This draft, 3 August 2007 Introduction

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Source: City Archives Leyden, Rentenboeken, Inv. Nr. 71, nrs. P,Q, LL, MM, NN, OO

In 1620 some 170 small entrepreneurs in Leyden sold term annuities with a total value of 77,000 guilders. Half of these men worked in the textile and building industries, while another third were craftsmen, retailers, shipmasters, and fishermen. At 450 guilders the average value of all the annuities was rather low, especially when compared to the few that were sold by wholesale traders (at 1,800 guilders on average). Forty years later the number of entrepreneurs that used this credit instrument had not grown much, but the value of their separate claims had almost tripled. Builders, textile producers, and other craftsmen still dominated the body of lenders.

Annuities, however, had their limitations when it came to funding businesses. Besides mandatory registration, interest rates were fixed at 6.25%, which was a competitive rate in the sixteenth century but increasingly less so in the seventeenth century.68 This problem was eventually resolved by a lowering of the statutory rate but there were other difficulties. Most importantly, one could only fix so much renten on a particular piece of real estate – a limitation that would be felt in the later seventeenth and eighteenth century when the towns no longer expanded, and rental values stabilized or even declined. Thus, in addition to annuities entrepreneurs had a real need for other medium- or long term loans that did not depend on their ownership of real estate. But what then could they pledge as collateral?

In the mid-sixteenth century merchants on the Antwerp money market began to sell promissory notes, also known as bills obligatory or IOU’s. These credit instruments, which were also used in other countries, were transferable, interest-bearing loans with a standardized maturity of 3, 6 or 12 months.69 After 1585 the large-scale emigration of Antwerp merchants brought the bill obligatory to Amsterdam. The advantage of bills obligatory over both annuities and family deposits was that creditors could determine in advance when they wanted to get their money back. For borrowers this was not a problem for they could contract with a variety of lenders and differentiate the dates when their loans matured. What is more, in practice many bills were rolled over on expiry, effectively creating a long-term credit instrument.

The only remaining problem at least for the lenders concerned the collateral. Borrowers simply pledged their person and goods without any further specification. Even if individual bills represented small amounts of money only – often no more than 1,000 or 1,500 guilders – liquidation of a bad debt might be problematic with such general collateral. The transferability of IOUs, firmly established by an imperial ordinance, did not really solve this problem because only merchants familiar with a debtor’s financial position would be willing to take over a debt. Hence Charles V’s additional ordinance of 1543 that limited the use of the IOUs to the merchants active on the Antwerp Exchange.70

It was the foundation of the Dutch East India Company in 1602 that eventually created the ideal collateral for loans: the VOC share.71 Merchants in Amsterdam, who had begun using Antwerp-style IOUs to attract external funds for their businesses in the 1590s, almost immediately recognized the potential of the share, as “a claim on a company known to all; very liquid, so easy to sell in case of default; with daily price quotations for quick valuation; and with ownership easily ascertained”.72 Borrowing on the security of shares – even today a widely used financial technique – allowed merchants with no personal ties to engage in credit operations, for the lender could always attach and liquidate the share. It did not take long for this technique to take root among the merchant community at large.

But how could smaller entrepreneurs who did not own VOC shares secure additional funding for their businesses? This question is at the heart of current research on the evolution of financial markets in the Dutch Republic. One very tentative answer based on data collected for one town in one year points to the role notaries may have played in matching supply and demand for funds. The protocols that have survived of notaries in Gouda in 1650 show their writing of 220 obligations for a varied crowd of artisans, shipmasters, retailers, and other small businessmen. A comparison with the total value of term annuities sold in the same year (mostly registered by the town magistrate, but sometimes also by notaries) suggests notarial credit may have filled a void, as it is known to have done in early modern France.73 But frankly this remains speculation given the sparse data now available.
Table 2. Obligations recorded by notaries, and term annuities recorded by notaries and town magistrates in Gouda in 1650.


Notarial IOUs

Term annuities





Food and beverages





Various crafts















Fishing and shipping





Wholesale trade








Public official



Textile industry















Sources: Gouda City Archives, Oud Rechterlijk Archief, Inv. Nr 477 Rentenboek nr VII. 1649-1655; Notarial archives 1650.
Taking judgmental decisions about the marketing of goods and services implies risk – and not just unexpected price fluctuations due to adverse market conditions. Dutch entrepreneurs were also confronted with natural disaster, warfare, crime, and dishonest behaviour of partners and employees.74 Farmers regularly suffered from extreme weather, diseases, and warfare. Merchants, shipmasters, and fishermen encountered shipwreck and privateering raids. Wholesalers, retailers, and manufacturers had to deal with thieves, non-paying clients, and suppliers tampering with the quality of their wares. Dutch entrepreneurs, like anyone else, wanted to prevent such misfortune, or at least secure compensation for losses that did occur.75

Local and central authorities in the United Provinces played a crucial role in the prevention of opportunism, violence, and one might even argue natural disaster.76 Obviously Dutch rulers realized they could not come in God’s way but nevertheless determined attempts were made to try and limit the damage of nature’s single biggest threat: water. With the creation of water boards in the late Middle Ages, the Dutch created an efficient administrative apparatus to prevent inundation of the continuously subsiding lowlands of the coastal provinces. Landowners and tenants were forced to contribute initially their labor and later on mostly their money to build and maintain canals, dikes, sluices, and windmills. Even if neighboring water boards sometimes wrangled about each others' lack of effort, the system by and large succeeding in stabilizing the quality of the soil.77

The prevention of violent assaults on entrepreneurs in the Dutch Republic also depended on government intervention. Already in the late Middle Ages towns had secured a local monopoly of violence that allowed them to clamp down on robbers, thieves, and other criminals. Through persuasion and relatively mild repression the town magistrates in Holland also managed to nip in the bud the dozens of food and tax riots that broke out in the seventeenth and eighteenth century.78 At the same time the Dutch managed to push the theatre of their war of independence to the fringes of their territory, thus securing the undisturbed exchange of goods and services in the heartland, i.e. Holland.79 Finally the Dutch Republic was one of the first European states to command a standing navy that was used, among other things, to protect the merchant fleet.80

Furthermore, local and central rulers contributed to the prevention of cheating and slacking by trading partners, employees, and other agents. Even if Dutch businessmen displayed a persistent preference for trading with relatives and friends, their dependence on the market made business transactions with strangers inevitable.81 Town magistrates made it easier to find honest agents through the creation of a market infrastructure and the regulation of financial and commercial intermediation. Local courts facilitated the speedy settlement of the widest possible range of business conflicts, while leaving open the possibility of appeal to a higher court.82

A major improvement in the settlement of disputes in the Dutch Golden Age issued from a combined effort of magistrates and entrepreneurs. On the one hand, courts began to accept account books as legal proof for disputed transactions. On the other, businessmen increasingly kept detailed accounts of their commercial and financial transactions.83 It will come as no surprise that long-distance traders in the major ports of the Dutch Republic were trained to use double entry bookkeeping. However, the habit to keep a paper track of one’s money and goods spread much wider. Farmers, textile manufacturers and retailers also kept detailed accounts of their operations. Indeed, women were trained to do so, witness several surviving account books from the seventeenth century.84 With the acceptance of these accounts in court, what was initially a monitoring device now doubled as a means to enforce contracts.

Finally, the government’s role in mitigating the detrimental effect of price fluctuations differed strongly between sectors. While there were no entry barriers in European trade, the two big colonial companies were given full monopolies upon their creation. In agriculture all peasants and farmers were free to produce whatever they wanted, but urban magistrates did not shirk from regulating the supply of grain, bread, and other life necessities, if it could prevent dearth. In manufacturing, some guilds used their corporate powers to exclude competitors and secure a steady income for the members, while others allowed subcontracting or production by outsiders.85 The latter freedom certainly existed in the unincorporated industries for the processing of colonial wares such as sugar and diamonds.

All these efforts notwithstanding, natural disaster, violence, opportunism, and price fluctuations did occur.86 So entrepreneurs had to think of measures to manage these risks. One basic solution was to limit their exposure to the market. This was common enough in the early phases of commercialization of Dutch agriculture. While they began to produce butter, cheese, and hemp for the market, peasant households in Holland continued to provide at least part of their own food supply, while at the same time seeking by-employment in peat-digging, fishing, shipping, and all kinds of menial work on bigger farms.87 Urban craftsmen could also combine work on their own account with wage labour for others. One example are the goldsmiths and diamondcutters of Amsterdam, who in the early seventeenth century received wages for jewelry they wrought for local merchants. To date the extent of this phenomenon of urban putting-out has not been investigated, however.

And yet the Dutch economy stands out for the relatively large number of entrepreneurs whose income did entirely depend on profits and losses made in the market. For men and women with only modest means – which certainly implies the majority of peasants, craftsmen, and retailers – the maintainance of a stable clientele will have secured a steady income. Entrepreneurs with more financial scope could also try to diversify investments. This was the typical strategy for the merchants who worked in Amsterdam in the opening decades of the Golden Age. They traded on several European markets, in several products, and at the same time invested in shipping, whaling, industry, and even land reclamation. Especially the partenrederij allowed merchants with even modest means to combine investments. A similar preference for diversification can be found in agriculture, where dairy farmers used some of their land for growing hemp, and grain farmers began to produce tobacco.

Mixed husbandry was not always possible, however. In Zeeland for example, the farmers’ basic choice was between grain and madder, both of which were crops that tied up capital for a considerable time period, with sales concentrated in the harvest season, and hence a high sensitivity to adverse market conditions. For the production of madder a solution was found in the transfer of financial risks to urban financiers. Merchants from Rotterdam bought the madder while it was still on the field, and then, after it had been processed, sold the various qualities of red dyes to textile finishers around Holland, and abroad.88

The most extensive forward trading in the Golden Age occurred in Amsterdam. Here merchants began to write contracts for the future delivery of grain in the mid-1550s. Their purchases in anticipation of expected shortages led to a public outcry but despite government measures to prevent further transactions, forward trade continued, and in later years spread to other bulk commodities as herring and sugar, as well as to VOC shares and tulips. Still, it took a sufficiently large group of wealthy merchants to bear and share the financial risks involved in this trade, and hence it remained but a marginal solution for the risks implied in long-distance.

A far less controversial means to transfer risks to a third party was through maritime insurance. First introduced in Italy in the fourteenth century, this instrument was regularly used by merchants in Antwerp in the sixteenth century. It was probably in the 1590s that the first policies were written for voyages on the war-ridden trading routes to Southern Europe. By 1650 merchants in Amsterdam could take out insurance for shipments to markets around Europe, while smaller markets had emerged in secondary ports such as Middelburg and Rotterdam.
Increasingly poor soil conditions in the Late Middle Ages created comparative advantages for peasants in Holland who specialized in dairy farming, shipping, fishing, peat digging, and weaving. This rural stronghold, combined with the proximity of regions with very different opportunity structures, the easy access to the northern seas, and the multitude of navigable rivers and lakes, led to a precocious growth of interior and ocean shipping, domestic and foreign trade after 1400. In the sixteenth century the Dutch economy developed a complementary relationship with that of the southern provinces. Luxury manufactures and capital began to flow to the north, while various foodstuffs, raw materials, and shipping services were sold in the south.

This early interdependence of the two regions is one explanation for the immigration of so many merchants and artisans from Flanders and Brabant in the years following the Dutch Revolt. The subsequent boom in trade, shipping, craft production, and agriculture, has led historians to insist on the personal wealth, social networks, commercial and technical skills, or even the capitalist spirit of these immigrants. Besides the numerous Flemish newcomers, and the much smaller group of Portuguese Jews, there was en even larger community of local entrepreneurs who were equally successful in the introduction of new products or the exploration of new markets. Ocean shipping, textile manufacturing, milling, the fisheries, colonial trade, food processing – each of these sectors witnessed important innovations between 1580 and 1650.

However, even if there were important innovators in the United Provinces, it would be a simplification to attribute the Dutch miracle to a few innovators only. Far more important than the particular skills of individual entrepreneurs was the institutional framework that allowed such a large number of men (and women) of relatively modest means to set up their own businesses for the marketing of goods and services. On the one hand, towns and villages created commodity markets with the appropriate physical infrastructure, payment system, contracting rules, and a legal system to protect merchants and their goods from violence and opportunism. On the other hand the Dutch Republic boasted efficient factor markets that allowed entrepreneurs to hire labourers, rent land, and obtain capital to invest in their business operations. Commodity and capital markets further contributed by allowing a better management of the risks implied in judgmental decisions about the marketing of goods and services.

The benefits for Dutch entrepreneurs were impressive. From the 1580s onwards merchants and manufacturers accumulated large amounts of capital. Colonial trade, commercial farming, urban manufactures, and the exchange of goods within Europe all helped to built large fortunes.89 Reinvestment of the money earned continued until at least the middle of the seventeenth century. By then, the Dutch Republic boasted a middle class consisting of tens of thousands self-employed men (and women) who led comfortable lives in the highly urbanized Dutch society.90 A very small group of regents and public officeholders lived more comfortably still, but the large majority of the Dutch population had to make do with only modest wages, or less.91

Dutch entrepreneurs did so well in the Golden Age that it seems difficult to explain why the economy lost much of its luster in the late seventeenth and eighteenth century. The population stopped growing; the pace of technological change slackened; foreign trade and manufacturing stagnated. It has been argued that this is a classical case of entrepreneurial failure. The creation of monopolies and cartels, a greater risk averseness, or even conspicuous consumption may have stifled growth. It is a tempting proposition given the image of the eighteenth century Republic as one of regents and renteniers. Few families remained in business for more than three generations, the country’s wealth was increasingly concentrated in a few hands; and the most prominent capitalists invested in government bonds and foreign loans rather than business enterprise.

And yet it would be wrong to attribute economic stagnation to entrepreneurial failure. There are several examples of towns adapting the organization of craft production to changing circumstances.92 In Amsterdam commercial and financial innovation continued after 1670. Foreign merchant settled to build up their extensive commission trade, financial entrepreneurs created the first mutual funds and unit trusts; and the largest merchant houses set up as bankers to foreign rulers.93 Meanwhile, the institutional framework for finance and trade created in the sixteenth and seventeenth centuries was so efficient that it was copied in surrounding countries. Dutch craftsmen and engineers continued to be sought after by foreign rulers who wanted to improve water management, construction works, and manufacturing in their own territories.94 To some extent the Dutch might be considered victims of their own technological success for the high quality of the existing infrastructure, transportation system, and energy supplies greatly reduced the expected return from any further improvement.95

If anything, entrepreneurs in the later seventeenth and eighteenth displayed a rational attitude towards the political and economic constraints of the time. From the 1670s onwards England and France shielded their domestic markets from products from the United Provinces. Investments were redirected and sectors untouched by protectionism continued to have a comparitive advantage and consequently remained highly competitive until the late eighteenth century.96 Particularly noteworthy was the strengthening of Amsterdam’s economy, with its growing imports from Asia and America, and the financial services it offered to international traders and foreign rulers. The one weak spot exposed by this rebound of the Amsterdam market was the sacrifice of the interests of industrial entrepreneurs in the inland provinces in favour of long-distance trade.97

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