First Stadtholderless Period - Commercial Primacy

Commercial Primacy

The main cause for the war with the Commonwealth had been English resentment against the rapid inroads the Dutch made after the Peace of Münster on the English trade with the Iberian peninsula, the Mediterranean and the Levant. During the resumption of the war with Spain between 1621 and 1647 the latter had instituted an effective trade embargo against the Dutch. Not only were Spanish and Portuguese ports closed to Dutch shipping, but Spain also was very successful in hindering Dutch trade in neutral bottoms, like Hanseatic ships, chartered at exorbitant rates by Dutch merchants. In 1624 a special inspectorate, the Almirantazgo was instituted to suppress this kind of "contraband" trade, that efficiently intercepted such shipments. This partial disruption of direct trade with the Iberian lands made Dutch trade in the Mediterranean more difficult, because during the Twelve Year Truce the Dutch had captured a large slice of the trade in Spanish exports (wool, bullion) with Italy, which they lost after 1621. Most of this trade had been taken over by the English after the end of the Anglo-Spanish war in 1630, after which Spain and England cooperated amicably, including in the enforcement of the Spanish embargo on Dutch cargoes.

More importantly, the depredations of the Dunkirk privateers on Dutch shipping caused maritime insurance premiums for Dutch voyages to rise appreciably, also in trade that was not related to Southern Europe. This partly negated the Dutch competitive advantage in shipping rates, helping other European nations to overcome the disadvantage of the higher rates they had to charge because of their inefficiency. The Dutch would normally be able to charge far lower rates, because they needed far smaller crews to man their more efficient ships.

All this changed after the embargo was lifted in 1647 (during the final peace negotiations). Dutch trade to Spain and Portugal, Italy and the Levant not only immediately rebounded to prewar levels, aided by the way the Spanish authorities facilitated the resumption of trade, but Dutch shipping rates and insurance premiums also fell to permanently lower levels. This stimulated Dutch carrying trade in the rest of Europe, causing a fundamental restructuring of Dutch trade in the years 1647-51 that went at the expense of the Republic's commercial rivals, especially (but not exclusively) England.

England could no longer compete in the carrying trade to Spain and Portugal; the Dover entrepot that had competed successfully with the Amsterdam one in the 1640s as far as the Mediterranean was concerned, completely collapsed; the transmission of silver to Flanders was switched by the Spanish bankers to Amsterdam from London. But England lost not just the carrying trade. Far more important was that the ascendancy of English textile exports to Spain was now lost, that had been total in the 1640s, as had been the English role in Spanish wool exports. Within a year or two this was completely reversed by the Dutch who in 1650 handled 80 percent of this trade. Dutch lakens and camlets took over the Spanish textile market, whereas Holland also took over the entrepot for Ibero-American dyestuffs.

These gains were not just a matter of renewed access on favorable terms to the Iberian market, or greater efficiency. Equally important were other commercial advantages the Dutch had over their competitors, like fundamentally lower interest rates, and the productivity and profitably of the Dutch textile industry (due to technological innovations). The combination of these factors enticed Iberian wool exporters to opt for the Dutch market, and allowed Dutch merchants to prefinance Spanish dyestuff exports (like they also prefinanced Baltic grain exports and French wine exports).

These changes had also ramifications in other theatres of trade, like the Baltic and the Levant, because the access of Dutch weavers to high-quality Spanish wool made Dutch textiles more attractive in the Baltic and the Levant than the previously ascendant English textiles. The consequence was a disastrous slump in the English textile industry after 1648. As the English were more dependent in their trade with the Baltic and Russia on their textile exports, their share in these trades therefore also declined.

Likewise, the English had dominated the trade in spices and textiles with Italy and Turkey. England consumed most of the olive oil and currants exported from those lands. However, after 1648 here too occurred a complete reversal in favor of the Dutch. The Genoese shifted their purchases to the Dutch entrepot and started to use Dutch shipping for their carrying trade predominantly. This was mostly due to the far-lower shipping rates the Dutch charged. But other factors in the sudden rise of the share the Dutch obtained in the intra-Mediterranean trade were the grip they obtained on the trade in Spanish bullion (often reminted as Dutch trade coins of high quality) to the Levant, and the progress the Dutch fine-cloth industry made with their products that were of a higher quality than the English. As a result, the English were thrown on the defensive in this area, too. To add insult to injury more and more imports that had reached England directly before, were from now on re-exported from the Amsterdam entrepot in Dutch ships.

The sudden Dutch ascendancy also extended to the Americas, and especially the Caribbean. During the war with Spain, the Dutch had been successfully excluded from Spanish America. However, after the peace (though the Spanish still managed to boycott Dutch trade in the colonies effectively) the Dutch resumed their trade with certain colonies, like Puerto Rico, that they had already had a lively contraband trade with. Such a trade now also flared up with the English colonies that still were in Royalist hands in the early 1650s, particularly Barbados and Surinam. The sugar trade with these colonies for a large part compensated for the loss of the sugar production after the loss of Dutch Brazil in 1645. This disaster for the Dutch caused a spike in European sugar prices. But this had as a positive result that sugar production in French and English Caribbean islands was now stimulated, often with Dutch investment. The Dutch were, of course, happy to buy the sugar and provide the necessary slaves from their trading forts in West-Africa.

Of course, the English were not the only "victims." The French, Scandinavian, and North-German merchants were also hit hard by the sudden resurgence of the Dutch in world markets. But the English were especially hit hard. This caused tremendous resentment, also because the English were not inclined to seek the fault with themselves, but suspected the Dutch of conspiring to engross world trade with means that could not be other than foul. However, this may be, the Commonwealth felt they could not take this Dutch "insolence" lying down. Unfortunately, unlike the Scandinavians and the Hanseatics, they were in a military position to do something about it. The Commonwealth government first tried peaceful means, like a haughty attempt to renew the English protectorate from Elizabethan and Jacobean days (based on the Treaty of Nonsuch) over the Republic, but this was politely rejected. Then Parliament passed the Navigation Act, which was intended to break the hold of the Dutch entrepot by prohibiting its re-exports to English markets, and also reserving the carrying trade to and from England to English bottoms. Of course, these blatantly protectionist measures most of all hurt the English economy and that of the English colonies. After all, the Dutch did not hold a pistol to the heads of their customers, but had achieved their ascendancy by offering better deals. English importers and consumers were now deprived of these benefits.

Though a setback, these protectionist measures were not as devastating to the Dutch trade system as the English had intended. The English market in itself was not very important to the Dutch, compared to the French, Iberian, and American markets. The Commonwealth' writ did not yet run in the latter, so these markets were not immediately lost. The fact that England was able to continue this protectionist policy after the First Anglo-Dutch War had ended, was therefore not a severe blow to the Dutch. The damage from the war itself was severe for a while, but English commercial interests were damaged at least at much, if not more. The Dutch trade primacy was therefore not permanently damaged by the war, and neither did the English manage to regain their prewar position with force of arms. The only major consequence of the English policy was, that it gave ideas to first the Scandinavians, and later the French about the possibilities to use military and protectionist means, that later caused great difficulties to the Republic.

Such problems started in the Baltic, where Denmark and Sweden in turn took steps that for a while damaged Dutch trade interests. The Dutch managed to counter these measures by military and diplomatic means, rolling back Danish increases of the Sound toll in 1649, and forcing the Swedes to retract mercantilist measures in the 1650s, but still the 1650s were a time of decline in the Dutch Baltic carrying trade, though this decline should not be exaggerated, as is often done. Before 1650 the Dutch had a share of 70 percent of total shipping movements; after 1650 this declined to 60 percent.

In the Mediterranean a kind of division of labor between the English and Dutch came into being after the war: the English were the main customers for olive oil and currants, and the Navigation Act therefore helped them to monopolize this trade. On the other hand the Dutch monopolized the trade in spices and fine-cloth (the English being left with the trade in lower-value textiles). The English were the major buyers of Italian raw silk, whereas this trade was for the Dutch marginal in comparison with their Asian and Persian silk trade. Generally, the Dutch had a favorable balance of trade with this area (and the English a negative one), because the Dutch dominated more trades (like that in Baltic naval stores and salt) and more profitable ones. As a matter of fact, the total value of the Mediterranean and Levant trade to the Dutch was about equal to that of the Far-Eastern trade of the VOC, both bringing in about 20 million guilders annually.

The fact that both France and England were at war with Spain between 1655 and 1659 (the French since 1635) helped reserve the Spanish trade to the Dutch in this period, as the Spanish embargo now was aimed at these competitors. When France was at peace with Spain, however, this country tended to dominate the Spanish trade, due to the strength of its linen exports both to Spain and its colonies. Though this influence may be exaggerated also: the French at this time had practically no part in the carrying trade, and the Dutch dominated the export of Spain's main export, raw wool. For political reasons (Portugal was at war with the Dutch in the same period over the aftermath of the reconquest of Dutch Brazil) the English predominated in the Portuguese trade. The Dutch dominated the salt trade with Portugal, however, also because the 1661 peace treaty stipulated that the war indemnity imposed on Portugal to compensate the WIC for the loss of Brazil, would be paid in that commodity. This was important, because Portuguese salt was better suited than high-magnesium French salt for the preservation of herring.

The dominance of the Dutch in the Far East also reached its zenith in these years, though not everything went the way of the VOC. The lucrative China-Japan trade, which the company had managed to monopolize for a while came to an end as the new Qing-regime finally managed to tighten its grip on the last remnants of the Ming in South China, and first reverse the terms of trade with the Dutch, before eventually completely closing the Chinese market to them. The VOC forts on Taiwan were lost to an adherent of the Ming, Koxinga, who in a move foreshadowing Chiang Kai-shek's flight to Taiwan in 1949, tried to make that island his base, but these forts had been mostly important in the silk trade with Japan, and that trade was now being taken over by the Chinese themselves anyway. The Japan trade lost most of its importance for the VOC, when in 1668 the Shogun embargoed the export of silver, which the VOC had been using to finance most of its spice trade with. But because Spanish bullion was now again easily obtainable for the Dutch, this did not cramp the style of the VOC too much.

On a more positive note for the Dutch, the war with Portugal over compensation of the sister-company, the WIC, for her losses in Brazil to Portuguese insurgents, now provided the VOC with a convenient pretext to do away with the last remnants of the Portuguese trading empire in Ceylon and the Malabar and Coromandel coasts of India. Portuguese forts in these areas were conquered all the way to Goa; the local rulers were pressed to sign "exclusive-marketing contracts" with the VOC, conveniently excluding the English and Danes at the same time; and the VOC obtained the monopolies on Ceylonese cinnamon and elephants (useful in the trade with India).

The Anglo-Dutch conflicts were useful for the VOC for driving out its competitors, the EIC, from the Indonesian archipelago, by force of arms. In 1665 first the only English factory in the Spice Islands, Pulo Run was definitively conquered, excluding the English from the clove trade. More importantly, the VOC subsequently conquered the sultanates in Makassar, Jambi, and Palembang, forcing the sultans to exclude the English and Danes (who had previously maintained factories there) from the pepper trade.

Though the end of the war with Spain in 1648 enabled the VOC to greatly expand its empire by military means, and to hold European competitors at bay in the same manner (a fortress was built at the strategic Cape of Good Hope in 1653), it did not completely rely on force of arms for its commercial dominance. In Bengal, and the intra-Indian trade, for instance, the Dutch dominated at first by commercial means, consistently out-trading the English in commodities such as silk, rice, and opium, destined for other Asian markets. In these years the scale of the Dutch intra-Asian trade went unrivalled.

This worldwide primacy in trade would not have been possible if it only rested on Dutch primacy in the carrying trade. After all, one has to trade something. Even where the counterparty is primarily interested in gold and silver as means of exchange, as in South-East Asia, that specie must be earned by a surplus on the balance of payments with other trading partners. A surplus in "invisibles", like shipping services, would not suffice to cover the enormous financing requirement of the spice trade. At first, the Dutch had little indigenous to offer, beyond herring and dairy products. But the industrial revolution of the early 17th century brought an industry into being that by the 1640s had matured enough to play an important part in Dutch exports. This industrial growth was partly innovation driven, stimulating all kinds of heretofore not seen mechanization, that greatly enhanced labor productivity, thereby driving down prices for Dutch products, even while nominal wages rose steeply at the same time. But the commerce-engendered Dutch control of many raw-material markets (like Spanish and Turkish raw wool, Swedish iron and copper, Ibero-American dyestuffs, Portuguese salt, French wine, Baltic grain, Scandinavian tar and wood, Caribbean sugar, American tobacco etc.) was an important factor in stimulating the booms of the industries that used those materials: textiles, guns, vinegar, shipbuilding, sugar and salt refining, tobacco blending, to name only a few. The Dutch entrepot was therefore supplied by an important domestic industrial sector, and not limited to reexporting wares obtained abroad. Industry and commerce were in this period closely integrated (though in later stages of the Dutch economy they would become disaggregated again, when foreign protection and a structurally high real-wage level forced the decline of the Dutch industrial sector).

An important factor in this industrial boom (as in the development of the fisheries) was, remarkably, the regulating role of the Dutch government: guaranteeing product quality gave Dutch products a reputation in foreign markets, that justified slightly higher prices, if need be. Other forms of market regulation, like the monopolies given to the VOC and WIC, but also the semi-official industry bodies that regulated the trade on Russia and the Levant, and the herring industry, helped stabilize market fluctuations. Patent protection helped stimulate industrial innovation. The sophisticated Dutch capital market was stabilized by regulated institutions like the Amsterdam Bank and Exchange, and the regulator of the insurance market. And maybe most importantly, the close connection of the Dutch regents to commercial interests in this period helped shield Dutch industry and commerce from excessive taxation or tariffs. Also, the Dutch government did not hesitate to put its not inconsiderable diplomatic and military might behind Dutch commercial interests, if the need arose to protect them against foreign protectionist measures.