The Political Economy of the Dutch Republic

Published by EH.NET (April 2010)

Oscar Gelderblom, editor, The Political Economy of the Dutch Republic. Aldershot, UK: Ashgate, 2009. xv + 329 pp. $125 (cloth), ISBN: 978-0-7546-6159-7.

Reviewed for EH.NET by D?Maris Coffman, Centre for Financial History, Cambridge University.

This long-awaited volume should be a starting point for anyone who requires a grounding in the fiscal history of the Dutch Republic and the so-called ?Dutch model? of public finance as understood in the Anglophone literature. Yet despite the unassuming title, this collection of essays should be seen as much more than just required reading for fiscal historians of early modern Europe. Gelderblom?s placement of political economy ? defined by Adam Smith as a ?branch of the science of a statesman or legislator … [that] proposes to enrich both the people and the sovereign? (p. 2) ? at the center of the project offers a compelling example of a ?new financial history? that integrates studies of fiscal and monetary history with contemporary economic thought, political culture, economic and social realities, and great power relations. The result is that rare collection of essays that delivers far more than it promises.

In keeping with most contemporary fiscal history, Gelderblom?s introduction uses North and Weingast?s (1989) model for Britain as a framework for considering the Dutch Republic?s fiscal and financial innovations. Yet he emphasizes the need to consider continuities with Burgundian-Habsburg practice, as well as the possibility that by the eighteenth century even the most impressive ?fiscal, financial and economic reforms [were] simply not sufficient in competition with larger powers? (p. 6). The chronological sweep of the work is as impressive as its methodological reach.

In the opening essay, Erik S. Reinert offers an original and refreshing discussion of contemporary economic thought, particularly as it bore on the way in which foreign observers analyzed the structural properties of the Dutch economy. Reinert?s observation that the ?context-specific? quality of ?mercantilism has some clear analytical advantages over neo-classical economics as a tool to understand the rise and fall of the Dutch Republic? is appealing given the failure of mainstream economics to anticipate, diagnose, much less remedy, our own current financial and economic crisis (p. 19). The mercantilists? recognition (by no means uncontested) that ?economic wealth was not a zero-sum game? (which Reinert ascribes to Giovani Botero) permitted a distinction between ?feudal rents? and ?manufacturing rents,? ?trading rents,? and ?raw-material based rents? (p. 24). Their analytical stance, recognizable in managerial economics today, was to ask how particular nations might emulate their more successful neighbors. Yet unlike Adam Smith, whose analysis of Dutch decline floundered at the level of abstraction, these authors were also concerned with ?England?s success in ?blowing the Dutch out of the waters?? (p. 35). In some sense, the remainder of this collection serves as an extended meditation on whether or not contemporaries had it right.

James Tracy?s chapter, entitled ?Holland?s New Fiscal Regime,? makes a penetrating point about contingency. Despite Holland?s success in developing funded long-term debt instruments in the middle of the sixteenth century, the province was forced to devolve fiscal responsibility onto the towns (whose burghers demanded that in return for access to lucrative excise revenues) and even resort to short-term borrowing to meet the demand for new military expenditure amidst the Dutch Revolt. As with mid-seventeenth century England, knowledge of, and success with, certain institutional practices was not sufficient to ensure their survival. Rebuilding Holland?s credit, as Tracy observes, was about more than sound institutions; it required the cooperation of local elites.

Wantje Fritschy?s chapter on fiscal efficiency in Holland takes up the story with the Union of Utrecht. This chapter, rich in empirical detail, will be valuable to specialist audiences. For the general reader, the most important conclusion is simply that those ?stylized facts? about the inefficiency of tax collection in the province do not bear up under close scrutiny. Fritschy argues that elites were convinced of ?the utility of the public goods paid for by taxation? (p. 82). Jan de Vries? essay on the municipal regulation of bread prices continues in a similar vein the collection?s exploration of institutional practices. The distinction between the fixed and variable costs of bread production led to a ?fully monetized allocation of costs? (p. 90). Since consumers who could afford wheat bread preferred it to rye, the authorities were able not only to back-shift the economic incidence of the excise onto producers of grain, but also to cross-subsidize the production of rye bread (p. 98-99). As a result, the Dutch Republic was the only fiscal regime in Europe to tax successfully a product as necessary as bread, that ?staff of life? (p. 114).

Marjolein ?t Hart turns her attention to the Dutch Republic?s relations with its creditors, which she puts in a comparative perspective with France and England. She finds that not only was the market for public bonds robust, mature and transparent, but also, and crucially, that there existed a high level of mutual trust between state and local levels (p. 141). Specialists will delight in her reconstruction of the family networks of the Amsterdam receivers, their role as ?semi-public banks? and the details of the various annuities. The general reader, however, will be able to see why the Dutch public loans enjoyed such a relatively low rate of interest.

Marteen Prak and Jan Luiten van Zanden?s intriguing essay on ?tax morale? and ?citizenship? takes up the ideological basis for Dutch taxation. For them, as for the others, the cardinal case was Holland. While their focus on citizenship seems, at times, a bit strained, the conclusion that compliance turned on both the quality of the public goods delivered and the stakeholder interest in ?community? is entirely convincing. By contrast, Bas van Bavel?s discussion of rural development and landowning patterns in Holland dates the structural changes to the sixteenth century. Consolidations of tenancy and the growth of burgher landownership encouraged capital investment in infrastructure (via the water management boards) and the development of rural capitalism (p. 193). As Milja van Tielhof argues in the succeeding essay, the financing of water management did not always involve a proportional division of costs (p. 220). By the eighteenth-century, the morgengeld system appeared to be collapsing under its own weight.

Gelderblom?s essay on long-distance trade shifts attention away from the internal dynamics of the Dutch economy to the international arena. His tight comparison of the Dutch Republic and England (1550-1650) is helpful. From a fiscal standpoint, the Dutch benefited from more efficient species of indirection taxation, which funded the sale of annuities and bonds on open markets. In this account, the trade in VOC shares plays an important but secondary role. Yet for the author, the story is largely one of changing factor costs and with them shifting comparative advantages. Once England began to emulate the Dutch Republic in earnest, the outcome could hardly be doubted.

Richard Yntema?s exploration of the interprovincial Dutch beer trade turns on provincial trade policies. Although the Union of Utrecht established free trade, by the 1620s and 1630s the principle had come under pressure from powerful provincial brewing interests. The resulting ?tariff wars? had all but killed off interprovincial trade in beer by the early eighteenth century (p. 288). For the general reader, Yntema?s case study suggests an exception to the conventional wisdom that the Dutch Republic enjoyed a well-integrated economy.

In the final essay, Thomas Poell recounts the last two decades of the Dutch Republic. As elsewhere in Europe, Dutch revolutionaries found it difficult to dismantle the corporate structure of the state (p. 319). Poell?s narrative of the contest between unitarists and federalists sheds considerable light on the challenges, as well as the nature of local allegiances with the French. In what seemed little more than a throwaway remark at the very end, Poell compares the French failure in the Netherlands with their failures in Switzerland and Northern Italy. Yet in many ways, the similarities run deep.

The very institutional innovations, which coupled with the flexibility of state practices and the ideological commitments of elites to their local communities made it possible for the Dutch Republic to exploit her comparative advantages so successfully in the sixteenth and seventeenth centuries, in turn, made the Netherlands less competitive, as greater powers came on stream in the late seventeenth and eighteenth centuries. Institutional reforms may not have staved off ?Dutch decline.? Both the general reader and the specialist alike will come away from this collection of essays with a much better understanding of why.

D?Maris Coffman is the Mary Bateson Research Fellow at Newnham College of Cambridge University. There she directs the Centre for Financial History, which was founded in July 2009 with a generous grant from Winton Charitable Trusts. At Cambridge, she supervises students in economic and social history and lectures in financial history for the MPhil course. Email: ddc22@cam.ac.uk.