Financial history of the Dutch Republic

Those general histories differ in an important way from those of centralized Western European monarchies, like Spain, France, England, Denmark and Sweden in the early modern era.

The new Regent Fernando Álvarez de Toledo, 3rd Duke of Alba tried to institute new taxes to finance the cost of suppression of public disturbances after the Iconoclastic Fury of 1566 without going through proper constitutional channels.

He convened the Groote Vergadering (a kind of constitutional convention) in that year, prompted by the fact that the Generality faced a liquidity crisis in 1715, when most provinces fell into arrears on their contributions.

The most important source of revenue, collectively known as gemene middelen (common means), were a set of excise taxes on first necessities, especially on beer, wine, peat, grain, salt, and the use of market scales.

In the difficult years after 1672, when war required high repartities, extraordinary wealth taxes were imposed very frequently, amounting to a total levy of (theoretically) 14 percent of all real property, seigneurial rights, tithes, bonds, and personal objects of value.

This reflected a rapid rise in tax burdens in both France and Great Britain during the 18th century in which both countries made up a large difference with the Republic (but also in income levels, of course).

That office was charged with continuing the charitable works of the Church foundations, which it could conveniently do by selling its choice properties and investing the proceeds in interest-bearing public bonds.

However, soon a new reason of a more propitious nature was the explosive economic boom in trade of the 1590s and early 17th century, that required financing from private capital and offered far better returns than the measly 8.33 percent (12th penny) the state could pay.

After the Truce ended in 1621 expenditures for war again rose steeply, but this time the Republic, and in particular Holland, had no trouble borrowing on average 4 million guilders annually, which helped keep down the rise in taxation that might otherwise have been necessary.

[24] In practice, however, by the middle of the 17th century the Dutch Republic enjoyed such good credit, that it was able to dispense with lijfrenten and finance its borrowing requirements with long-term redeemable bonds at rates that were equal to, or lower than, the lowest interest returns available in the private sector.

[24] The positive side of a well-managed public debt, like the Dutch one, is that it expands the purchasing power of the state in a timely fashion, without putting undue burdens on the tax payer.

One of those prices is an appreciable redistributive effect, when via the debt service money is channelled from a large proportion of the population (the tax payers) to a much smaller number of bondholders.

With the great conflicts that started with the Glorious Revolution of 1688 (financed with a bank loan that a consortium of Amsterdam bankers threw together in three days) these markets tightened appreciably, however.

As the supply of funds from redemptions and retained earnings now fell short of government demand, these new loans must have been partially financed by disinvestments in the commercial, industrial and agricultural sectors of the economy (admittedly depressed in these years).

However, there were few attractive investment opportunities for this new capital in the domestic Dutch economy: as explained in the article on the economic history of the Netherlands, structural problems militated against expansion of the private sector, and the public debt hardly expanded (even decreased after 1750).

When the king could not fulfill his obligations, the Amsterdam merchant Louis de Geer agreed to assume the payments in exchange for Swedish commercial concessions (iron and copper mines) to his firm.

Other foreign governments were still deemed "too risky" and their loans required the guarantee, and often subsidy, of the States General, as before (which helped to tie allies to the Dutch cause in the wars against France).

That function was, however, performed by other institutions in the course of the history of the Republic, be it on a rather ad hoc basis: during financial crises in the second half of the 18th century lenders of last resort were briefly brought into being, but liquidated soon after the crisis had abated.

The low interest rates usually prevailing in the Republic made the maintenance of large inventories feasible, thereby enhancing Amsterdam's reputation as the world's Emporium.

Also, probate inventories, describing the estate of deceased persons, show the intricate web of credit transactions that occurred on a daily basis in the Republic, even between its humblest citizens.

This is remarkable, because previous ventures on the contrary did not borrow, but used additional subscriptions if they needed extra capital[56] The real innovation therefore was that next to physical commodities henceforth financial rights in the ownership of a company were traded on the Amsterdam exchange.

In it he describes the whole gamut, running from options (puts and calls), futures contracts, margin buying, to bull and bear conspiracies, even some form of stock-index trading.

Examples are the crisis of 1763, after the end of the Seven Years' War in which the Netherlands had remained neutral, occasioned a collapse of commodity prices, and debasements of the currency in Eastern Europe disrupted the bullion trade.

Ten years later the bursting of a speculative bubble in British-East-India-Company stock, and a simultaneous default of Surinam planters, forced Dutch merchant bankers to liquidate their positions.

This time a short-lived Fonds tot maintien van publiek crediet (a kind of bank of last resort) was erected by the city of Amsterdam, but dissolved again after the crisis abated.

The 18th-century investors are seen as shunning risk by their overreliance on "safe" investments in sovereign debt (though those proved extremely risky from hindsight), while on the other hand they are excoriated for their predilection for speculative pursuits.

This can be seen as a rational "second best" strategy when British, French and Spanish protectionism closed markets to the Dutch, and they lacked the military means to force retraction of protectionist measures (as they had often been able to do in the 17th century).

The Fourth Anglo-Dutch War, which from the English point of view was caused by Dutch greed in supporting the American Revolution with arms and funds (the British pretext for declaring war was a draft-treaty of commerce between the city of Amsterdam and the American revolutionaries)[68] brought about a liquidity crisis for the VOC, which almost brought down the Bank of Amsterdam also, as this bank had been making "anticipatory" loans which the company could not pay back.

[69] When soon afterward the French Revolution of 1789 spread by military means, and put the exiled Patriots in power in a new Batavian Republic, for a while the reform of the state, and the reinvigoration of the economy, seemed to be assured.

Though for a while cities in the maritime Dutch provinces lost urban population, while grass grew in their streets, and their ports were empty, and even though the Netherlands' economy experienced deindustrialization and pauperization, with a concomittant re-agriculturalization, it did not revert to premodern days.