And in 1679, after one of several wars against the Dutch, Colbert wrote that Marseilles was “a city which must be employed in a constant trading war against all foreign commercial cities,” as Heckscher quoted him. And Heckscher cited the English mercantilist Roger Coke who tried to rouse the English against the Dutch with his pamphlets: “…The whole of his work is permeated with bitterness and envy of the Dutch.” William Petty aimed much of his work at “besting” the Dutch in the words of Joseph A. Schumpeter in his History of Economic Analysis.
Europeans did not hate the Dutch just because they were different and successful. In addition to pure envy, the wellspring of their enmity was a static view of wealth that was universally accepted – the idea that the total amount of wealth in the world is limited, like a pie. If one nation intends to increase the size of its slice of wealth, it can do so only by taking part of the slice of another. Authors from millennia past have expressed the thought that one man (or nation) cannot increase his wealth except at the expense of others. Such “limited wealth” economics dominates the thinking of most people on the planet today, including that of many professional economists and is the reason most poor nations in the world think they are poor because the rich West stole their wealth
Some of the greatest thinkers of the period espoused pie economics, including Roger Bacon according to Heckscher who commented, “Any attempt at economic advance by one’s own efforts in one country must therefore have appeared pointless, unless it consisted in robbing other countries of part of their possessions. Scarcely any other element in mercantilist philosophy contributed more to the shaping of economic policy, and even of foreign policy as a whole.” In France, Michel de Montaigne wrote in his “Essais” in 1580 that “no profit can be made except at another’s expense, and so by this rule we should condemn any sort of gain,” as reported by Erik S. Reinhert in “Benchmarking Success: The Dutch Republic (1500-1750).”
Since ancient Israel, the world had never seen a nation grow wealthy without having conquered another empire and looted its wealth as the Spanish were doing to the Stone Age empires in the Americas. So kings assigned their wisest advisors to figure out how the Dutch had done it. The result turned out to be a hodgepodge of mostly bad advice, such as that which Colbert implemented. Historians call it “mercantilism” but there was no unified theory. Had they merely read Pieter de la Courts’ excellent book on Holland they would have saved time and inflicted much less misery on their people. Nevertheless, the practice caused people to specialize in the subject of economic development and attempt to discover the Dutch secret. After de la Court, the French physiocrats were the first to see behind the veil, followed by Richard Cantillon and then Adam Smith. Essentially, those economists rediscovered the truths that de la Court had written about and before him what the Salamancan scholars had written.
The next chapter traces the influence of the Dutch on other European powers and how they responded.
Chapter 6 – Fading Empires
The French and English respond
The United Provinces fought Spain for eighty years to reach freedom, finally achieving it in 1647. Capitalism gave the Dutch a competitive advantage in shipping, freight rates, and finance and a wide range of higher quality manufactured goods. As a result, Dutch merchants dominated trade with all other European countries. It did not matter to the English or the French that trading with the Dutch lowered the cost of living for their own citizens; they had eyes only for the gold from the king’s treasury sailing for Holland. They allowed the Dutch only a short rest from warfare because of their envy and medieval economic theories.
Rather than learn from the Dutch and improve their own efficiency, the French and English chose to try to conquer and loot their competitor. In 1651, the English passed the Navigation Acts to limit trade with the Dutch. Both England and France passed volumes of protectionist legislation. When those failed to slow Dutch success, the English resorted to violence. Under Cromwell, a Protestant, the English attacked in 1652 and fought until agreeing to a peace settlement in 1654. They attacked again in 1664 but lost the war three years later, although they managed to keep the Dutch colony of New York in North America.
The French chose to combat the Dutch economic juggernaut by having the state control French commerce. King Louis XIV appointed Jean-Baptiste Colbert, revered by the French as the Great Colbert, as Minister of Finances in 1665. Colbert held the position until 1683. He raised tariffs, built state-owned industries to produce a variety of goods, prevented many workers from emigrating, and created monopolies on trade with the Middle East and Africa. He wrote quality standards for many products and imposed severe punishments for producing inferior goods. To protect existing cloth makers, for example, Colbert outlawed calico prints and a few who broke the law paid with their lives.
Colbert did some good for the state by rationalizing the tax collection system and building roads. But after one of his speeches to businessmen advertising all he had done for them, he asked what else he could do. A businessman in the back shouted “Laissez-nous faire!” or “leave us alone.” The speaker has remained anonymous, but he gave us one of the most important terms in economics: laissez faire. In spite of Colbert’s vigorous efforts over two decades, the French economy did not prosper. Apologists for Colbert point to the drain on state finances caused by war, but the truth is that the measures Colbert implemented could never have increased the wealth of the French people but could only impoverish them further. Still, governments continue to imitate Colbert’s methods, except for executing offenders of his policies.
In response to the massive failures of Colbert’s policies to lift standards of living, the French raised tariffs against Dutch imports to prohibitive levels. Portugal, Sweden, Denmark and Spain followed and inflicted enormous damage on the Dutch economy. But when the smoke of the commercial battle cleared, the Dutch still led the world in trade. French impatience boiled over in 1672 and they teamed with the English to launch a war against the United Provinces again. For the English, this was the third act of aggression against the Dutch in twenty-five years. The French marched up the Rhine with 120,000 troops against a Dutch force one-fourth that size, while the English attacked the smaller Dutch navy. The Dutch navy routed the English in almost every battle and forced Charles II to withdraw from the war in 1674. With the help of Austria and Spain, the Dutch chased the French out of their country, too.
Tensions remained high in Europe after the war, but Dutch trade rebounded. As the French economy withered, Louis XIV again resorted to high tariffs. The Dutch became convinced that France and England were about to join forces to attack again and their military leadership doubted that the little republic could survive another assault by the two leviathans. Their only chance of survival would be a preemptive strike against the weaker partner. So in 1688, one hundred years after the Spanish attempt at invading England, the Dutch launched a fleet of 453 ships, four times the size of the Spanish armada, across the channel. With William III at the head, the Dutch army entered London without firing a shot. William’s father-in-law, James II, fled to France.
The combined might of the United Provinces, England, the Habsburg Empire, and Spain proved insufficient to defeat the French and war dragged on for another nine years. The Dutch had planned the invasion of England in order to rescue their nation from certain military defeat, but it proved to have far greater consequences for the world. The English would call the Dutch occupation the Glorious Revolution, for “what occurred in 1688-9 changed Britain fundamentally, creating, for the first time, a stable, and powerful, constitutional monarchy, with parliament increasingly in the ascendant,” according to Israel.
The reign of William and Mary in England contrasted sharply with the previous regimes. In the earlier part of the seventeenth century, the Stuarts had initiated repeated fiscal crises that increased their debt, for which the monarchs alone were responsible. To pay expenses, they had forced the nobility to loan them money, sold monopolies, confiscat
ed wealth and trampled on property rights in general. William and Mary arrived armed with the Dutch way of organizing government and finance and a Christian respect for private property. Parliament began meeting regularly, assumed a greater role in governing and introduced excise taxes to fund the public debt, for which parliament shared ownership with the king.
In further imitation of Holland, parliament established the Bank of England in 1694 to manage the debt. These innovations empowered parliament to raise substantially more money at lower interest rates than ever before. The Dutch even gained indirect control of English foreign policy because a significant share of the borrowed funds came from the Netherlands and in order to attract the funds, English foreign policy had to please the Dutch lenders.
In addition, the Dutch-inspired parliament created an organized market for public and private securities, a more rational system of taxation and a smaller bureaucracy. The Dutch could not persuade parliament to allow English businesses the freedom that their Dutch counterparts enjoyed, and parliament continued to insist on state regulation of the economy as in France. Generally, though, parliament lacked the means to enforce regulations so that British entrepreneurs enjoyed a freedom that was rare on the continent outside of the United Provinces. Concerning the Dutch legacy in England, Nobel Prize winning economist Douglas C. North wrote in Institutions, Institutional Change and Economic Performance,
the fundamental changes in the English polity as a consequence of the Glorious Revolution were a critical contributing factor to the development of the English economy...The security of property rights and the development of the public and private capital markets were instrumental factors not only in England’s subsequent rapid economic development, but in its political hegemony and ultimate dominance of the world. England could not have beaten France without its financial revolution (Dickson, 1967); the funds made available by the growth in debt from 1688 to 1697 were a necessary condition for England’s success in the ongoing war with France as well as in the next one (from 1703 to 1714) from which England emerged the major power in the world.
The civic institutions that protected private property, limited the size of government, and created efficient and sound financial institutions prepared England for the coming industrial revolution, much of which the Dutch financed. Through its influence on England, the Dutch laid the foundations for similar institutions in the thirteen British colonies in North America, also. But they had a more direct influence through the founding of the Dutch colony of New York in 1624, and through their influence on the Pilgrims who had spent twelve years in Holland after leaving England.
Legacy in the British colonies
The Pilgrims who landed at Plymouth Rock were devout Calvinists and tried to build Geneva in the New World by controlling production and prices. From its founding, the colony practiced a form of socialism in which those with the ability worked while the government distributed the food according to need so that “all profits and benefits that are got by trade, traffic, trucking, working, fishing, or any other means” had to be deposited in a common storehouse and "all such persons as are of this colony, are to have their meat, drink, apparel, and all provisions out of the common stock,” as Richard Maybury quoted Bradford in “The Great Thanksgiving Hoax.”
The consequences were ugly and deadly. Bradford wrote in his book, History of Plymouth Plantation, that harvests of 1621 and 1622 were stingy, providing only enough to survive the winter. “The first ‘Thanksgiving’ was not so much a celebration as it was the last meal of condemned men,” Maybury wrote. The harvests were meager because many people refused to work in the fields when others who did not work received the produce. In addition, much of the produce was stolen before it was harvested. As a result, the colony suffered from corruption, confusion and discontent.
During their sojourn in the Dutch Republic, Bradford and the other pilgrims had considered Dutch Christians to be too greedy for material gain, so they left to establish a more spiritually minded society in the New World in which, like the early church in the book of Acts in the Bible, they held all material wealth in common. In his struggle to find a way to increase the food supply, Bradford may have remembered the great wealth of the Dutch Republic, especially the abundance of food, for which the Pilgrims had once held great contempt. Out of desperation, he decided to imitate the Dutch and resurrect the ancient idea of private property. He divided the land among the remaining families and instructed them that they could eat only what they raised for themselves.
The harvest of 1623 was so large that it surprised even the Pilgrims. Bradford wrote, “’instead of famine now God gave them plenty and the face of things was changed, to the rejoicing of the hearts of many, for which they blessed God.’ Thereafter, he wrote, ‘any general want or famine hath not been amongst them since to this day.’” In 1624 they began to export food.
But the Puritans continued to regulate commerce after the pattern of Calvin’s Geneva by setting prices and punishing merchants who earned more than a 5 percent profit in a year, or 5 percent interest on a loan to an individual or 10 percent on commercial loans. For example, in November 1639, a fellow merchant in Boston accused Robert Keayne of selling six-penny nails for ten pence a pound, in other words, of overcharging customers. Others flocked to denounce the merchant for similar crimes, accusing him of earning profits of up to 100 percent. The General Court fined him 200 pounds according to Mark Valeri in Heavenly Merchandize: How Religion Shaped Commerce in Puritan America. Keayne had apprenticed in England in the Christian humanist tradition of Erasmian Protestants that originated in the Dutch Republic before immigrating to Boston. Valeri wrote,
Hostile to religious sectarianism, northern humanists wrote in pragmatic terms about the need for European states to mitigate poverty and political oppression without degenerating into chaos, and they often turned to the new middle class, including its merchants, as agents of social reform. This ideology informed the civic leaders of the seventeenth-century Netherlands. Patriotic, nationalistic, and pragmatic, Dutch magistrates favored commerce, approved of increased personal consumption of luxury goods, and ignored Calvinist clergy who complained of secularism, materialism, and selfishness.
But the Puritan fathers of Boston would not tolerate merchants like Keayne. Sermons criticized every aspect of commerce. They condemned buying goods where they were plentiful, transporting then and selling them where they were scarce; trading in bonds, foreign notes, bills of exchange and other financial innovations; storing surplus goods when prices fell in order to sell them when prices rose; using notaries, lawyers and brokers; and earning any interest on loans. Valeri wrote, “Usury served as a synecdoche for the abuse of nearly any form of credit. Preachers made it synonymous with oppression when goods were sold on credit at unfair prices, with rent racking when lodging was provided on credit at inflated rates, or with unfair labor practices when debtors worked off their loans at low wages.”
The great Puritan theologian Cotton Mather preached that merchants should never charge more than the “intrinsic” value of goods or the price set by local custom, meaning the price determined by the town council. He and other Puritan leaders subscribed to a form of fatalism that may have followed logically from the Calvinist doctrine of predestination, which taught that God had chosen who will go to heaven before he created the universe. In a similar way, they believed God was sovereign over who gained wealth or lived in poverty and man had no say in it. Planning carefully in order to do well in business merely advertised one’s pride and denied the sovereignty of God.
After a series of sermons on trade by Mather, Keayne’s church, the First Church of Boston, formally censured him, “a punishment just short of excommunication,” according to Valeri. The government ordered a day of fasting by the public and “lamented the merchant’s ‘excessive Rates’ as a ‘Dishonor of Gods Name,’ an ‘Offence of the Generall Court,’ and the ‘Publique Scandall of the Cuntry.’” In a later sermon Mather compared Keayne’s offense
to Judas’ betrayal of Jesus for thirty pieces of silver. John Cotton likened merchants to King Herod in the Bible who became infatuated with his step-daughter after she danced for him and ordered the beheading of John the Baptist. The Boston church asserted the right to limit profits, assess the quality of workmanship, and judge the motives of businessmen.
The irony in the Puritan attitude toward commerce is that it did not come from the Bible, as they claimed, but from pagans such as Plato, Aristotle and Cicero. Puritans, following Calvin, took pride in the doctrine of sola scriptura, which meant they followed no Pope or tradition but the Bible only as the guide to godly living. They were unaware that the near idolatrous veneration of Aristotle and Cicero by the early church fathers had caused them to adopt the pagan Roman and Greek attitudes toward commerce and baptize them as Christian.
The pagan attitude issued from envy and the false notion that one man can gain only at the expense of another. Puritans expressed their envy in their constant concern for equality of wealth among their members. They preached that businessmen should not pursue profits, should limit commercial ventures, never charge interest and always gives alms on the spot to the needy. Thomas Hooker “condemned all creditors as hypocritical, mendacious, and covetous. The notion of a rich Christian, he claimed in equal excess, was a contradiction in terms,” according to Valeri. Puritans held up the example of Christians depicted in the first chapters of the book of Acts in the New Testament who sold all they had and shared their wealth the less fortunate, ignoring the fact that the incident was unique and did not become a pattern for the church in the following years, though Christians always practiced charity. They labeled the practice of raising prices an oppression of others.
God is a Capitalist Page 30