Afterglow or Adjustment? Domestic Institutions and Responses to Overstretch

Mark R. Brawley

Columbia University Press

1998

4. Institutional Innovation and Ineffective Liberal Leadership: The Bank of Amsterdam and the Stadholderate

 

In this chapter, I consider the role of monetary and military institutions in an earlier attempt to construct an open economic subsystem, that of the Dutch Republic in the seventeenth and eighteenth centuries. Rather than adapting an existing domestic currency for international use, Dutch authorities attempted to create completely new monies as international media of exchange. To achieve these ends, the Dutch Republic enacted various currency reforms. In their decentralized political system, these efforts largely failed. One part of these reforms provided the base for some enhancement of Dutch international economic activities: the establishment of the Bank of Amsterdam. This institution was not a true central bank, however, for it lacked complete control over domestic currencies, of which there were several. The failure of the monetary reforms is precisely what makes the case so interesting—having failed to control the domestic monetary system, the Bank could not provide an international medium of exchange in the same sort of way the Bank of England or the Fed would in later times. Such failures naturally precluded a currency overhang from occurring in the same way.

This chapter is also the first in which I analyze an institution of military command. In order to win their independence from Spain, the seven provinces that formed the Dutch confederation had to coordinate their efforts. They did so by adapting an existing institution to serve as the strategizing military command. The stadholderate combined past practices of local and foreign rule, military command and political leadership, and formal and informal practices. The role of the stadholder is thus harder to define and describe than the roles of the central banks described in the previous chapters. Moreover, the stadholderate was more an office than an institution; the role of the stadholder at any one point in time thus also reflected the personality of the man who held the office. ₁ The case of the stadholderate underlines several aspects of the discussion about the Bank of Amsterdam, such as the powerful influence of regional interests within the decentralized Dutch confederation. It also highlights important factors to be seen in the examples of other institutions of military command. As in the cases presented in the following two chapters, we see a distrust of the military leadership by the civilian authorities, a distrust that in this case grew from the very credible threat the stadholder posed to the civil authorities. Open conflict erupted more than once, and as a result, during two long stretches of time the stadholderate was left unfilled.

Both the Bank of Amsterdam and the stadholderate had much more limited success in supporting international leadership than the institutions discussed elsewhere in this book. The Bank of Amsterdam failed in its initial attempts to create an international money, though it eventually succeeded in creating a credible alternative almost by accident, by internalizing international transactions. This would profoundly shape the type of monetary overhang the Dutch Republic suffered. Because the Bank of Amsterdam employed a unit of account on its books which fluctuated in value differently from coins in circulation, the Bank was able to separate control over this internal money from that used in the rest of the economy. Moreover, the Bank of Amsterdam’s limitations altered the ways in which it could respond to problems associated with the Dutch Republic’s relative economic decline. The stadholder, on the other hand, was given extraordinary powers in times of emergency, and rose to meet great challenges in the wars against Louis XIV’s France. The best known stadholder of all, William III, proved to be a great military and political leader; his successors were less impressive, and the battles between the stadholder and republican officials during the Netherlands’ long economic decline in the 1700s did little to promote the country’s foreign policy. To begin both stories, we must first consider the factors behind the creation of these institutions—those domestic interests pushing the Dutch towards policies of liberal leadership.

 

Forces Behind Dutch Ascendance to Liberal Leadership

At the end of the sixteenth century, the Dutch republic was securing its independence from Spain in a long drawn out war. While this war had its origins in religious, political, and economic differences, some of the most important factors were disputes over the attempts by the Hapsburg rulers to overturn local practices. The stadholder was naturally involved in these disputes. The institution of the stadholder (stadhouder, in Dutch) harkened back to a period before the war’s onset. Roughly translated, the term originally referred to a governor or local representative of the sovereign. The stadholder had been the lieutenant or governor representing the Burgundian dukes who ruled the Netherlands. As such, however, the stadholder was expected to serve as a two-way conduit of communication between the locality and the ruler. The stadholder was traditionally a local notable who commanded the area’s forces. ₂

Once the Dutch rebellion broke out, local authorities of two provinces (the States of Holland and Zeeland) asked William Prince of Orange to be their governor or regent. The authorities granted him complete control of their military affairs and military administration. Financial backing was also included, though importantly the States retained the power of taxation. By an Act of Federation, April 25, 1576, the Estates of Holland and Zeeland laid the basis for a common defense, which was extended to the other rebellious provinces to form the basis of the Dutch Republic in 1579 (referred to as the Union of Utrecht). ₃ The other provinces, however, did not appoint William their stadholder; William reportedly noted that in the negotiations of the Union of Utrecht, “It seems that the deputies representing the different States have been sent rather to excuse the provinces, their masters, and to act as attorneys in advancing their parochial interests, than to work for the welfare of the commonwealth.” ₄

From the very beginning then, the relationship between the stadholder and the provinces would be complex and confusing. Juridically, stadholders were servants of the provinces. Yet they were selected to serve as leaders. While Thomas Jefferson would later describe them as “half-kings,” they lacked the all important claim to sovereignty—as stadholders that is. The Princes of Orange who served as stadholders were sovereign over their own principality. ₅ It was this combined aspect of their personal powers which made them attractive to the Dutch as leaders, but which also often put them in a position of speaking one way as a Prince, and another as a stadholder.

Stadholders exercised influence over municipal and provincial politics through a combination of military and political activities. At the extreme, when named captain-general of the United Provinces’ forces, a stadholder had the potential to intervene in political affairs militarily—though at great risk, since this would threaten a constitutional conflict and civil war. More subtly, the stadholders could exercise influence in local politics. Often, the provincial stadholder could select nominations for town officials from lists, allowing him to deliver patronage. The Princes of Orange (as stadholders) also drew some benefits from their control over the “Generality” lands, which could be used for political purposes as well. (These lands were territory seized by the Dutch from the Spanish in the long war of independence, territory which had not previously belonged to any rebellious province. Technically this land was controlled by the States-General, hence the title “Generality,” but the lands needed some sort of administrative authority, and the Princes of Orange received that power in their role as stadholder. ₆ )

As stadholder, William I (or William the Silent as he is also known) led the Dutch revolt against Spain. He was the most prominent member of the Dutch nobility. The nobility was spread out across the provinces, albeit unevenly; yet no matter which province the nobility was from, it shared an interest in resisting centralized rule from Spain. The more common man was much more likely to be driven by municipal or provincial interests, and was much more willing to try to strike out for very local independence. Time would push the provinces together, but William I would be the best placed individual to become a leader with nation-wide appeal.

In 1572, William asked for the States of Holland (i.e., the assembly of the province of Holland) to meet. He wanted to ask for their financial support in conducting the war against Spain. Previously he had led armies against Spain largely through personal expenditures, but by 1572 his personal wealth was drying up; he now turned to the provincial government for funds. Holland would back his military activity, by “acknowledging” him as stadholder that year. ₇ A few years later (as mentioned above), Holland and Zeeland would combine their efforts, with William at the helm.

The language employed in 1572 is quite interesting. Acknowledgement or recognition meant the States of Holland were saying that William was stadholder: the true representative of the Spanish monarch’s interests (rather than the local Spanish commander). The authorities in Holland were trying to distinguish between the monarch and his lieutenants; they were saying their enemy was the local Spanish military governor, not the King of Spain. By 1574, the language used had changed. In that year, the States of Holland conferred powers on William I. Here it is more certain that the States of Holland were thinking about themselves as the sovereign political authority, instead of the King of Spain. William accepted the States of Holland’s position because he needed financial support right away. ₈

He proved to be a good commander and an excellent politician, but his life was cut short. In 1584, William was assassinated; his heir, Maurice of Nassau, was only 17 years old. Since the stadholderate was an elected rather than a hereditary post, different provinces chose different stadholders. A cousin of William’s was named stadholder in Friesland. Gelderland, Overijssel, and Utrecht named an experienced military officer to be their stadholder. Maurice was not left out, however. The States-General (the federal legislature) formed a Council of State, on which Maurice was given a seat. Within a year, Maurice was named stadholder in Holland and Zeeland, the two richest provinces.

This transition serves to underscore the ill-defined role of the stadholder. First, Maurice was clearly elected to the position—he did not inherit it. He was a servant of the States-General. Maurice was too young and inexperienced to be trusted with high command during wartime, so even though he was named stadholder, a military commander was also chosen to serve alongside him. Maurice’s role was intended to be much more political, to handle alliance relations; Maurice was needed to act as a counter to the commander of English troops being sent to assist the Dutch. ₉ Maurice eventually learned military skills through practice. He became especially adept at siege-warfare. Yet his strategic calculations were always made in close consultation with the States-General or the Council of State. They helped select the target of Maurice’s campaigns, and sent deputations into the field with him to monitor command decisions. Apparently, Maurice worked well with the representatives sent to oversee and guide his military activities. ₁₀

Some of the earliest disputes between the stadholder and the politicians occurred in this time however. The principal politician in the States of Holland was the Grand (or councilar) Pensionary. The term pensionary was a literal reference to the fact that this office was a salaried post. The earlier term for the position was “land’s advocate,” when this official was the legal adviser to the States of Holland. (The title “land’s advocate” was officially abolished in 1651.) The Grand Pensionary’s real duty was to preside over “Their Noble Great Mightinesses,” the States of Holland (i.e. the province of Holland’s legislature). He set questions on the agenda, recorded the debates, and developed the States’ conclusions (i.e. he wrote the opinion of the majority). This clearly gave him procedural powers over the outcome of decisions, but his power was even stronger. By influencing the debates, he could direct Holland’s finances—giving him indirect control over the United Provinces’ finances. This in turn gave him the potential to influence military decisions. ₁₁ He could also wield considerable resources via patronage.

In the early 1600s, the Grand Pensionary sought to defend provincial autonomy, yet the provinces needed to cooperate in order to survive in their struggle against Spain. As J. Oldenbarnevelt, who held the post of Grand Pensionary of Holland, remarked in 1607:

The United Provinces are not a republic, but seven individual provinces, each of which has its own form of government, and they have nothing in common but that they are by contract bound to aid one another in mutual defence. Therefore, when there is no danger of an attack from without, this government will fall into absolute anarchy and disorder through mutual jealousy and general indifference, and herein lies one of our weakest points, where the enemy may attack us. If we have not a government with sufficient authority to rule the country, to keep together the provinces and towns in perfect unity; if we have not a government which has authority to force those who resist to fulfill their obligations without having to wait for the consent of provinces and towns, we must be destroyed. If we have first to convince the individual provinces of the machinations of an enemy, and then to prove to them that vigorous preparations for defense are necessary, many towns will be taken before a decision is arrived at.

Yet even having uttered these words, Oldenbarnevelt resisted the efforts to centralize authority in the hands of Prince Maurice. As the top representative of the province of Holland, Oldenbarnevelt fought to protect provincial powers. Once the threat from Spain receded, Oldenbarnevelt’s support for centralization also declined. ₁₂

While the stadholder and the provincial authorities distrusted each other over issues of centralization, they also became entangled over religious issues. In 1603, two theologians, Gomarus and Arminius, disagreed over interpretations of Calvinism. Their dispute spilled over into political debates. Gomarists were more orthodox, conservative, and tended to be pro-Orange. Arminians were innovators, and more typically allied with municipal authorities and the regents. In the first years of this dispute, tempers were cooled by the ongoing war with Spain. But a truce allowed tempers to flare. When violence erupted, the Arminians appealed to local authorities to call out the militia and restore order. The Gomarists would then ask the Generality’s Council of State for troops loyal to the Prince to restore order (i.e., to force the militia off the streets). Thus the dispute prompted an overt constitutional struggle between the provincial authorities and the stadholder. ₁₃

Prince Maurice moved to resolve the religious dispute by calling for a national synod. The Arminian clergy opposed this action, knowing they would likely be overwhelmed by their opponents. The Province of Holland, led by Oldenbarnevelt, rejected Maurice’s call in a resolution passed August 4, 1617. Both sides began levying troops, and arming them. ₁₄ One important facet of the disputes centered on the chain-of-command over the different types of soldiers in the United Provinces. There were regular troops, but also municipal or civic guards (schutterijen), and sheriffs (schouts). The municipal guards and sheriffs tended to owe allegiance only to local authorities. ₁₅ It is perhaps not surprising that civil strife during wartime would spark such a contest over control of the armed forces.

During the last months of 1617 and early 1618, the Prince of Orange’s troops took possession of the towns supporting the Arminian cause. Oldenbarnevelt was arrested, along with other leading political figures in Holland. They were found guilty of trying to break up the confederation, and Oldenbarnevelt was beheaded. ₁₆ It would seem that the stadholder had ascended to a powerful position—yet this was not the case. While this particular dispute was resolved, the constitution was not altered. Maurice did not attempt to make himself monarch. No measures were even taken to prevent a similar dispute from occurring again.

The next stadholder of importance also did not alter the constitutional structure, either. Technically, Frederick Henry was Admiral-General as well as Captain-General. But like most other stadholders before and after him, he took little part in the direction of naval campaigns. Those were left up to the Admiralties of the port cities and seaward provinces. ₁₇ Frederick Henry worked with the States-General through a secret committee for foreign affairs (Secreet Besogne). This committee, formalized in 1634 and empowered to act in the name of the States-General, was much more effective as a policymaking body because it could act decisively when necessary. Previously, decisions made in the States-General could not be made swiftly because delegates had to refer back to local constituencies. The Secreet Besogne could take decisions and bypass the complicated system of referrals. ₁₈ Decisionmaking was improved, but many of the underlying questions about the untangling of channels of authority remained unanswered. Skillful politicians could manipulate most situations. Flexibility might be an advantage gained by leaving the constitutional structure ambiguous, but it came at a price. During wartime, all sides in disputes generally chose to work together; the flexibility was not a problem. Peace and the lessening of external threats would change attitudes, making the constitutional haziness the source of severe problems.

 

Economic Changes and the Republic in Peace

Success in the rebellion from Spain allowed the republican institutions to survive and flourish; domestically the political institutions allowed for competition among capitalists from both capital-intensive and labor-intensive sectors (and in some parts of the Netherlands to noncapitalists as well). Dutch victory in its war of independence over the leading military power of the day confirmed the rise of this small country as a military power. More importantly, this and other wars ravaging Europe at this time tended to concentrate capital in the urban centers of the Dutch Republic. ₁₉

The state in the Dutch Republic was sensitive to domestic political pressures, with representative bodies deliberating at several layers of the political system, from the confederal level down through the provincial level, on down to individual municipalities. ₂₀ The main federal body, the States-General, was a representative body consisting of delegates from the seven provinces. The province of Holland was able to dominate the States-General indirectly, not through the number of delegates the province held so much as through the large contributions Holland made to the federal budget. Within the provincial government of Holland, the same pattern was played out, with the city of Amsterdam able to dominate provincial politics, as it alone provided half the province’s funds. ₂₁ Although the Dutch system was not democratic, the sensitivity of state institutions to a number of economic sectors through domestic political competition and representation could be astonishingly high—as when major decisions in the States-General were delayed so that representatives could confer with their lower level governments. ₂₂

In the area of foreign policy the States-General and the stadholder shared control in the early 1600s. The States-General chose the Captain-General and the Admiral-General. It usually sent a deputation with any army in the field to ensure that its directives were followed. The Grand Pensionary of Holland and the stadholder both conducted foreign policy—and not always in a coordinated fashion, though the Secreet Besogne created a mechanism for coordination. Ultimately, money for the army came from either municipal and provincial governments directly, or through the States-General; it was in this manner that the Grand Pensionary of the States of Holland could exercise power. Maritime affairs were largely handled by the separate Admiralty Colleges located in port cities. These raised their own funds, again mostly through municipal or provincial channels. ₂₃

As noted earlier, the war of independence from Spain concentrated capital in the Netherlands. The successful blockade of the Scheldt during the war eliminated Amsterdam’s long-time commercial rival: Antwerp. ₂₄ Refugees from the Southern Netherlands, where the fighting had been fierce and where Spain was able to reassert political control, resettled in the North. By 1622 one-third of Amsterdam’s inhabitants were immigrants. Most of the new immigrants were skilled workers or merchants, who brought investment capital with them. ₂₅ Dutch capital abundance in the seventeenth century is easily identified in the large amounts and varied pieces of evidence showing the continual decline in interest rates and the rise of wages throughout this period. ₂₆

The growing relative abundance in capital produced the domestic interests for pursuing liberal leadership, which were expressed and then responded to by the state because of the domestic political milieu. As the Dutch grew more abundant in capital, the domestic returns to capital fell; higher returns were available internationally. The rising sectors of the Dutch economy at this time were commerce (often relying on large capital outlays, as well as capital exports to balance out trade), shipbuilding, and warehousing (both serviced the merchants and required long-term fixed capital investment), and banking (which was involved in the export of capital itself).

The shift to liberal leadership occurred as the state responded to the demands of these internationally oriented sectors. The capital-intensive sectors became increasingly involved in international trade, as shippers and merchants made large profits by buying grain and other bulky raw materials in the Baltic, salt and wine from France and Portugal, and wool from England, in exchange for more finished products such as textiles. This trade was further balanced by exporting capital in the form of bullion. To increase their returns, these sectors of the Dutch economy lobbied the state to provide services such as opening up new markets, keeping trade routes open, forcing other countries’ tariffs down (in an era when mercantilist policies aimed at the Dutch were rife), and protecting established trade (from pirates and greedy monarchs).

 

Problems in Monetary Affairs

In the realm of finance, the new situation created not only a new set of demands but also a new set of problems. There had always been a need for coins acceptable in foreign lands to support trade transactions (the negotie-penningen), but the domestic monetary system tolerated a wide variety of coins with fluctuating values. This was a holdover from the period of the war with Spain, when political authority had been extremely fragmented. Foreign coins were also in circulation, for they were often of higher quality and consistency than those produced locally. The growth of international trade meant Dutch shippers and merchants desired a stable, widely accepted medium of exchange. ₂₇ A stable currency would reduce the level of uncertainty in international economic negotiations, making international deals easier to arrange. Yet these problems were difficult to address because of the monetary confusion within the Dutch Republic itself.

The problems with the currency could be broken down into two related issues. On the one hand, monetary confusion reigned inside the Netherlands because so many different currencies were in circulation; while this difficulty was not unmanageable (indeed it opened the door for speculators and exchange experts to make profits), it greatly worsened the second problem—continual debasement of all coins. The competition between coins, and the lack of an effective regulatory control over minting within the Republic, created the incentives to carry out debasement or counterfeiting. These problems prevented the creation of an acceptable international money.

The great number of currencies in circulation in the United Provinces was a measure of that country’s success in international trade. Trade drew in currencies from all over the world which then circulated domestically. Manuals issued to moneychangers in 1603, to aid them in identifying coins and to establish stable exchange prices, contained illustrations of some 120 silver and 380 gold coins, with written descriptions of still more. The 1606 manual was even more extensive. ₂₈ The true value or quality of foreign coins could not be controlled, as these were minted outside the Republic’s jurisdiction. The manuals provided guidelines on the values of particular coins, but without any methods of enforcement, exchange rates failed to stabilize.

The obvious problem with so many coins in circulation, and so little authority governing their quality, was a tendency to have liquidity rise and undermine confidence in the money. The solution the Dutch authorities preferred was to outlaw the use of foreign coins in domestic transactions, remove them from circulation, and then use the metal from these to mint their own coins (whose quality they could regulate). The new coins would then be produced at a consistently high level of quality, so as to meet the needs of the international merchants. The policy looked promising, since it would eliminate the problems of so much foreign currency in circulation and use the resources thereby raised to develop better coins. Yet this approach would necessitate confronting two critical problems head on—controlling the inflow of currency and regulating the actions of individual mints.

 

How the Mints Posed a Monetary Problem

Unfortunately, the political decentralization of the Dutch Republic complicated matters, for no province was willing to give up its right to mint coins. Such a right was considered a symbol of the province’s ultimate sovereignty. No doubt the profits derived from minting (seignorage, or what the Dutch called sleeschat) also played a role in the provinces’ decisions. This left fourteen mints operating domestically (one in each of the seven provinces, as well as seven others allowed to exercise traditional rights). Although the authorities managed to reach an agreement among the mints to produce a single type of coin with a uniform high quality (designed specifically to satisfy the demands of the international merchants) in 1579, the mints remained in competition with each other, as well as with foreign issuers of currency. ₂₉

The principal source of the problems associated with leaving the mints in competition came from seigniorage. Seigniorage is measured by the difference between the value of the bullion in the coin and the coin’s nominal value. Foreign coins may not have been attractive because of the inconsistency in their value. The Dutch had gone through a number of experiences when they first accepted a foreign coin as good quality because it in fact contained a large amount of bullion. Once the coin was widely accepted, the issuer had an incentive to begin to debase its value (i.e., reduce the bullion each coin contained), so that the coin no longer deserved a high nominal value. In the time before the realization of this fall in actual value, the issuer captured large profits. Foreign rulers (especially monarchs, who tended to exercise monopolistic control over their mints) could increase their seigniorage by introducing new coins of value, but then manipulating their quality.

Competition between the Dutch mints produced a similar pattern of activity. Although each mint had agreed in the Union of Utrecht in 1579 to produce certain types of coins with uniform amounts of metal in each, every mint had an incentive to debase the coins it was producing—minting more coins out of less bullion. If the other mints adhered to the agreement and used the correct amount of bullion, all coins would be accepted at or near their intended nominal value, allowing the mint which debased the most to capture the greatest profits. The competitive pressures encouraged debasement by all; since the mints were also in competition for purchasing the bullion that went into the coins, the competitive pressures seemed even stronger. ₃₀ The result was rapid debasement of domestically produced coins.

With this constant monetary confusion, corrupt practices became widespread: coins tended to be “clipped” (i.e., debased not by the issuer, but by those who handled them, by having part of their weight removed), illegal (in circulation despite attempts by authorities to prohibit their use), or even counterfeit. The authorities’ initial action (repeated in 1603 and again in 1605) was to manufacture and then introduce into circulation a new set of high-quality coins (whose production was to be tightly regulated to prevent debasement). In fact, since the mass of money in circulation was still of low quality, when these new coins were released they tended to be snatched up and remelted, or rapidly exported out of the country by the international merchants who required a highly valued currency. ₃₁ Since the goal had been to replace the existing currency, these efforts were deemed failures, and new measures applied.

 

Rival Institutions and the Creation of an Exchange Bank

Although the newly emerging capital-intensive internationally oriented mercantile sectors wanted to develop new coins, older institutions blocked or prevented them from changing the situation. The private institutions which had long handled currency exchange—the moneychangers known as kassierderij, or cashiers—had long followed the practice (called bicquetteeren) of selecting out and then holding back the heaviest, full-weight, high-quality coins, since they could profit the most by having these remelted into other debased coins, or they could at least hold on to the best coins to manipulate the market by forcing demand even higher. In opposition to the kassierderij and the existing money market arrangements stood the trading and merchant sectors. These increasingly important sectors wanted currency stability to reduce the risks in trade (and in international investment, though this mattered much less at this time) by reducing currency fluctuations. Such fluctuations made it difficult to use money in transactions that involved a long time frame, or in transactions between geographically dispersed regions.

The merchant interests were most heavily concentrated in the urban ports, and in the fragmented political system of the Dutch Republic it was here that government authorities first responded to their pressures. The municipal government of Amsterdam acted first, and was soon followed afterward by Rotterdam and other major port cities. In such places, it was understood that the broader community’s economic health was tied up with those of the exporters and merchants, either directly or indirectly. As the largest urban center in a resource-poor country, it was obvious that the city relied on imports, not only to feed itself, but also for raw materials consumed in most economic activities—such as lumber, pitch, tar, wool, and linen. Also, the city authorities clearly understood that the municipal revenues would grow if the merchant and export sectors continued to expand. A wealthier citizenry meant a larger tax-base.

The Amsterdam municipal government’s institutional innovation to answer the currency problems was the Exchange Bank of Amsterdam (Wisselbank van Amsterdam), established in 1609. This Bank’s primary task was to aid in the enforcement of the federal minting ordinances. The authorizations establishing the Bank emphasize two goals: ending the monetary confusion and supplying the merchants with good trade coins. The Bank would achieve these goals by receiving money on deposit, handling the transfer of funds, clearing bills of exchange, exchanging money, and purchasing both bullion and noncurrent coins (that is, those coins prohibited from circulation by legal decree). The bullion and noncirculating coins were to be turned over to the mints, where they could be transformed into new high-quality coins the trading community could use. Deposits in the Bank could not be attached, and the municipal government guaranteed the security of the deposits. ₃₂ While the Bank of Amsterdam was not a true central bank because it could not control the supply of currency and credit, it did enjoy certain privileges we would associate with a government’s central monetary authority.

In order to end the monetary confusion, the privileges of the older institutions were curtailed. The private moneychangers and cashiers had their activities within the city of Amsterdam prohibited, in order to give the Bank a monopoly over certain transactions. One regulation also required that all merchants using large bills of exchange (those worth 100 pounds flemish, equivalent to 600 guilders, or more) had to be drawn on the Bank, so that large transactions would be concentrated there. (Cash could still be used in transactions of any amount.) ₃₃ The prohibition against private moneychangers and cashiers was relaxed relatively quickly. Instead, the security, size, and reputation the Bank gained during its period of monopoly allowed it to compete quite effectively even after the moneychangers and cashiers returned.

It was hoped the Bank would support the ending of the monetary confusion and also support the production of good trade coins by helping to control the competition between the domestic mints. Regulations were to force much of the foreign currency and all of the bullion entering Amsterdam into the Bank, which would then share out these materials with the mints. In this way, the Bank’s monopolistic position would be used to reduce the competitive pressures between the mints by preventing them from bidding against each other for their main inputs (although the exchange banks in the different ports would still compete against each other).

Once in operation, the Bank achieved few of its intended goals. At the time the Bank was created, the Netherlands tried to mint and introduce into circulation two good, heavy silver coins for international purposes: the rijksdaalder and the leeuwdaalder. Each was specifically designed to appeal to a particular foreign audience. The rijksdaalder was based on a popular set of German coins called reichsthalers. When first created its exchange rate was set at 47 stuivers, but this was increased to 48 in 1608, and then again to 50 in 1619. Due to its similarity to the German coins and its high quality, the rijksdaalder was a popular coin throughout the Baltic, which was a key market for Dutch merchants.

The other important silver coin, the leeuwdaalder, was a copy of a widely demanded Spanish coin. It had been first minted by the province of Holland in 1575, with the Spanish royal designs replaced by a lion, hence its name in Dutch—the lion dollar. The leeuwdaalder’s value was originally set at 38 stuivers, but this was raised to 40 in 1615. The leeuwdaalder was most popular in the Levant, where Spanish-style coins had predominated for many years. Thus each of the new heavy coins created by the Netherlands at this time was designed to supplant specific foreign coins in international markets. ₃₄

The fiercest competition for these new coins were two others already widely circulating domestically: the ducaton and the kruisdaalder, both silver coins produced in the nearby Southern Netherlands. Minting ordinances in 1622 forbade the use of the ducaton, and set the exchange rate for the kruisdaalder at 47 stuivers (even though it was trading at 50 at the time). ₃₅ Because of the heavy flow of silver from the New World into Europe via Spain, the ratio of coins in circulation changed. The Southern Netherlands were still in Spanish hands, and with access to Spanish silver they continued to produce coins at a high rate. The exchange rates of the rijksdaalder and leeuwdaalder relative to the ducaton and kruisdaalder were pushed up, despite the authorities’ attempts to control them. In order to keep the rijksdaalder in circulation within the Republic, in 1638 its exchange rate was set at a lower level than its true value merited. Despite these efforts, the better coins were chased out of circulation as Gresham’s Law would predict, as rijksdaalders and leeuwdaalders were withdrawn from domestic circulation or even exported. Some were apparently taken to the Southern Netherlands and reminted into ducatons or kruisdaalders.

As the rijksdaalders and leeuwdaalders became scarce in the early 1640s, banks were forced to ignore regulations concerning the coins from the Southern Netherlands. Ducatons were not only accepted, but their value was increased to 60 stuivers, while the kruisdaalder’s exchange rate rose to 48 or 49 stuivers. At first, the authorities chose to turn a blind eye to these transactions, but then they decided to alter the rules to fit the situation. In 1659 a new minting law was passed, accepting the kruisdaalders and ducatons, but also introducing their equivalents to be made in the Republic. This meant that after 1659 there were legally four heavy silver coins minted in the Netherlands, though production of the leeuwdaalder and rijksdaalder was for all intents and purposes halted. ₃₆

The short supply of the heavy coins preferred for international transactions forced the Bank of Amsterdam to create a unit of account on its books to represent them. This unit of account, known as bank-money, soon took on a life of its own. At first glance, this might sound as if it added to the monetary confusion of the period. After all, the creation of the bank’s book credit presented yet another currency into the mess, with yet another set of exchange rates. Nonetheless here was the currency that would ultimately serve as the international medium of exchange, albeit in a limited fashion.

The problems with the mints remained for some time. The Bank itself stopped playing the link between the currency and bullion inflows and the mints once it realized that it could dispose of the bullion it accumulated more lucratively (and to its own advantage) by withholding it from the mints and instead giving it directly to the international traders. This was especially sensible for the Bank’s dealings with the United East India Company, since this enterprise preferred bullion over any particular currency. Specific coins held little appeal in Asia; it was the metal itself that counted. ₃₇ Trade in bullion was legally recognized in 1683, when the Bank was authorized to make advances against deposits of gold and silver at somewhat below their market values. ₃₈

As the Bank accumulated bullion, it eventually played a role in the creation of a larger bullion market in Amsterdam. Further legislation in the 1680s opened up the bullion trade for merchants (allowing exports as well as imports), which increased the stock of precious metals in the city. The more open market and the larger volume of precious metals within Amsterdam in turn dampened fluctuations in the price of circulating money, by reducing some of the pressures to convert coins into bullion. ₃₉

The problems arising from the situation in minting within the Republic had yet to be resolved, though. Since the mints remained in competition, they continued to have incentives to debase coins. These problems reemerged dramatically in the 1680s, when the mints in the cities of Deventer, Zwolle, Kampen Nijmegen, Zutphen, and Groningen were all producing bad coins of small denomination. The circulation of weak, small-denomination coins throughout the country became known as the schellingenplaag—a plague of shillings. (The reference to disease illustrates the popular feelings about the situation.) The province of Holland reacted by prohibiting the use of these coins, which led the republican authorities to intervene. After this crisis, the government finally took steps to reduce the number of mints and to exercise greater control over the remaining mints’ activities. ₄₀ The provinces of Holland and West Friesland began minting coins in the denomination of bank-money in 1681. Decrees in 1694 and 1699 then made the newly produced coins representing bank-money the new currency for the whole country, even though the new coins and bank-money were not equivalent in value. ₄₁

The institutional changes intended to make national coins attractive for international use had failed. Eventually, the creation of bank-money allowed Amsterdam to become the premier financial center of the emerging international economy. Yet problems remained with the currency, and soon enough the stability of the financial system would be called into question. The provincial authorities, above all in their maintenance of their mints, prevented the emergence of institutional solutions that might have led to the successful provision of an international money. The decentralized character of the state meant that the intentions to do so were unrealized; it also affected the evolution of the stadholderate.

 

The Stadholder’s Role as the Military Adjusts to Peace

William II took office as stadholder in 1647, just as peace was being finalized. He personally saw no future in the peace. Whether he was driven by the desire to avenge his grandfather or assist his brother-in-law Charles II of England, or whether he saw his own role being reduced once the military declined in importance, he believed the Netherlands should prepare for renewed warfare with Spain. Provincial authorities, on the other hand, looked forward to an economic boom they hoped peace would deliver. Moreover, provincial authorities were saddled with heavy debts. The annual deficit in the province of Holland’s budget was more than 2 million guilders. ₄₂ In order to reduce their budgets, they sought to cut back on military expenditures.

Decisions in naval affairs rested with the various Admiralties, which in turn were directly under the influence of ports and the seaward provinces. As soon as peace was settled in 1648, naval forces were slashed in order to save money, at the instigation of the province of Holland. The total number of warships available for duty fell from more than 130 to around 40. Crews were dismissed, repairs ignored, and morale could not have been very high. ₄₃ When similar reductions were suggested for the army, the provincial authorities ran into a direct conflict with William II.

The earlier confusions over control of the Army had never truly been cleared. The provincial authorities, and especially those from Holland, chose to exercise the power of the purse. Since provincial authorities paid for many troops directly (not through the States-General), they made clear their intention to end payments to foreign troops in the Army’s employ. The aims were twofold: force levels and expenditures were to be reduced, but foreign troops would be demobilized first because their allegiance was more likely to be to their captain-general rather than to some provincial authority. William II naturally moved to resist these measures. William was able to bring some of the other provinces onto his side, either because of the influence he could exercise over local elections via patronage, or because they honestly believed the Army was needed to protect their borders. ₄₄

What ensued was a dire example of the underfulfillment of leadership during the economic ascent of a potentially hegemonic power; although the country’s economy was growing, there was a profound struggle over the size of the armed forces. It highlights how in this case, resource provision rested with the provinces, while the ability to make commitments was divided between the provinces and the stadholder. Holland issued orders to begin disbanding troops in November 1649. As Captain-General, William II countermanded those orders. Negotiations ensued for many months. The other provinces voiced their opposition in the States-General, charging that Holland was violating the Union of Utrecht. Holland countered that the Stadholder could not countermand actions of the provinces, for he was their servant. ₄₅ The States-General sought to overturn Holland’s actions through legislation. When that failed, the Prince decided to take measures into his own hands.

As the dispute deepened, William II organized a coup against Holland, with the ultimate goal being seizure of Amsterdam. In a planned set of moves, he arrested several prominent political figures from Holland at the end of July; simultaneously, a small force of troops loyal to him gathered to capture Amsterdam. The plan failed when the troops could not find their way in the night, were observed (but not identified), and the alarm was raised in Amsterdam before they arrived. The civic guards were called out and the gates to the city closed. A standoff ensued, but in fact William had missed his moment. ₄₆ Eventually, Holland accepted that one province alone could not decide to reduce the number of troops in the army. In return for yielding on this point, the Prince of Orange released his prisoners. ₄₇ As tensions defused, and compromises were being sketched out, William II unexpectedly died. There were no clear provisions for the succession of his heir, though his wife was pregnant.

The compromises under discussion were immediately forgotten. In the words of historian Herbert H. Rowen, “The States of Holland moved with a swiftness that would ordinarily have been astonishing in a constitutional system notorious for its dilatoriness.” Within four days, the provincial assembly had met and issued a call for a “Great Assembly” of the States-General (a simultaneous meeting of all the provincial assemblies, not simply their delegates to the States-General). This Great Assembly was held in January 1651, and the main topics included the importance of maintaining the confederation and the constitutional status of the army, along with some religious questions. ₄₈ There being no stadholder to defend the office, the provinces stripped the post of some of its traditional prerogatives, including those which had enabled previous stadholders to wield patronage and influence local politics.

At the Great Assembly, it was decided that Friesland and Groningen would maintain their stadholderate (since the stadholders there were drawn from the another branch of the Orange dynasty), but the other provinces would not appoint a new stadholder, or captain-general, or admiral-general. Friesland argued strongly that each province was bound by the Treaty of Utrecht to have a stadholder as part of their promise to maintain military forces. The eventual agreement reached left open the possibility of appointing a new one when the need might arise in the future. It was also hinted that a future appointment would probably be more limited, perhaps similar to a field marshal named for the duration of a war, rather than a lifetime appointment. Any new commander would be a servant not only to the States-General and the Council of State, but also to the individual provinces. Current military officers were made responsible to either Generality, provincial or municipal political authorities (once again highlighting the decentralized nature of the political system). ₄₉

Now that William II was out of the picture, Holland moved to reduce the armed forces as it had originally intended. It disbanded the foreign units first as planned. The final arrangements concerning command of the army also reflected Holland’s views. For any marching orders to be given, the province in which the troops were stationed had to give its consent; the legislature of the province which paid for the troops was given control over the appointment of officers; the soldiers had to swear allegiance not only to the Union but to the particular province which paid for their unit as well; moreover, the troops had to swear allegiance to the province in which they were stationed. The oath which troops swore obviously became complex and sometimes confusing. Decisive, coordinated management of the army was lost, as provincial particularisms dominated the army’s functioning. ₅₀

In terms of the argument made in chapter 1, it is difficult to say whether the Dutch militarily were overstretched in the 1640s. Obviously, instead of centralizing military command so as to generate a strategy of fulfilling military obligations of leadership, they moved in the opposite direction. Their republican sensibilities and the threat the stadholder had exercised encouraged them to not only demobilize their forces but decentralize command as well. In the preceding decades they had fielded a large army, and now their international commitments were limited, so overstretch was not serious. Yet they probably should not have demobilized as many troops and ships as they did, given that systemic threats remained high, as was exposed over the next decade (figure 9).

Figure 9: Dutch Military Policies During Economic Ascendance

 

The Systemic Threats Surface: The First Anglo-Dutch War

When the First Anglo-Dutch war broke out in 1651, unsurprisingly the Dutch were disorganized and ill-prepared. As just noted, the army’s command structure was in disarray, but the army would have only a small role in a war against England. Unfortunately for the Dutch, the naval forces were not in any better state. The naval forces were maintained and commanded by five separate Admiralty Boards, which represented provincial and municipal authorities. The same reforms discussed above prevented an Admiral-General from being in control or even coordinating activities among the admiralties. ₅₁ Some have argued that although the Dutch naval forces were poorly equipped, and not nearly as well armed for combat as the English, their crews were experienced and the forces led by able commanders. This enabled the Dutch to win several important victories, but the problems in command and control were certainly costly.

Once war broke out, Holland (behind the leadership of Grand Pensionary John de Witt) moved to restore the might of the navy. Holland levied provincial taxes on land and capital to pay for the navy, and urged other provinces to follow suit. The tax on land, labelled a “half double land tax,” increased existing land taxes in the province of Holland by one half. It generated an additional 1,190,385 guilders. The capital levy, called the “thousandth penny” because it was one-tenth of one percent, became security for a loan of 2,432,640 guilders. The idea of having a unified budget for the navy, along with a unified command structure, was discussed by the States-General, but rejected. The navy’s outfitting and operations were left in the hands of the various admiralties. ₅₂

De Witt continued his efforts to refit the fleet from 1653 onward, but this was also his opportunity to make it into an institution supporting his own vision of the Republic. Four warships previously named after members of the House of Orange were renamed after provinces, with a fifth being retitled d’Eendracht (Unity). He further republicanized the ranks of the naval officers after the first Admiral-General in the war, Maarten Tromp, an Orangist, was killed. De Witt grew convinced of the need to reequip the navy with larger, specialized warships. He also intended that the navy should thereafter be kept on a permanent footing. In January 1654, 64 new ships were commissioned, and the States-General voted that none should be sold or transferred to other duties without unanimous consent of the provinces. ₅₃

The taxes were not particularly popular in Holland. Once peace was made later in 1654, support for further expenditures waned. In August 1655, Amsterdam officials moved unilaterally to reduce the collection of port taxes which financed naval armament. Despite intense bargaining, de Witt eventually had to force Amsterdam to collect the bulk of the money. ₅₄ Outside Holland there was no enthusiasm for paying for a navy, especially among the landward provinces, which required land forces for defense.

In the negotiations for peace in 1654, the English leader Oliver Cromwell made it clear he wanted the Dutch to promise to exclude the House of Orange from the stadholderate in the future. Cromwell feared the Orange dynasty’s link with the Stuarts might bring the Dutch into internal English affairs. De Witt didn’t mind the idea, since he had no love for the Oranges. Yet he feared that Cromwell’s ideas would backfire—by having foreigners target the House of Orange, it would boost its popularity within the Netherlands. De Witt instructed the negotiators to propose a compromise: Holland would exclude the House of Orange from the stadholderate, but the other provinces would be free to do as they chose. The compromise would allow both sides to accept the peace treaty. ₅₅

De Witt backed up this position with a written theoretical argument against the office of the stadholder. This “Deduction” (Deductie) prompted a constitutional debate, including the publication of a counter-argument from the States of Zeeland. (A deductie was a formal presentation of a position in a dispute.) De Witt presented the arguments supporting the contention that Holland, as a sovereign actor, had the right to treat separately with England. He argued that at the time, there was no necessity for naming a stadholder. He did his best to justify the abolishment of the stadholderate in Holland. The arguments swirled around whether tradition alone could make an office constitutional. ₅₆ It also illustrates once again that the decentralized political system threatened to completely separate decisionmaking on commitments and resources, only this time along provincial lines as well as between a stadholder and a province.

De Witt had to walk a fine line. If he tried to exclude the stadholderate from all provinces, he would appear to be under Cromwell’s thumb; the fact that he had already made it clear he was no friend of the House of Orange meant he was accused by some of having asked for the clause himself. Cromwell’s intentions clearly backfired, since even pursuing exclusion in Holland alone had the effect of boosting the House of Orange’s popularity there, just as de Witt had feared it would. ₅₇

The Orangists were however split on how to react. William II’s son, the current Prince of Orange, was still an infant. To add to the complications, on September 5, 1655 the chief commander of land forces, Field Marshal John W. van Brederode died, throwing open the discussion as to who should be the next field marshal. The other branch of the family, which had provided the stadholders for the northern provinces, staked its claim to the stadholderate. William Frederick stated his desire to take on the position, but as stadholder of Overijssel, he should not have been acceptable to Holland. De Witt proposed a compromise, which he titled a “Harmony.” The new field marshal would have to swear to uphold all of the United Provinces’ treaties, including the peace made with Cromwell. If William Frederick would do this, he too was eligible. Debate raged throughout 1655 and 1656, because the Orangists remained divided. In 1658, Dutch troops had to be deployed to the Baltic, but still no field marshal was named. It was only in 1660, with the restoration of Charles II in England, that policy would change. ₅₈

Upon Charles II taking the throne in England, de Witt had to attempt to strike a new balance between domestic and international needs. He wished to settle the status of the Prince of Orange in such a way that the English would be placated, but without actually giving the Prince too much power. In fact, when Charles II was restored to the throne of England in 1660, he had this part of the treaty repealed, yet the province of Holland said it would still only appoint a stadholder when and if the need arose. Meanwhile, Charles II pursued policies much more similar to Cromwell’s than de Witt or others anticipated. ₅₉

More importantly, these changes made the young William III a “child of the state.” The States of Holland took over the responsibility for his education. The education began in 1666, and John de Witt personally oversaw the final stages. De Witt taught William III about the art of politics and statecraft, and about the subtleties of the Dutch constitutional system. ₆₀ While William III was beginning his education, the same old political and fiscal problems kept coming back. After the First Anglo-Dutch War, the government’s debt burden was huge, meaning the provinces were unwilling to pay for extensive military forces. Luckily, the debt of 153,000,000 guilders could be borne because interest rates had been falling (from 6.5 percent in 1640 to 5 percent by the 1650s). Nonetheless, the interest on government debts came to some 7,000,000 guilders a year. As Grand Pensionary, de Witt moved to clean up government accounts and reduce overall spending. He arranged a sinking fund for government debt, aiming to have the total paid off in 41 years. This allowed the interest rate to drop to 4 percent. He then decided to spend money on rebuilding the navy, which had fallen into disrepair and performed below expectations in the First Anglo-Dutch War. Previously, the Dutch had relied on converted merchant ships, but de Witt now insisted that the admiralties construct specialized warships. Many frigates were built, to escort the far-flung merchant fleet. Crews received better training, too. ₆₁

Although Holland’s debts were reduced from some 140 million guilders in 1655, to 120 million in 1663, the interest burden was still large. While Holland was prepared to pay for naval forces, it moved to reduce spending elsewhere—even refusing to consent to the military budget for 1661. Tax revision became the focus for discussions among Holland and the other provinces. ₆₂ Holland’s position was important, for that province provided much of the financing for the military. The final budget for 1662 paid for a total of 51 companies of cavalry and 387 companies of infantry, with Holland paying for 27 of the former and 207 of the latter. The contribution from the two most pro-Orange provinces, on the other hand, was considerably smaller. Friesland paid for 7 cavalry and 55 infantry companies, while Gelderland paid for 2 and 22. ₆₃ Debates over the size of the army continued right up through spring 1665. Most units were not up to strength. Holland then proposed to pay the entire cost of the navy, while leaving the costs of the army up to the other six provinces. The other provinces declined the proposal.

Since de Witt drove policy decisions, Holland’s specific interests were served better than the Republic’s overall interests. As a seaward province, Holland was interested in seeing the navy strengthened to defend the province’s seafaring interests. He neglected the army. During the Second Anglo-Dutch War, 1665&-;1667, the English subsidized an ally to attack the Republic by land (the Bishop of Munster). Since the army had not been adequately funded, it was in poor shape; there also was no Captain-General in place to coordinate the provincial forces. ₆₄ The Dutch were only saved from disaster by the intervention of powerful allies.

War began in May 1665; the first major naval engagement took place June 3. An officer of the cavalry, Wassenaer van Obdam, was made commander of the fleet. Some argue that his only asset as an officer was his close relationship with de Witt. His abilities as a naval commander didn’t matter, because his instructions were laid out by the States-General, with little or no leeway for independent thought: seek out the English fleet and do battle. Once the English were sighted, however, the naval advisers argued against a battle for the wind was in a position favoring the English; Obdam took his instructions out, read them to his officers, and they engaged the enemy. The outcome was a harsh defeat, with the Dutch losing 18 ships and suffering heavy casualties. Obdam and several Dutch officers were killed. ₆₅

Cornelis van Tromp, son of Maarten Tromp the Dutch naval hero in the previous war against the English, led the defeated Dutch fleet back to their anchorage at Texel. Like his father before him, Tromp was an Orangist however, so de Witt was reluctant to deal with him. Another Dutch admiral, Michael de Ruyter, arrived unexpectedly on the scene. De Ruyter’s ships had been in the Caribbean; he returned via a northern route, eventually skirting the coast of Norway. Some Dutch had assumed his fleet had been taken by the English, so his arrival was hailed as an unexpected triumph. Since de Ruyter was a stalwart republican, de Witt placed him in overall command. Van Tromp felt cheated out of a command he had earned. The split between van Tromp and de Ruyter flared in public. De Ruyter proved to be a capable officer, and in the ensuing battles of the war, the Dutch eventually did well. ₆₆

Since de Witt had focused so much energy prior to the war on the navy, he was interested in ensuring that it would perform well. He constantly supported offensive schemes, including the idea of executing a raid up the Thames River. John de Witt himself went on some naval cruises, as did his brother Cornelius, as shipboard representatives of the States-General. Cornelius de Witt was with the fleet under de Ruyter’s command which sailed up the Thames and burned several English ships. ₆₇

Domestic politics remained linked to the international conflict. During the war, some of the Orangists made contact with the English. One of the conspirators, an officer and courier named Buat who was a close friend of the young Prince of Orange, communicated to de Witt that if the Prince of Orange was elevated in rank or power in some way, the English might be willing to make peace. Buat was a schemer but a bungler. At one point he included conspiratorial letters (implicating himself in a plot against the government) among other deliveries to de Witt. De Witt had him arrested, and in October 1666 Buat was beheaded. He became a martyr to the Orangist cause, and was probably seen as such by the Prince himself. ₆₈

The Second Anglo-Dutch War ended with the Treaty of Breda. Less than a week later, the States of Holland passed an “Eternal Edict” abolishing the stadholderate in the province, and interposing a veto on the election of a captain-general by the States-General of anyone elected as a stadholder in one of the other provinces. The post of Captain-General was left open to the Prince of Orange, but not if he wanted to be stadholder. It was an attempt by de Witt to split political leadership from military command. Once again, after the war ended, defense expenditures were reduced so that debts could be serviced. And once again the large military establishment was cut to lessen the threat of an Orangist coup and reduce expenditures. ₆₉

Soon enough another international threat appeared. The danger of a French invasion rose in the late 1660s. In 1670, at the age of 20, William III was elected to serve on the Council of State. It was also established that William III would become Captain-General of the Union at the age of 23. This move was endorsed by de Witt and others, with the intention of dampening Orangists’ demands. It had the reverse effect. With fear of another war approaching, public support called for the immediate promotion of William to the post of captain-general or even a revival of the stadholderate. The Orangists also suggested that the United Provinces’ foreign policy be redirected toward some sort of rapprochement with England. De Witt resisted both suggestions. As he put it in a letter to his confidant and adviser, Pieter de Groot:

They maintain, moreover, that by this measure greater harmony will be effected in the State, that it will be obliging six provinces [i.e., pleasing the other provinces, not Holland], will put heart in the soldiery, and will make the commonality more willing to pay for these heavy charges....I frankly admit that I believe the remedy to be worse than the evil itself. ₇₀

Though by this time de Witt supported rearming the military, he remained deeply suspicious of unifying military command in the person of the Prince of Orange. With some of the information he had likely gleaned about the secret Treaty of Dover, he had some reasons to be wary. ₇₁ The connections between the Oranges and the English monarchy were potentially dangerous for the Republic and provincial authorities in particular.

Nonetheless, the army had to be built up in anticipation of the French onslaught. At the end of 1671, the Dutch forces totaled 569 companies of infantry and 89 of cavalry. By early 1672, those figures had risen to 709 and 161. Waardgelders, the city militia, had increased in numbers as well, though these troops were untrained, inexperienced, and of no use in the field. ₇₂ They could play an important role in defensive operations, however.

 

The Wars Against Louis XIV

As expected, war with France soon began. In the wake of Louis XIV’s assault, popular support for the return of a stadholder swept the country. De Witt became the target of Orangist rage. On June 21, 1672, de Witt was attacked by four young supporters of the Prince of Orange; there are suggestions that they may have been encouraged to do so by members of the Prince’s immediate circle, but the evidence is not clear. De Witt was stabbed; the wound appeared slight, but fever set in. ₇₃

On July 1, 1672, the States-General voted down the Act of Harmony of 1667. Things moved swiftly after that. On July 9, William III was granted all the former powers of the stadholder (in 5 provinces), plus additional powers. ₇₄ Upon taking control as stadholder, William instigated a wetsverzetting. (A broad replacement of municipal public officials, allowing the Prince to place his own followers in important positions, it was thus both an exercise in patronage as well as a consolidation of authority.) Upon taking command, William found the army in poor shape. De Witt had constantly focused on improving the navy rather than the army, and it showed. ₇₅ William was to concentrate much of his early efforts as stadholder in retraining and reequipping the ground forces.

When the French and English made peace offerings in 1672, they specifically aimed to appease William III. They included the possibility of William being made sovereign over a rump Dutch state. William refused, stating that his duty as stadholder was to defend the Netherlands, and that the only way he would ever become sovereign would be if the Dutch themselves offered that role to him. In military affairs, the States-General continued to exercise its right to send deputies into the field with the army, but this presented little problem to William III. Because of his popularity and influence, the States-General would not challenge him. The deputies sent into the field were for the most part men he found more than acceptable. ₇₆

William III led the successful counterattack against the French, in coordination with his many allies. When the provinces of Utrecht, Gelderland, and Overijssel were retaken from the French, they were readmitted to the Confederation only after William III offered his protection to them; in return they had to give him the power to redraft the rules of political practice (Regeringsreglementen). These laws governed the conditions for appointment to certain offices. Naturally William III rewrote the rules so that he, as stadholder, would have greater say in matters. His ability to wield patronage in these provinces increased dramatically. ₇₇

William III successfully led the fight against Louis XIV in this war and the ensuing ones. His personal links with the English royal family eventually worked to the Netherlands’ advantage when he was able to claim the throne of England. He could then lead the two countries to eventual victory in their final struggles with Louis XIV’s France. When William III died in 1702, he left no direct heir, but the bond between England the Netherlands remained as the two faced France in the War of the Spanish Succession. One branch of the family had an heir to serve as stadholder in Friesland and Groningen (John William Friso), but he was still too young to serve in his post. The other provinces reverted to a stadholderless period. Faced with the decision of naming a captain-general when William III died, the Dutch turned to the most experienced officer in the allied command: the Duke of Marlborough. The English officer was selected by the States-General to serve as Lieutenant-Captain-General, and became the commander in chief of allied armies. This war would be the first major land conflict which the United Provinces would fight without a stadholder. ₇₈

Though the Dutch representative bodies placed their faith in him, Marlborough had difficulty dealing with them. Partly, the Dutch had named him to command in order to ensure that the alliance with England was solid. This did not mean they would accept his leadership unquestioningly. Problems were caused not least by the States-General’s deputations sent to oversee Marlborough’s campaigns. Unlike the Dutch generals who had served before him, Marlborough was a more audacious strategist; his desire to move the forces in the field far from the traditional seat of war in the Southern Netherlands frightened many of the deputies the States-General sent to “advise” the general. ₇₉ Marlborough’s daring moves proved correct at the great victory of Blenheim.

As can be seen by the historical development of the stadholderate, the Netherlands lacked the necessary institutional arrangements to exercise military command effectively. During emergencies, such as the wars with Louis XIV, powers would be granted to a stadholder, who could work to unify command. Expenditures to meet commitments would rise in wartime as well, only to slump once the war ended. But even in war, the States-General exercised tremendous influence through its deputations. Provincial interests could still override national interests. Coordination between the army and navy was rare; decisions on balancing expenditures between the two services pitted province against province. At least during these wars the Dutch were able to mobilize sufficient forces to defend themselves. The failure to develop central command institutions would prove extremely dangerous since the Dutch were overcommitted militarily.

 

Peace after 1715: Commitments and the Barrier Treaty

While the peace achieved at the end of the War of Spanish Succession reflected the successful defense of Dutch interests, the Netherlands was no longer the great power it had once been. The government had lost its ability to raise vast sums of money. The economy began to slow down; the Netherlands soon entered its long economic decline relative to France and Britain. Even as the economy waned, Dutch military commitments remained high—and the Dutch clearly found themselves overcommitted during the years after the peace treaty was signed.

The Netherlands’ most important obligations stemmed from their continuing ties with the English. The Anglo-Dutch Treaty of 1678 was the first to include explicit military support of each other’s borders. Later versions of the Barrier Treaty (as it was also called) specified that support could be called forth even on the signs of preparation for an attack. As part of the Dutch responsibilities in the Barrier Treaty, 6,000 Dutch troops and 20 ships were liable to be sent to England if that country was threatened with invasion. In return, the English promised to send up to 20 ships and 18,000 troops to reinforce the Barrier fortresses (those fortified strongpoints in the Southern Netherlands guarding the likely invasion routes another French attack would take). ₈₀

Meanwhile, Dutch government finances were in a sorry state—providing the ingredients for not only overcommitment but also the policy response of worsening afterglow. The debts accumulated over decades of war were immense. Governments were unwilling to devote further expenditures on the military, even when it was widely recognized that the country’s armed forces were incapable of defending the country, let alone meeting international commitments such as those discussed above. Just as we would expect, the response to overcommitments was the worst possible: claim to honor responsibilities, while refusing to dedicate the resources required. This outcome appeared probable from the outset of peace. In 1716, the Estates of Overijssel proposed summoning a “Great Assembly” (as had been done in 1651) to consider general problems of governance and finance. But the Great Assembly which met from November 1716 to September 1717 dissolved without reaching any drastic decisions. ₈₁

Eventually, peace also created a backlash against the stadholderate. The grand pensionary named in 1727, Simon van Slingelandt, and his successor in 1736, Anthony van der Heim, were pressured to promise not to resurrect the stadholderate. ₈₂ The States-General tried to undermine the authority of the remaining stadholder serving in the two Northern provinces, and to weaken the House of Orange elsewhere. The young Prince of Orange’s military education was neglected. ₈₃ True to form, after a victory in a major war, the republican government was weakening the military and its command institutions.

Dutch international obligations remained. Under the terms of the Barrier Treaty, Dutch troops were sent to England on several occasions. In the Autumn of 1715, troops were dispatched to participate in the campaigns against the Jacobite rebellion in Scotland. Dutch troops were again sent to England in 1719, when a Spanish-backed uprising in Scotland seemed imminent. Troops were prepared in 1722 upon the request of England, though they were not needed. In 1745, during the War of the Austrian Succession, 6,000 troops were redeployed from the Netherlands to England, even as French armies were striking in the Southern Netherlands. No further troop deployments to England were made under the Treaty, though the possibility was raised in 1756 and 1759. ₈₄

The weakening of military forces was true for the navy as well. The admiralties also fell into disrepair, as the provinces focused on paying down debts. In 1715, the national fleet comprised more than 100 ships; ten years later there were only 63. The admiralties were able to raise some funds through the raising of tariffs in individual ports in the 1720s and 1730s. Even then there were shortfalls almost the entire time between 1715 and 1755. The Prince of Orange attacked these tariffs in proposals intended to garner some extra popularity. As soon as war loomed again, however, people realized the admiralties would have to raise money somehow. The merchants in the ports therefore recognized that although they didn’t like paying the tariffs, they could not rely on the inland provinces or even the States-General to devote resources to the navy. Support for the Prince’s proposed reduction of the tariffs dropped off. ₈₅

As noted above, in the War of the Austrian Succession (1744), Britain felt threatened by the possibility of a French-backed invasion. Britain not only asked for ground forces, but also requested the naval support liable under the Barrier Treaty: 20 ships. All the Dutch could provide were eight aged, tired ships, commanded by an equally aged (73-year-old) admiral who had to be called out of retirement. ₈₆ Even with rather limited international obligations, with their existing resources the Dutch were seriously overcommitted. The policy response to overstretch merely worsened their predicament.

 

Renewed Threats, and a Renewal of the Stadholderate

When the French again invaded the Netherlands in April 1747, one member of the anti-Orangist States party told the French ambassador, “You’re ruining us, you’re creating a stadholder.” Only after the Dutch became directly threatened did they resurrect the stadholderate. A popular movement swept William IV to power. He was invested with the posts of stadholder in all seven provinces (the first Prince of Orange to achieve this), and named Captain-General and Admiral-General. The wave of popularity allowed the new Stadholder to claim new rights; the position was made hereditary. ₈₇ Yet the Prince’s support was not as solid as it might have seemed. Some backed the Prince because they felt the need for a strong central leader; much of the popular support, however, wanted a strong leader only as a counterweight to the commercial regents who had held power in the previous decades. The Prince himself did not want to attack the regents too vigorously, however, and failed to grasp the need to manage his own popularity. ₈₈

In order to increase the number of troops in the Dutch army, the English suggested that the Dutch government hire Russian troops. It seemed at first that the new stadholder would assist in the payments; but he explained to his English allies that the Dutch would need a subsidy from the English government to carry out the plan—which amazed the English, since they themselves were so heavily indebted to private Dutch investors at this time. ₈₉

William Bentinck, one of William IV’s key advisers, tried to create a decisionmaking body to unify the Netherlands’ foreign and military policies. In 1751, he introduced the Consultative Committee, which was supposed to be a copy of the English Committee of the Council for Foreign Affairs. In fact, Bentinck knew little about the workings of the English committee, and his ideas had to be transformed to fit Dutch circumstances anyway. In the first years, the Consultative Committee met twice a week. Its members included the Stadholder (and after William IV’s death, the Princess Gouvernante), the Grand Pensionary of the States of Holland, the Greffier of the States-General, the Treasurer General of the Union, plus other advisers and a secretary. While the Committee itself had no explicit powers, obviously each of the individuals involved did. ₉₀ This well-formed committee had the tools to reconcile the gap between obligations and resources, but resources were not forthcoming.

Revenues were a problem, and there was widespread recognition that the tax system itself was flawed. Arrangements were overly complex, municipal and provincial taxes and tariffs were unsystematic and competing, rather than complementary and comprehensive. Reform proved difficult, however, because tax collection had been farmed out for decades. The upper-class regents, well connected to government officials, often held the rights to collect taxes. They were able to block any reform or rationalization of tax collection. ₉₁

Only four years into his rule, William IV died. He left a son, but William V was only a few years old. Princess Anna was allowed to rule as regent, with Duke Louis of Brunswick as her military adviser. Four and a half years of negotiations took place over who would conduct William V’s education. ₉₂ Of the institutional arrangements meant to straighten out military command, and link security decisions with financial resources, little of lasting change survived.

In the early 1750s, an Anglo-French war loomed on the horizon. Colonial disputes between the two powers were constant. A dispute over Dutch military priorities arose. The Orangists, led by William Bentinck, argued for a buildup of land forces. The army was understaffed, and would be unable to defend the country’s land borders, let alone meet any sort of international obligations. The catchword for this group was “augmentation.” The Orangists wanted to be able to play a role on the side of Britain, since the House of Orange still had dynastic ties with the King of England.

On the other side of this dispute were the seaward provinces, led by the States of Holland, and within that province, by the City of Amsterdam. They were known as les neutralistes, because they argued the best path for the Dutch in a future foreign conflict was neutrality. By staying out of the impending war, the Dutch could trade with both sides, and benefit economically. The best way to spend money, according to the neutralists, was to buy “equipment” for the navy. More warships meant convoys could be protected, and neutrality enhanced. Though the debate centered around “augmentation” versus “equipment” there were in fact few funds for either sort of military buildup. ₉₃

One place extra funds might be produced was in the Southern Netherlands itself. Though the territory belonged to the Austrian Hapsburgs, the Austrians refused to place large numbers of troops there. By treaty, the Dutch maintained fortresses in this buffer region. But to garrison all the fortification along its borders, the Dutch needed some 70,000 men. Because of the limitations imposed by expenditures, the army was short of this minimum level by 15,000 troops. What troops were employed had to be dispersed—some in the barrier forts—but others had been hired out to German princes, or were scattered at garrisons within the Netherlands.

Two plans emerged, each responding to the fact that the Austrians were not prepared to defend the Southern Netherlands. One argued that the barrier forts were as good as lost if war broke out, without any local Austrian support. Therefore the troops should be redeployed within the Dutch borders. This had the added advantage of freeing up troops to be sent to England, if so requested under the terms of the Barrier Treaty. The second plan was drawn up in 1755, and involved greater Dutch involvement in Austrian territory, not withdrawal. The idea was to move into control of the customs houses in the Austrian Netherlands. From the revenues thus collected, troops could be raised to defend the territory effectively. This had the obvious disadvantage of upsetting Austria—a potentially key ally in any war with France. In the end, no consensus could be reached. The States of Holland agreed to request an investigation of French intentions, but would not consent to further expenditures to augment the ground forces. By the end of 1755, the Barrier system was dead. Neutrality now remained the only course available. ₉₄

Once the Seven Years’ War did erupt between Britain and France, money was forthcoming, at least for the naval forces. Some 25 extra warships were outfitted and sent on convoy duty. ₉₅ When England made requests for assistance under the terms of the Barrier Treaty in 1756, the Dutch were split on what to do. The four landward provinces argued in favor of sending troops, while the three seaward provinces rejected the idea. ₉₆ The same split between the provinces occurred in 1758 when the Dutch needed to deal with privateers preying on Dutch merchant shipping. English privateers in particular were disrupting trade with France. The States of Holland wanted to increase naval expenditures to purchase or build additional ships for convoying merchantmen. But the Orangist factions in the landward provinces still demanded more money for the army instead. ₉₇

Alice Carter notes that if the Orangists’ demands had been heeded, and the funds spent on the army, there would have been an increase of Dutch troops, but the total probably would have been woefully small compared to Dutch needs—let alone to meet Dutch defensive needs and obligations to England under the Barrier Treaty. Since the money raised was spent on the navy, and the navy was able to construct and send out an additional 21 frigates, almost all the convoying needs were soon met. Dutch trade was adequately protected. In Carter’s view this was the best way to spend the funds. ₉₈ Naval obligations were covered, but at the expense of other commitments.

Without the proper institutional arrangements to manage military affairs, either on land or on sea—let alone make decisions regarding the distribution of resources between the two—the Dutch after 1715 continually suffered from ill-conceived policies backed up with too few resources. The country could not support its limited obligations under the Barrier Treaty. (Defense of far-off imperial possessions never entered into the picture because they had already been delegated to private actors: the trading companies.) With such massive debts plaguing the government the entire time, and the threat of a French invasion continually resurfacing, the disastrous policies of a worsening overstretch characterize the decades after 1715. Obligations were maintained rather than cut, despite the unwillingness to furnish the necessary resources to meet them. While the Dutch balked from playing power politics, they could not divorce themselves from the game completely. They paid for the consequences of overstretch with costly defeats in the Fourth Anglo-Dutch War, and then the inability to defend themselves from invasions in the 1780s (figure 10).

Figure 10: Dutch Military Policies During Relative Economic Decline (after 1702) (The Barrier Treaty kept C > S and the greatest commitment unchanged from 1678 to 1756, even though the provincial leaders could have altered commmitments since there was no stadholder between 1702 and 1747.)

 

The Bank of Amsterdam, Leadership, and Overcommitment

Some parallel problems can be seen when we consider the exercise of leadership and the emergence of overstretch in the monetary sphere. As noted earlier, provincial politics had played a role in the failure to achieve the initial reforms intended to support the creation of a national currency that could be used internationally. Although the Bank of Amsterdam did not eliminate the circulation of foreign, weak coins within the Netherlands, and initially failed to support the employment of new heavy coins, it did eventually help solve the currency problem. The real boon for the Dutch merchant community stemmed from the Bank of Amsterdam’s creation of bank-money, and then from the new practices that ensued, especially those which had been assumed to be of less importance when the Bank was created.

Payment by transfer between accounts had been mentioned only in passing in the enacting legislation, though this proved to be of the greatest benefit. The Bank removed the monetary risks from international deals by internalizing transactions through its functions as a giro bank. (As a giro bank, the Bank of Amsterdam accepted depositors’ coins and precious metals, and in return gave the depositors credit on the Bank’s books.) ₉₉ Since the Bank was not allowed to make loans, and since its deposits were backed by the municipal government, the Bank’s solvency was never seriously questioned from the seventeenth century until well into the eighteenth. ₁₀₀ This allowed the Bank to become a secure depository and the source of a stable medium of exchange via the use of book transfers. Once merchants from many lands opened accounts there, the Bank was able to internalize an international system of payments. ₁₀₁

Merchants could purchase goods or services in other countries with a bill of exchange from the Bank of Amsterdam, since its credit was widely accepted. The stability of this form of paper encouraged the use of other forms of paper currency, particularly drafts secured on commodities. Moreover, the variety of goods available on the market in Amsterdam itself was wider than on any other market, making bills of exchange drawn from Amsterdam more desirable than bills of exchange originating elsewhere.

Because of these unintended consequences, the Bank was able to play a stabilizing role in international economic relations. By successfully internalizing international transactions, and providing a stable medium of exchange with bills, the Bank of Amsterdam helped Dutch merchants and shippers in their quest to expand the exports of Dutch capital-intensive goods and services. The Bank became a key institution in the ascendance of the Dutch to hegemony by providing the stability and security of currency exchange, which allowed Amsterdam to become the center of the first international multilateral payments system in the modern world. ₁₀₂ The improvements in making and receiving payments (along with the attraction of trading on the Amsterdam market) helped give Amsterdam a commanding position in trade. ₁₀₃ The cycle of trade expansion fed on itself; increased trade introduced more types of goods into international trade, making markets work more efficiently in matching up buyers and sellers. Trade expansion in turn fueled growth in other sectors. Greater imports of wool, wood, and grain were transformed into greater exports of textiles, ships, and distilled alcohol. With the success of the Amsterdam Wisselbank, other Dutch ports created similar institutions. Middelburg, Delft, Doordrecht, and Rotterdam had all created exchange banks patterned after the Amsterdam example by 1635. ₁₀₄ Although these banks never had any formal mechanisms for coordinating policy, they tended to follow policies consistent with the Bank of Amsterdam’s lead.

The Bank of Amsterdam had met the needs of the international merchants through its introduction of bank-money, but this was on top of the existing structure of currencies. The Bank then helped control the relationship between the internationally valid currency and the domestic currency. Domestic money never equalled in value the bank-money used internationally, and the Bank of Amsterdam actively supported a 4 to 5 percent premium in favor of bank-money. ₁₀₅ Even after coins were introduced to represent bank-money in the 1690s, credit on the Bank of Amsterdam’s books traded at a higher value than the circulating coins meant to represent the same unit of currency.

By keeping the international money separate from the domestic currency, the Exchange Bank of Amsterdam dodged some of the most important aspects of the threat of a currency overhang, and thus of an afterglow in monetary affairs. The bank-money was kept at a high value on the exchanges because there were more credits in bank-money than reserves to back it, but this did not necessarily have a direct impact on the domestic money supply. It still shaped the interests of certain sectors, since the merchant and financial sectors would continue to enjoy the benefits of an international money. Because the Bank was unable to exert control over the domestic money supply, a different sort of problem would emerge for the financial sector.

 

The Bank and the Relative Decline of the Dutch Economy

By the middle of the eighteenth century, relative economic decline had come to the Netherlands. In some sectors absolute decline could even be found. The riches of the Republic had been built on the Dutch control of shipping, yet by the middle of the 1700s there were signs of decline even in this sector: Dutch tracts from this period lament the fall in numbers and quality of the seafarers, fishermen, shipbuilders, and other workers whose skills had furnished the anchors, sails, ropes, and other gear that rigged the sailing ships. ₁₀₆

The manner in which relative decline manifested itself in the Netherlands, and the failure to deal with relative decline should not be a difficult story for Americans to follow, just as it was not unfamiliar to Britons at the turn of the century. British scholars concerned with their country’s relative decline in the early 1900s looked back on Dutch history for insights into the process of relative decline, with the hope of discovering lessons that might be applicable to their own situation. Among the factors contributing to decline one such author stressed were the rise of factionalism during the later years of the Dutch Republic, and the increased reliance of the Netherlands’ economy on commerce rather than production. ₁₀₇ The liberal leadership model proposed in the first chapter would suggest just such a process, with sectoral conflicts rising as other countries caught up with the Dutch in terms of capital-abundance, and became more competitive with the Dutch.

Foreign competition had begun to cut into the Dutch dominance of trade. Whereas in the 1600s the Dutch had run a thriving entrepôt system, by the 1700s English, French, Swedish, and Russian merchants were increasingly exporting their products directly to the consuming market. Mercantilist policies became more comprehensive and were more effectively enforced. While in the 1660s the Dutch had more than half of the total shipping passing through the Sound to the Baltic, a century later it had only about a third. The result was a decline in the Dutch share of the traffic in Baltic timber from around two-thirds during the later 1600s, to only around one-third in the 1780s. The Dutch had exercised almost complete control over the shipment of Rhine wines headed eastward as late as 1720—but by 1770 they controlled less than half. And in other areas, the decline was not relative, but absolute. In whaling, for instance, the number of ships operated from Dutch ports fell from around 250 in 1720 to approximately 50 in the 1780s. ₁₀₈

While the trading and international services sectors struggled to maintain their international competitiveness, industrial sectors came under increasing competition which they could not cope with. In the 1600s the dominant belief had been that what was good for trade was good for the Republic; arguments emerged in the 1700s that stressed the incompatibility of commercial and financial interests on the one hand with agrarian and industrial interests on the other. Only then did the industrial and agrarian sectors finally begin to challenge the privileged political position of the internationally oriented sectors. ₁₀₉ At this same time as the industrial and agrarian sectors felt the pinch of competition, though, other parts of the Netherlands continued to do well, and some even managed to do better. International finance did just as well as before, as the Netherlands continued to supply important capital-intensive services to the international system. Some parts of the financial service sectors, such as insurance and banking, actually increased their activities. Foreign investment grew dramatically, in particular.

Two policy areas that became the battle grounds for the different sectors in the 1700s were fiscal and monetary policy. The Republic’s constant wars against Louis XIV’s dynastic ambitions at the turn of the century drove the national debt sky-high, pulling tax rates with it. Many of the foreign economic policy proposals addressed to the federal authorities stressed the importance of altering the distribution of fiscal burdens, while others were designed to counter the mercantilist legislation supporting international competitors. In the province of Holland, indirect taxes were twice as important for revenues as direct taxes. The reliance on such a tax system may have forced the cost of living up, which in turn put a constant upward pressure on wages. The high wages undercut the competitiveness of Dutch industry. Some of the industries managed to escape the high wages of the urban centers by relocating to the other, more rural provinces. ₁₁₀ The increasing loss of competitiveness in domestic manufactures naturally also encouraged investment to go abroad, where manufacturing was more profitable. ₁₁₁

The industries in trouble also petitioned the state for protection—a violation of the strong free trade stance the Republic had long maintained. A comparison of the 1725 tariff list with that of 1655 shows that tariffs were already becoming much more product-specific, suggesting that protectionist influences were already being felt. ₁₁₂ In 1738, the hatters complained that their exports were being blocked by tariffs and prohibitions, while the Dutch allowed imports of hats freely. The only response was a promise by government officials to purchase Dutch-made hats. In 1774, the Dutch whalers who cruised off Greenland asked the government for subsidies matching those given to their primary foreign competitors. The government again declined to give formal protection. ₁₁₃ Herring fishing was a large and important sector that also found itself in trouble. The government first dropped all export duties, and eventually paid out subsidies, but the number of ships involved fell rapidly in the middle of the eighteenth century. Some municipal governments began to give fishermen subsidies as early as the 1750s, and this soon developed into provincial assistance. ₁₁₄

One significant period of sectoral conflict over foreign economic policy came during the only years during relative decline when there was also a stadholder (William IV, 1747–1751). In 1751, William IV proposed a general reduction in the duties placed on goods imported for the purpose of reexport, as well as on imports of raw materials, while maintaining higher duties on imports consumed within the Netherlands. The plan was to rearrange the customs to maintain state revenues, and help manufacturing without harming commerce or finance. If forced to choose between sectors, it remained clear that manufacturing would be sacrificed to commercial interests. ₁₁₅ These regulations were never imposed, because of William IV’s death soon thereafter, and the outbreak of the Seven Years’ War.

Politically, the split deepened until two urban movements had formed in the 1770s. On the one hand, there were the “Orangists,” who were linked to the Prince of Orange. These people tended to be active in domestic commerce and industry. On the other side stood the “Patriots,” who represented the internationally oriented merchant and shipping interests. ₁₁₆ This has led some scholars to conclude that the divergence of interests between manufacturing and finance, with the financial and commercial sectors defeating the interest of others, stunted Dutch economic development. The pieces of evidence supporting this position are quite ambiguous though. Where manufactures might still be competitive, manufacturers would still have an interest in keeping trade relatively open, so a simple analysis that would expect all manufacturers to push for tariff protection would not find the expected results. ₁₁₇

Unable to adjust the tax situation favorably, to retaliate against foreign competitors via tariffs, or to introduce a wide system of subsidies, the less competitive manufacturing sectors suffered accordingly. The financial and commercial sectors, which were on the whole still competitive, successfully defeated each proposed change in policy. In terms of monetary policy, and the role of the Bank of Amsterdam during this period of relative economic decline, debates centered around the high value of bank-money. The Bank sided with the commercial and financial sectors, wishing to maintain the high international value of bank-money. Because the Bank was managed indirectly by the municipal authorities in Amsterdam, and Amsterdam’s interest remained more solidly in international trade and services, the Bank’s policies were never seriously challenged.

Even as the role of Dutch transportation declined, many of those merchants who had operated ships shifted their businesses into finance. The role of Amsterdam and other ports as entrepôts declined, but these same centers remained clearinghouses for international financial transactions. Their dominance in these areas of economic activity can be found in many examples. For instance, there were no official quotations for the exchange rate between Britain and Russia prior to 1763, for all payments between these two countries were handled via Amsterdam. ₁₁₈

Another area of activity generating profits for the financial sectors was foreign investment. Much of this was in the form of loans to sovereign governments—the very agents instituting the mercantilist policies squeezing out the industrial sector! One estimate places the total amount of foreign loans in 1790 at more than three times the national income. ₁₁₉ These loans were not intended to facilitate a reexpansion of trade which would foster Dutch economic recovery, but instead were a substitute for domestic investment opportunities. ₁₂₀ While some argued that the capitalists had a duty to support their own economy, it is apparent that Dutch capitalists were merely pursuing the highest possible profits they could locate. ₁₂₁

Throughout all these internal conflicts, there is little evidence of a split between the financial arms of the government and the Bank of Amsterdam. This can be traced to several factors. Interest rates were still relatively low in the Netherlands, even though more and more government expenditure serviced government debt. The Bank also began making extensive secret loans to the government (against the letter of the Bank’s charter, but then again the municipal government of Amsterdam itself was ultimately the owner of the Bank). Finally and perhaps most importantly when compared to the cases discussed in the previous chapters, it must also be noted that the Bank was using market intervention to support the high rate of bank-money versus domestic currency, not manipulating domestic interest rates—because the international medium of exchange was separate from domestic money, the international currency could be supported without affecting the domestic money supply; in supporting the international money the Bank would actually be pushing the domestic money down in value thereby making the government’s debt easier to service.

With the decline in manufactures, shipping, and other economic activity, how was the Netherlands able to maintain a positive balance of payments? The fishing and shipping that did take place continued to earn a positive income, and the financial services (plus receipts on foreign investment and annuities) covered the capital outflows of new investment abroad. The size of the payments received on foreign loans is important, for it had the effect of maintaining the exchange rate of the guilder. Foreign currencies remained cheap, which had the predictable effect on trade of increasing the competitiveness of foreign goods coming into the Netherlands and making Dutch exports less competitive. ₁₂₂

The Bank maintained the exchange rate for bank-money relatively unchanged from 1700 to 1775. Such a policy supported the activities of the financial and service sectors, but prevented the use of devaluations, which might have increased the competitiveness of manufacturing. The Bank of Amsterdam and other monetary authorities were clearly able to resist pressures from the manufacturing and agrarian communities to change the exchange rate in the favor of exports, most likely because the sectors most important in the city of Amsterdam itself were tightly involved in financial services, and could make themselves heard through the municipal government and control the Bank’s policies. Agrarian and manufacturing interests had only weak access to the Bank’s decisionmaking. These sectors tended to be concentrated in other provinces.

 

How the Bank’s Limitations Led to Amsterdam’s Decline as a Financial Center

Because the Bank of Amsterdam was not a true central bank, it could not maintain the stability of the Dutch financial system. A true central bank would have had control over the domestic supply of money and credit. The Bank of Amsterdam had control over bank-money alone, not domestic currency more generally. Moreover, it had few tools for controlling the expansion of credit in the Netherlands. Without the policy instruments to control credit or the discounting of bills of exchange, destabilizing expansions and contractions of credit could not be prevented. This became problematic in the late 1700s, after the financial sector had grown to be quite large, and developed considerable international links. Problems that arose elsewhere would spill over into the Dutch financial system, which then could not cope with them. This was particularly important when there was a credit overexpansion, followed by a liquidity squeeze. The greatest difficulties arose from credit expansions driven by speculation, as happened in the 1720s with the South Seas Bubble in London and the failure of Law’s System in France.

Another significant crisis occurred in 1763, when the Seven Years’ War led to problems with the performance of loans to Austria. Once the war was over, yet another crisis erupted when Prussia moved to introduce a new, more sound currency. To prevent overissue during the transition, the Prussian government tried to recall all existing currency before releasing the new coins. This naturally led to a liquidity crunch in Prussia, which due to links with Dutch financiers created a reduction in liquidity internationally. In London the Bank of England, armed with better policy instruments, could exert stronger support for healthy financial concerns. Without such an ability, the strength of the Bank of Amsterdam was of no use in coping with problems. Indeed, the Bank’s own holdings may well have been at their strongest in the 1760s, but since there was no way for the Bank to tap into its holdings to extend credit (its charter did not allow it to make loans), there was no way to use this strength to assist firms. ₁₂₃ As a result, some financial firms collapsed, causing some of the business traditionally handled by the Dutch to be lost to English financial houses forever.

Throughout these crises, the Bank itself remained healthy. As a giro bank, the Bank of Amsterdam was supposed to hold currency at the full level of deposits. It had won international renown during the first wars between the Dutch Republic and France under Louis XIV. The French troops had swept into the Netherlands, and brought the Republic to the brink of collapse. Frightened individuals, and those trying to flee, chose to liquidate their holdings, which broke some banks in the Netherlands. The Bank of Amsterdam handled any and all demands placed on it, which undoubtedly led fewer of its depositors to test its strength then or in later crises. The reputation earned in this instance continued to be held for long afterward despite overcommitment of the Bank’s resources.

By the middle of the seventeenth century, the right to demand payment on deposits was considered practically obsolete. It appears that the Bank’s Commissioners were able to prevent the convertibility of bank-money into bullion by skillful operation of the exchange markets. At any rate, despite an apparent inability to meet all possible demands at once, the Bank continued to be sound until the 1780s. (As already mentioned, the Bank was trading its deposits of bullion with the United East India Company, and extending secret loans to government bodies.) Another factor may have been foreign depositors’ belief in the Bank’s strength. With no public information about the Bank’s holdings, they never doubted its reputation. ₁₂₄

In fact, at some point in the eighteenth century the Bank lost its ability to pay off most of its depositors had there been a serious run on the Bank (although it was also quite strong at several points in time during the eighteenth century, such as in the 1760s). The Bank never came close to facing the consequences of the overhang because its reputation remained intact. Depositors rarely asked for their accounts to be converted into coin. The attractiveness of bank-money was one reason, but the Bank’s directors also kept up the premium on bank-money vis-à-vis circulating coin. Whenever bank-money’s margin of value over circulating coin fell beneath 4.25 percent, the Bank purchased bank-money, and whenever it rose above 4.875 percent, they sold. ₁₂₅ The lack of an attractive rival currency surely factors in to the Bank’s ability to maintain its reputation as well.

Serious problems for the Bank arose after the outbreak of the Fourth Anglo-Dutch War in 1781, for this meant the bulk of Dutch investments abroad (overwhelmingly placed in England—primarily with the government) would not be performing, and individual demands for withdrawals from the Bank increased rapidly. At the same time, the Dutch East India Company was asking for unofficial loans to cover wartime losses, as did some other commercial actors. The government too asked for loans. The Bank was weakened, and would never recover before the French invasion in 1794. It was only after the upheavals of the French Revolutionary and Napoleonic Wars that the Bank was liquidated. ₁₂₆

Undoubtedly, it was the lack of any serious rival international currency that saved the Bank of Amsterdam from facing a serious run on its resources. With no real alternative to turn to, international merchants were not likely to challenge the position of the Bank of Amsterdam. In response to the overcommitment, the Bank merely adjusted the price of its currency through skillful trading. In terms of the argument identified in chapter 1, the Bank had to keep the exchange rate of bank-money high, which qualifies as afterglow, but this was not opposed by the finance ministries or any other institutions.

 

The Bank of Amsterdam and the Afterglow Hypothesis

This particular case illustrates a number of points, and stands in vivid contrast with the cases of the Bank of England and the Fed. The Bank of Amsterdam was clearly created to assist in the provision of an international medium of exchange to serve the interests of the merchant community. It was designed to reduce liquidity in the Dutch financial system and to assist in the federal government’s creation of coins exercising more confidence internationally. One might have expected it therefore to look more like the Bank of England which was given the similar task of reducing liquidity in order to strengthen domestically produced currency. The Bank of Amsterdam’s key shortcoming was its inability to control the coins actually produced—that remained in the hands of the mints, which failed to produce the strengthened coins. The failure to establish these new coins accidentally led to the creation of bank-money, which allowed the Bank to internalize international transactions. The Bank then controlled the value of bank-money, and maintained it at a high and steady rate for more than a century.

The impact of this overvaluation of the international currency achieved its immediate goals—maintaining confidence in the currency and the Bank itself—without having broader spillovers into other policy areas (namely, restrictive contractions of the domestic money supply). The stability and security of the Bank helped Dutch merchants and the Dutch financial services sectors maintain their competitiveness in the face of rivals until late in the eighteenth century. The high value of the currency did not have the expected effects of an afterglow on the domestic economy, because bank-money was not used for domestic circulation (though certainly some domestic transactions did occur in bank-money). These other sectors were probably hurt more by the high debts the government had, and the taxes that went along with this high debt, than by the high value of bank-money. Bureaucratic politics between the Bank and the government’s financial ministries did not emerge because the Bank’s actions did not interfere with the financial authorities’ actions—and indeed the Bank’s extensions of loans helped. Without any sort of split between the bureaucracies, there was no opening for sectoral interests that opposed existing monetary policies to exploit, either.

The weakness of the Bank of Amsterdam that eventually hurt the Dutch economy stemmed from its lack of all the powers of a central bank. Without policy instruments to control the domestic supply of credit, the Bank could not lend its strength to the financial sectors during periods of crisis. There was no check on credit expansion, no lender of last resort to provide healthy firms with assistance during the panic of a liquidity shortage. The rival financial center of London had arisen by the late eighteenth century, and the strength and stability of this center during crises (provided by the Bank of England’s interventions) meant the end of the Netherlands’ dominance in international finance.

 

Conclusions: A Deeper Understanding of the Dutch Failure to Lead

This examination of the Dutch attempt to lead liberalization of the international economy in the seventeenth and eighteenth centuries underscores some similarities with the cases covered in earlier chapters, while it also illuminates some important differences. In both cases under discussion in this chapter, provincial politics were pivotal in the failure to develop effective institutions of international leadership. Maintenance of the provincial mints prevented the plan for developing heavy trade coins from succeeding. The province of Holland’s continual distrust of military institutions headed by the Prince of Orange, and the failure to coordinate expenditures between the army and navy, meant that the Dutch military was less effective than it might otherwise have been. The lack of strong central authority undermined efforts to develop the institutional arrangements necessary to formulate and execute the policies to support liberal leadership, despite strong sectoral support for such policies.

Once the Dutch were overcommitted militarily, and bank-money was no longer adequately backed by resources, the story remains compatible with the model developed in chapter 1. Budgetary problems, the Barrier Treaty, and the continuation of the French threat meant the Netherlands’ militarily was overstretched and responded with policies of afterglow—it was unable to close the gap between resources and commitments. In the monetary realm, the overhang of bank-money was never a serious problem because a rival international currency never emerged. Moreover, as a municipal institution that generated its own operating funds, the Bank of Amsterdam’s financial position was largely separate from the budgetary problems of the provincial and national government. (If anything, its illegal loans helped them out.) It could, essentially, do the same things it had always done, despite its vulnerability to a run on its resources.

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Endnotes

Note 1: Here is where the difficulties of applying a bureaucratic politics argument show up most strongly, for it is difficult to identify where the impact of the office ends and the influence of personality begins.  Back.

Note 2: Herbert H. Rowen, The Princes of Orange: The Stadholders in the Dutch Republic (New York: Cambridge University Press), 1988, pp. 1–2.  Back.

Note 3: George Edmundson, History of Holland (London: Cambridge University Press, 1922), pp. 61–63.  Back.

Note 4: J. Ellis Barker, The Rise and Decline of the Netherlands (London: Smith Elder & Co., 1906), p. 103.  Back.

Note 5: Herbert H. Rowen, “Neither Fish nor Fowl: The Stadholderate in the Dutch Republic,” in Political Ideas and Institutions in the Dutch Republic (Pasadena: Castle Press, 1985), p. 3.  Back.

Note 6: Rowen, The Princes of Orange, p. 4; Alice C. Carter, Neutrality or Commitment: The Evolution of Dutch Foreign Policy 1667–1795 (London: Edward Arnold, 1975), p. 2.  Back.

Note 7: Rowen, The Princes of Orange, pp. 14–15.  Back.

Note 8: Ibid., p. 18.  Back.

Note 9: Edmundson, History of Holland, pp. 83–84; Rowen, The Princes of Orange, p. 36.  Back.

Note 10: Rowen, The Princes of Orange, p. 39.  Back.

Note 11: Herbert H. Rowen, John de Witt, Grand Pensionary of Holland, 1625–1672 (Princeton: Princeton University Press, 1978), pp. 136–137. During stadholderless periods, a grand pensionary clearly held even more control. See chapter 12.  Back.

Note 12: Barker, The Rise and Decline of the Netherlands, pp. 162–163.  Back.

Note 13: Ibid., pp. 175–176.  Back.

Note 14: Ibid., p. 177.  Back.

Note 15: Rowen, The Princes of Orange, p. 47.  Back.

Note 16: Barker, The Rise and Decline of the Netherlands, p. 179.  Back.

Note 17: Rowen, The Princes of Orange, p. 63.  Back.

Note 18: Ibid., p. 66.  Back.

Note 19: B. H. Slicher van Bath, “The Economic Situation in the Dutch Republic during the Seventeenth Century,” in Dutch Capitalism and World Capitalism/Capitalisme hollandais et capitalisme mondial, ed. Maurice Aymard (New York: Cambridge University Press, 1982), p. 29.  Back.

Note 20: E. N. Williams, The Ancien Regime in Europe, Government and Society in the Major States 1648–1789 (New York: Harper & Row, 1970), pp. 36–37.  Back.

Note 21: J. A. van Houtte, An Economic History of the Low Countries 800–1800 (London: Weidenfeld & Nicolson, 1977), p. 287.  Back.

Note 22: Carter, Neutrality or Commitment, p. 4.  Back.

Note 23: Edmundson, History of Holland, pp. 112–118; Alice C. Carter, The Dutch Republic in Europe in the Seven Years War (London: Macmillan, 1971), p. 24.  Back.

Note 24: Charles H. Wilson, Anglo-Dutch Commerce and Finance in the Eighteenth Century (Cambridge: Cambridge University Press, 1966 [reprint of 1941 original]), p. 5.  Back.

Note 25: Charles H. Wilson, The Dutch Republic and the Civilisation of the Seventeenth Century (London: World University Library, 1968), p. 26; and his The Transformation of Europe 1558–1648 (Berkeley: University of California Press, 1976), p. 43; Violet Barbour, Capitalism in Amsterdam in the Seventeenth Century (Ann Arbor: Ann Arbor Paperbacks / University of Michigan Press, 1963), p. 23.  Back.

Note 26: For data on the fall of Dutch interest rates, see Jan de Vries, The Economy of Europe in an Age of Crisis, 1600–1750 (New York: Cambridge University Press, 1976), pp. 211–212; James C. Riley, International Government Finance and the Amsterdam Capital Market 1740–1815 (New York: Cambridge University Press, 1980), p. 72; Sidney Homer, A History of Interest Rates (New Brunswick: Rutgers University Press, 1963), p. 178; and Angus Maddison, Phases of Capitalist Development (New York: Oxford University Press, 1982), p. 31.  Back.

Note 27: J. G. van Dillen, “The Bank of Amsterdam,” in History of the Principal Public Banks, ed. J. G. van Dillen (New York: Augustus M. Kelley, 1965 [reprint of 1934 original]), p. 79. Also see Pierre Vilar, A History of Gold and Money 1450–1920 (London: NLB, 1976), p. 205.  Back.

Note 28: Richard van der Borght, “The History of Banking in the Netherlands,” in The History of Banking in all the Leading Nations, Vol. IV, ed. William G. Sumner (New York: Augustus M. Kelley, 1971 [reprint of 1896 original]), pp. 192–193.  Back.

Note 29: van Dillen, “The Bank of Amsterdam,” p. 81.  Back.

Note 30: Ibid.  Back.

Note 31: Ibid., pp. 81–83.  Back.

Note 32: Ibid., pp. 84–85. Also see Barker, The Rise and Decline of the Netherlands, p. 144.  Back.

Note 33: van Dillen, “The Bank of Amsterdam,” pp. 83–84; Barbour, Capitalism in Amsterdam in the Seventeenth Century, p. 43  Back.

Note 34: John Porteous, Coins in History (London: Weidenfeld & Nicolson, 1969), pp. 183–184, 187, 190.  Back.

Note 35: J. G. van Dillen, Van Rijkdom en Regenten: Handboek tot de Economische en Sociale Geschiedenis van Nederland tijdens de Republiek (The Hague: Martinus Nijhoff, 1970), pp. 260–261.  Back.

Note 36: Ibid., p. 439. Also see Porteous, Coins in History, p. 197.  Back.

Note 37: van Dillen, “The Bank of Amsterdam,” pp. 92–93.  Back.

Note 38: Barbour, Capitalism in Amsterdam in the Seventeenth Century, p. 49.  Back.

Note 39: Shepherd B. Clough and C. W. Cole, Economic History of Europe, (Boston: D. C. Heath, 1946), p. 316; de Vries, The Economy of Europe in an Age of Crisis, 1600–1750, p. 230; James C. Riley, International Government Finance and the Amsterdam Capital Market 1740–1815 (New York: Cambridge University Press, 1980), p. 28.  Back.

Note 40: van Dillen, “The Bank of Amsterdam,” p. 100.  Back.

Note 41: van der Borght, “The History of Banking in the Netherlands,” p. 206. It might be added, though, that other exchange banks tried to follow the exchange rates of the Amsterdam bank currency, rather than create their own currency (see pp. 209–210). Also see the discussions in van Dillen, “The Bank of Amsterdam,” pp. 87–88, and his Van Rijkdom en Regenten, pp. 442–443.  Back.

Note 42: Rowen, John de Witt, pp. 25–26.  Back.

Note 43: Barker, The Rise and Decline of the Netherlands, p. 227.  Back.

Note 44: Rowen, The Princes of Orange, p. 84.  Back.

Note 45: Barker, The Rise and Decline of the Netherlands, p. 227; Rowen, John de Witt, pp. 26, 31.  Back.

Note 46: Carter, Neutrality or Commitment, p. 3; Rowen, John de Witt, pp. 32–35. Also see Herbert H. Rowen, “The Revolution That Wasn’t: The Coup d’Etat of 1650 in Holland,” in The Rhyme and Reason of Politics in Early Modern Europe, ed. Craig Harline (Boston: Kluwer Academic Publishers, 1992).  Back.

Note 47: Rowen, John de Witt, p. 41.  Back.

Note 48: Ibid., p. 44.  Back.

Note 49: Ibid., pp. 51–52 and Rowen, The Princes of Orange, pp. 95–96.  Back.

Note 50: Rowen, John de Witt, p. 48; and Pieter Geyl, The Netherlands in the Seventeenth Century, Part Two, 1648–1715 (New York: Barnes & Noble, 1964), pp. 22–23.  Back.

Note 51: Edmundson, History of Holland, p. 216; Barker, The Rise and Decline of the Netherlands, pp. 282–283.  Back.

Note 52: Rowen, John de Witt, pp. 80, 171.  Back.

Note 53: Ibid., pp. 198–199.  Back.

Note 54: Ibid., p. 173.  Back.

Note 55: Rowen, The Princes of Orange, pp. 104–106.  Back.

Note 56: Rowen, The Princes of Orange, pp. 106–107; also see his John de Witt, pp. 201, 232–233; Barker, The Rise and Decline of the Netherlands, pp. 297–299 - note Barker’s biased view favoring the Orangists.  Back.

Note 57: Rowen, John de Witt,, p. 206.  Back.

Note 58: Ibid., pp. 377–379.  Back.

Note 59: Ibid., p. 513; Rowen, The Princes of Orange, pp. 112–113.  Back.

Note 60: Rowen, The Princes of Orange, pp. 112–113, 118–119.  Back.

Note 61: Edmundson, History of Holland, pp. 227–228.  Back.

Note 62: Rowen, John de Witt, p. 175.  Back.

Note 63: Ibid., pp. 601–602.  Back.

Note 64: Edmundson, History of Holland, p. 238.  Back.

Note 65: Barker, The Rise and Decline of the Netherlands, p. 316.  Back.

Note 66: Geyl, The Netherlands in the Seventeenth Century, Part Two, pp. 86–89.  Back.

Note 67: Rowen, John de Witt, Chapter 28.  Back.

Note 68: Geyl, The Netherlands in the Seventeenth Century, Part Two, pp. 90–92.  Back.

Note 69: Rowen, The Princes of Orange, p. 121; Edmundson, History of Holland, p. 249.  Back.

Note 70: Geyl, The Netherlands in the Seventeenth Century, Part Two, pp. 104–105.  Back.

Note 71: Rowen, John de Witt, p. 798.  Back.

Note 72: Ibid., p. 812.  Back.

Note 73: Ibid., see Chapter 40.  Back.

Note 74: Ibid., pp. 846–847; Edmundson, History of Holland, p. 253.  Back.

Note 75: Rowen, The Princes of Orange, p. 125.  Back.

Note 76: Ibid., p. 133; Carter, Neutrality or Commitment, pp. 28–29.  Back.

Note 77: Carter, Neutrality or Commitment, p. 21.  Back.

Note 78: Edmundson, History of Holland, p. 285; Rowen, The Princes of Orange, p. 148.  Back.

Note 79: Carter, Neutrality or Commitment, pp. 28–29; and Geyl, The Netherlands in the Seventeenth Century, Part Two, pp. 303, 309–310.  Back.

Note 80: Carter, The Dutch Republic in Europe in the Seven Years War, pp. 18–19.  Back.

Note 81: Edmundson, History of Holland, p. 301.  Back.

Note 82: Rowen, The Princes of Orange, p. 154.  Back.

Note 83: Carter, Neutrality or Commitment, p. 64.  Back.

Note 84: Ibid., pp. 39–41.  Back.

Note 85: Carter, The Dutch Republic in Europe in the Seven Years War, pp. 130–131. Much more information is provided in J. R. Bruijn, De Admiraliteit van Amsterdam in Rustige Jaren 1713–1751: Regenten en financien, schepen en zeevarenden (Amsterdam: Scheltema & Holkema NV, 1970). See pp. 4–6 for the demobilizations after 1715, and chapter three for a discussion on incomes and expenditures (with the details on shortfalls provided in table 4 on p. 72).  Back.

Note 86: Edmundson, History of Holland, pp. 308–309.  Back.

Note 87: Rowen, The Princes of Orange, p. 163, and “Neither Fish nor Fowl: The Stadholderate in the Dutch Republic,” p. 24; Carter, Neutrality or Commitment, p. 74.  Back.

Note 88: Rowen, The Princes of Orange, pp. 175–176.  Back.

Note 89: Carter, The Dutch Republic in Europe in the Seven Years War, p. 13.  Back.

Note 90: Ibid., p. 22.  Back.

Note 91: Ibid., pp. 133–134.  Back.

Note 92: Rowen, The Princes of Orange, p. 188.  Back.

Note 93: Carter, Neutrality or Commitment, p. 80, and The Dutch Republic in Europe in the Seven Years War, p. 13.  Back.

Note 94: Carter, The Dutch Republic in Europe in the Seven Years War, pp. 32, 42–44.  Back.

Note 95: Carter, Neutrality or Commitment, p. 89.  Back.

Note 96: Carter, The Dutch Republic in Europe in the Seven Years War, p. 59.  Back.

Note 97: Ibid., pp. 121–122.  Back.

Note 98: Ibid., p. 123.  Back.

Note 99: van der Borght, “The History of Banking in the Netherlands,” p. 204.  Back.

Note 100: van Dillen, “The Bank of Amsterdam,” p. 85; Barbour, Capitalism in Amsterdam in the Seventeenth Century, pp. 57–58.  Back.

Note 101: Riley, International Government Finance and the Amsterdam Capital Market 1740–1815, p. 28.  Back.

Note 102: Geoffrey Parker, “The Emergence of the Modern Finance in Europe, 1500–1730,” in The Fontana Economic History of Europe, the Sixteenth and Seventeenth Centuries, ed. C. M. Cipolla (Glasgow: Collins/Fontana, 1974), p. 551.  Back.

Note 103: de Vries, The Economy of Europe in an Age of Crisis, 1600–1750, p. 121.  Back.

Note 104: van der Borght, “The History of Banking in the Netherlands,” p. 201.  Back.

Note 105: Vilar, A History of Gold and Money 1450–1920, pp. 206–207. In the early eighteenth century, other exchange banks had to offer much higher premiums between banco-currency and circulating coin—in Hamburg the rate fluctuated between 5 and 14 percent, in Frankfurt it stayed closer to 18 percent, and in Venice near 20 percent. See Paul Einzig, The History of Foreign Exchange (London: Macmillan/St. Martin’s, 1970 [2nd edition]), p. 125.  Back.

Note 106: Simon Schama, Patriots and Liberators: Revolution in the Netherlands 1780–1813 (London: Collins, 1977), p. 29.  Back.

Note 107: For an example of the realization of the parallels between the decline of the Netherlands and Britain, see Barker, The Rise and Decline of the Netherlands, p. 5. His discussion of the causes of the Dutch decline can be found in the final chapter of the book. In Johann de Vries, De Economische Achteruitgang der Republiek in de Achttiende Eeuw (Leiden: H. E. Stenfert Kroese N. V., 1968 [second edition]), p. 175, the importance of the “commercial tradition” as a barrier to industrial development is emphasized.  Back.

Note 108: Schama, Patriots and Liberators, pp. 30–32.  Back.

Note 109: Ibid., p. 37. For an opinion of a Dutch contemporary, see Van de Speigel’s “Schets tot een vertoog over de intrinseque en relative magt van de Republijk [1782],” in The Low Countries in Early Modern Times, ed. Herbert H. Rowen (New York: Harper & Row, 1972), especially p. 245.  Back.

Note 110: Schama, Patriots and Liberators, pp. 37–40. The impact of high wages is seconded by Hendrik Willem Van Loon, The Fall of the Dutch Republic (New York: Houghton Mifflin, 1913), p. 46.  Back.

Note 111: Van Loon, The Fall of the Dutch Republic, p. 46.  Back.

Note 112: de Vries, De Economische Achteruitgang der Republiek in de Achttiende Eeuw, p. 47.  Back.

Note 113: Barker, The Rise and Decline of the Netherlands, pp. 414, 420–421.  Back.

Note 114: Van Loon, The Fall of the Dutch Republic, pp. 60–61; van Houtte, An Economic History of the Low Countries 800–1800, pp. 287–288; C. R. Boxer, “The Dutch Economic Decline,” in The Economic Decline of Empires, ed. C. M. Cipolla (London: Methuen, 1970), p. 244.  Back.

Note 115: Charles H. Wilson, “The Economic Decline of the Netherlands,” Economic History Review 9 (2) (May 1939): 117.  Back.

Note 116: Wayne Ph. Te Brake, Regents and Rebels: The Revolutionary World of the Eighteenth-Century Dutch City (Cambridge, MA: Basil Blackwell, 1989), pp. 39, 169–170.  Back.

Note 117: Riley, International Government Finance and the Amsterdam Capital Market 1740–1815, pp. 227–228.  Back.

Note 118: Charles H. Wilson, Economic History and the Historian (New York: Praeger, 1969), p. 59; Barbour, Capitalism in Amsterdam in the Seventeenth Century, p. 48.  Back.

Note 119: Maddison, Phases of Capitalist Development, p. 33; Homer, A History of Interest Rates, pp. 175–176.  Back.

Note 120: Riley, International Government Finance and the Amsterdam Capital Market 1740–1815, p. 220.  Back.

Note 121: de Vries, De Economische Achteruitgang der Republiek in de Achttiende Eeuw, p. 176. He also believes this tradition of foreign lending, which continued well into the nineteenth century, went on longer than could be economically justified.  Back.

Note 122: Riley, International Government Finance and the Amsterdam Capital Market 1740–1815, pp. 220–222.  Back.

Note 123: Wilson, “The Economic Decline of the Netherlands,” pp. 120–125; de Vries, De Economische Achteruitgang der Republiek in de Achttiende Eeuw, pp. 76–77.  Back.

Note 124: van Dillen, “The Bank of Amsterdam,” p. 109, and also his Van Rijkdom en Regenten, p. 447.  Back.

Note 125: van Dillen, Van Rijkdom en Regenten, pp. 446–448. As for coins actually minted by the Dutch Republic in the eighteenth century, the gold dukaat acquired a wide popularity internationally. Also, the silver dukaat was minted expressly for export.  Back.

Note 126: Barker, The Rise and Decline of the Netherlands, p. 436.  Back.