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The Rise of Commercial Empires: England and the Netherlands in the Age of Mercantilism, 1650-1770

Author(s):Ormrod, David
Reviewer(s):Hohenberg, Paul M.

Published by EH.NET (December 2003)

David Ormrod, The Rise of Commercial Empires: England and the Netherlands in the Age of Mercantilism, 1650-1770. New York: Cambridge University Press, 2003. xvii + 400 pp. $75 (cloth), ISBN: 0-521-81926-1

Reviewed for EH.Net by Paul M. Hohenberg, Department of Economics, Rensselaer Polytechnic Institute.

The late Charles Kindleberger liked to quote an unnamed physicist to the effect that “everything is much more complicated than most people think.” He was an economist who turned to economic history, yet it is usually scholars coming to the subject from history who assert the complexity of the individual case as a critique of the sweeping generalizations and simplified, universal models that economists favor. The present volume can stand as evidence in favor of the view that things indeed get complex when one digs deeply into any subject. David Ormrod (Senior Lecturer in Economic and Social History at the University of Kent in Canterbury, England) has been exploring the commerce of England and Holland in the early modern period for many years. The present book is an outgrowth of research begun for his doctoral dissertation (completed in 1973) and presented at a Montreal colloquium the next year, whose bi-lingual Proceedings this reader happened to co-edit (1975). In fact, the book limits itself pretty much to the commerce of the North and Baltic Seas and to the related industries. Long-distance trade and financial matters get much less attention.

Ormrod has cast his progress through the thickets of history in the framework of recent debates on the role of institutions, notably the central state, in the process of economic development. He sides with those, such as Epstein (2000), who see a positive role for the activist state, and by inference against the view championed by Douglass North and others that government’s main contribution is to reinforce property rights and then stay out of the way. The rise of Britain can be attributed, Ormrod argues, largely to successful and sustained mercantilism. Messy and drawn out its execution may have been, but the combination of policies represented by the Navigation Acts, a strong navy, and protectionism resulted in Britain’s capturing gains from trade as well as achieving fruitful import substitution. The argument is fairly persuasive, although one thinks of the year 1776, after a century or so of such “success,” and recalls two events: the rebellion of the most populous colonies and Adam Smith’s magisterial rejection of the whole mercantilist paradigm.

The book focuses tightly on England and the Netherlands (really Holland), and somewhat more on the first. It is clear that including France and Spain, for instance, would have brought out the limits of British government action and the beneficial effects of this relative restraint. The binary comparison points up the role of the British state, and may therefore slight the crucial response of the private sector to the opportunities that mercantilist policies opened up. Still, the idea that development owed a lot to long-sustained and purposeful political action in an age of radical social inequality is worth pondering since it is so distinctly unfashionable — somewhat akin to challenging the prevailing skepticism regarding China’s current strategy of vigorous economic reform coupled with glacial political change. Can it really work for any length of time?

The book does address the long-running debate about Holland, of course. Did the Republic “decline” in the eighteenth century, and if so, why? Here Ormrod takes issue with Jan de Vries and Ad van der Woude who defiantly label the Dutch economy “modern” (1997). In Ormrod’s view, since state formation and action proved critical to development, the Dutch Republic should be seen by contrast as the last — and most highly developed — of the pre-modern city states (really a federation of city states). A strong central state presiding over a unified domestic market is the true sign of modernity, on this showing, something the Dutch did not develop. And, of course, if British growth indeed owed much to mercantilist policies, then Dutch decline is a direct corollary. Mercantilism was after all based on a view of the world as very nearly a zero-sum game. Growth and decline may be relative, but hegemony or leadership is not.

English mercantilism was in large part about acquiring market power in trade, as well as reducing that of their rivals. What had made the Dutch prosperous was not just trade, but trade with market power, along with efficient intermediation, from shipping and entrepot trade to banking. Competition, notably from England, hurt Dutch profits even more than the volume of Dutch trade, even as Britain adopted effective Dutch practices. In fact, Ormrod appears to argue that part of the Dutch problem came from tying up capital in low-margin lines. Another economic aspect that figures strongly in the book is the trade-off between tariffs and taxes to finance the state, especially in times of frequent conflict. While protection can be costly in partial equilibrium — less so when one works the infant-industry game as well as the English did — tariff revenues, even net of rebates, etc., did help keep taxes in Britain lower than in the Netherlands.

Of course another, more materialistic interpretation of Dutch difficulties is consistent with the evidence, and it too is part of Ormrod’s story. The Republic was vulnerable as a (natural) resource-poor country heavily dependent on trade for its subsistence, its wealth, and its employment, including processing industries such as dyeing, printing, and food processing. The energy sector is telling. The one domestic Dutch source, wind aside, was peat, a depletable asset with no real scope for innovation. England, on the other hand, had enough coal for a couple of centuries of industrial development, and developed steam engines as well as coal-based metallurgy to help mine, transport, and consume the superior fuel. Diminishing returns on one side and a stimulus to enormous technological change on the other: who cares about institutions!

I have tried to bring out the bones of Ormrod’s thesis, but the potential reader needs to be warned that they are pretty well buried in the book itself. This is no easy read. Most of the text consists of dense discussion of details, significant to be sure, but not always easy to relate to the larger questions. Sources, data, business organization, and earlier interpretations are subjected to thick description and close analysis. Long chapters cover trade in wool, linen, grain, and coal, as well as shipping, commercial policy, and the Dutch staplemarket. Part of the problem no doubt stems from the fact that this is a reworking of much older material, part also from a Weltanschauung that shuns simplification and revels in the fruits of archival research. Still, the patient reader can find here much information and fodder for some important questions. As for what is modern, that debate will no doubt go on.

References:

Jan de Vries and Ad van der Woude, The First Modern Economy: Success, Failure and Perseverance of the Dutch Economy, 1500-1815 (New York: Cambridge University Press, 1997).

Stephan R. Epstein, Freedom and Growth: The Rise of States and Markets in Europe, 1300-1750 (New York: Routledge, 2000).

Frederick Krantz and Paul M. Hohenberg, editors, Failed Transitions to Modern Industrial Society: Renaissance Italy and Seventeenth-Century Holland (Montreal: Interuniversity Centre for European Studies, 1975).

Paul M. Hohenberg is Professor Emeritus of Economics at Rensselaer Polytechnic Institute. He is the author, with Lynn Hollen Lees, of The Making of Urban Europe, 1000-1994 (Harvard University Press, 1995).

Subject(s):Markets and Institutions
Geographic Area(s):Europe
Time Period(s):18th Century