Second Stadtholderless Period - Decline of The Republic

Decline of The Republic

The political history of the Republic after the Peace of Utrecht, but before the upheavals of the 1740s, is characterized by a certain blandness (not only in the Republic, to be sure; the contemporary long-lasting Ministry of Robert Walpole in Great Britain equally elicits little passion). In Dutch historiography the sobriquet Pruikentijd (periwig era) is often used, in a scornful way. This is because one associates it with the long decline of the Republic in the political, diplomatic and military fields, that may have started earlier, but became manifest toward the middle of the century. The main cause of this decline lay, however, in the economic field.

The Republic became a Great Power in the middle of the 17th century because of the primacy of its trading system. The riches its merchants, bankers and industrialists accumulated enabled the Dutch state to erect a system of public finance that was unsurpassed for early modern Europe. That system enabled it to finance a military apparatus that was the equal of those of far larger contemporary European powers, and thus to hold its own in the great conflicts around the turn of the 18th century. The limits of this system were however reached at the end of the War of Spanish Succession, and the Republic was financially exhausted, just like France.

However, unlike France, the Republic was unable to restore its finances in the next decades and the reason for this inability was that the health of the underlying economy had already started to decline. The cause of this was a complex of factors. First and foremost, the "industrial revolution" that had been the basis of Dutch prosperity in the Golden Age, went into reverse. Because of the reversal of the secular trend of European price levels around 1670 (secular inflation turning into deflation) and the downward-stickiness of nominal wages, Dutch real wages (already high in boom times) became prohibitively high for the Dutch export industries, making Dutch industrial products uncompetitive. This competitive disadvantage was magnified by the protectionist measures that first France, and after 1720 also Prussia, the Scandinavian countries, and Russia took to keep Dutch industrial export products out. Dutch export industries were therefore deprived of their major markets and withered at the vine.

The contrast with Great Britain, that was confronted with similar challenges at the time, is instructive. English industry would have become equally uncompetitive, but it was able to compensate for the loss of markets in Europe, by its grip on captive markets in its American colonies, and in the markets in Portugal, Spain, and the Spanish colonial empire it had gained (replacing the Dutch) as a consequence of the Peace of Utrecht. This is where the British really gained, and the Dutch really lost, from that peculiar peace deal. The Republic lacked the imperial power, large navy, and populous colonies that Great Britain used to sustain its economic growth.

The decline in Dutch exports (especially textiles) caused a decline in the "rich" trades also, because after all, trade is always two-sided. The Republic could not just offer bullion, as Spain had been able to do in its heyday, to pay for its imports. It is true that the other mainstay of Dutch trade: the carrying trade in which the Republic offered shipping services, for a long time remained important. The fact that the Republic was able to remain neutral in most wars that Great Britain fought, and that Dutch shipping enjoyed immunity from English inspection for contraband, due to the Treaty of Breda (1667) (confirmed at the Treaty of Westminster (1674)), certainly gave Dutch shipping a competitive advantage above its less fortunate competitors, added to the already greater efficiency that Dutch ships enjoyed. (The principle of "free ship, free goods" made Dutch shippers the carriers-of-choice for belligerent and neutral alike, to avoid confiscations by the British navy). But these shipping services did not have an added value comparable to that of the "rich trades." In any case, though the volume of the Dutch Baltic trade remained constant, the volume of that of other countries grew. The Dutch Baltic trade declined therefore relatively.

During the first half of the 18th century the "rich trades" from Asia, in which the VOC played a preponderant role, still remained strong, but here also superficial flowering was deceptive. The problem was low profitability. The VOC for a while dominated the Malabar and Coromandel coasts in India, successfully keeping its English, French, and Danish competitors at bay, but by 1720 it became clear that the financial outlay for the military presence it had to maintain, outweighed the profits. The VOC therefore quietly decided to abandon India to its competitors. Likewise, though the VOC followed the example of its competitors in changing its "business model" in favor of wholesale trade in textiles, Chinaware, tea and coffee, from the old emphasis of the high-profit spices (in which it had a near-monopoly), and grew to double its old size, becoming the largest company in the world, this was mainly "profitless growth."

Ironically, this relative decline of the Dutch economy through increased competition from abroad was partly due to the behavior of Dutch capitalists. The Dutch economy had grown explosively in the 17th century because of retention and reinvestment of profits. Capital begat capital. However, the fastly accumulating fund of Dutch capital had to be profitably reinvested. Because of the structural changes in the economic situation investment opportunities in the Dutch economy became scarcer just at the time when the perceived risk of investing in more lucrative ventures abroad became smaller. Dutch capitalists therefore started on a large foreign direct investment boom, especially in Great Britain, where the "Dutch" innovations in the capital market (e.g. the funded public debt) after the founding of the Bank of England in 1696 had promoted the interconnection of the capital markets of both countries. Ironically, Dutch investors now helped finance the EIC, the Bank of England itself, and many other English economic ventures that helped to bring about rapid economic growth in England at the same time that growth in the Republic came to a standstill.

This continued accumulation of capital mostly accrued to a small capitalist elite that slowly acquired the characteristics of a rentier-class. This type of investor was risk-averse and therefore preferred investment in liquid, financial assets like government bonds (foreign or domestic) over productive investments like shipping, mercantile inventory, industrial stock or agricultural land, like its ancestors had held. They literally had a vested interest in the funded public debt of the Dutch state, and as this elite was largely the same as the political elite (both Orangist and States Party) their political actions were often designed to protect that interest. Unlike in other nation states in financial difficulty, defaulting on the debt, or diluting its value by inflation, would be unthinkable; the Dutch state fought for its public credit to the bitter end. At the same time, anything that would threaten that credit was anathema to this elite. Hence the wish of the government to avoid policies that would threaten its ability to service the debt, and its extreme parsimony in public expenditures after 1713 (which probably had a negative Keynesian effect on the economy also).

Of course, the economic decline eroded the revenue base on which the debt service depended. This was the main constraint on deficit spending, not the lending capacity of Dutch capitalists. Indeed, in later emergencies the Republic had no difficulty in doubling, even redoubling the public debt, but because of the increased debt service this entailed, such expansions of the public debt made the tax burden unbearable in the public's view. That tax burden was borne unequally by the several strata of Dutch society, as it was heavily skewed toward excises and other indirect taxes, whereas wealth, income and commerce were as yet lightly taxed, if at all. The result was that the middle strata of society were severely squeezed in the declining economic situation, characterized by increasing poverty of the lower strata. And the regents were well aware of this, which increased their reluctance to augment the tax burden, so as to avoid public discontent getting out of hand. A forlorn hope, as we will see.

The States-Party regime therefore earnestly attempted to keep expenditure low. And as we have seen, this meant primarily economizing on military expenditures, as these comprised the bulk of the federal budget. The consequence was what amounted to unilateral disarmament (though fortunately this was only dimly perceived by predatory foreign powers, who for a long time remained duly deterred by the fierce reputation the Republic had acquired under the stadtholderate of William III). Disarmament necessitated a modest posture in foreign affairs exactly at the time that foreign protectionist policies might have necessitated diplomatic countermeasures, backed by military might (as the Republic had practiced against Scandinavian powers during the first stadtholderless period). Of course, the Republic could have retaliated peacefully (as it did in 1671, when it countered France's Colbert tariff list, with equally draconian tariffs on French wine), but because the position of the Dutch entrepot (which gave it a stranglehold on the French wine trade in 1671) had declined appreciably also, this kind of retaliation would be self-defeating. Equally, protectionist measures like Prussia's banning of all textile imports in the early 1720s (to protect its own infant textile industry) could not profitably be emulated by the Dutch government, because the Dutch industry was already mature and did not need protection; it needed foreign markets, because the Dutch home market was too small for it to be profitable.

All of this goes to show that (also in hindsight) it is not realistic to blame the States-Party regime for the economic malaise. Even if they had been aware of the underlying economic processes (and this is doubtful, though some contemporaries were, like Isaac de Pinto in his later published Traité de la Circulation et du Crédit) it is not clear what they could have done about it, as far as the economy as a whole is concerned, though they could arguably have reformed the public finances. As it was, only a feeble attempt to restructure the real estate tax (verponding) was made by Van Slingelandt, and later an attempt to introduce a primitive form of income tax (the Personeel Quotisatie of 1742).

The economic decline caused appalling phenomena, like the accelerating deindustrialization after the early 1720s. Because less replacement and new merchant vessels were required with a declining trade level, the timber trade and shipbuilding industry of the Zaan district went into a disastrous slump, the number of shipyards declining from over forty in 1690 to twenty-three in 1750. The linen-weaving industry was decimated in Twenthe and other inland areas, as was the whale oil, sail-canvas and rope-making industry in the Zaan. And these are only a few examples. And deindustrialization brought deurbanization with it, as the job losses drove the urban population to rural areas where they still could earn a living. As a consequence, uniquely in early-18th century Europe, Dutch cities shrunk in size, where everywhere else countries became more urbanized, and cities grew.

Of course these negative economic and social developments had their influence on popular opinion and caused rising political discontent with the stadtholderless regime. It may be that (as Dutch historians like L.J. Rogier have argued) there had been a marked deterioration in the quality of regent government, with a noticeable increase in corruption and nepotism (though coryphaei of the stadtholderate eras like Cornelis Musch, Johan Kievit and Johan van Banchem had been symptomatic of the same endemic sickness during the heyday of the Stadtholderate), though people were more tolerant of this than nowadays. It certainly was true that the governing institutions of the Republic were perennially deadlocked, and the Republic had become notorious for its indecisiveness (though, again this might be exaggerated). Though blaming the regents for the economic malaise would be equally unjust as blaming the Chinese emperors for losing the favor of Heaven, the Dutch popular masses were equally capable of such a harsh judgment as the Chinese ones.

What remained for the apologists of the regime to defend it from the Orangist attacks was the claim that it promoted "freedom" in the sense of the "True Freedom" of the De Witt regime from the previous stadtholderless regime, with all that comprised: religious and intellectual toleration, and the principle that power is more responsibly wielded, and exercised in the public interest, if it is dispersed, with the dynastic element, embodied in the stadtholderate, removed. The fervently anti-Orangist regent Levinus Ferdinand de Beaufort added a third element: that the regime upheld civil freedom and the dignity of the individual, in his Verhandeling van de vryheit in den Burgerstaet (Treatise about freedom in the Civilian State; 1737). This became the centerpiece of a broad public polemic between Orangists and anti-Orangists about the ideological foundation of the alternative regimes, which was not without importance for the underpinning of the liberal revolutions later in the century. In it the defenders of the stadtholderless regime reminded their readers that the stadtholders had always acted like enemies of the "true freedom" of the Republic, and that William III had usurped an unacceptable amount of power. Tragically, these warnings would be ignored in the crisis that ended the regime in the next decade.