Introduction
To fully understand the peculiarities of the history of the system of public finance, and that of the closely related system of private (international) finance and banking of the Dutch Republic, one has to view it in the context of the general history of the Netherlands and of its institutions, and of the general Economic History of the Netherlands (1500 - 1815). In contrast to that general history this is a sectoral history, concerning the fiscal and financial sector.
It is important to realize that 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 Netherlands were highly decentralized from their origins in the Habsburg Netherlands in the late 15th century, and (other than the monarchies just mentioned) successfully resisted attempts to bring them together under the centralized authority of a modern state. Indeed, the Dutch Revolt that gave rise to the Republic of the United Netherlands, effectively resulted from resistance against attempts by the representatives of king Philip II of Spain, the Habsburg ruler of the country, to institute such a centralized state and a centralized system of public finance. Where in other instances the modern fiscal system resulted from, and was made subservient to, the interests of a centralizing monarchical state, in the Dutch instance the emerging fiscal system was the basis of, and was mobilized in the interests of the defense of, a stubbornly decentralised political entity.
Ironically, the Habsburg rulers themselves pushed through the fiscal reforms that gave the rebellious provinces the wherewithal to resist the power of the sovereign. Emperor Charles V needed to increase the borrowing capacity of his government to finance his many military adventures. To that end it was necessary to put in place a number of fiscal reforms that would ensure that the public debt could be adequately serviced (thereby increasing the creditworthiness of his government). In 1542 the president of the Habsburg Council of State, Lodewijk van Schoor, proposed the levy of a number of taxes throughout the Habsburg Netherlands: a Tenth Penny (10 percent tax) on the income from real property and private loans, and excise taxes on beer, wine, and woollen cloth. These permanent taxes, collected by the individual provinces, would enable the provinces to pay enlarged subsidies to the central government, and (by issuing bonds secured by the revenue of these taxes) finance extraordinary levies (beden in old Dutch) in time of war. Other than expected, these reforms strengthened the position of the provinces, especially Holland, because as a condition of agreeing to the reform the States of Holland demanded and got total control of the disbursement of the taxes.
Holland was now able to establish credit of its own, as the province was able to retire bond loans previously placed under compulsion as enforced loans. By this it demonstrated to potential creditors it was worthy of trust. This brought a market for voluntary credit into being that previously did not exist. This enabled Holland, and other provinces, to float bonds at a reasonable interest rate in a large pool of voluntary investors.
The central government did not enjoy this good credit. On the contrary, its financing needs increased tremendously after the accession of Philip II, and this led to the crisis that caused the Revolt. 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. This brought about a general revolt in the Netherlands, particularly in the northern provinces. Those were able to withstand the onslaught of the royalist forces militarily, because of the fiscal basis they had built in previous years.
Of course, they now withheld the subsidies to the central government their taxes were supposed to finance. That central government was therefore forced to finance the war by transfers from other Habsburg lands, especially Spain itself. This led to an enormous increase in the size of the Spanish public debt, which that country was ultimately unable to sustain, and hence to the need to accept Dutch independence in 1648.
As explained in the general article on the economic history of the Netherlands, the political revolt soon engendered an economic revolution also, partly related to political events (like the rise of the Dutch East India Company and its West-Indies colleague), in other respects unrelated (like the revolutions in shipping, fisheries, and industry, that seem to be more due to technological innovations). This economic revolution was partly the cause of, and partly helped along further, by a number of fiscal and financial innovations that helped the Dutch economy make the transition to "modernity" in the early 17th century.
Read more about this topic: Financial History Of The Dutch Republic
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