pressures, specialized in two directions: less labor-intensive livestock raising on the one hand, and very labor-intensive industrial crop production on the other. Trade shifted from the intra-European "mother trade" serving the Baltic and the Mediterranean to intercontinental trade (colonial wares) and distribution to the German hinterland (which was now a rising market again, after finally recovering from the ravages of the Thirty Years' War). Trade changed in other respects also: shipping became more of a service industry, offering shipping services to merchants of other countries. Trade-related financial services shifted from direct financing to acceptance credit.[37]
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.[38]
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 18th century, was held by a small percentage of the Dutch population (there was hardly any
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
The Dutch balance of payments was in surplus most of the time, because a small deficit on the current account (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" 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.[42]
Although compared to the boom years of the Golden Age the 18th-century Dutch economy looked less attractive (which earned this epoch the disdainful epithet "
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 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.[44]
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 distributional 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.[45]
Final crisis
After 1780, a new conjuncture of internal and external conditions conspired to drive the economy and political structure of the Republic to crisis. The
Attempts at political reform (and attendant reform of the derelict system of public finance) by the
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. 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).[47] 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)[48] 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.
In the long period of crisis, disinvestments from the commercial and industrial sectors (in the face of unprofitability, high risks, taxation, and forced lending) and the destruction of asset value through foreign and domestic default undermined the remaining international stature of the commercial and financial sectors. Domestically, the disruption of institutions and the irregular access to markets plunged the once-protected sectors of employment ... into a crisis that tore at the venerable structure of the labor market and overwhelmed the Republic's charitable system. This crisis hit hardest in the cities of Holland and Zeeland, which lost 10 percent of their population between 1795 and 1815 ...Deurbanization, re-agriculturalization, and pauperization dominated the final days of this economy.[49]
It is therefore fitting to see the year 1815, in which the United Kingdom of the Netherlands 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.[50]
References
- ^ Israel, The Dutch Republic, pp. 29–35
- ^ Israel, The Dutch Republic, pp. 9–21
- ^ Israel, The Dutch Republic, p. 14
- ^ De Vries and Van der Woude, p. 27
- ^ De Vries and Van der Woude, pp. 37–38
- ^ a b De Vries and Van der Woude, p. 666
- ^ De Vries and Van der Woude, pp. 243–44, 666
- ^ Israel, The Dutch Republic, pp. 169–241
- ^ De Vries and Van der Woude, p. 667
- ^ De Vries and Van der Woude, pp. 670, 690–92
- ^ De Vries and Van der Woude, p. 668
- ISBN 9781107507180.
- ^ Charles R. Boxer, The Dutch Seaborne Empire 1600–1800 (1965)
- ISBN 9789057420016. Archivedfrom the original on 2016-07-23. Retrieved 2016-10-14.
- ISBN 9780670063208. Archivedfrom the original on 2016-05-27. Retrieved 2016-10-14.
- ^ De Vries and Van der Woude, pp. 690–93.
- ^ De Vries and Van der Woude, p. 671
- ^ Jan de Vries (1976). The Economy of Europe in an Age of Crisis, 1600–1750. Cambridge University Press. pp. 117–18. Archived from the original on 2017-04-01. Retrieved 2016-10-14.
- ^ De Vries and Van der Woude, pp. 279–95
- ^ De Vries and Van der Woude, pp. 668–72
- ^ De Vries and Van der Woude, pp. 243–48
- ^ De Vries and Van der Woude, pp. 342–43
- ^ Simon Schama, The Embarrassment of Riches: An Interpretation of Dutch Culture in the Golden Age (1997) pp 350–66 esp p. 362
- ^ De Vries and Van der Woude, p. 672
- ISBN 90-6707-413-6
- ^ De Vries and Van der Woude, pp. 141, 378–79
- ^ De Vries and Van der Woude, pp. 672–73
- ^ The preponderance of the Dutch population lived in two provinces, Holland and Zeeland. This area experienced a population explosion between 1500 and 1650, with a growth from 350,000 to 1,000,000 inhabitants. Thereafter the growth leveled off, so that the population of the whole country remained at the 2 million level throughout the 18th century; De Vries and Van der Woude, pp. 51–52
- ^ De Vries and Van der Woude, p. 710
- ^ De Vries and Van der Woude, pp. 345–48
- ^ De Vries and Van der Woude, pp. 673–78
- ^ De Vries and Van der Woude, pp. 678–79.
- ^ Jonathan I, Israel, "The Dutch Role in the Glorious Revolution" in: The Anglo-Dutch Moment. Essays on the Glorious Revolution and its world impact, Cambridge University Press, (1991) pp. 116–20
- Asiento, which the Dutch had held previously.
- ^ De Vries and Van der Woude, pp. 679–80.
- ^ Israel, The Dutch Republic, pp. 975, 985–88
- ^ De Vries and Van der Woude, pp. 154–56
- ^ De Vries and Van der Woude, pp. 249–54
- ^ De Vries and Van der Woude, pp. 681–82
- ISBN 0-06-095466-3, pp. 374–75
- ^ De Vries and Van der Woude, pp. 139–47
- ^ De Vries and Van der Woude, pp. 681–83
- ^ De Vries and Van der Woude, p. 146
- ^ De Vries and Van der Woude, pp. 699–710
- ^ De Vries and Van der Woude, pp. 683–85
- ^ Schama, pp. 64–138
- ^ De Vries and Van der Woude, p. 685
- ^ Schama, pp. 494–524
- ^ De Vries and Van der Woude, p. 686
- ^ De Vries and Van der Woude, p. 687
Further reading
- de Vries, Johan. "Benelux, 1920–1970", in C. M. Cipolla, ed. The Fontana Economic History of Europe: Contemporary Economics Part One (1976) pp. 1–71
- Dhondt, Jan, and Marinette Bruwier in Carlo Cipolla, The Emergence of Industrial Societies-1 (Fontana, 1970) pp. 329–55
- Houtte, J. A. Van. "Economic Development of Belgium and the Netherlands from the Beginning of the Modern Era", Journal of European Economic History(1972), 1:100–20
- ISBN 0-19-820734-4 paperback; online edition
- Mokyr, Joel. "The Industrial Revolution in the Low Countries in the First Half of the Nineteenth Century: A Comparative Case Study", Journal of Economic History (1974) 34#2 pp. 365–99 in JSTOR
- Mokyr, J. Industrialization in the Low Countries, 1795–1850 (New Haven, 1976).
- Parthesius, Robert. (2010) Dutch Ships in Tropical Waters: The Development of the Dutch East India Company (VOC) Shipping Network in Asia, 1595–1660 (Amsterdam University Press, 2010). 217 pp.
- ISBN 0-679-72949-6
- The Embarrassment of Riches: An Interpretation of Dutch Culture in the Golden Age(1997)
- Vries, J. de, and Woude, A. van der. (1997), The First Modern Economy. Success, Failure, and Perseverance of the Dutch Economy, 1500–1815, Cambridge University Press, ISBN 978-0-521-57825-7
- Riel, Arthur van. "Review: Rethinking the Economic History of the Dutch Republic: The Rise and Decline of Economic Modernity Before the Advent of Industrialized Growth Nederland 1500–1815..." Journal of Economic History (1996) 56#1 pp. 223–29 in JSTOR, review