8.3: The Netherlands

In the late 16th century, the Dutch rebelled against Spain, and began to look to revenue generated from trade as an economic lifeline. Strategically located, they worked as the middlemen in European commerce, shipping and selling things like timber from Russia, textiles from England, and wine from Germany, as well as increasingly serving as Europe’s bankers. The Dutch invented both formalized currency exchange and the stock market. Over time, Dutch commercial power replaced northern Italy as the heart of European trade.

In 1602, with the support of the state, Dutch merchants created the world's first corporation: the Dutch East India Company (VOC in its Dutch acronym). It was created to serve as the republic's official trading company, with a legal monopoly to trade with India and Southeast Asia. The VOC proved phenomenally successful in pushing out other European merchants in the Indies, through a combination of brute force and the careful deployment of legal strategies. A common approach was to offer “protection” from the supposedly more rapacious European powers like Portugal in return for trade monopolies from spice-producing regions. In many cases, the VOC simply used the promise of protection as a smokescreen for seizing complete control of a given area (especially in Indonesia, which eventually became a Dutch colony). Meanwhile, in other areas, local rulers remained in political control but lost power over their own spice production and trade. For the better part of the seventeenth century, the Dutch controlled an enormous amount of the hugely profitable trade in luxury goods and spices from the East Indies.

Figure 8.3.1: An early stock certificate from the VOC.

The Dutch merchants and investors received concomitantly high profits. As an example, all stockholders in the VOC received dividends of 30% on their investments within the first ten years, in addition to a dramatic boost in the value of the stocks themselves. Other states of Europe were both aghast at Dutch success and grudgingly admired it. In 1601, there were 100 more Dutch ships in the port of London at any given time than there were English ships. By 1620, about half of all European merchant vessels were Dutch.

In 1652, the Dutch seized control of the Cape of Good Hope at the southern tip of Africa. This location provided control of all shipping going around Africa en route to Asia. In addition, they exerted additional military force in the Indies to force native merchants to trade only with them (among Europeans). This Dutch takeover of the Cape of Good Hope was the historical origin of the modern nation of South Africa – these were the first permanent European settlers. The Dutch were also the only European power allowed to keep a small trading colony in Japan, which was otherwise completely cut off to westerners after a failed Portuguese-sponsored Christian uprising against the Japanese shogun.

The iconic moment of the Dutch golden age of early capitalism was the tulip craze of the 1620s – 1630s. Tulips grow well in the Netherlands and had long been cultivated by European elites. A tulip fad among Dutch elites drove up the price of tulip bulbs dramatically. Soon, enterprising merchants started buying and selling bulbs with no intention of planting them or even selling them to someone who would. They simply traded the bulbs as a valuable commodity for themselves.

In 1625, one bulb was sold for 5,000 guilders, about half the cost of a mansion in Amsterdam. The height of the craze was the winter of 1636 – 1637, when individual bulbs sometimes changed hands ten times a day for increasing profits. This idea of “flipping” bulbs had nothing to do with the actual tulips any longer. The Dutch moneyed classes were already embracing speculative market economies, in which the value of a given commodity has almost nothing to do with what it does. Rather, its value is measured by what people are willing to spend on it. In capitalist economies, this phenomenon often leads to "bubbles" of rising values that eventually collapse. The tulip craze did indeed come crashing down in the winter of 1637 - 1638, but in the meantime, it presaged the emergence of commodity speculation for centuries to come.

Early forms of capitalism spread out from the Netherlands. One by one, the other major states of Europe started to adopt Dutch methods of managing finances: sophisticated accounting, carefully organized tax policy, and an emphasis on hands-on knowledge of finances up to the highest levels of royal government. For example, Louis XIV insisted that his son study political economy, and his Minister of Finance Colbert wrote detailed instructions on how a king should oversee state finances. Ultimately, at least among some kings and nobles in Western Europe, humanistic education and the traditional martial values of the nobility were combined with practical knowledge, or at least appreciation, of mercantile techniques.

Figure 8.3.2: One of the many self-portraits of the Dutch master Rembrandt, the most prominent painter associated with the golden age of Dutch culture in the seventeenth century.

When the Netherlands was dragged into the wars initiated by Louis XIV toward the end of the seventeenth century, it spelled the beginning of the end of its dominance. However, the Netherlands has remained a resolutely prosperous country to this day.